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Park Sterling Corporation Announces Record Operating Results for Second Quarter 2013 and Initiates Dividend on Common Shares

CHARLOTTE, N.C., July 26, 2013 (GLOBE NEWSWIRE) -- Park Sterling Corporation (Nasdaq:PSTB), the holding company for Park Sterling Bank, today released unaudited results of operations and other financial information for the second quarter of 2013. Highlights at and for the three months ended June 30, 2013 include:

Highlights

  • Net income available to common shareholders increased 10% from prior quarter to $3.5 million, or $0.08 per share
  • Adjusted net income available to common shareholders, which excludes merger-related expenses and gains on sales of securities, increased 6% from prior quarter to $4.0 million, or $0.09 per share
  • Net interest margin increased to 4.30% from 4.15% at March 31, 2013
  • Adjusted net interest margin, which excludes accelerated accretion of net acquisition accounting fair market value adjustments, increased to 4.17% from 4.15% at March 31, 2013
  • Nonperforming loans decreased to 1.13% of total loans from 1.29% at March 31, 2013
  • Nonperforming assets decreased to 1.58% of total assets from 1.93% at March 31, 2013
  • Capitalization remained strong with tangible common equity to tangible assets of 11.48%
  • In third quarter, declared first ever quarterly cash dividend on common shares ($0.02 per share)
  • Well positioned to pursue discussions regarding potential additional strategic partnerships

"Park Sterling's second quarter results continue to confirm the progress achieved in executing our growth strategies," said James C. Cherry, Chief Executive Officer. "We reported our third consecutive quarter of record operating results, with adjusted net income available to common shareholders, which excludes merger-related expenses and gains on sales of securities, increasing 6% to $4.0 million, or $0.09 per share, for the three months ended June 30, 2013 compared to the first quarter of 2013. Our metropolitan markets continued to post strong results by generating $12.3 million in net loan growth during the period, representing a 9% annualized growth rate. Our adjusted net interest margin, which excludes accelerated accretion from acquired performing loans, increased 2 basis points to 4.17% as a result of disciplined loan pricing and continued improvements in funding costs.

Asset quality continued to improve during the second quarter and remains a strength of our company. Nonperforming loans decreased as a percentage of total loans from 1.29% at March 31, 2013 to 1.13% at June 30, 2013. Nonperforming assets similarly decreased as a percentage of total assets from 1.93% to 1.58%. Approximately 53% of Park Sterling's loans continue to carry related net acquisition accounting fair market value adjustments, which we believe will help buffer future results against potential loan losses. Adjusted allowance for loan losses, which combines our normal allowance and these loan marks, represented 4.22% of total loans at quarter-end. Annualized net charge-offs for the quarter represented a modest 0.08% of average loans.

In recognition of the financial progress achieved by Park Sterling since our public offering in August 2010, including the execution of two successful strategic partnerships, improving our earnings profile, strengthening our balance sheet and numerous organic growth efforts, our board of directors has approved the first cash dividend to be paid to common shareholders in the company's history. The board has declared a quarterly dividend of $0.02 per common share, payable on August 20, 2013 to all shareholders of record as of the close of business on August 6, 2013. Future dividends will be subject to board approval.

We are pleased to report these strong financial results, including initiation of a quarterly cash dividend on common shares, and believe that Park Sterling is well positioned to continue pursuing our enhanced growth strategies. We remain confident in our ability to grow our existing franchise and to unite with attractive, like-minded partners that share Park Sterling's vision of building a full-service regional community bank."

Second Quarter 2013 Financial Results

Income Statement

Park Sterling reported a 10% increase in net income available to common shareholders to a record $3.5 million, or $0.08 per share, for the three months ended June 30, 2013 ("2013Q2"). This compares to net income available to common shareholders of $3.2 million, or $0.07 per share, for the three months ended March 31, 2013 ("2013Q1") and net income available to common shareholders of $678,000, or $0.02 per share, for the three months ended June 30, 2012 ("2012Q2"). The increase from 2013Q1 resulted primarily from stronger revenues and continued improvements in asset quality, as reflected in a lower provision expense. The increase from 2012Q2 resulted primarily from increased earning assets, higher net interest margin and higher noninterest income associated with the merger with Citizens South Banking Corporation (Citizens South), which was completed on October 1, 2012, combined with continued organic growth.

Park Sterling reported a 6% increase in adjusted net income available to common shareholders, which excludes merger related expenses and gain on sale of securities, to a record $4.0 million, or $0.09 per share, for 2013Q2. This compares to adjusted net income available to common shareholders of $3.8 million, or $0.09 per share, for 2013Q1 and of $593,000, or $0.02 per share, for 2012Q2. The increase in adjusted net income available to common shareholders from 2013Q1 again reflects stronger revenues and continued improvements in asset quality, while the increase from 2012Q2 primarily reflects higher earning assets, net interest margin and noninterest income associated with the merger with Citizens South, combined with continued organic growth.

Preferred dividends paid to the United States Department of the Treasury on the company's $20.5 million of Series C Preferred Stock, originally issued in connection with Citizens South's participation in the Small Business Loan Fund program, increased $251,000, or 492%, to $302,000 in 2012Q2 from $51,000 in 2012Q1. The increase, which included $152,000 for prior period adjustments, resulted from a higher dividend rate calculation due, in part, to a decline in acquired eligible loans. The company is currently evaluating possible redemption of the Series C Preferred Stock.

Net interest income totaled $18.7 million for 2013Q2, which represented a $935,000, or 5%, increase from $17.7 million for 2013Q1, and an $8.6 million, or 85%, increase from $10.1 million for 2012Q2. Average earning assets increased $9.9 million, or 1%, from 2013Q1 to $1.7 billion for 2013Q2, as a $45.5 million, or 17%, increase in average securities during the quarter more than offset a $9.3 million, or 1%, decrease in average loans to $1.3 billion and a $26.2 million, or 21%, decrease in average other earnings assets. The decrease in average loans for the period was driven by a drop in acquired loans (see "Balance Sheet" below). Average earning assets increased $729.7 million, or 72%, from 2012Q2, primarily as a result of a $608.2 million, or 83%, increase in average loans, driven by the merger with Citizens South.

Net interest margin was 4.30% in 2013Q2, representing a 15 basis point increase from 4.15% in 2013Q1 and a 29 basis point increase from 4.01% in 2012Q2. Adjusted net interest margin, which excludes accelerated accretion of net acquisition accounting fair market value adjustments, was 4.17% in 2013Q2, representing a 2 basis point improvement from 4.15% in 2013Q1 and a 27 basis point improvement from 3.90% in 2012Q2. Accelerated accretion of net acquisition accounting fair market value adjustments, which totaled $560,000 in 2013Q2 and $277,000 in 2012Q2, reflects accelerated accretion of credit and interest rate marks resulting from borrowers repaying performing acquired loans faster than required by their contractual terms and/or restructuring loans in such a way as to effectively result in a new loan under the contractual cash flow method of accounting, both of which result in the associated remaining credit and interest rate marks being fully accreted into interest income. There was no accelerated interest income in 2013Q1.

Provision expense was $75,000 for 2013Q2, compared to $309,000 for 2013Q1 and $899,000 for 2012Q2. Results for 2013Q2 were driven by $372,000 of provision expense associated with impairment in five of the company's thirteen purchased-credit impaired ("PCI") loan pools. This expense was offset by $297,000 of benefit attributable to FDIC loss share agreements caused by an increase in expected loss in those acquired loans. Results for 2013Q1 were driven by $436,000 of provision expense associated with impairment in one of the company's PCI loan pools associated with the merger with Community Capital Corporation (Community Capital). Results for 2012Q2 included $906,000 of provision expense associated with impairment in two of the company's PCI loan pools associated with the merger with Community Capital.

Noninterest income increased $538,000, or 15%, to $4.1 million for 2013Q2, compared to $3.6 million for 2013Q1. Adjusted noninterest income, which excludes a $104,000 gain on sale of securities in 2013Q2, increased $434,000, or 12%, to $4.0 million in 2013Q2, compared to $3.6 million for 2013Q1. ATM and card income increased $232,000, or 39%, and income from bank-owned life insurance increased $147,000, or 39%, during the period, driven in part by conversion related and other timing of payments, respectively. Other noninterest income increased $171,000, or 115%, during the period, driven in part by a $97,000 dividend on SBIC investments. Mortgage banking income and income from wealth management activities increased modestly during the period. Service charges on deposit accounts decreased by $148,000, or 19%, from the prior quarter, driven primarily by lower NSF fees.

Noninterest expenses increased $891,000, or 6%, in 2013Q2 to $16.9 million, compared to $16.0 million in 2013Q1 and increased $6.1 million, or 56%, compared to $10.8 million in 2012Q2. Adjusted noninterest expenses, which excludes merger-related expenses of $822,000, $836,000 and $434,000 for 2013Q2, 2013Q1 and 2012Q2, respectively, increased $905,000, or 6%, to $16.1 million in 2013Q2 compared to $15.2 million in 2013Q1, and increased $5.7 million, or 55%, compared to $10.4 million in 2012Q2. The increase in adjusted noninterest expenses during the current period from 2013Q1 included a $392,000 increase in OREO operating costs primarily driven by the change in gains from $428,000 to a more modest gain of $36,000, both of which reflect continued success in resolving problem assets. Other material changes included a $353,000, or 108%, increase in loan and collection expenses, driven in large part by higher appraisal fees, and a $260,000, or 22%, increase in other noninterest expense, driven in large part by strategic investments in the company's retail banking operations. The increase in adjusted noninterest expenses from 2012Q2 resulted primarily from the merger with Citizens South.

Balance Sheet

Total assets decreased $10.7 million, or 1%, to $1.97 billion at 2013Q2 compared to total assets of $1.98 billion at 2013Q1. Cash and equivalents decreased $9.6 million, or 8%, to $112.7 million during the quarter. Securities increased $30.6 million, or 10%, to $335.6 million. Total loans, which exclude loans held for sale, decreased $25.1 million, or 2%, to $1.3 billion, including a $6.8 million, or 7%, reduction in covered loans. Overall, less attractive acquired PCI loans, of which covered loans are a component, decreased $14.4 million, or 7%, to $201.6 million while acquired performing loans decreased $62.5 million, or 11%, to $493.7 million. Our metropolitan markets, which include Charlotte, Raleigh and Wilmington, North Carolina and Greenville and Charleston, South Carolina, reported a $12.3 million, or 9% annualized, increase in total loans to $544.9 million (before net acquisition accounting fair market value adjustments). The company's origination activity remains somewhat tempered by aggressive competition with respect to term structure and interest rates, as well as by continued general softness in the economy.

Loan mix did not shift materially during the first quarter. Total consumer loans remained at 31% of total loans at 2013Q2, with residential mortgages and home equity lines of credit at 14% and 11% of total loans, respectively. The combination of commercial and industrial and owner-occupied real estate loans remained the largest category at 31% of total loans at 2013Q2, increasing slightly from 30% at 2013Q1. Investor owned commercial real estate remained at 28% of total loans. Acquisition, construction and development (A,C&D) loans decreased slightly to 10% of total loans compared to 11% at 2013Q1.

In terms of accounting designations, PCI loans decreased from 16% of total loans at 2013Q1 to 15% at 2013Q2, acquired performing loans decreased from 42% of total loans to 38%, and non-acquired loans increased from 42% of total loans to 47%. Non-acquired loans include certain renewed and/or restructured acquired performing loans that are redesignated as non-acquired, which in part accounts for the difference between growth in this accounting category and the earlier mentioned net growth in loan originations in our metropolitan markets. Acquired performing loans include a remaining $6.5 million net acquisition accounting fair market value adjustment, representing a 1.29% "mark," non-covered PCI loans include a remaining $23.1 million net acquisition accounting fair market value adjustment, representing a 16.09% "mark," and covered PCI loans include a remaining $14.6 million net acquisition accounting fair market value adjustment, representing a 15.25% "mark."

Total deposits decreased $1.7 million at 2013Q2, remaining essentially flat with $1.6 billion at 2013Q1. Noninterest bearing demand deposits increased $8.3 million, or 3%, to $265.2 million (16% of total deposits) as a result of continued focus on this category. Money market, NOW and savings deposits increased $10.3 million, or 1%, to $743.8 million (47% of total deposits). Local time deposits decreased $14.9 million, or 3%, to $485.7 million (30% of total deposits), due in part to post-merger repricing strategies. Finally, brokered deposits decreased $5.4 million, or 5%, to $98.4 million (6% of total deposits) as management elected not to renew maturing certificates.

Total borrowings decreased $8.1 million, or 9%, to $79.0 million at 2013Q1 compared to $87.1 million at 2013Q1, due to a reduction in short-term borrowings. Borrowings at 2013Q2 included $55.0 million in FHLB borrowings, $14.8 million of acquired trust preferred securities, net of acquisition accounting fair market value adjustments, and $6.9 million of Tier 2-eligible subordinated debt.

Total shareholders' equity decreased $1.9 million, or 1%, to $277.1 million at 2013Q2 compared to $279.0 million at 2013Q1, driven by a $5.98 million swing in other comprehensive income resulting from fair value changes in available for sale securities. Total shareholders' equity includes $20.5 million of preferred stock issued in association with the Citizens South merger upon conversion of its preferred stock previously issued to the United States Department of the Treasury in connection with its participation in the Small Business Lending Fund. The company's ratio of tangible common equity to tangible assets decreased slightly to 11.48% at 2013Q2 from 11.51% at 2013Q1. The company's Tier 1 leverage ratio increased to 11.91% at 2013Q2 from 11.72% at 2013Q1.

Asset Quality

Asset quality continued to improve in the second quarter and remains a point of strength for the company. Nonperforming loans decreased $2.3 million, or 14%, to $14.8 million at 2013Q2, or 1.13% of total loans, compared to $17.1 million at 2013Q1, or 1.29% of total loans. Nonperforming assets decreased $7.3 million, or 19%, to $31.1 million at 2013Q2, or 1.58% of total assets, compared to $38.4 million at 2013Q1, or 1.93% of total assets. Nonperforming assets include $6.5 million of covered OREO for which the company expects certain losses to be reimbursed under the FDIC loss share agreements. The company reported net charge-offs of $274,000, or 0.08% of average loans (annualized) in 2013Q2, compared to $151,000, or 0.05% of average loans (annualized), in 2013Q1.

The allowance for loan losses was $10.8 million, or 0.83% of total loans at 2013Q2, compared to $10.7 million, or 0.81% of total loans at 2013Q1. Adjusted allowance for loan losses, which includes the allowance for loan losses and net acquisition accounting fair market value adjustments for acquired performing and PCI loans, represented 4.22% of total loans at 2013Q2 compared to 4.54% at 2013Q1.

During the first quarter of 2011, and as contemplated in Park Sterling's 2010 equity offering, 568,260 shares of restricted stock were issued but will not vest until the company's share price achieves certain performance thresholds above the equity offering price (these restricted stock awards, of which 554,400 remained outstanding at 2013Q2, vest one-third each when the share price reaches, for 30 consecutive days, $8.125, $9.10 and $10.40 per share, respectively). These performance thresholds have not yet been achieved. Accordingly, these additional shares have been excluded from earnings and tangible book value per share calculations. As of June 30, 2013, 16,860 of these restricted shares had been forfeited.

Conference Call

A conference call will be held at 8:30 a.m., Eastern Time this morning (July 26, 2013). The conference call can be accessed by dialing (888) 317-6016 and requesting the Park Sterling Corporation earnings call. Listeners should dial in 10 minutes prior to the start of the call. The live webcast and presentation slides will be available on www.parksterlingbank.com under Investor Relations, "Investor Presentations."

A replay of the webcast will be available on www.parksterlingbank.com under Investor Relations, "Investor Presentations" shortly following the call. A replay of the conference call can be accessed approximately one hour after the call by dialing (877) 344-7529 and requesting conference number 10031219.

About Park Sterling Corporation

Park Sterling Corporation, the holding company for Park Sterling Bank, is headquartered in Charlotte, North Carolina. Park Sterling, a regional community-focused financial services company with approximately $2 billion in assets, is the largest community bank in the Charlotte area and has 43 banking offices stretching across the Carolinas and into North Georgia. The bank serves professionals, individuals, and small and mid-sized businesses by offering a full array of financial services, including deposit, mortgage brokerage, cash management, consumer and business finance, and wealth management services. Park Sterling prides itself on being large enough to help customers achieve their financial aspirations, yet small enough to care that they do. Park Sterling is focused on building a banking franchise that is noted for sound risk management, strong community focus and exceptional customer service. For more information, visit www.parksterlingbank.com. Park Sterling Corporation shares are traded on NASDAQ under the symbol PSTB.

Non-GAAP Financial Measures

Tangible assets, tangible common equity, tangible book value, adjusted net income available to common shareholders, adjusted net interest margin, adjusted noninterest income, adjusted noninterest expenses, adjusted allowance for loan losses, adjusted net charge-offs/ recoveries, and related ratios and per share measures, as used throughout this release, are non-GAAP financial measures. For additional information, see "Reconciliation of Non-GAAP Financial Measures" in the accompanying tables.

Cautionary Statement Regarding Forward Looking Statements

This news release contains, and Park Sterling and its management may make, certain statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts and often use words such as "may," "plan," "contemplate," "anticipate," "believe," "intend," "continue," "expect," "project," "predict," "estimate," "could," "should," "would," "will," "goal," "target" and similar expressions. Park Sterling cautions you that a number of important factors could cause actual results to differ materially from those currently anticipated in any forward-looking statement. Such factors include, but are not limited to: failure to realize synergies and other financial benefits from the Citizens South merger within the expected time frames; increases in expected costs or decreases in expected savings or difficulties related to integration of the merger; inability to identify and successfully negotiate and complete additional combinations with potential merger partners or to successfully integrate such businesses into Park Sterling, including the company's ability to adequately estimate or to realize the benefits and cost savings from and limit any unexpected liabilities acquired as a result of any such business combination; the effects of negative or soft economic conditions or a "double dip" recession, including stress in the commercial real estate markets or delay or failure of recovery in the residential real estate markets; changes in consumer and investor confidence and the related impact on financial markets and institutions; changes in interest rates; failure of assumptions underlying the establishment of allowances for loan losses; deterioration in the credit quality of the loan portfolio or in the value of the collateral securing those loans; deterioration in the value of securities held in the investment securities portfolio; fluctuations in the market price of the common stock, regulatory, legal and contractual requirements, other uses of capital, the company's financial performance, market conditions generally, and future actions by the board of directors, in each case impacting repurchases of common stock, declaration of dividends or redemption of preferred stock; legal and regulatory developments, including changes in the federal risk-based capital rules; increased competition from both banks and nonbanks; changes in accounting standards, rules and interpretations, inaccurate estimates or assumptions in accounting, including acquisition accounting fair market value assumptions and accounting for purchased credit-impaired loans, and the impact on Park Sterling's financial statements; and management's ability to effectively manage credit risk, market risk, operational risk, legal risk, and regulatory and compliance risk.

Forward-looking statements speak only as of the date they are made, and Park Sterling undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.

PARK STERLING CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENT
THREE MONTH RESULTS
($ in thousands, except per share amounts) June 30, March 31, December 31, September 30, June 30,
2013 2013 2012 2012 2012
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Interest income
Loans, including fees $ 18,805 $ 18,140 $ 20,269 $ 10,346 $ 10,416
Taxable investment securities 1,068 866 792 826 969
Tax-exempt investment securities 195 190 191 187 186
Nonmarketable equity securities 25 48 80 22 28
Interest on deposits at banks 44 62 79 34 28
Federal funds sold 7 17 11 16 15
Total interest income 20,144 19,323 21,422 11,431 11,642
Interest expense
Money market, NOW and savings deposits 379 407 491 339 333
Time deposits 527 608 777 632 720
Short-term borrowings 1 6 7 -- --
FHLB advances 137 137 143 149 148
Subordinated debt 429 429 472 340 341
Total interest expense 1,473 1,587 1,890 1,460 1,542
Net interest income 18,671 17,736 19,532 9,971 10,100
Provision for loan losses 75 309 994 7 899
Net interest income after provision 18,596 17,427 18,538 9,964 9,201
Noninterest income
Service charges on deposit accounts 616 764 879 324 299
Mortgage banking income 977 968 815 662 540
Income from wealth management activities 731 708 693 665 661
ATM and card income 830 598 664 207 223
Income from bank-owned life insurance 528 381 450 294 260
Gain on sale of securities available for sale 104 -- -- 989 489
Other noninterest income 320 149 307 177 91
Total noninterest income 4,106 3,568 3,808 3,318 2,563
Noninterest expenses
Salaries and employee benefits 8,800 8,778 11,041 6,314 5,871
Occupancy and equipment 1,980 1,908 1,942 928 910
Data processing and outside service fees 1,640 1,653 1,599 784 696
Legal and professional fees 861 893 1,077 1,181 614
Deposit charges and FDIC insurance 409 487 473 261 250
Communication fees 448 432 319 198 196
Postage and supplies 298 329 360 112 124
Loan and collection expense 679 326 248 434 295
Core deposit intangible amortization 257 257 257 102 102
Advertising and promotion 150 220 367 144 108
Net cost of operation of other real estate owned (36) (428) 1,167 964 809
Other noninterest expense 1,436 1,176 1,403 781 860
Total noninterest expenses 16,922 16,031 20,253 12,203 10,835
Income before income taxes 5,780 4,964 2,093 1,079 929
Income tax expense 1,968 1,724 771 459 251
Net income 3,812 3,240 1,322 620 678
Preferred dividends 302 51 51 -- --
Net income available to common shares $ 3,510 $ 3,189 $ 1,271 $ 620 $ 678
Earnings per common share, fully diluted $ 0.08 $ 0.07 $ 0.03 $ 0.02 $ 0.02
Weighted average diluted common shares 44,204,581 44,069,053 44,025,874 32,138,554 32,120,402
PARK STERLING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands) June 30, March 31, December 31, September 30, June 30,
2013 2013 2012* 2012 2012
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
ASSETS
Cash and due from banks $ 11,746 $ 19,249 $ 36,716 $ 47,115 $ 15,898
Interest-earning balances at banks 100,469 51,861 101,431 37,256 29,795
Investment securities available-for-sale 329,720 299,073 245,571 186,802 222,221
Nonmarketable equity securities 5,905 5,913 7,422 4,599 5,470
Federal funds sold 495 51,155 45,995 22,165 29,455
Loans held for sale 10,985 11,659 14,147 6,095 5,331
Loans - Non-covered 1,219,513 1,237,813 1,255,019 708,283 712,506
Loans - Covered 85,146 91,936 101,688 -- --
Allowance for loan losses (10,847) (10,749) (10,591) (9,207) (9,431)
Net loans 1,293,812 1,319,000 1,346,116 699,076 703,075
Premises and equipment, net 56,929 57,596 57,222 26,729 24,619
FDIC receivable for loss share agreements 14,848 15,340 18,697 -- --
Other real estate owned - non-covered 9,741 13,597 18,427 13,028 14,744
Other real estate owned - covered 6,542 7,654 6,646 -- --
Bank-owned life insurance 47,019 46,546 46,133 26,945 26,689
Deferred tax asset 42,298 40,843 42,629 29,087 29,841
Goodwill 24,717 24,717 24,717 622 622
Core deposit intangible 9,143 9,401 9,658 3,715 3,817
Other assets 8,554 9,967 11,267 6,954 7,542
Total assets $ 1,972,923 $ 1,983,571 $ 2,032,794 $ 1,110,188 $ 1,119,119
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand noninterest-bearing $ 265,246 $ 256,931 $ 243,495 $ 165,899 $ 158,838
Money market, NOW and savings 743,791 733,493 758,763 341,788 332,648
Time deposits 584,068 604,397 629,746 323,988 350,548
Total deposits 1,593,105 1,594,821 1,632,004 831,675 842,034
Short-term borrowings 2,176 10,368 10,143 1,135 1,678
FHLB advances 55,000 55,000 70,000 55,000 55,000
Subordinated debt 21,812 21,692 21,573 12,592 12,494
Accrued expenses and other liabilities 23,773 22,705 23,372 13,982 13,727
Total liabilities 1,695,866 1,704,586 1,757,092 914,384 924,933
Shareholders' equity:
Preferred stock 20,500 20,500 20,500 -- --
Common stock 44,701 44,648 44,576 32,707 32,707
Additional paid-in capital 221,935 221,450 220,996 173,826 173,318
Accumulated deficit (6,869) (10,379) (13,568) (14,839) (15,459)
Accumulated other comprehensive income (3,210) 2,766 3,198 4,110 3,620
Total shareholders' equity 277,057 278,985 275,702 195,804 194,186
Total liabilities and shareholders' equity $ 1,972,923 $ 1,983,571 $ 2,032,794 $ 1,110,188 $ 1,119,119
Common shares issued and outstanding 44,700,805 44,648,165 44,575,853 32,706,627 32,706,627
* Derived from audited financial statements. Revised to reflect measurement period adjustments to goodwill.
PARK STERLING CORPORATION
SUMMARY OF LOAN PORTFOLIO
($ in thousands)
June 30, March 31, December 31, September 30, June 30,
2013 2013 2012* 2012 2012
BY LOAN TYPE (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Commercial:
Commercial and industrial $ 124,773 $ 118,796 $ 119,132 $ 70,155 $ 67,821
Commercial real estate - owner-occupied 274,043 285,353 299,417 161,360 161,467
Commercial real estate - investor income producing 368,556 367,434 371,956 206,808 197,368
Acquisition, construction and development 129,154 140,869 140,661 81,027 86,612
Other commercial 3,521 4,894 5,628 13,059 13,486
Total commercial loans 900,047 917,346 936,794 532,409 526,754
Consumer:
Residential mortgage 180,195 180,368 188,532 58,062 66,876
Home equity lines of credit 148,686 156,802 163,625 82,690 83,661
Residential construction 52,669 55,205 52,811 25,872 25,559
Other loans to individuals 22,896 20,237 15,554 9,839 10,119
Total consumer loans 404,446 412,612 420,522 176,463 186,215
Total loans 1,304,493 1,329,958 1,357,316 708,872 712,969
Deferred costs (fees) 166 (209) (609) (589) (463)
Total loans, net of deferred costs (fees) $ 1,304,659 $ 1,329,749 $ 1,356,707 $ 708,283 $ 712,506
* Derived from audited financial statements.
June 30, March 31, December 31, September 30, June 30,
2013 2013 2012 2012 2012
BY ACQUIRED AND NON-ACQUIRED** (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Acquired loans - performing $ 493,660 $ 556,135 $ 614,518 $ 246,267 $ 262,104
Acquired loans - purchase credit impaired 201,585 215,968 234,282 42,823 48,045
Total acquired loans 695,245 772,103 848,800 289,090 310,149
Non-acquired loans, net of deferred costs (fees) 609,414 557,646 507,907 419,193 402,357
Total loans $ 1,304,659 $ 1,329,749 $ 1,356,707 $ 708,283 $ 712,506
** Includes loans transferred from acquired pools following release of acquisition accounting FMV adjustments.
PARK STERLING CORPORATION
ALLOWANCE FOR LOAN LOSSES
THREE MONTH RESULTS
($ in thousands) June 30, March 31, December 31, September 30, June 30,
2013 2013 2012 2012 2012
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Beginning of period allowance $ 10,749 $ 10,591 $ 9,207 $ 9,431 $ 9,556
Loans charged-off (1,133) (782) (330) (1,102) (1,262)
Recoveries of loans charged-off 859 631 720 871 238
Net charge-offs (274) (151) 390 (231) (1,024)
Provision expense 372 309 994 7 899
Benefit attributable to FDIC loss share agreements (297) -- -- -- --
Total provision expense charged to operations 75 309 994 7 899
Provision expxense recorded through FDIC loss share receivable
297 -- -- -- --
End of period allowance $ 10,847 $ 10,749 $ 10,591 $ 9,207 $ 9,431
Net charge-offs (recoveries) $ 274 $ 151 $ (390) $ 231 $ 1,024
Net charge-offs (recoveries) to average loans (annualized) 0.08% 0.05% -0.11% 0.13% 0.56%
PARK STERLING CORPORATION
AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS
THREE MONTHS
($ in thousands) June 30, 2013 June 30, 2012
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate (3)
Assets
Interest-earning assets:
Loans and loans held for sale, net (1)(2) $ 1,337,318 $ 18,805 5.64% $ 729,163 $ 10,416 5.75%
Fed funds sold 12,330 7 0.23% 26,438 15 0.23%
Taxable investment securities 284,775 1,068 1.50% 210,435 969 1.84%
Tax-exempt investment securities 17,583 195 4.44% 17,693 186 4.21%
Other interest-earning assets 90,306 69 0.31% 28,841 56 0.78%
Total interest-earning assets 1,742,312 20,144 4.64% 1,012,570 11,642 4.62%
Allowance for loan losses (11,736) (9,135)
Cash and due from banks 14,315 15,023
Premises and equipment 57,292 24,470
Goodwill 24,718 623
Intangible assets 9,229 3,851
Other assets 131,606 79,629
Total assets $ 1,967,736 $ 1,127,031
Liabilities and shareholders' equity
Interest-bearing liabilities:
Interest-bearing demand $ 285,697 $ 62 0.09% $ 83,927 $ 69 0.33%
Savings and money market 445,158 317 0.29% 240,370 264 0.44%
Time deposits - core 493,995 313 0.25% 217,837 378 0.70%
Time deposits - brokered 102,716 214 0.84% 147,685 342 0.93%
Total interest-bearing deposits 1,327,566 906 0.27% 689,819 1,053 0.61%
Federal Home Loan Bank advances 55,000 137 1.00% 55,000 148 1.08%
Subordinated debt 21,754 429 7.91% 12,462 341 11.01%
Other borrowings 2,433 1 0.16% 1,223 -- 0.00%
Total borrowed funds 79,187 567 2.87% 68,685 489 2.86%
Total interest-bearing liabilities 1,406,753 1,473 0.42% 758,504 1,542 0.82%
Net interest rate spread 18,671 4.22% 10,100 3.81%
Noninterest-bearing demand deposits 256,383 160,744
Other liabilities 22,589 13,438
Shareholders' equity 282,011 194,345
Total liabilities and shareholders' equity $ 1,967,736 $ 1,127,031
Net interest margin 4.30% 4.01%
Net interest margin (fully tax-equivalent) (4) 4.33% 4.05%
(1) Nonaccrual loans are included in the average loan balances.
(2) Interest income and yields for the three months ended June 30, 2013 and 2012 include accretion from acquisition accounting adjustments associated with acquired loans.
(3) Yield/ rate calculated on Actual/Actual day count basis, except for yield on investments which is calculated on a 30/360 day count basis.
(4) Fully tax-equivalent basis at 34.40% and 32.15% tax rate at June 30, 2013 and 2012, respectively, for nontaxable securities and loans.
PARK STERLING CORPORATION
SELECTED RATIOS
($ in thousands, except per share amounts) June 30, March 31, December 31, September 30, June 30,
2013 2013 2012 2012 2012
Unaudited Unaudited Unaudited Unaudited Unaudited
ASSET QUALITY
Nonaccrual loans $ 6,832 $ 9,725 $ 10,374 $ 9,792 $ 16,757
Troubled debt restructuring 7,767 7,383 7,367 7,390 3,428
Past due 90 days plus (and still accruing) 196 2 77 164 131
Nonperforming loans 14,795 17,110 17,818 17,346 20,316
OREO 16,283 21,251 25,073 13,028 14,744
Nonperforming assets 31,078 38,361 42,891 30,374 35,060
Past due 30-59 days (and still accruing) 2,488 1,250 607 1,040 992
Past due 60-89 days (and still accruing) 1,606 521 121 561 74
Nonperforming loans to total loans 1.13% 1.29% 1.31% 2.45% 2.85%
Nonperforming assets to total assets 1.58% 1.93% 2.11% 2.74% 3.13%
Allowance to total loans 0.83% 0.81% 0.78% 1.30% 1.32%
Allowance to nonperforming loans 73.32% 62.82% 59.44% 53.08% 46.42%
Allowance to nonperforming assets 34.90% 28.02% 24.69% 30.31% 26.90%
Past due 30-89 days (accruing) to total loans 0.31% 0.13% 0.05% 0.23% 0.15%
Net charge-offs (recoveries) to average loans (annualized) 0.08% 0.05% -0.11% 0.13% 0.56%
CAPITAL
Book value per common share $ 5.80 $ 5.87 $ 5.80 $ 6.09 $ 6.04
Tangible book value per common share** $ 5.04 $ 5.09 $ 5.02 $ 5.96 $ 5.90
Common shares outstanding 44,700,805 44,648,165 44,575,853 32,706,627 32,706,627
Average dilutive common shares outstanding 44,204,581 44,069,053 44,025,874 32,138,554 32,138,402
Tier 1 capital $ 225,666 $ 223,307 $ 219,060 $ 165,345 $ 162,167
Tier 2 capital 17,742 17,644 17,611 16,103 16,326
Total risk based capital 243,408 240,951 236,671 181,447 178,494
Risk weighted assets 1,415,817 1,436,350 1,452,229 774,035 769,382
Average assets for leverage ratio 1,895,267 1,906,061 1,947,156 1,074,410 1,087,079
Tier 1 ratio 15.94% 15.55% 15.08% 21.36% 21.08%
Total risk based capital ratio 17.19% 16.78% 16.30% 23.44% 23.20%
Tier 1 leverage ratio 11.91% 11.72% 11.25% 15.39% 14.92%
Tangible common equity to tangible assets** 11.48% 11.51% 11.05% 17.31% 17.02%
LIQUIDITY
Net loans to total deposits 81.21% 82.71% 82.48% 84.06% 83.50%
Reliance on wholesale funding 10.61% 11.35% 12.27% 22.24% 23.02%
INCOME STATEMENT (THREE MONTH RESULTS; ANNUALIZED)
Return on Average Assets 0.72% 0.65% 0.25% 0.22% 0.24%
Return on Average Common Equity 5.38% 5.01% 1.96% 1.26% 1.40%
Net interest margin (non-tax equivalent) 4.30% 4.15% 4.36% 3.97% 4.01%
INCOME STATEMENT (ANNUAL RESULTS)
Return on Average Assets n/a n/a 0.32% n/a n/a
Return on Average Equity n/a n/a 1.99% n/a n/a
Net interest margin (non-tax equivalent) n/a n/a 4.27% n/a n/a
** Non-GAAP financial measure

Non-GAAP Financial Measures

Tangible assets, tangible common equity, tangible book value, adjusted net income available to common shareholders, adjusted net interest margin, adjusted total revenues, adjusted noninterest income, adjusted noninterest expenses, adjusted total revenues, adjusted allowance for loan losses, adjusted net charge-offs/ recoveries, and related ratios and per share measures, including adjusted return on average assets and adjusted return on average equity, as used throughout this release, are non-GAAP financial measures. Management uses (i) tangible assets, tangible common equity and tangible book value (which exclude goodwill and other intangibles from equity and assets), and related ratios, to evaluate the adequacy of shareholders' equity and to facilitate comparisons with peers; (ii) adjusted allowance for loan losses (which includes net FMV adjustments related to acquired loans) and adjusted net charge-offs/ recoveries (which exclude the impact of acquisition accounting related to PCI loans) to evaluate both its asset quality and asset quality trends, and to facilitate comparisons with peers; and (iii) adjusted net income, adjusted noninterest income, adjusted noninterest expenses and adjusted total revenues (which exclude merger-related expenses and gain on sale of securities, as applicable), and adjusted net interest margin (which excludes accelerated accretion of net acquisition accounting fair market value adjustments), and adjusted return on average assets and adjusted return on average equity (which excludes merger-related expenses and gain on sale of securities) to evaluate core earnings and to facilitate comparisons with peers.

PARK STERLING CORPORATION
RECONCILIATION OF NON-GAAP MEASURES
($ in thousands, except per share amounts)
(three month and period end results unless otherwise stated) June 30, March 31, December 31, September 30, June 30,
2013 2013 2012 2012 2012
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Adjusted net income
Pretax income (as reported) $ 5,780 $ 4,964 $ 2,093 $ 1,079 $ 929
Plus: merger-related expenses 822 836 3,167 1,364 434
Less: gain on sale of securities (104) -- -- (989) (489)
Adjusted pretax income 6,498 5,800 5,260 1,454 874
Tax expense 2,235 1,995 1,691 467 281
Adjusted net income $ 4,263 $ 3,805 $ 3,569 $ 987 $ 593
Preferred dividends 302 51 51 -- --
Adjusted net income available to common shareholders $ 3,961 $ 3,754 $ 3,518 $ 987 $ 593
Divided by: weighted average diluted shares 44,204,581 44,069,053 44,025,874 32,138,554 32,120,402
Adjusted net income available to common shareholders per share $ 0.09 $ 0.09 $ 0.08 $ 0.03 $ 0.02
Estimated tax rate 34.40% 34.40% 32.15% 32.15% 32.15%
Adjusted net interest margin
Net interest income (as reported) $ 18,671 $ 17,736 $ 19,532 $ 9,971 $ 10,100
Less: accelerated mark accretion (560) -- (921) 17 (277)
Less: other accelerated accretion -- -- (121) -- --
Adjusted net interest income 18,111 17,736 18,490 9,988 9,823
Divided by: average earning assets 1,742,312 1,732,366 1,782,922 998,669 1,012,570
Mutliplied by: annualization factor 4.01 4.06 3.98 3.98 4.02
Adjusted net interest margin 4.17% 4.15% 4.13% 3.98% 3.90%
Net interest margin 4.30% 4.15% 4.36% 3.97% 4.01%
Adjusted noninterest income
Noninterest income (as reported) $ 4,106 $ 3,568 $ 3,808 $ 3,318 $ 2,563
Less: gain on sale of securities (104) -- -- (989) (489)
Adjusted noninterest income $ 4,002 $ 3,568 $ 3,808 $ 2,329 $ 2,074
Adjusted noninterest expense
Noninterest expense (as reported) $ 16,922 $ 16,031 $ 20,253 $ 12,203 $ 10,835
Less: merger-related expenses (822) (836) (3,167) (1,364) (434)
Adjusted noninterest expense 16,100 15,195 17,086 10,839 10,401
Adjusted total revenues
Net interest income (as reported) $ 18,671 $ 17,736 $ 19,532 $ 9,971 $ 10,100
Adjusted noninterest income 4,002 3,568 3,808 2,329 2,074
Adjusted total revenues $ 22,673 $ 21,304 $ 23,340 $ 12,300 $ 12,174
Adjusted return on average assets
Adjusted net income available to common shareholders $ 3,961 $ 3,754 $ 3,518 $ 987 $ 593
Divided by: average assets 1,967,736 1,978,144 2,020,662 1,112,923 1,127,031
Mutliplied by: annualization factor 4.01 4.06 3.98 3.98 4.02
Adjusted return on average assets 0.81% 0.77% 0.69% 0.35% 0.21%
Return on average assets 0.72% 0.65% 0.25% 0.22% 0.24%
PARK STERLING CORPORATION
RECONCILIATION OF NON-GAAP MEASURES
($ in thousands, except per share amounts)
(three month and period end results unless otherwise stated) June 30, March 31, December 31, September 30, June 30,
2013 2013 2012 2012 2012
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Adjusted return on average equity
Adjusted net income available to common shareholders $ 3,961 $ 3,754 $ 3,518 $ 987 $ 593
Divided by: average common equity 261,511 258,234 257,335 196,013 194,345
Mutliplied by: annualization factor 4.01 4.06 3.98 3.98 4.02
Adjusted return on average equity 6.07% 5.90% 5.44% 2.00% 1.23%
Return on average equity 5.38% 5.01% 1.96% 1.26% 1.40%
Tangible common equity to tangible assets
Total assets $ 1,972,923 $ 1,983,571 $ 2,032,794 $ 1,110,188 $ 1,119,119
Less: intangible assets (33,860) (34,118) (34,375) (4,337) (4,439)
Tangible assets $ 1,939,063 $ 1,949,453 $ 1,998,419 $ 1,105,851 $ 1,114,680
Total common equity $ 256,557 $ 258,485 $ 255,202 $ 195,804 $ 194,186
Less: intangible assets (33,860) (34,118) (34,375) (4,337) (4,439)
Tangible common equity $ 222,697 $ 224,367 $ 220,827 $ 191,467 $ 189,747
Tangible common equity $ 222,697 $ 224,367 $ 220,827 $ 191,467 $ 189,747
Divided by: tangible assets $ 1,939,063 $ 1,949,453 $ 1,998,419 $ 1,105,851 $ 1,114,680
Tangible common equity to tangible assets 11.48% 11.51% 11.05% 17.31% 17.02%
Tangible book value per share
Issued and outstanding shares 44,700,805 44,648,165 44,575,853 32,706,627 32,706,627
Less: nondilutive restricted stock awards (551,400) (568,260) (568,260) (568,260) (568,260)
Period end dilutive shares 44,149,405 44,079,905 44,007,593 32,138,367 32,138,367
Tangible common equity $ 222,697 $ 224,367 $ 220,827 $ 191,467 $ 189,747
Divided by: period end dilutive shares 44,149,405 44,079,905 44,007,593 32,138,367 32,138,367
Tangible common book value per share $ 5.04 $ 5.09 $ 5.02 $ 5.96 $ 5.90
Adjusted allowance for loan losses
Allowance for loan losses $ 10,847 $ 10,749 $ 10,591 $ 9,207 $ 9,431
Plus: acquisition accounting FMV adjustments to acquired loans 44,179 49,633 53,719 21,512 24,264
Adjusted allowance for loan losses $ 55,026 $ 60,382 $ 64,310 $ 30,719 $ 33,695
Divided by: total loans (excluding LHFS) $ 1,304,659 $ 1,329,749 $ 1,356,707 $ 708,283 $ 712,506
Adjusted allowance for loan losses to total loans 4.22% 4.54% 4.74% 4.34% 4.73%
Allowance for loan losses to total loans 0.83% 0.81% 0.78% 1.30% 1.32%

CONTACT: For additional information contact: David Gaines Chief Financial Officer (704) 716-2134 david.gaines@parksterlingbank.comSource:Park Sterling Bank