SOURCE: Park Sterling Corporation

Park Sterling Corporation

January 28, 2016 07:00 ET

Park Sterling Corporation Announces Record Operating Results for Fourth Quarter 2015

CHARLOTTE, NC--(Marketwired - January 28, 2016) - Park Sterling Corporation (NASDAQ: PSTB), the holding company for Park Sterling Bank, today released unaudited results of operations and other financial information for the fourth quarter of 2015. Highlights at and for the three and twelve months ended December 31, 2015 include:

Three Month Highlights

  • Net income of $3.8 million, or $0.09 per share, compared to $4.8 million, or $0.11 per share, in the quarter ended September 30, 2015
  • Adjusted net income, which excludes merger-related expenses and gain or loss on sale of securities, increased $29,000 (1%) to a record $4.8 million, or $0.11 per share, compared to $4.8 million, or $0.11 per share, in the prior quarter
  • Organic loan growth, excluding loans held for sale, of $41.7 million, or 10% annualized growth rate
  • Nonperforming loans decreased 3 basis points to 0.47% of total loans from 0.50% at September 30, 2015
  • Nonperforming assets decreased 13 basis points to 0.54% of total assets from 0.67% at September 30, 2015
  • Tier 1 leverage ratio increased 8 basis points to 11.00% from 10.92% at September 30, 2015
  • Declared quarterly cash dividend on common shares of $0.03 per share (January 2016)
  • Completed merger with First Capital Bancorp, Inc. (January 2016)

Twelve Month Highlights

  • Net income increased $3.7 million (29%) to a record $16.6 million, or $0.37 per share
  • Adjusted net income, which excludes merger-related expenses and gain or loss on sale of securities, increased $2.6 million (17%) to a record $17.8 million, or $0.40 per share
  • Organic loan growth, which excludes loans held for sale, of $161.1 million, or 10%
  • Organic deposit growth of $101.3 million, or 5%

"We are pleased to report another record quarter marked by improved operating efficiency, solid loan growth, attractive asset quality and strong capital levels" said James C. Cherry, Chief Executive Officer. "For the three months ended December 31, 2015, we reported record adjusted net income of $4.8 million, or $0.11 per share, an increase of $29,000 compared to adjusted net income of $4.8 million, or $0.11 per share, reported last quarter. The ratio of adjusted operating expense, which excludes merger-related expenses and amortization of intangibles, to adjusted operating revenue, which excludes gain or loss on sale of securities, decreased 365 basis points to 67.84% for the three months, achieving our target of driving below 70% by year-end. The company posted 10% annualized organic loan growth, led by continued strong performance in our metropolitan markets which posted $33.4 million, or 14% annualized growth. Asset quality continued to improve from already attractive levels, as nonperforming loans to total loans decreased three basis points to 0.47% and nonperforming assets to total assets decreased thirteen basis points to 0.54%, compared to September 30, 2015. Finally, capitalization remained strong with tangible common equity to tangible assets at 9.93% and Tier 1 leverage ratio at 11.00%. 

These strong fourth quarter results completed a record year for the company. For the twelve months ended December 31, 2015, we reported a 17% increase in adjusted net income, which excludes merger-related expenses and gain or loss on sale of securities, to a record $17.8 million, or $0.40 per share, compared to $15.2 million, or $0.34 per share, reported last year. Strong origination activity led to a $161.1 million, or 10%, increase in loans, excluding loans held for sale, and a $101.3 million, or 5%, increase in deposits. 

We were very excited to complete our merger with First Capital Bancorp, Inc. on January 1, 2016, which included re-branding each of the eight new branches. Park Sterling is now even better positioned to compete in the attractive Richmond market given our strong local leadership team, experienced bankers, distinctive product capabilities, strong balance sheet and attractive branch network. The combined company today has approximately $3.1 billion in total assets and 57 banking offices across Virginia, the Carolinas and North Georgia, and benefits from having almost 87% of total deposits based in markets with projected population growth rates above the national average.

On the capital management front, yesterday the board declared a quarterly dividend of $0.03 per common share, payable on February 23, 2016 to all shareholders of record as of the close of business on February 9, 2016. Future dividends will be subject to board approval. Additionally, during the fourth quarter we repurchased approximately 48,000 shares under our previously announced 2.2 million share repurchase program.

Overall, we are pleased to report these strong financial results as Park Sterling continues pursuing our vision of building a full-service regional community bank." 

Financial Results

Income Statement - Three Months Ended December 31, 2015

Park Sterling reported a $1.0 million, or 21%, decrease in net income to $3.8 million, or $0.09 per share, for the three months ended December 31, 2015 ("2015Q4"). This compares to net income of $4.8 million, or $0.11 per share, for the three months ended September 30, 2015 ("2015Q3") and net income of $3.5 million, or $0.08 per share, for the three months ended December 31, 2014 ("2014Q4"). The decrease in net income from 2015Q3 resulted from $1.4 million in merger-related costs, higher provision expense to support organic loan growth and lower noninterest income due primarily to the absence of the prior quarter's $417,000 bank-owned life insurance ("BOLI") death benefit and $54,000 gain on sale of securities, which were partially offset by lower noninterest expense. The increase in net income from 2014Q4 resulted from higher noninterest income and lower noninterest expense, which were partially offset by lower net interest income and higher provision expense, as 2014Q4 had a net release of provision of $420,000 compared to provision expense of $409,000 in 2015Q4.

Park Sterling reported a $29,000, or 1%, increase in adjusted net income, which excludes merger-related expenses and gain or loss on sale of securities, to a record $4.8 million, or $0.11 per share, in 2015Q4. This compares to adjusted net income of $4.8 million, or $0.11 per share, in 2015Q3 and adjusted net income of $3.9 million, or $0.09 per share, in 2014Q4. Compared to 2015Q3, adjusted net income reflects lower noninterest expense partially offset by lower net interest income, lower noninterest income and higher provision expense. Compared to 2014Q4, adjusted net income reflects both higher noninterest income levels and lower noninterest expense, which were partially offset by lower net interest income and higher provision expense.

Net interest income totaled $20.0 million in 2015Q4, which represents a $387,000, or 2%, decrease from $20.4 million in 2015Q3. This decrease is attributable primarily to decreased yields on interest earning assets and increased cost of interest-bearing liabilities. Net interest income decreased $581,000, or 3%, from $20.6 million in 2014Q4, resulting again from decreased yields on interest earning assets and increased cost of interest-bearing liabilities. Average total earning assets decreased $3.9 million, or 0.2%, in 2015Q4 to $2.25 billion, compared to $2.26 billion in 2015Q2 and increased $145.3 million, or 7%, compared to $2.11 billion in 2014Q4. The decrease in average total earning assets in 2015Q4 from 2015Q3 resulted from a $23.9 million, or 35%, decrease in average other earning assets and a $4.9 million decrease in marketable securities. These decreases were partially offset by a $24.9 million, or 1%, increase in average loans (including loans held for sale) driven by organic growth. The increase in average total earning assets in 2015Q4 from 2014Q4 resulted primarily from an $13.8 million, or 3%, increase in average marketable securities and a $144.7 million, or 9%, increase in average loans (including loans held for sale), offset by a $13.1 million, or 23%, decrease in average other earning assets. 

Net interest margin was 3.52% in 2015Q4, representing a 6 basis point decrease from 3.58% in 2015Q3 and a 35 basis point decrease from 3.87% in 2014Q4. The reduction in net interest margin from 2015Q3 resulted primarily from a 12 basis point decrease in yield on loans to 4.48%, driven by runoff in higher yielding seasoned loans, continued competitive pricing pressures and a $181,000 decrease in accelerated accretion resulting from the early payoff of an acquired performing loan that carried an amortizing premium purchase accounting fair market value interest rate adjustment. In addition, the cost of interest-bearing liabilities increased 5 basis points to 0.51%, driven by a full quarter of the high-yielding Richmond money market deposit account and a $30.0 million senior unsecured term loan incurred in December 2015 in anticipation of the merger with First Capital. The reduction in net interest margin from 2014Q4 resulted primarily from a 47 basis point decrease in yield on loans, due primarily to lower interest rates on new loans and a 9 basis point increase in the cost of interest-bearing liabilities.

Adjusted net interest margin, which excludes accelerated accretion from net acquisition accounting fair market value adjustments, was 3.54% in 2015Q4, representing a 3 basis point decrease from 3.57% in 2015Q3 and a 31 basis point decrease from 3.85% in 2014Q4. Accelerated accretion of net acquisition accounting fair market value adjustments ($(112,000) in 2015Q4, $69,000 in 2015Q3 and $134,000 in 2014Q4) 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. Adjustments to accelerated accretion resulted in a $112,000 reduction in net interest income in 2015Q4 due to the early payoff of an acquired performing loan that carried an amortizing premium purchase accounting fair market value interest rate adjustment. The reduction in adjusted net interest margin from both 2015Q3 and 2014Q4 resulted primarily from the decrease in loan yields discussed above.

The company reported $409,000 of provision expense in 2015Q4 to support organic loan growth, compared to no provision recorded in 2015Q3, when net loan loss recoveries allowed the company to support organic loan growth without reported expense, and a net release of provision of $420,000 in 2014Q4. Allowance for loan loss levels increased to 0.52% of total loans at 2015Q4 compared to 0.51% at 2015Q3.

Noninterest income decreased $404,000, or 8%, to $4.5 million in 2015Q4, compared to $4.9 million in 2015Q3 and increased $1.2 million, or 35%, compared to $3.4 million in 2014Q4. The decrease from 2015Q3 was driven primarily by non-customer related activities, including (i) a $687,000, or 65%, decrease in BOLI income due to a lower death benefit ($0 in 2015Q4, $417,000 in 2015Q3, $0 in 2014Q3); and (ii) a $54,000 decrease in gain on sale of securities ($0 in 2015Q4, $54,000 in 2015Q3, $0 in 2014Q4). Noninterest income from customer-related activities increased compared to 2015Q3, including a $69,000, or 5%, increase in service charges on deposit accounts, a $199,000, or 84%, increase in income from capital market activities and a $110,000, or 20%, increase in ATM and card income when comparing 2015Q4 and 2015Q3. Partially offsetting these increases in customer-related activity was a $60,000, or 6%, decrease in income from wealth management activities. The increase in noninterest income from 2014Q4 reflects higher service charges on deposit accounts, higher income from capital market activities, higher income from wealth management activities and lower amortization on the FDIC loss share indemnification asset and true-up liability expense, offset partially by lower mortgage banking income.

Noninterest expenses decreased $57,000, or 0%, to $18.4 million in 2015Q4 compared to $18.4 million in 2015Q3, and decreased $945,000, or 5%, compared to $19.3 million in 2014Q4. Adjusted noninterest expenses, which exclude merger-related expenses ($1.4 million in 2015Q4, $31,000 in 2015Q3 and $712,000 in 2014Q4), decreased $1.4 million, or 8%, to $17.0 million in 2015Q4 compared to $18.4 million in 2015Q3, and decreased $1.6 million, or 9%, compared to $18.6 million in 2014Q4. Overall the decrease in adjusted noninterest expenses from 2015Q3 was due to a $764,000 decrease in salaries and compensation expense due to both lower headcount and a year-end incentive accrual adjustment, a $547,000 decrease in loss on sale of fixed assets related to additional branch closures recorded in 2015Q3 and a $186,000 decrease in net cost of operation of OREO. These decreases were partially offset by an increase of $56,000 in legal and professional fees, an $88,000 increase in occupancy and equipment expense and a $43,000 increase in loan and collection expenses.

The company's effective tax rate increased to 34.1% in 2015Q4, due in part to certain non-deductible merger-related expenses, compared to 30.5% in 2015Q3, which included the nontaxable BOLI death benefit. The company's effective tax rate increased compared to 31.2% in 2014Q4.

Income Statement - Twelve Months Ended December 31, 2015

Park Sterling reported a $3.7 million, or 29%, increase in net income for the twelve months ended December 31, 2015 ("FY2015") to $16.6 million, or $0.37 per share, compared to net income for the twelve months ended December 31, 2014 ("FY2014") of $12.9 million, or $0.29 per share. The increase in net income from FY2014 resulted from higher net interest income and noninterest income, offset partially by an increase in provision expense and noninterest expenses.

Net interest income totaled $81.4 million in FY2015, which represents a $3.7 million, or 5%, increase from $77.6 million in FY2014. This increase is primarily attributable to having higher average earning assets in 2015 as a result of both organic loan growth and the merger with Provident Community Bancshares, Inc. ("Provident Community") in May 2014. Net interest margin was 3.68% in FY2015, representing a 26 basis point decrease from 3.94% in FY2014. The reduction in net interest margin from FY2014 resulted primarily from a 51 basis point decrease in yield on loans, due to lower interest rates on new loans, offset by a 3 basis point decrease in the cost of interest-bearing liabilities.

The company reported $723,000 in provision for loan losses in FY2015, compared to a net release of provision of $1.3 million in FY2014. The current period provision was driven by organic loan growth as well as impairments in the company's PCI loan pools, as accounted for under ASC 310-30, while the prior year release of provision was the result of significant net recoveries and lower historic loss rates.

Noninterest income increased $4.3 million, or 31%, to $18.2 million in FY2015, compared to $14.0 million in FY2014. The increase from FY2014 reflects lower amortization on the FDIC loss share indemnification asset and true-up liability expense, higher service charges on deposit accounts, as well as higher income from each of mortgage banking, wealth management, and capital markets.

Noninterest expense increased $219,000, or 0%, in FY2015 to $74.2 million compared to $73.9 million in FY2014. The increase in noninterest expense from FY2014 resulted primarily from increased expenses as a result of organic growth, the merger with Provident Community and costs related to the closure of branches in 2015, partially offset by a decrease in merger-related expenses.

The company's effective tax rate increased slightly to 32.9% in FY2015 compared to 32.0% in FY2014.

Balance Sheet

Total assets increased $29.1 million, or 1%, to $2.51 billion at 2015Q4 compared to total assets of $2.49 billion at 2015Q3. Cash and equivalents increased $12.3 million, or 21%, to $70.5 million as a result of proceeds from the $30 million senior unsecured term loan incurred in December 2015 in anticipation of the First Capital merger. Total securities, including non-marketable securities, decreased $19.5 million, to $502.8 million. Total securities included one investment in a senior tranche of a collateralized loan obligation ("CLO") totaling $5.0 million in fair value at 2015Q4, with respect to which the collateral eligibility requirements have not yet been amended to comply with the new bank investment criteria under the Volcker Rule. The security had a net unrealized loss of $57,300 at 2015Q4 that could result in the company recognizing other-than-temporary impairment should it ultimately be determined not to comply with the Volcker Rule.

Total loans, excluding loans held for sale, increased $41.7 million, or 10% annualized, to $1.74 billion at 2015Q4 from 2015Q3. The company's metropolitan markets, which include Charlotte, Raleigh and Wilmington, North Carolina, Greenville and Charleston, South Carolina and Richmond, Virginia, reported a $33.9 million, or 14% annualized, increase in total loans to $971.9 million, due to continued success in origination efforts. The community markets reported a $13.5 million, or 14% annualized, decrease in total loans to $362.5 million, primarily due to more limited attractive lending opportunities. The company's central business units, which primarily include mortgage, builder finance, private banking and special assets, reported a $21.3 million, or 22% annualized, increase in total loans to $407.4 million, as growth in mortgage, private banking and builder finance more than offset reductions in special asset loans, including covered loans.

The company's loan mix shifted slightly at 2015Q4 compared to 2015Q3. The combination of commercial and industrial and owner-occupied real estate loans increased from 31.8% to 33.2% of total loans and investor-owned commercial real estate loans decreased from 30.3% to 29.1% of total loans. Acquisition, construction and development loans decreased to 9.4% from 9.5% of total loans. Total consumer loans decreased to 28.3% of total loans, with home equity lines of credit decreasing to 9.1% from 9.3% of total loans, residential mortgages decreasing from 13.2% to 12.9% of total loans and other consumer (including residential construction) increasing from 5.9% to 6.3% of total loans. 

In terms of accounting designations, compared to 2015Q3: (i) non-acquired loans, which include certain renewed and/or restructured acquired performing loans that are re-designated as non-acquired, increased $69.5 million, or 21% annualized, to $1.37 billion; (ii) acquired performing loans decreased $20.2 million, or 27% annualized, to $279.9 million; and (iii) purchase credit impaired ("PCI") loans decreased $7.6 million, or 30% annualized, to $94.9 million. At 2015Q4, noncovered performing acquired loans (which totaled $278.5 million) included a $2.1 million net acquisition accounting fair market value adjustment, representing a 0.74% "mark;" noncovered PCI loans (which totaled $79.3 million) included a $22.1 million adjustment, representing a 21.78% "mark;" and covered performing acquired and PCI loans (which totaled $17.1 million) included a $4.0 million adjustment, representing an 19.03% "mark."

Total deposits increased $5.8 million, or 0%, to $1.95 billion at 2015Q4, compared to $1.95 billion at 2015Q3. Noninterest bearing demand deposits decreased $20.0 million, or 5%, to $350.8 million (18% of total deposits) due primarily to seasonal factors. Non-brokered money market, NOW and savings deposits increased $17.9 million, or 2%, to $997.0 million (51% of total deposits). Time deposits less than $250,000 increased $2.2 million, or 1%, to $405.4 million (21% of total deposits) and time deposits greater than $250,000 increased $13.6 million, or 24%, to $71.0 million (4% of total deposits). Finally, brokered deposits decreased $8.0 million, or 6%, to $128.4 million (7% of total deposits). Core deposits, which exclude time deposits greater than $250,000 and brokered deposits, represented 89.8% of total deposits at 2015Q4 and 90.0% of total deposits at 2015Q3.

Total borrowings increased $30.2 million, or 14%, to $239.3 million at 2015Q4 compared to $209.1 million at 2015Q3. Borrowings at 2015Q4 included $185.0 million in FHLB borrowings, $30.0 million in a new senior unsecured term loan at the bank holding company level incurred in consideration of the First Capital merger, and $24.3 million of acquired trust preferred securities, net of acquisition accounting fair market value adjustments.

Total shareholders' equity increased $499,000, or 0.2%, to $284.7 million at 2015Q4 compared to $284.2 million at 2015Q3, driven by an increase in retained earnings, as partially offset by higher unrealized losses related to available-for-sale securities and balance sheet interest rate hedges. The company's ratio of tangible common equity to tangible assets decreased to 9.93% at 2015Q4 from 10.02% at 2015Q3.

On January 1, 2015, the Basel III federal regulatory standards became effective. As permitted for regulated institutions that are not designated as "advanced approach" banking organizations (those with assets greater than $250 billion or with foreign exposures greater than $10 billion), the company made a one-time, permanent election to opt out of the requirement to include most components of accumulated other comprehensive income ("AOCI") in regulatory capital. The company's Common Equity Tier 1 ("CET1") ratio decreased to 12.98% at 2015Q4 compared to 13.21% at 2015Q3 due to an increase in risk weighted assets. The company's Tier 1 leverage ratio was 11.00% at 2015Q4 compared to 10.92% at 2015Q3. 

Asset Quality

Asset quality remains a point of strength for the company. Nonperforming assets decreased $2.9 million, or 18%, to $13.7 million at 2015Q4, or 0.54% of total assets, compared to $16.6 million at 2015Q3, or 0.67% of total assets. Nonperforming loans decreased $228,000, or 3%, to $8.3 million at 2015Q4, and represent 0.47% of total loans, compared to $8.5 million at 2015Q3, or 0.50% of total loans. The company reported net charge-offs of $87,000, or 0.02% of average loans (annualized), in 2015Q4, compared to recoveries of $294,000, or 0.07% of average loans (annualized), in 2015Q3. 

The allowance for loan losses increased $322,000, or 4%, to $9.1 million, or 0.52% of total loans, at 2015Q4, compared to $8.7 million, or 0.51% of total loans, at 2015Q3. The increase in allowance included (i) a $27,000, or 1%, decrease in the quantitative component, resulting from lower historic loss rates, (ii) a $484,000, or 8%, increase in the qualitative component, reflecting management's judgment of inherent loss in the loan portfolio not represented in historic loss rates, and (iii) a $135,000, or 41%, decrease in specific reserves on impaired loans. Overall the increase in the allowance was due to loan growth, partially offset by a decrease in historic loss rates as well as continued improvement in nonperforming loans. 

During the first quarter of 2011, and as contemplated in Park Sterling Bank's 2010 public 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 2015Q3, 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.

Conference Call

A conference call will be held at 8:30 a.m., Eastern Time this morning (January 28, 2016). The conference call can be accessed by dialing (877) 512-1104 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 10078029.

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 $3.1 billion in assets as of January 1, 2016, is the largest community bank headquartered in the Charlotte area and has 57 banking offices stretching across the Carolinas and into North Georgia, as well as in Richmond, Virginia. The bank serves professionals, individuals, and small and mid-sized businesses by offering a full array of financial services, including deposit, mortgage banking, cash management, consumer and business finance, capital markets and wealth management services with a commitment to "Answers You Can Bank On℠." 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, adjusted net interest margin, adjusted operating revenues, adjusted noninterest income, adjusted noninterest expenses, adjusted operating expense, adjusted allowance for loan losses, 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. 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. These forward-looking statements express management's current expectations or forecasts of future events, results and conditions and, by their nature, are subject to risks and uncertainties and there are a number of factors that could cause actual results to differ materially from those in such statements. Factors that might cause such a difference include, but are not limited to: synergies and other financial benefits from the merger with First Capital Bancorp, Inc. ("First Capital") may not be realized within the expected time frames; costs or difficulties related to integration matters might be greater than expected; changes in loan mix, deposit mix, capital and liquidity levels, emerging regulatory expectations and measures, net interest income, noninterest income, noninterest expense, credit trends and conditions, including loan losses, allowance for loan loss, charge-offs, delinquency trends and nonperforming asset levels, deterioration in the credit quality of the loan portfolio or the value of collateral securing loans, deterioration in the value of securities held for investment, the impacts of a potential increasing rate environment, and other similar matters with respect to Park Sterling; inability to identify and successfully negotiate and complete additional combinations with other 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 combinations; failure to generate an adequate return on investment related to new branches or other hiring initiatives; inability to generate future organic growth in loan balances, retail banking, wealth management, mortgage banking or capital markets results through the hiring of new personnel, development of new products, including new online and mobile banking platforms for treasury services, opening of de novo branches or otherwise; inability to capitalize on identified revenue enhancements or expense management opportunities, including the inability to achieve or maintain adjusted operating expense to adjusted operating revenue targets; inability to generate future ATM and card income from marketing expenses; variability in the performance of covered loans and associated loss-share related expenses; the effects of negative or soft economic conditions, including stress in the commercial real estate markets or failure of continued recovery in the residential real estate markets; changes in consumer and investor confidence and the related impact on financial markets and institutions; the possibility of recognizing other than temporary impairments on holdings of collateralized loan obligation securities as a result of the Volcker Rule; the potential impacts of any government shutdown or debt ceiling impasse, including the risk of a U.S. credit rating downgrade or default, or continued global economic instability, which could cause disruptions in the financial markets, impact interest rates, and cause other potential unforeseen consequences; fluctuations in the market price of the common stock, regulatory, legal and contractual requirements, other uses of capital, financial performance, market conditions generally, and future actions by the board of directors, in each case impacting repurchases of common stock or declaration of dividends; 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.

You should not place undue reliance on any forward-looking statement and should consider all of the preceding uncertainties and risks, as well as those more fully discussed in any of Park Sterling's filings with the SEC. 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)   December 31,   September 30,   June 30,   March 31,   December 31,  
    2015   2015   2015   2015   2014  
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)  
Interest income                                
  Loans, including fees   $ 19,284   $ 19,475   $ 19,667   $ 19,111   $ 19,482  
  Taxable investment securities     2,677     2,636     2,508     2,791     2,598  
  Tax-exempt investment securities     146     152     143     138     138  
  Nonmarketable equity securities     109     142     122     127     108  
  Interest on deposits at banks     22     23     18     18     22  
  Federal funds sold     1     1     -     -     -  
    Total interest income     22,239     22,429     22,458     22,185     22,348  
Interest expense                                
  Money market, NOW and savings deposits     743     654     532     520     538  
  Time deposits     903     841     752     707     725  
  Short-term borrowings     205     90     76     76     -  
  Long-term debt     55     134     131     128     179  
  Subordinated debt     358     348     351     328     350  
    Total interest expense     2,264     2,067     1,842     1,759     1,792  
    Net interest income     19,975     20,362     20,616     20,426     20,556  
Provision for loan losses     409     -     134     180     (420 )
    Net interest income after provision     19,566     20,362     20,482     20,246     20,976  
Noninterest income                                
  Service charges on deposit accounts     1,439     1,370     1,107     1,019     1,109  
  Mortgage banking income     699     700     956     951     922  
  Income from wealth management activities     887     947     906     862     869  
  Income from capital market activities     437     238     394     398     149  
  ATM and card income     647     537     629     694     727  
  Income from bank-owned life insurance     371     1,058     553     768     491  
  Gain (loss) on sale of securities available for sale     -     54     -     -     -  
  Amortization of indemnification asset and true-up liability expense    
(165
)  
(162
)  
(165
)  
(394
)  
(1,224
)
  Other noninterest income     208     185     (88 )   203     308  
    Total noninterest income     4,523     4,927     4,292     4,501     3,351  
Noninterest expenses                                
  Salaries and employee benefits     9,541     9,952     10,021     10,431     10,386  
  Occupancy and equipment     2,680     2,591     2,491     2,555     2,627  
  Data processing and outside service fees     1,669     1,668     1,640     1,648     1,652  
  Legal and professional fees     1,471     472     660     798     816  
  Deposit charges and FDIC insurance     413     401     433     392     442  
  Loss on disposal of fixed assets     50     597     113     237     2  
  Communication fees     480     501     541     578     519  
  Postage and supplies     99     123     116     149     146  
  Loan and collection expense     194     151     242     154     461  
  Core deposit intangible amortization     347     347     347     347     348  
  Advertising and promotion     271     313     304     374     474  
  Net cost of operation of other real estate owned     (23 )   163     232     35     215  
  Other noninterest expense     1,170     1,140     1,092     1,441     1,219  
    Total noninterest expenses     18,362     18,419     18,232     19,139     19,307  
    Income before income taxes     5,727     6,870     6,542     5,608     5,020  
Income tax expense     1,952     2,092     2,273     1,825     1,564  
    Net income   $ 3,775   $ 4,778   $ 4,269   $ 3,783   $ 3,456  
                                 
Earnings per common share, fully diluted   $ 0.09   $ 0.11   $ 0.10   $ 0.09   $ 0.08  
Weighted average diluted common shares     44,322,428     44,287,019     44,301,895     44,326,833     44,323,628  
                                 
                                 
             
PARK STERLING CORPORATION            
CONDENSED CONSOLIDATED INCOME STATEMENT            
TWELVE MONTH RESULTS            
($ in thousands, except per share amounts)   December 31,     December 31,  
    2015     2014*  
    (Unaudited)        
Interest income                
  Loans, including fees   $ 77,537     $ 74,867  
  Taxable investment securities     10,612       9,318  
  Tax-exempt investment securities     579       631  
  Nonmarketable equity securities     500       362  
  Interest on deposits at banks     82       118  
  Federal funds sold     2       1  
    Total interest income     89,312       85,297  
Interest expense                
  Money market, NOW and savings deposits     2,449       2,270  
  Time deposits     3,202       3,155  
  Short-term borrowings     528       86  
  Long-term debt     367       513  
  Subordinated debt     1,385       1,631  
    Total interest expense     7,931       7,655  
    Net interest income     81,381       77,642  
Provision (release) for loan losses     723       (1,286 )
    Net interest income after provision     80,658       78,928  
Noninterest income                
  Service charges on deposit accounts     4,934       3,881  
  Mortgage banking income     3,306       2,641  
  Income from wealth management activities     3,602       3,200  
  Income from capital market activities     1,467       646  
  ATM and card income     2,507       2,632  
  Income from bank-owned life insurance     2,749       2,688  
  Gain on sale of securities available for sale     54       180  
  Amortization of indemnification asset and true-up liability expense     (886 )     (3,790
)
  Other noninterest income     510       1,875  
    Total noninterest income     18,243       13,953  
Noninterest expenses                
  Salaries and employee benefits     39,945       39,538  
  Occupancy and equipment     10,317       10,409  
  Data processing and outside service fees     6,625       6,449  
  Legal and professional fees     3,402       3,486  
  Deposit charges and FDIC insurance     1,639       1,491  
  Loss on disposal of fixed assets     996       400  
  Communication fees     2,099       1,974  
  Postage and supplies     488       667  
  Loan and collection expense     740       1,350  
  Core deposit intangible amortization     1,389       1,269  
  Advertising and promotion     1,263       1,494  
  Net cost of operation of other real estate owned     406       817  
  Other noninterest expense     4,844       4,590  
    Total noninterest expenses     74,153       73,934  
    Income before income taxes     24,748       18,947  
Income tax expense     8,142       6,058  
    Net income   $ 16,606     $ 12,889  
                 
Earnings per common share, fully diluted   $ 0.37     $ 0.29  
Weighted average diluted common shares     44,304,888       44,247,000  
                 
* Derived from audited financial statements                
                 
                       
PARK STERLING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands)   December 31,   September 30,   June 30,   March 31,   December 31,  
    2015   2015   2015   2015**   2014*  
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)      
ASSETS                                
Cash and due from banks   $ 53,840   $ 16,096   $ 17,042   $ 17,402   $ 16,549  
Interest-earning balances at banks     16,451     41,230     26,940     45,396     34,356  
Investment securities available for sale     384,934     401,820     402,489     382,946     375,683  
Investment securities held to maturity     106,458     109,072     111,633     108,918     115,741  
Nonmarketable equity securities     11,366     11,377     13,500     11,163     11,532  
Federal funds sold     235     920     360     325     485  
Loans held for sale     4,943     5,145     10,701     9,987     11,602  
Loans - Non-covered     1,724,164     1,681,227     1,637,115     1,576,760     1,538,354  
Loans - Covered     17,651     18,897     20,348     38,092     42,339  
Allowance for loan losses     (9,064 )   (8,742 )   (8,468 )   (8,590 )   (8,262 )
  Net loans     1,732,751     1,691,382     1,648,995     1,606,262     1,572,431  
                                 
Premises and equipment, net     55,658     56,948     58,979     58,796     59,247  
FDIC receivable for loss share agreements     943     1,190     1,209     2,333     3,964  
Other real estate owned - non-covered     4,211     7,087     8,904     8,570     8,979  
Other real estate owned - covered     1,240     1,056     884     1,713     3,011  
Bank-owned life insurance     58,633     58,286     57,823     57,494     57,712  
Deferred tax asset     28,971     29,711     32,137     33,314     35,696  
Goodwill     29,197     29,197     29,197     29,197     29,197  
Core deposit intangible     9,571     9,918     10,265     10,612     10,960  
Other assets     14,862     14,699     12,822     13,436     12,085  
                                 
  Total assets   $ 2,514,264   $ 2,485,134   $ 2,443,880   $ 2,397,864   $ 2,359,230  
                                 
LIABILITIES AND SHAREHOLDERS' EQUITY                              
                                 
Deposits:                                
Demand noninterest-bearing   $ 350,836   $ 370,815   $ 347,162   $ 341,488   $ 321,019  
Money market, NOW and savings     1,062,046     1,041,502     988,847     1,008,743     988,954  
Time deposits     539,780     534,541     538,932     533,906     541,381  
  Total deposits     1,952,662     1,946,858     1,874,941     1,884,137     1,851,354  
                                 
Short-term borrowings     185,000     130,000     180,000     125,000     125,000  
Long-term debt     30,000     55,000     55,000     55,000     55,000  
Subordinated debt     24,262     24,092     23,922     23,752     23,583  
Accrued expenses and other liabilities     37,636     44,979     30,274     30,857     29,188  
  Total liabilities     2,229,560     2,200,929     2,164,137     2,118,746     2,084,125  
                                 
Shareholders' equity:                                
  Common stock     44,854     44,909     44,911     44,877     44,860  
  Additional paid-in capital     222,596     222,587     222,271     223,139     222,819  
  Retained earnings     20,117     17,692     14,261     11,338     8,901  
  Accumulated other comprehensive loss     (2,863 )   (983 )   (1,700 )   (236 )   (1,475 )
  Total shareholders' equity     284,704     284,205     279,743     279,118     275,105  
                                 
Total liabilities and shareholders' equity   $ 2,514,264   $ 2,485,134   $ 2,443,880   $ 2,397,864   $ 2,359,230  
                                 
  Common shares issued and outstanding     44,854,509     44,909,447     44,910,686     44,877,194     44,859,798  
                                 
  * Derived from audited financial statements. Revised to reflect measurement period adjustments to goodwill.                       
  ** Revised to reflect measurement period adjustments to goodwill.                       
                                 
                                 
                     
PARK STERLING CORPORATION
SUMMARY OF LOAN PORTFOLIO
($ in thousands)
    December 31,   September 30,   June 30,   March 31,   December 31,
    2015   2015   2015   2015   2014*
BY LOAN TYPE   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)    
Commercial:                              
  Commercial and industrial   $ 246,907   $ 211,741   $ 189,356   $ 186,295   $ 173,786
  Commercial real estate (CRE) - owner-occupied     331,222     328,327     330,853     337,739     333,782
  CRE - investor income producing     506,110     514,118     498,190     470,555     470,647
  Acquisition, construction and development (AC&D) - 1-4 Family Construction     32,262     27,299     31,500     28,650     29,401
  AC&D - Lots and land     44,411     47,948     48,680     50,372     55,443
  AC&D - CRE construction     87,452     85,643     86,570     84,116     71,590
  Other commercial     8,601     8,830     7,212     5,931     5,045
    Total commercial loans     1,256,965     1,223,906     1,192,361     1,163,658     1,139,694
                               
Consumer:                              
  Residential mortgage     223,884     224,110     214,850     209,384     205,150
  Home equity lines of credit     157,378     157,430     156,960     154,415     155,297
  Residential construction     72,170     66,823     62,973     59,233     55,882
  Other loans to individuals     28,817     24,896     27,696     25,845     22,586
    Total consumer loans     482,249     473,259     462,479     448,877     438,915
      Total loans     1,739,214     1,697,165     1,654,840     1,612,535     1,578,609
  Deferred costs (fees)     2,601     2,959     2,623     2,317     2,084
      Total loans, net of deferred costs (fees)   $ 1,741,815   $ 1,700,124   $ 1,657,463   $ 1,614,852   $ 1,580,693
                               
* Derived from audited financial statements.                        
                               
    December 31,   September 30,   June 30,   March 31,   December 31,
BY ACQUIRED AND NON-ACQUIRED   2015   2015   2015   2015   2014*
  (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)    
Acquired loans - performing   $ 279,949   $ 300,102   $ 317,394   $ 341,078   $ 364,789
Acquired loans - purchase credit impaired     94,917     102,537     112,819     119,943     133,241
  Total acquired loans     374,866     402,639     430,213     461,021     498,030
Non-acquired loans, net of deferred costs (fees)**     1,366,949     1,297,485     1,227,250     1,153,831     1,082,663
  Total loans   $ 1,741,815   $ 1,700,124   $ 1,657,463   $ 1,614,852   $ 1,580,693
   
  * Derived from audited financial statements.
  ** 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)   December 31,   September 30,   June 30,   March 31,   December 31,  
    2015   2015   2015   2015   2014  
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)  
Beginning of period allowance   $ 8,742   $ 8,468   $ 8,590   $ 8,262   $ 9,458  
Loans charged-off     (237 )   (121 )   (572 )   (265 )   (984 )
Recoveries of loans charged-off     150     415     245     413     208  
  Net charge-offs     (87 )   294     (327 )   148     (776 )
                                 
Provision expense (release)     409     -     205     180     (420 )
Benefit attributable to FDIC loss share agreements     -     -     (71 )   -     -  
  Total provision expense charged to operations     409     -     134     180     (420 )
Provision expense recorded through FDIC loss share receivable     -     (20 )   71     -     -  
  End of period allowance   $ 9,064   $ 8,742   $ 8,468   $ 8,590   $ 8,262  
                                 
Net charge-offs (recoveries)   $ 87   $ (294 ) $ 327   $ (148 ) $ 776  
Net charge-offs (recoveries) to average loans (annualized)     0.02 %   -0.07 %   0.08 %   -0.04 %   0.20 %
                                 
 
PARK STERLING CORPORATION
AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS
THREE MONTHS
($ in thousands)   December 31, 2015               December 31, 2014            
    Average     Income/   Yield/     Average     Income/   Yield/  
    Balance     Expense   Rate (3)     Balance     Expense   Rate (3)  
Assets                                        
Interest-earning assets:                                        
  Loans and loans held for sale, net (1)(2)   $ 1,705,899     $ 19,284   4.48 %   $ 1,561,246     $ 19,482   4.95 %
  Fed funds sold     762       1   0.52 %     600       -   0.00 %
  Taxable investment securities     487,113       2,677   2.20 %     475,241       2,598   2.19 %
  Tax-exempt investment securities     14,794       146   3.95 %     12,845       138   4.30 %
  Other interest-earning assets     43,837       131   1.19 %     57,141       130   0.90 %
                                         
    Total interest-earning assets     2,252,405       22,239   3.92 %     2,107,073       22,348   4.21 %
                                         
Allowance for loan losses     (8,809 )                 (9,440 )            
Cash and due from banks     30,518                   21,788              
Premises and equipment     56,299                   59,342              
Goodwill     29,197                   29,752              
Intangible assets     9,737                   11,156              
Other assets     111,636                   122,986              
                                         
    Total assets   $ 2,480,983                 $ 2,342,657              
                                         
Liabilities and shareholders' equity                                        
Interest-bearing liabilities:                                        
  Interest-bearing demand   $ 392,661     $ 61   0.06 %   $ 393,497     $ 63   0.06 %
  Savings and money market     590,993       614   0.41 %     533,748       418   0.31 %
  Time deposits - core     470,564       791   0.67 %     471,757       607   0.51 %
  Brokered deposits     132,821       180   0.54 %     139,942       175   0.50 %
    Total interest-bearing deposits     1,587,039       1,646   0.41 %     1,538,944       1,263   0.33 %
  Short-term borrowings     159,458       205   0.51 %     2       -   0.00 %
  Long-term debt     4,565       55   4.78 %     149,457       179   0.48 %
  Subordinated debt     24,172       358   5.88 %     23,494       350   5.91 %
    Total borrowed funds     188,195       618   1.30 %     172,953       529   1.21 %
                                         
    Total interest-bearing liabilities     1,775,234       2,264   0.51 %     1,711,897       1,792   0.42 %
                                         
Net interest rate spread             19,975   3.41 %             20,556   3.79 %
                                         
Noninterest-bearing demand deposits     379,413                   328,534              
Other liabilities     41,665                   28,557              
Shareholders' equity     284,671                   273,669              
                                         
Total liabilities and shareholders' equity   $ 2,480,983                 $ 2,342,657              
                                         
Net interest margin                 3.52 %                 3.87 %
                                         
                                         
(1) Nonaccrual loans are included in the average loan balances.
(2) Interest income and yields for the three months ended December 31, 2015 and 2014 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.
 
 
PARK STERLING CORPORATION
AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS
TWELVE MONTHS
($ in thousands)   December 31, 2015               December 31, 2014            
    Average     Income/   Yield/     Average     Income/   Yield/  
    Balance     Expense   Rate (3)     Balance     Expense   Rate (3)  
Assets                                        
  Interest-earning assets:                                        
  Loans and loans held for sale, net (1)(2)   $ 1,658,657     $ 77,537   4.67 %   $ 1,445,691     $ 74,867   5.18 %
  Fed funds sold     799       2   0.25 %     564       1   0.18 %
  Taxable investment securities     483,352       10,612   2.20 %     430,557       9,318   2.16 %
  Tax-exempt investment securities     14,222       579   4.07 %     20,887       631   3.02 %
  Other interest-earning assets     55,889       582   1.04 %     72,522       480   0.66 %
                                         
  Total interest-earning assets     2,212,919       89,312   4.04 %     1,970,221       85,297   4.33 %
                                         
Allowance for loan losses     (8,700 )                 (9,535 )            
Cash and due from banks     19,982                   18,187              
Premises and equipment     58,100                   58,330              
Goodwill     29,211                   27,709              
Intangible assets     10,256                   10,442              
Other assets     114,647                   123,973              
                                         
  Total assets   $ 2,436,415                 $ 2,199,327              
                                         
Liabilities and shareholders' equity                                        
  Interest-bearing liabilities:                                        
  Interest-bearing demand   $ 398,731     $ 259   0.06 %   $ 348,314     $ 294   0.08 %
  Savings and money market     549,713       1,945   0.35 %     509,640       1,934   0.38 %
  Time deposits - core     464,423       2,729   0.59 %     473,509       2,620   0.55 %
  Brokered deposits     136,489       718   0.53 %     150,497       577   0.38 %
    Total interest-bearing deposits     1,549,356       5,651   0.36 %     1,481,960       5,425   0.37 %
  Short-term borrowings     142,890       528   0.37 %     42,726       86   0.20 %
  Long-term debt     55,480       367   0.66 %     52,247       513   0.98 %
  Subordinated debt     23,920       1,385   5.79 %     26,724       1,631   6.10 %
    Total borrowed funds     222,290       2,280   1.03 %     121,697       2,230   1.83 %
                                         
    Total interest-bearing liabilities     1,771,646       7,931   0.45 %     1,603,657       7,655   0.48 %
                                         
Net interest rate spread             81,381   3.59 %             77,642   3.85 %
                                         
Noninterest-bearing demand deposits     349,373                   301,127              
Other liabilities     33,887                   25,039              
Shareholders' equity     281,509                   269,504              
                                         
Total liabilities and shareholders' equity   $ 2,436,415                 $ 2,199,327              
                                         
Net interest margin                 3.68 %                 3.94 %
                                         
(1) Nonaccrual loans are included in the average loan balances.
(2) Interest income and yields for the nine months ended December 31, 2015 and 2014 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.
 
 
                       
PARK STERLING CORPORATION             
SELECTED RATIOS             
($ in thousands, except per share amounts)
 
    December 31,   September 30,   June 30,   March 31,   December 31,  
    2015   2015   2015   2015   2014  
    Unaudited   Unaudited   Unaudited   Unaudited   Unaudited  
ASSET QUALITY                                
  Nonaccrual loans   $ 4,326   $ 5,342   $ 5,545   $ 6,397   $ 5,585  
  Troubled debt restructuring (and still accruing)     2,774     3,090     3,115     3,273     3,289  
  Past due 90 days plus (and still accruing)     1,151     47     -     10     30  
  Nonperforming loans     8,251     8,479     8,660     9,680     8,904  
  OREO     5,451     8,143     9,788     10,283     11,990  
  Nonperforming assets     13,702     16,622     18,448     19,963     20,894  
  Past due 30-59 days (and still accruing)     1,222     1,790     2,559     1,285     619  
  Past due 60-89 days (and still accruing)     1,340     3,753     481     457     289  
                                   
  Nonperforming loans to total loans     0.47 %   0.50 %   0.52 %   0.60 %   0.56 %
  Nonperforming assets to total assets     0.54 %   0.67 %   0.75 %   0.83 %   0.89 %
  Allowance to total loans     0.52 %   0.51 %   0.51 %   0.53 %   0.52 %
  Allowance to nonperforming loans     109.85 %   103.10 %   97.78 %   88.74 %   92.79 %
  Allowance to nonperforming assets     66.15 %   52.59 %   45.90 %   43.03 %   39.54 %
  Past due 30-89 days (accruing) to total loans     0.15 %   0.33 %   0.18 %   0.11 %   0.06 %
  Net charge-offs (recoveries) to average loans     0.02 %   -0.07 %   0.08 %   -0.04 %   0.20 %
  (annualized)                                
                                 
CAPITAL                                
  Book value per common share   $ 6.49   $ 6.47   $ 6.37   $ 6.34   $ 6.26  
  Tangible book value per common share**   $ 5.60   $ 5.58   $ 5.47   $ 5.44   $ 5.35  
  Common shares outstanding     44,854,509     44,909,447     44,910,686     44,877,194     44,859,798  
  Weighted average dilutive common shares outstanding     44,322,428     44,287,019     44,301,895     44,326,833     44,323,628  
                                   
  Common Equity Tier 1 (CET1) capital   $ 251,807   $ 249,289   $ 245,328   $ 242,197     n/a  
  Tier 1 capital     268,605     265,917     261,596     256,843   $ 231,088  
  Tier 2 capital     9,064     8,742     8,577     8,836     8,469  
  Total risk based capital     277,669     274,659     270,173     265,679     239,557  
  Risk weighted assets     1,939,417     1,887,065     1,844,540     1,707,551     1,717,003  
  Average assets for leverage ratio     2,441,811     2,434,376     2,359,401     2,334,285     2,273,275  
                                   
  Common Equity Tier 1 (CET1) ratio     12.98 %   13.21 %   13.30 %   14.18 %   n/a  
  Tier 1 ratio     13.85 %   14.09 %   14.18 %   15.04 %   13.46 %
  Total risk based capital ratio     14.32 %   14.55 %   14.65 %   15.56 %   13.95 %
  Tier 1 leverage ratio     11.00 %   10.92 %   11.09 %   11.00 %   10.17 %
  Tangible common equity to tangible assets**     9.93 %   10.02 %   9.99 %   10.15 %   10.13 %
                                 
LIQUIDITY                                
  Net loans to total deposits     88.74 %   86.88 %   87.95 %   85.25 %   84.93 %
  Reliance on wholesale funding     16.77 %   16.02 %   18.45 %   16.55 %   16.70 %
                                 
INCOME STATEMENT (THREE MONTH RESULTS; ANNUALIZED)                                
  Return on Average Assets     0.60 %   0.77 %   0.71 %   0.64 %   0.59 %
  Return on Average Common Equity     5.26 %   6.71 %   6.10 %   5.52 %   5.01 %
  Net interest margin (non-tax equivalent)     3.52 %   3.58 %   3.78 %   3.84 %   3.87 %
                                 
INCOME STATEMENT (ANNUAL RESULTS)                                
  Return on Average Assets     0.68 %   n/a     n/a     n/a     0.59 %
  Return on Average Equity     5.90 %   n/a     n/a     n/a     4.78 %
  Net interest margin (non-tax equivalent)     3.68 %   n/a     n/a     n/a     3.94 %
                                 
** Non-GAAP financial measure                                
                                 

Non-GAAP Financial Measures
Tangible assets, tangible common equity, tangible book value, adjusted net income, adjusted net interest margin, adjusted noninterest income, adjusted operating revenues, adjusted noninterest expense, adjusted operating expenses, adjusted allowance for loan losses, 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) as supplemental information for comparing the combined allowance and fair market value adjustments to the combined acquired and non-acquired loan portfolios (fair market value adjustments are available only for losses on acquired loans); and (iii) adjusted net income and adjusted noninterest income (which exclude merger-related expenses and gain or loss on sale of securities, as applicable), adjusted net interest margin (which excludes accelerated accretion of net acquisition accounting fair market value adjustments and income from early redemption of investment securities), adjusted noninterest expense (which excludes merger-related expenses), adjusted operating expense (which excludes merger-related expenses and amortization of intangibles) and adjusted operating revenues (which includes net interest income and noninterest income and excludes gain or loss on sale of securities, as applicable) to evaluate core earnings and to facilitate comparisons with peers.

                       
PARK STERLING CORPORATION             
RECONCILIATION OF NON-GAAP MEASURES             
($ in thousands, except per share amounts)            
    December 31,   September 30,   June 30,   March 31,   December 31,  
    2015   2015   2015   2015   2014  
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)  
Adjusted net income (three months)                                
  Pretax income (as reported)   $ 5,727   $ 6,870   $ 6,542   $ 5,608   $ 5,020  
  Plus: merger-related expenses     1,396     31     167     122     712  
    (gain) loss on sale of securities     -     (54 )   -     -     -  
    Adjusted pretax income     7,123     6,847     6,709     5,730     5,732  
  Tax expense     2,332     2,085     2,331     1,867     1,786  
  Adjusted net income   $ 4,791   $ 4,762   $ 4,378   $ 3,863   $ 3,946  
                                   
  Divided by: weighted average diluted shares     44,322,428     44,287,019     44,301,895     44,326,833     44,323,628  
    Adjusted net income per share   $ 0.11   $ 0.11   $ 0.10   $ 0.09   $ 0.09  
  Estimated tax rate for adjustment     32.75 %   32.56 %   34.75 %   34.23 %   31.15 %
                                 
Adjusted net income (twelve months)                                
  Pretax income (as reported)   $ 24,748                     $ 18,947  
  Plus: merger-related expenses     1,715                       3,616  
    (gain) loss on sale of securities     (54 )                     (180 )
    Adjusted pretax income     26,409                       22,383  
  Tax expense     8,615                       7,202  
    Adjusted net income available to common shareholders   $ 17,794                     $ 15,181  
                                   
  Divided by: weighted average diluted shares     44,304,888                       44,247,000  
    Adjusted net income available to common shareholders per share   $ 0.40                     $ 0.34  
  Estimated tax rate     32.62 %                     32.18 %
                                 
Adjusted net interest margin                                
  Net interest income (as reported)   $ 19,975   $ 20,362   $ 20,616   $ 20,426   $ 20,556  
  Less: accelerated mark accretion     112     (69 )   (52 )   (79 )   (134 )
  Less: income from early redemption of investment securities     -     -     -     (267 )   -  
    Adjusted net interest income     20,087     20,293     20,564     20,080     20,422  
  Divided by: average earning assets     2,252,405     2,256,303     2,185,439     2,155,995     2,107,073  
  Multiplied by: annualization factor     3.97     3.97     4.01     4.06     3.97  
    Adjusted net interest margin     3.54 %   3.57 %   3.77 %   3.78 %   3.85 %
    Net interest margin     3.52 %   3.58 %   3.78 %   3.84 %   3.87 %
                                 
Adjusted noninterest income                                
  Noninterest income (as reported)   $ 4,523   $ 4,927   $ 4,292   $ 4,501   $ 3,351  
  Less: (gain) loss on sale of securities     -     (54 )   -     -     -  
    Adjusted noninterest income   $ 4,523   $ 4,873   $ 4,292   $ 4,501   $ 3,351  
                                 
Adjusted noninterest income (twelve months)                                
  Noninterest income (as reported)   $ 18,243                     $ 13,953  
  Less: (gain) loss on sale of securities     (54 )                     (180 )
    Adjusted noninterest income   $ 18,189                     $ 13,773  
                                 
Adjusted noninterest expenses                                
  Noninterest expenses (as reported)   $ 18,362   $ 18,419   $ 18,232   $ 19,139   $ 19,307  
  Less: merger-related expenses     (1,396 )   (31 )   (167 )   (122 )   (712 )
    Adjusted noninterest expenses   $ 16,966   $ 18,388   $ 18,065   $ 19,017   $ 18,595  
                                 
Adjusted noninterest expenses (twelve months)                                
  Noninterest expenses (as reported)   $ 74,153                     $ 73,934  
  Less: merger-related expenses     (1,715 )                     (3,616 )
    Adjusted noninterest expenses   $ 72,438                     $ 70,318  
                                 
                                 
PARK STERLING CORPORATION                           
RECONCILIATION OF NON-GAAP MEASURES                           
($ in thousands, except per share amounts)                          
    December 31,   September 30,   June 30,   March 31,   December 31,  
    2015   2015   2015   2015   2014  
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)  
Adjusted operating expense                                
  Noninterest expenses (as reported)   $ 18,362   $ 18,419   $ 18,232   $ 19,139   $ 19,307  
  Less: merger-related expenses     (1,396 )   (31 )   (167 )   (122 )   (712 )
  Less: amotization of intangibles     (347 )   (347 )   (347 )   (347 )   (348 )
    Adjusted operating expense   $ 16,619   $ 18,041   $ 17,718   $ 18,670   $ 18,247  
                                 
Adjusted operating expense (twelve months)                                
  Noninterest expenses (as reported)   $ 74,153                     $ 73,934  
  Less: merger-related expenses     (1,715 )                     (3,616 )
  Less: amotization of intangibles     (1,389 )                     (1,269 )
    Adjusted operating expense   $ 71,049                     $ 69,049  
                                 
Adjusted operating revenues                                
  Net Interest Income (as reported)   $ 19,975   $ 20,362   $ 20,616   $ 20,426   $ 20,556  
  Plus: noninterest income (as reported)     4,523     4,927     4,292     4,501     3,351  
  Less: (gain) loss on sale of securities     -     (54 )   -     -     -  
    Adjusted operating revenues   $ 24,498   $ 25,235   $ 24,908   $ 24,927   $ 23,907  
                                 
Adjusted operating revenues (twelve months)                                
  Net Interest Income (as reported)   $ 81,381                     $ 77,642  
  Plus: noninterest income (as reported)     18,243                       13,953  
  Less: (gain) loss on sale of securities     (54 )                     (180 )
    Adjusted operating revenues   $ 99,570                     $ 91,415  
                                 
Adjusted operating expense to adjusted operating revenues                                
  Adjusted operating expense   $ 16,619   $ 18,041   $ 17,718   $ 18,670   $ 18,247  
  Divided by: adjusted operating revenues     24,498     25,235     24,908     24,927     23,907  
  Adjusted operating expense to operating revenues     67.84 %   71.49 %   71.13 %   74.90 %   76.32 %
                                 
Adjusted operating expense to adjusted operating revenues (twelve months)                                
  Adjusted operating expense   $ 71,049                     $ 69,049  
  Divided by: adjusted operating revenues     99,570                       91,415  
    Adjusted operating expense to operating revenues     71.36 %                     75.53 %
                                 
Adjusted return on average assets                                
  Adjusted net income   $ 4,791   $ 4,762   $ 4,378   $ 3,863   $ 3,946  
  Divided by: average assets     2,480,983     2,473,034     2,406,671     2,383,506     2,342,657  
  Multiplied by: annualization factor     3.97     3.97     4.01     4.06     3.97  
    Adjusted return on average assets     0.77 %   0.76 %   0.73 %   0.66 %   0.67 %
    Return on average assets     0.60 %   0.77 %   0.71 %   0.64 %   0.59 %
                                 
Adjusted return on average equity                                
  Adjusted net income   $ 4,791   $ 4,762   $ 4,378   $ 3,863   $ 3,946  
  Divided by: average common equity     284,671     282,426     280,676     278,187     273,669  
  Multiplied by: annualization factor     3.97     3.97     4.01     4.06     3.97  
    Adjusted return on average equity     6.68 %   6.69 %   6.26 %   5.63 %   5.72 %
    Return on average equity     5.26 %   6.71 %   6.10 %   5.52 %   5.01 %
                                 
                                 
                                 
PARK STERLING CORPORATION                           
RECONCILIATION OF NON-GAAP MEASURES                           
($ in thousands, except per share amounts)                          
(three month and period end results)   December 31,   June 30,   June 30,   March 31,   December 31,  
    2015   2015   2015   2015   2014  
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)  
Tangible common equity to tangible assets                                
  Total assets   $ 2,514,264   $ 2,485,134   $ 2,443,880   $ 2,397,864   $ 2,359,230  
  Less: intangible assets     (38,768 )   (39,115 )   (39,462 )   (39,852 )   (40,200 )
    Tangible assets   $ 2,475,496   $ 2,446,019   $ 2,404,418   $ 2,358,012   $ 2,319,030  
                                 
  Total common equity   $ 284,704   $ 284,205   $ 279,743   $ 279,118   $ 275,105  
  Less: intangible assets     (38,768 )   (39,115 )   (39,462 )   (39,852 )   (40,200 )
    Tangible common equity   $ 245,936   $ 245,090   $ 240,281   $ 239,266   $ 234,905  
                                   
  Tangible common equity   $ 245,936   $ 245,090   $ 240,281   $ 239,266   $ 234,905  
  Divided by: tangible assets   $ 2,475,496     2,446,019     2,404,418     2,358,012     2,319,030  
    Tangible common equity to tangible assets     9.93 %   10.02 %   9.99 %   10.15 %   10.13 %
    Common equity to assets     11.32 %   11.44 %   11.45 %   11.64 %   11.66 %
                                 
Tangible book value per share                                
  Issued and outstanding shares     44,854,509     44,909,447     44,910,686     44,877,194     44,859,798  
  Less: nondilutive restricted stock awards     (959,305 )   (974,183 )   (985,531 )   (882,178 )   (921,097 )
  Period end dilutive shares     43,895,204     43,935,264     43,925,155     43,995,016     43,938,701  
                                   
  Tangible common equity   $ 245,936   $ 245,090   $ 240,281   $ 239,266   $ 234,905  
  Divided by: period end dilutive shares     43,895,204     43,935,264     43,925,155     43,995,016     43,938,701  
    Tangible common book value per share   $ 5.60   $ 5.58   $ 5.47   $ 5.44   $ 5.35  
    Common book value per share   $ 6.49   $ 6.47   $ 6.37   $ 6.34   $ 6.26  
                                 
Adjusted allowance for loan losses                                
  Allowance for loan losses   $ 9,064   $ 8,742   $ 8,468   $ 8,590   $ 8,262  
  Plus: acquisition accounting FMV adjustments to acquired loans     28,173     29,548     31,159     32,209     35,419  
  Adjusted allowance for loan losses   $ 37,237   $ 38,290   $ 39,627   $ 40,799   $ 43,681  
  Divided by: total loans (excluding LHFS)   $ 1,741,815   $ 1,700,124   $ 1,657,463   $ 1,614,852   $ 1,580,693  
    Adjusted allowance for loan losses to total loans     2.14 %   2.25 %   2.39 %   2.53 %   2.76 %
    Allowance for loan losses to total loans     0.52 %   0.51 %   0.51 %   0.53 %   0.52 %
                                     
                                     

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