SOURCE: Park Sterling Corporation

Park Sterling Corporation

July 23, 2015 07:00 ET

Park Sterling Corporation Announces Record Results for Second Quarter 2015

CHARLOTTE, NC--(Marketwired - July 23, 2015) - 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 2015. Highlights at and for the three months ended June 30, 2015 include:

Highlights

  • Net income increased $486,000 (13%) to a record $4.3 million, or $0.10 per share, compared to $3.8 million, or $0.09 per share, in the quarter ended March 31, 2015
  • Adjusted net income, which excludes merger-related expenses and gain or loss on sale of securities, increased $515,000 (13%) to a record $4.4 million, or $0.10 per share, compared to $3.9 million, or $0.09 per share, in the prior quarter
  • Organic loan growth, excluding loans held for sale, of $42.6 million, or 11% annualized growth rate
  • Wealth management discretionary assets under management increased $31.7 million (8%) to a record $438.3 million, compared to $406.5 million at March 31, 2015
  • Mortgage banking origination volume increased $14.3 million (25%) to a record $71.7 million, compared to $57.4 million in the prior quarter
  • Annualized return on average assets of 0.71% compared to 0.64% in the prior quarter
  • Adjusted noninterest expenses to adjusted operating revenues, which excludes merger-related expenses and gain or loss on sale of securities, decreased 380 basis points to 72.5% from 76.3% in the prior quarter
  • Nonperforming loans decreased $1.0 million (13%) to 0.52% of total loans from 0.60% at March 31, 2015
  • Nonperforming assets decreased $1.5 million (8%) to 0.75% of total assets from 0.83% at March 31, 2015
  • Tangible common equity to tangible assets remained strong at 9.99%
  • Declared quarterly cash dividend on common shares of $0.03 per share (July 2015)

"Park Sterling's second quarter results continue to advance our stated objective of leveraging recent investments in origination bankers, new product capabilities and new offices to enhance profitability," said James C. Cherry, Chief Executive Officer. "For the three months ended June 30, 2015, we reported a $486,000, or 13%, increase in net income to a record $4.3 million, or $0.10 per share, compared to net income of $3.8 million, or $0.09 per share, reported last quarter.

"The company posted 11% annualized organic loan growth, led by continued strong performance in our metropolitan markets, and held adjusted net interest margin essentially flat at 3.77%. Noninterest income benefitted from increased service charges on deposit accounts, mortgage banking income and income from wealth management activities. In addition, our mortgage group produced record origination volumes and our wealth management group reported record discretionary assets under management.

"We continued to demonstrate sound expense management, as noninterest expenses decreased $907,000, or 5%, to $18.2 million, compared to $19.1 million in the prior quarter. Adjusted noninterest expenses to adjusted operating income, which excludes merger-related expenses and gain or loss from sale of securities, decreased 380 basis points to 72.5% for the quarter, marking good progress toward our previously stated objective of attaining a ratio below 70% by year end. In addition, asset quality continued to improve from already attractive levels, as nonperforming loans to total loans decreased eight basis points to 0.52% and nonperforming assets to total assets decreased eight basis points to 0.75%, compared to March 31, 2015. Finally, capitalization remains strong with tangible common equity to tangible assets of 9.99% and a Tier 1 leverage ratio of 11.09%.

"On the capital management front, yesterday the board declared a quarterly dividend of $0.03 per common share, payable on August 19, 2015, to all shareholders of record as of the close of business on August 5, 2015. Future dividends will be subject to board approval. In addition, during the second quarter we purchased approximately 146,000 shares under our previously announced 2.2 million share repurchase program.

"Overall, we are pleased to report these strong financial results and believe that Park Sterling is well positioned to continue pursuing our vision of building a full-service regional banking franchise across the Carolinas and Virginia."

Financial Results

Income Statement - Three Months Ended June 30, 2015

Park Sterling reported a $486,000, or 13%, increase in net income to a record $4.3 million, or $0.10 per share, for the three months ended June 30, 2015 ("2015Q2"). This compares to net income of $3.8 million, or $0.09 per share, for the three months ended March 31, 2015 ("2015Q1") and net income of $3.4 million, or $0.08 per share, for the three months ended June 30, 2014 ("2014Q2"). The increase in net income from 2015Q1 resulted from higher net interest income, lower noninterest expense and a decrease in provision expense. The increase in net income from 2014Q2 resulted from both higher net interest and noninterest income levels, which were partially offset by higher provision expense.

Park Sterling reported a $515,000, or 13%, increase in adjusted net income, which excludes merger-related expenses and gain or loss on sale of securities, to a record $4.4 million, or $0.10 per share, in 2015Q2. This compares to adjusted net income of $3.9 million, or $0.09 per share, in 2015Q1 and adjusted net income of $3.8 million, or $0.09 per share, in 2014Q2. Compared to 2015Q1, adjusted net income reflects an increase in net interest income and a decrease in provision and noninterest expense levels. Compared to 2014Q2, adjusted net income reflects both higher net interest and noninterest income levels, which were partially offset by higher provision expense.

Net interest income totaled $20.6 million in 2015Q2, which represents a $190,000, or 1%, increase from $20.4 million in 2015Q1. This increase is attributable to having both higher average earning assets and one more day in 2015Q2. Net interest income increased $1.5 million, or 8%, from $19.1 million in 2014Q2, resulting from higher average earning assets. Average total earning assets increased $29.4 million, or 1%, in 2015Q2 to $2.19 billion, compared to $2.16 billion in 2015Q1 and increased $247.0 million, or 13%, compared to $1.94 billion in 2014Q2. The increase in average total earning assets in 2015Q2 from 2015Q1 resulted from a $41.4 million, or 3% (10% annualized), increase in average loans (including loans held for sale) driven by organic growth, which was partially offset by a $3.8 million, or 1%, decrease in average marketable securities and an $8.4 million, or 14%, decrease in average other interest-earning assets. The increase in average total earning assets in 2015Q2 from 2014Q2 resulted primarily from a $59.8 million, or 14%, increase in average marketable securities, a $246.7 million, or 18%, increase in average loans (including loans held for sale), partially offset by a $59.8 million, or 53%, decrease in average other earning assets.

Net interest margin was 3.78% in 2015Q2, representing a 6 basis point decrease from 3.84% in 2015Q1 and a 17 basis point decrease from 3.95% in 2014Q2. The reduction in net interest margin from 2015Q1 resulted primarily from a 4 basis point decrease in yield on loans to 4.80%, driven by continued competitive pricing pressures, and a 24 basis point decrease in yield on marketable securities to 2.18%, as the prior quarter yield included $267,000 in additional income from the early redemption of two investment securities held by the company at a discount to their redemption prices. The reduction in net interest margin from 2014Q2 resulted primarily from a 58 basis point decrease in yield on loans, due primarily to lower interest rates on new loans, partially offset by an 11 basis point decrease in the cost of interest-bearing liabilities.

Adjusted net interest margin, which excludes accelerated accretion from net acquisition accounting fair market value adjustments and income from the aforementioned early bond redemptions, was 3.77% in 2015Q2, representing a 1 basis point decrease from 3.78% in 2015Q1 and a 16 basis point decrease from 3.93% in 2014Q2. Accelerated accretion of net acquisition accounting fair market value adjustments ($52,000 in 2015Q2, $79,000 in 2015Q1 and $86,000 in 2014Q2) 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. Income from the early redemption of investment securities ($0 in 2015Q2, $267,000 in 2015Q1 and $0 in 2014Q2) reflects gains recorded on two bonds carried by the company at discounts to their respective redemption prices. The reduction in adjusted net interest margin from both 2015Q1 and 2014Q2 resulted primarily from the decrease in loan yields discussed above.

The company reported $134,000 in provision for loan losses in 2015Q2, compared to $180,000 in 2015Q1 and a net release of provision of $365,000 in 2014Q2. The current period provision was driven by impairments in the company's purchase credit impaired ("PCI") loan pools, as accounted for under ASC 310-30.

Noninterest income decreased $209,000, or 5%, to $4.3 million in 2015Q2, compared to $4.5 million in 2015Q1 and increased $314,000, or 8%, compared to $4.0 million in 2014Q2. The decrease from 2015Q1 was driven by non-customer related activity, including (i) a $215,000, or 28%, decrease in income from bank owned life insurance ("BOLI") due to a lower death benefit ($47,000 in 2015Q2, $272,000 in 2015Q1, $0 in 2014Q2); (ii) a $291,000, or 143%, decrease in other noninterest income due primarily to the reclassification of $250,000 in income to reductions of capital on certain limited partnership investments based on final 2014 partnership documentation received, which fully offset (iii) the benefit from a $229,000, or 58%, decrease in amortization of indemnification asset and true-up liability expense. Customer-related activities performed well compared to 2015Q1, including (i) an $88,000, or 9%, increase in service charges on deposit accounts; (ii) a $44,000, or 5%, increase in income from wealth management activities, which also posted a $31.7 million, or 8%, increase in discretionary assets under management to a record $438.3 million; (iii) a $5,000, or 1%, increase in mortgage banking income, which also posted a $14.3 million, or 25%, increase in mortgage banking production to a record $71.7 million; and (iv) a $4,000, or 1%, decrease in income from capital markets activities. Partially offsetting this net improvement in customer-related activity was a $65,000, or 9%, decrease in ATM and card income as a result of a $103,000 increase in expenses related to a special marketing program designed to increase future card usage. The increase from 2014Q2 reflects higher service charges on deposit accounts and ATM and card income, in part due to the acquisition of Provident Community Bancshares, Inc. ("Provident Community") in May 2014, as well as higher mortgage banking income, higher income from capital markets and lower amortization on the FDIC loss share indemnification asset and true-up liability expense.

Noninterest expenses decreased $907,000, or 5%, in 2015Q2 to $18.2 million compared to $19.1 million in 2015Q1, and remained flat compared to $18.2 million in 2014Q2. Adjusted noninterest expenses, which exclude merger-related expenses ($167,000 in 2015Q2, $122,000 in 2015Q1 and $594,000 in 2014Q2), decreased $952,000, or 5%, to $18.1 million in 2015Q2 compared to $19.0 million in 2015Q1, and increased $432,000, or 2%, compared to $17.6 million in 2014Q2. Approximately 80%, or $751,000, of the decrease in adjusted noninterest expenses from 2015Q1 resulted from three unusual items, including (i) a $109,000 decrease in salaries and employee benefits expense resulting from the higher severance expense related to staff rationalization efforts across various business units, as well as certain branch closures, reported in 2015Q1; (ii) a $124,000 decrease in write-downs related to the branch closures; and (iii) a $518,000 decrease in other noninterest expense as a $385,000 operational charge-off in 2015Q1 from bankcard operations partially reversed to a $133,000 recovery in 2015Q2. In addition, continued expense management efforts contributed to lower expenses in several other categories. These decreases were partially offset by increased net cost of operation of OREO. The increase in adjusted noninterest expense from 2014Q2 resulted primarily from increased expenses as a result of the Provident Community acquisition.

The company's effective tax rate increased to 34.7% in 2015Q2 compared to 32.5% in 2015Q1, which resulted from both a $43,000 true-up reduction of tax credits recorded in 2015Q2 and lower nontaxable income related to BOLI death benefits received in 2015Q2 compared to 2015Q1. The company's effective tax rate increased compared to 33.9% in 2014Q2, due primarily to the larger nontaxable BOLI death benefit in 2014Q2 as well as the true-up of tax credits recorded in 2015.

Income Statement - Six Months Ended June 30, 2015

Park Sterling reported a $1.1 million, or 15%, increase in net income for the six months ended June 30, 2015 ("2015YTD") to $8.1 million, or $0.18 per share, compared to net income for the six months ended June 30, 2014 ("2014YTD") of $7.0 million, or $0.16 per share. The increase in net income from 2014YTD resulted from higher net interest income and noninterest income, offset partially by an increase in provision expense and noninterest expenses.

Net interest income totaled $41.0 million in 2015YTD, which represents a $4.7 million, or 13%, increase from $36.4 million in 2014YTD. This increase is primarily attributable to having higher average earning assets as a result of both the Provident Community acquisition and organic loan growth. Net interest margin was 3.81% in 2015YTD, representing a 15 basis point decrease from 3.96% in 2014YTD. The reduction in net interest margin from 2014YTD resulted primarily from a 50 basis point decrease in yield on loans, due to lower interest rates on new loans, offset by a 13 basis point decrease in the cost of interest-bearing liabilities.

The company reported $314 thousand in provision for loan losses in 2015YTD, compared to a net release of provision of $382 thousand in 2014YTD. The current period provision was driven by impairments in the company's PCI loan pools, as accounted for under ASC 310-30, as well as organic loan growth.

Noninterest income increased $1.3 million, or 17%, to $8.8 million in 2015YTD, compared to $7.5 million in 2014YTD. The increase from 2014YTD reflects higher service charges on deposit accounts and ATM and card income, in part due to the Provident Community acquisition, as well as higher income from each of mortgage banking, wealth management, and capital markets and lower amortization on the FDIC loss share indemnification asset and true-up liability expense.

Noninterest expense increased $3.4 million, or 10%, in 2015YTD to $37.4 million compared to $34.0 million in 2014YTD. The increase in noninterest expense from 2014YTD resulted primarily from increased expenses as a result of the Provident Community acquisition and hiring initiatives.

The company's effective tax rate increased to 33.7% in 2015YTD compared to 31.7% in 2014YTD, which resulted from both a $43,000 true-up reduction of tax credits recorded in 2015YTD and lower nontaxable income related to BOLI death benefits received in 2015YTD as compared to 2014YTD.

Balance Sheet

Total assets increased $46.0 million, or 2%, to $2.44 billion at 2015Q2 compared to total assets of $2.40 billion at 2015Q1. Cash and equivalents decreased $18.8 million, or 30%, to $44.3 million as a result of loan funding. Total securities, including non-marketable securities, increased $24.6 million, to $527.6 million. Total securities included one investment in a senior tranche of a collateralized loan obligation ("CLO") totaling $5.0 million in fair value at 2015Q2, 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 $33,000 at 2015Q2 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 $42.6 million, or 11% annualized, to $1.66 billion at 2015Q2. The company's metropolitan markets, which include Charlotte, Raleigh and Wilmington, North Carolina, Greenville and Charleston, South Carolina and Richmond, Virginia, reported a $50.9 million, or 24% annualized, increase in total loans to $901.3 million, due to continued success in origination efforts. The community markets reported an $11.1 million, or 11% annualized, decrease in total loans to $385.0 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 $2.8 million, or 3% annualized, increase in total loans to $371.2 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 2015Q2 compared to 2015Q1. Total consumer loans increased from 27.8% to 27.9% of total loans, with residential mortgages holding at 13.0%, home equity lines of credit decreasing to 9.5% from 9.6%, residential construction increasing from 3.7% to 3.8% and other consumer increasing from 1.6% to 1.7%. The combination of commercial and industrial and owner-occupied real estate loans decreased from 32.5% to 31.4% of total loans while investor-owned commercial real estate increased from 29.2% to 30.1% of total loans. Acquisition, construction and development held at 10.1% of total loans.

In terms of accounting designations, compared to 2015Q1: (i) non-acquired loans, which include certain renewed and/or restructured acquired performing loans that are re-designated as non-acquired, increased $73.4 million, or 26% annualized, to $1.23 billion; (ii) acquired performing loans decreased $23.7 million, or 28% annualized, to $317.4 million; and (iii) purchase credit impaired ("PCI") loans decreased $7.1 million, or 24% annualized, to $112.8 million. At 2015Q2, noncovered performing acquired loans (which totaled $315.8 million) included a $2.4 million net acquisition accounting fair market value adjustment, representing a 0.75% "mark;" noncovered PCI loans (which totaled $94.7 million) included a $23.6 million adjustment, representing an 19.93% "mark;" and covered performing acquired and PCI loans (which totaled $19.7 million) included a $5.2 million adjustment, representing a 20.87% "mark."

On March 31, 2015, the company's FDIC loss share agreement related to the Bank of Hiawassee ("BOH") non-single family assets, which was assumed in connection with the acquisition of Citizens South Banking Corporation ("Citizens South") in October 2012, expired. On April 1, 2015, the remaining carrying balance of $19.6 million in loans and $812,000 thousand in OREO associated with the BOH non-single family agreement were transferred from a "covered" designation to a "non-covered" designation on the company's balance sheet, and from that date the company will no longer benefit from FDIC indemnification on future losses, if any, on the related BOH non-single family loans and OREO.

Total deposits decreased $9.2 million, or 2% annualized, to $1.87 billion at 2015Q2, compared to $1.88 billion at 2015Q1, primarily due to seasonal factors. Noninterest bearing demand deposits increased $5.7 million, or 7% annualized, to $347.2 million (19% of total deposits). Non-brokered money market, NOW and savings deposits decreased $23.3 million, or 10% annualized, to $926.4 million (49% of total deposits). Local time deposits increased $6.9 million, or 6% annualized, to $465.0 million (25% of total deposits). Finally, brokered deposits increased $1.6 million, or 5% annualized, to $136.3 million (7% of total deposits). Core deposits, which exclude time deposits greater than $250,000 and brokered deposits, represented 89.4% of total deposits at 2015Q2 and 90.1% of total deposits at 2015Q1.

Total borrowings increased $55.2 million, or 27%, to $258.9 million at 2015Q2 compared to $203.8 million at 2015Q1. Borrowings at 2015Q2 included $235.0 million in FHLB borrowings and $23.9 million of acquired trust preferred securities, net of acquisition accounting fair market value adjustments.

Total shareholders' equity increased $625,000, or 0.2%, to $279.7 million at 2015Q2 compared to $279.1 million at 2015Q1, driven by retained earnings which was partially offset by higher unrealized losses in the marketable securities portfolio and the purchase of approximately 146,000 shares for $971,000 under a previously announced 2.2 million repurchase program. The company's ratio of tangible common equity to tangible assets decreased to 9.99% at 2015Q2 from 10.15% at 2015Q1.

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 13.30% at 2015Q2 compared to 14.18% at 2015Q1 due to an increase in risk weighted assets. The company's Tier 1 leverage ratio was 11.09% at 2015Q2 compared to 11.00% at 2015Q1.

Asset Quality

Asset quality remains a point of strength for the company. Nonperforming assets decreased $1.5 million, or 8%, to $18.4 million at 2015Q2, or 0.75% of total assets, compared to $20.0 million at 2015Q1, or 0.83% of total assets. Nonperforming loans decreased $1.0 million, or 11%, to $8.7 million at 2015Q2, and represent 0.52% of total loans, compared to $9.7 million at 2015Q1, or 0.60% of total loans. The company reported net charge-offs of $327,000, or 0.08% of average loans (annualized), in 2015Q2, compared to net recoveries of $148,000, or 0.04% of average loans (annualized), in 2015Q1. Included in charge-offs and provision expense for 2015Q2 was $156,000 of net impairment related to PCI pools.

The allowance for loan losses decreased $122,000, or 1%, to $8.5 million, or 0.51% of total loans, at 2015Q2, compared to $8.6 million, or 0.53% of total loans, at 2015Q1. The decrease in allowance included (i) a $219,000, or 8%, decrease in the quantitative component, resulting from lower historic loss rates, (ii) a $435,000, or 8%, increase in the qualitative component, reflecting management judgment of inherent loss in the loan portfolio not represented in historic loss rates, and (iii) a $387,000, or 54%, decrease in the specific component. Overall the decrease in the allowance was due to 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 2015Q2, 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 (July 23, 2015). 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 10067612.

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 $2.4 billion in assets, is the largest community bank headquartered in the Charlotte area and has 54 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 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 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: increases in expected costs or decreases in expected savings or difficulties related to merger integration matters; 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 targeted adjusted noninterest 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; changes in interest rates; failure of assumptions underlying noninterest expense levels; 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; the possibility of recognizing other than temporary impairments on holdings of collateralized loan obligation securities as a result of the Volcker Rule; the impacts on Park Sterling of a potential increasing rate environment; 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 of Park Sterling, 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 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.

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,  
  2015    2015    2014    2014    2014  
  (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)  
Interest income                             
 Loans, including fees $19,667    $19,111    $19,482    $19,725    $18,734  
 Taxable investment securities  2,508     2,791     2,598     2,597     2,152  
 Tax-exempt investment securities  143     138     138     138     133  
 Nonmarketable equity securities  122     127     108     103     85  
 Interest on deposits at banks  18     18     22     22     53  
 Federal funds sold  -     -     -     1     -  
  Total interest income  22,458     22,185     22,348     22,586     21,157  
Interest expense                             
 Money market, NOW and savings deposits  532     520     538     570     615  
 Time deposits  752     707     725     771     828  
 Short-term borrowings  76     76     -     1     1  
 Long-term FHLB advances  131     128     179     162     128  
 Subordinated debt  351     328     350     350     506  
  Total interest expense  1,842     1,759     1,792     1,854     2,078  
  Net interest income  20,616     20,426     20,556     20,732     19,079  
Provision for loan losses  134     180     (420 )   (484 )   (365 )
  Net interest income after provision  20,482     20,246     20,976     21,216     19,444  
Noninterest income                             
 Service charges on deposit accounts  1,107     1,019     1,109     1,137     1,001  
 Mortgage banking income  956     951     922     822     653  
 Income from wealth management activities  906     862     869     783     773  
 Income from capital market activities  394     398     149     364     35  
 ATM and card income  629     694     727     631     726  
 Income from bank-owned life insurance  553     768     491     552     525  
 Loss on sale of securities available for sale  -     -     -     (63 )   (33 )
 Amortization of indemnification asset and true-up liability expense  (165 )   (394 )   (1,224 )   (1,345 )   (738 )
 Other noninterest income  (88 )   203     308     257     1,036  
  Total noninterest income  4,292     4,501     3,351     3,138     3,978  
Noninterest expenses                             
 Salaries and employee benefits  10,021     10,431     10,386     10,240     9,684  
 Occupancy and equipment  2,491     2,555     2,627     3,527     2,249  
 Data processing and outside service fees  1,640     1,648     1,652     1,907     1,544  
 Legal and professional fees  660     798     816     887     1,122  
 Deposit charges and FDIC insurance  433     392     442     441     368  
 Loss on disposal of fixed assets  113     237     2     317     80  
 Communication fees  541     578     519     480     538  
 Postage and supplies  116     149     146     176     170  
 Loan and collection expense  242     154     461     298     304  
 Core deposit intangible amortization  347     347     348     347     317  
 Advertising and promotion  304     374     474     564     223  
 Net cost of operation of other real estate owned  232     35     215     343     206  
 Other noninterest expense  1,092     1,441     1,219     1,121     1,431  
  Total noninterest expenses  18,232     19,139     19,307     20,648     18,236  
  Income before income taxes  6,542     5,608     5,020     3,706     5,186  
Income tax expense  2,273     1,825     1,564     1,254     1,760  
 Net income $4,269    $3,783    $3,456    $2,452    $3,426  
                              
Earnings per common share, fully diluted $0.10    $0.09    $0.08    $0.06    $0.08  
Weighted average diluted common shares  44,301,895     44,326,833     44,323,628     44,233,532     44,213,802  
                    
                    
                    
PARK STERLING CORPORATION  
CONDENSED CONSOLIDATED INCOME STATEMENT  
SIX MONTH RESULTS  
($ in thousands, except per share amounts) June 30,    June 30,  
      2015    2014  
      (Unaudited)    (Unaudited)  
Interest income           
  Loans, including fees $38,778    $35,660  
  Taxable investment securities  5,299     4,123  
  Tax-exempt investment securities  281     355  
  Nonmarketable equity securities  249     151  
  Interest on deposits at banks  36     74  
    Total interest income  44,643     40,363  
Interest expense           
  Money market, NOW and savings deposits  1,052     1,162  
  Time deposits  1,459     1,659  
  Short-term borrowings  152     1  
  Long-term FHLB advances  259     255  
  Subordinated debt  679     932  
    Total interest expense  3,601     4,009  
    Net interest income  41,042     36,354  
Provision (release) for loan losses  314     (382 )
    Net interest income after provision  40,728     36,736  
Noninterest income           
  Service charges on deposit accounts  2,126     1,634  
  Mortgage banking income  1,907     897  
  Income from wealth management activities  1,768     1,548  
  Income from capital market activities  792     35  
  ATM and card income  1,323     1,312  
  Income from bank-owned life insurance  1,321     1,645  
  Gain on sale of securities available for sale  -     243  
    Amortization of indemnification asset and true-up liability expense  (559 )   (1,221 )
  Other noninterest income  115     1,409  
    Total noninterest income  8,793     7,502  
Noninterest expenses           
  Salaries and employee benefits  20,452     18,912  
  Occupancy and equipment  5,046     4,254  
  Data processing and outside service fees  3,288     2,890  
  Legal and professional fees  1,458     1,783  
  Deposit charges and FDIC insurance  825     608  
  Communication fees  1,119     1,012  
  Postage and supplies  265     345  
  Loan and collection expense  396     592  
  Core deposit intangible amortization  695     574  
  Advertising and promotion  678     456  
  Net cost of operation of other real estate owned  267     259  
  Other noninterest expense  2,882     2,332  
    Total noninterest expenses  37,371     34,017  
    Income before income taxes  12,150     10,221  
Income tax expense  4,098     3,240  
    Net income $8,052    $6,981  
                
Earnings per common share, fully diluted $0.18    $0.16  
Weighted average diluted common shares  44,287,424     44,240,105  
                
          
          
PARK STERLING CORPORATION         
CONDENSED CONSOLIDATED BALANCE SHEETS         
($ in thousands) June 30,    March 31,    December 31,    September 30,    June 30,  
    2015    2015**    2014*    2014**    2014**  
    (Unaudited)    (Unaudited)         (Unaudited)    (Unaudited)  
ASSETS                             
Cash and due from banks $17,042    $17,402    $16,549    $16,505    $21,117  
Interest-earning balances at banks  26,940     45,396     34,356     41,883     47,623  
Investment securities available for sale  402,489     382,946     375,683     367,262     349,532  
Investment securities held to maturity  111,633     108,918     115,741     117,463     119,302  
Nonmarketable equity securities  13,500     11,163     11,532     9,731     5,906  
Federal funds sold  360     325     485     465     280  
Loans held for sale  10,701     9,987     11,602     4,763     6,388  
Loans - Non-covered  1,637,115     1,576,760     1,538,354     1,503,558     1,419,366  
Loans - Covered  20,348     38,092     42,339     49,834     55,532  
Allowance for loan losses  (8,468 )   (8,590 )   (8,262 )   (9,458 )   (9,178 )
  Net loans  1,648,995     1,606,262     1,572,431     1,543,934     1,465,720  
                                
Premises and equipment, net  58,979     58,796     59,247     59,334     59,362  
FDIC receivable for loss share agreements  1,209     2,333     3,964     5,078     6,993  
Other real estate owned - non-covered  8,904     8,570     8,979     8,570     10,774  
Other real estate owned - covered  884     1,713     3,011     4,703     5,234  
Bank-owned life insurance  57,823     57,494     57,712     57,293     56,831  
Deferred tax asset  32,137     33,314     35,696     37,560     37,648  
Goodwill  29,197     29,197     29,197     29,197     29,197  
Core deposit intangible  10,265     10,612     10,960     11,307     11,654  
Other assets  12,822     13,436     12,085     11,249     11,993  
                                
  Total assets $2,443,880    $2,397,864    $2,359,230    $2,326,297    $2,245,554  
                                
LIABILITIES AND SHAREHOLDERS' EQUITY                             
                                
Deposits:                             
Demand noninterest-bearing $347,162    $341,488    $321,019    $322,097    $331,866  
Money market, NOW and savings  988,847     1,008,743     988,954     984,448     942,070  
Time deposits  538,932     533,906     541,381     558,063     588,771  
  Total deposits  1,874,941     1,884,137     1,851,354     1,864,608     1,862,707  
                                
Short-term borrowings  180,000     125,000     125,000     85,000     8,575  
Long-term FHLB borrowings  55,000     55,000     55,000     55,000     55,000  
Subordinated debt  23,922     23,752     23,583     23,413     23,244  
Accrued expenses and other liabilities  30,274     30,857     29,188     27,105     26,481  
  Total liabilities  2,164,137     2,118,746     2,084,125     2,055,126     1,976,007  
                                
Shareholders' equity:                             
  Common stock  44,911     44,877     44,860     44,851     44,833  
  Additional paid-in capital  222,271     223,139     222,819     222,507     222,195  
  Retained earnings  14,261     11,338     8,901     6,341     4,787  
  Accumulated other comprehensive loss  (1,700 )   (236 )   (1,475 )   (2,528 )   (2,268 )
  Total shareholders' equity  279,743     279,118     275,105     271,171     269,547  
                                
Total liabilities and shareholders' equity $2,443,880    $2,397,864    $2,359,230    $2,326,297    $2,245,554  
                                
  Common shares issued and outstanding  44,910,686     44,877,194     44,859,798     44,850,813     44,833,516  
* 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)                       
  June 30,    March 31,    December 31,   September 30,    June 30,  
  2015    2015    2014*   2014    2014  
BY LOAN TYPE (Unaudited)    (Unaudited)        (Unaudited)    (Unaudited)  
Commercial:                            
 Commercial and industrial $189,356    $186,295    $173,786   $173,309    $142,973  
 Commercial real estate (CRE) - owner-occupied  330,853     337,739     333,782    330,303     306,514  
 CRE - investor income producing  498,190     470,555     470,647    464,390     459,467  
 Acquisition, construction and development (AC&D) - 1-4 Family Construction  31,500     28,650     29,401    32,932     28,549  
 AC&D - Lots and land  48,680     50,372     55,443    55,360     43,861  
 AC&D - CRE construction  86,570     84,116     71,590    53,459     62,688  
 Other commercial  7,212     5,931     5,045    5,281     6,580  
  Total commercial loans  1,192,361     1,163,658     1,139,694    1,115,034     1,050,632  
                             
Consumer:                            
 Residential mortgage  214,850     209,384     205,150    198,968     194,847  
 Home equity lines of credit  156,960     154,415     155,297    154,792     153,944  
 Residential construction  62,973     59,233     55,882    56,482     48,903  
 Other loans to individuals  27,696     25,845     22,586    26,444     25,066  
  Total consumer loans  462,479     448,877     438,915    436,686     422,760  
   Total loans  1,654,840     1,612,535     1,578,609    1,551,720     1,473,392  
 Deferred costs (fees)  2,623     2,317     2,084    1,672     1,506  
   Total loans, net of deferred costs (fees) $1,657,463    $1,614,852    $1,580,693   $1,553,392    $1,474,898  
                             
 * Derived from audited financial statements.                            
                             
   June 30,     March 31,     December 31,    September 30,     June 30,  
   2015     2015     2014*    2014     2014  
BY ACQUIRED AND NON-ACQUIRED  (Unaudited)     (Unaudited)          (Unaudited)     (Unaudited)  
Acquired loans - performing $317,394    $341,078    $364,789   $388,243    $409,812  
Acquired loans - purchase credit impaired  112,819     119,943     133,241    149,652     164,196  
 Total acquired loans  430,213     461,021     498,030    537,895     574,008  
Non-acquired loans, net of deferred costs (fees)**  1,227,250     1,153,831     1,082,663    1,015,497     900,890  
 Total loans $1,657,463    $1,614,852    $1,580,693   $1,553,392    $1,474,898  
* 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) June 30,    March 31,    December 31,    September 30,    June 30,  
  2015    2015    2014    2014    2014  
  (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)  
Beginning of period allowance $8,590    $8,262    $9,458    $9,178    $9,076  
Loans charged-off  (572 )   (265 )   (984 )   (175 )   (411 )
Recoveries of loans charged-off  245     413     208     939     871  
 Net charge-offs  (327 )   148     (776 )   764     460  
                              
Provision expense (release)  205     180     (420 )   (484 )   (356 )
Benefit attributable to FDIC loss share agreements  (71 )   -     -     -     (9 )
 Total provision expense charged to operations  134     180     (420 )   (484 )   (365 )
Provision expense recorded through FDIC loss share receivable  71     -     -     -     7  
 End of period allowance $8,468    $8,590    $8,262    $9,458    $9,178  
                              
Net charge-offs (recoveries) $327    $(148 )  $776    $(764 )  $(460 )
Net charge-offs (recoveries) to average loans (annualized)  0.08 %   -0.04 %   0.20 %   -0.20 %   -0.13 %
  
  
PARK STERLING CORPORATION 
AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS 
THREE MONTHS 
($in thousands)June 30, 2015       June 30, 2014      
 Average
Balance
  Income/
Expense
 Yield/
Rate (3)
  Average
Balance
  Income/
Expense
 Yield/
Rate (3)
 
Assets                   
Interest-earning assets:                   
 Loans and loans held for sale, net (1)(2)$1,643,844  $19,667 4.80% $1,397,158  $18,734 5.38%
 Fed funds sold 730   - 0.00%  427   - 0.00%
 Taxable investment securities 474,807   2,508 2.11%  416,187   2,152 2.07%
 Tax-exempt investment securities 13,960   143 4.10%  12,809   133 4.15%
 Other interest-earning assets 52,098   140 1.08%  111,878   138 0.49%
                    
  Total interest-earning assets 2,185,439   22,458 4.12%  1,938,459   21,157 4.38%
                    
Allowance for loan losses (8,895)        (9,588)      
Cash and due from banks 16,356         17,856       
Premises and equipment 58,912         58,347       
Goodwill 29,211         24,661       
Intangible assets 10,435         10,583       
Other assets 115,213         128,596       
                    
  Total assets$2,406,671        $2,168,914       
                    
Liabilities and shareholders' equity                   
Interest-bearing liabilities:                   
 Interest-bearing demand$411,806  $71 0.07% $333,130  $87 0.10%
 Savings and money market 525,359   405 0.31%  515,943   473 0.37%
 Time deposits - core 458,139   632 0.55%  488,936   693 0.57%
 Brokered deposits 133,981   176 0.53%  154,520   190 0.49%
  Total interest-bearing deposits 1,529,285   1,284 0.34%  1,492,529   1,443 0.39%
 Short-term borrowings 148,901   76 0.20%  5,462   1 0.07%
 Long-term FHLB borrowings 55,000   131 0.96%  55,000   128 0.93%
 Subordinated debt 23,833   351 5.91%  27,094   506 7.49%
  Total borrowed funds 227,734   558 0.98%  87,556   635 2.91%
                    
  Total interest-bearing liabilities 1,757,019   1,842 0.42%  1,580,085   2,078 0.53%
                    
Net interest rate spread     20,616 3.70%      19,079 3.85%
                    
Noninterest-bearing demand deposits 338,092         298,313       
Other liabilities 30,884         24,212       
Shareholders' equity 280,676         266,304       
                    
Total liabilities and shareholders' equity$2,406,671        $2,168,914       
                    
Net interest margin       3.78%        3.95%
(1) Nonaccrual loans are included in the average loan balances.
(2) Interest income and yields for the three months ended June 30, 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  
SIX MONTHS  
($ in thousands) June 30, 2015             June 30, 2014           
  Average
Balance
   Income/
Expense
  Yield/
Rate (3)
   Average
Balance
   Income/
Expense
  Yield/
Rate (3)
 
Assets                               
Interest-earning assets:                               
 Loans and loans held for sale, net (1)(2) $1,623,279    $38,778   4.82 %  $1,351,412    $35,660   5.32 %
 Fed funds sold  596     -   0.00 %   437     -   0.00 %
 Taxable investment securities  477,255     5,299   2.22 %   399,990     4,123   2.06 %
 Tax-exempt investment securities  13,409     281   4.19 %   14,194     355   5.00 %
 Other interest-earning assets  56,258     285   1.02 %   85,761     225   0.53 %
                                
  Total interest-earning assets  2,170,797     44,643   4.15 %   1,851,794     40,363   4.40 %
                                
Allowance for loan losses  (8,633 )             (9,477 )          
Cash and due from banks  16,646               16,127            
Premises and equipment  59,133               57,147            
Goodwill  29,225               25,536            
Intangible assets  10,606               9,526            
Other assets  117,376               122,656            
                                
  Total assets $2,395,150              $2,073,309            
                                
Liabilities and shareholders' equity                               
Interest-bearing liabilities:                               
 Interest-bearing demand $409,863    $139   0.07 %  $312,865    $150   0.10 %
 Savings and money market  521,374     800   0.31 %   489,349     941   0.39 %
 Time deposits - core  459,713     1,220   0.54 %   462,806     1,377   0.60 %
 Brokered deposits  137,254     352   0.52 %   160,421     354   0.44 %
  Total interest-bearing deposits  1,528,204     2,511   0.33 %   1,425,441     2,822   0.40 %
 Short-term borrowings  53,950     152   0.06 %   55,265     255   0.09 %
 Long-term FHLB borrowings  150,055     259   0.03 %   -     -   0.00 %
 Subordinated debt  23,749     679   5.77 %   27,823     932   6.76 %
  Total borrowed funds  227,754     1,090   0.97 %   83,088     1,187   2.88 %
                                
  Total interest-bearing liabilities  1,755,958     3,601   0.41 %   1,508,529     4,009   0.54 %
                                
Net interest rate spread        41,042   3.73 %         36,354   3.86 %
                                
Noninterest-bearing demand deposits  328,805               275,715            
Other liabilities  30,951               23,145            
Shareholders' equity  279,436               265,920            
                                
Total liabilities and shareholders' equity $2,395,150              $2,073,309            
                                
Net interest margin            3.81 %             3.96 %
(1) Nonaccrual loans are included in the average loan balances.           
(2) Interest income and yields for the six months ended June 30, 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) June 30,    March 31,    December 31,    September 30,    June 30,  
  2015    2015    2014    2014    2014  
  Unaudited    Unaudited    Unaudited    Unaudited    Unaudited  
 ASSET QUALITY                             
  Nonaccrual loans $5,545    $6,397    $5,585    $5,894    $5,205  
  Troubled debt restructuring (and still accruing)  3,115     3,273     3,289     4,315     3,550  
  Past due 90 days plus (and still accruing)  -     10     30     2,485     775  
  Nonperforming loans  8,660     9,680     8,904     12,694     9,530  
  OREO  9,788     10,283     11,990     13,273     16,008  
  Nonperforming assets  18,448     19,963     20,894     25,967     25,538  
  Past due 30-59 days (and still accruing)  2,559     1,285     619     1,973     2,028  
  Past due 60-89 days (and still accruing)  481     457     289     1,788     3,299  
                              
  Nonperforming loans to total loans  0.52 %   0.60 %   0.56 %   0.82 %   0.65 %
  Nonperforming assets to total assets  0.75 %   0.83 %   0.89 %   1.12 %   1.14 %
  Allowance to total loans  0.51 %   0.53 %   0.52 %   0.61 %   0.62 %
  Allowance to nonperforming loans  97.78 %   88.74 %   92.79 %   74.51 %   96.31 %
  Allowance to nonperforming assets  45.90 %   43.03 %   39.54 %   36.42 %   35.94 %
  Past due 30-89 days (accruing) to total loans  0.18 %   0.11 %   0.06 %   0.24 %   0.36 %
  Net charge-offs (recoveries) to average loans  0.08 %   -0.04 %   0.20 %   -0.20 %   -0.13 %
   (annualized)                             
                              
 CAPITAL                             
  Book value per common share $6.31    $6.30    $6.21    $6.13    $6.10  
  Tangible book value per common share** $5.47    $5.44    $5.35    $5.25    $5.21  
  Common shares outstanding  44,910,686     44,877,194     44,859,798     44,850,813     44,833,516  
  Weighted average dilutive common shares outstanding  44,301,895     44,326,833     44,323,628     44,233,532     44,213,802  
                              
  Common Equity Tier 1 (CET1) capital $245,328    $242,197     n/a     n/a     n/a  
  Tier 1 capital  261,596     256,843    $231,088    $225,456    $222,489  
  Tier 2 capital  8,577     8,836     8,469     9,660     9,429  
  Total risk based capital  270,173     265,679     239,557     235,116     231,918  
  Risk weighted assets  1,844,540     1,707,551     1,717,003     1,693,196     1,620,786  
  Average assets for leverage ratio  2,359,401     2,334,285     2,273,275     2,235,267     2,099,906  
                              
  Common Equity Tier 1 (CET1) ratio  13.30 %   14.18 %   n/a     n/a     n/a  
  Tier 1 ratio  14.18 %   15.04 %   13.46 %   13.32 %   13.73 %
  Total risk based capital ratio  14.65 %   15.56 %   13.95 %   13.89 %   14.31 %
  Tier 1 leverage ratio  11.09 %   11.00 %   10.17 %   10.09 %   10.60 %
  Tangible common equity to tangible assets**  9.99 %   10.15 %   10.13 %   10.09 %   10.37 %
                              
 LIQUIDITY                             
  Net loans to total deposits  87.95 %   85.25 %   84.93 %   82.80 %   78.69 %
  Reliance on wholesale funding  18.52 %   16.21 %   16.81 %   14.94 %   11.80 %
                              
INCOME STATEMENT (THREE MONTH RESULTS; ANNUALIZED)                          
  Return on Average Assets  0.71 %   0.64 %   0.59 %   0.42 %   0.63 %
  Return on Average Common Equity  6.10 %   5.52 %   5.01 %   3.58 %   5.16 %
  Net interest margin (non-tax equivalent)  3.78 %   3.84 %   3.87 %   3.98 %   3.90 %
                              
  ** 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 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, adjusted noninterest income and adjusted noninterest expenses (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 expenses to adjusted operating revenues and adjusted return on average assets and adjusted return on average equity (which exclude merger-related expenses and gain on or loss 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) June 30,    March 31,    December 31,    September 30,    June 30,  
  2015    2015    2014    2014    2014  
  (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)  
Adjusted net income (three months)                             
 Pretax income (as reported) $6,542    $5,608    $5,020    $3,706    $5,186  
 Plus: merger-related expenses  167     122     712     2,229     594  
  loss on sale of securities  -     -     -     63     33  
  Adjusted pretax income  6,709     5,730     5,732     5,998     5,813  
 Tax expense  2,331     1,867     1,786     2,030     1,972  
  Adjusted net income $4,378    $3,863    $3,946    $3,968    $3,841  
                              
 Divided by: weighted average diluted shares  44,301,895     44,326,833     44,323,628     44,233,532     44,213,802  
  Adjusted net income per share $0.10    $0.09    $0.09    $0.09    $0.09  
 Estimated tax rate for adjustment  34.75 %   34.23 %   31.15 %   33.85 %   33.93 %
                              
Adjusted net interest margin                             
 Net interest income (as reported) $20,616    $20,426    $20,556    $20,732    $19,079  
 Less: accelerated mark accretion  (52 )   (79 )   (134 )   (173 )   (86 )
 Less: income from early redemption of investment securities  -     (267 )   -     -     -  
  Adjusted net interest income  20,564     20,080     20,422     20,559     18,993  
 Divided by: average earning assets  2,185,439     2,155,995     2,107,073     2,066,906     1,938,459  
 Multiplied by: annualization factor  4.01     4.06     3.97     3.97     4.01  
  Adjusted net interest margin  3.77 %   3.78 %   3.85 %   3.95 %   3.93 %
  Net interest margin  3.78 %   3.84 %   3.87 %   3.98 %   3.95 %
                              
Adjusted noninterest income                             
 Noninterest income (as reported) $4,292    $4,501    $3,351    $3,138    $3,978  
 Less: loss on sale of securities  -     -     -     63     33  
  Adjusted noninterest income $4,292    $4,501    $3,351    $3,201    $4,011  
                              
Adjusted noninterest expense                             
 Noninterest expense (as reported) $18,232    $19,139    $19,307    $20,648    $18,236  
 Less: merger-related expenses  (167 )   (122 )   (712 )   (2,229 )   (594 )
  Adjusted noninterest expense $18,065    $19,017    $18,595    $18,419    $17,642  
                              
Adjusted noninterest expense to average assets                             
 Adjusted noninterest expense $18,065    $19,017    $18,595    $18,419    $17,642  
 Divided by: average assets  2,406,671     2,383,506     2,342,657     2,304,501     2,168,914  
 Multiplied by: annualization factor  4.01     4.06     3.97     3.97     4.01  
  Adjusted noninterest expense to average assets  3.01 %   3.24 %   3.15 %   3.17 %   3.26 %
  Noninterest expense to average assets  3.04 %   3.26 %   3.27 %   3.55 %   3.37 %
                              
Adjusted operating revenues                             
 Net Interest Income $20,616    $20,426    $20,556    $20,732    $19,079  
 Plus: adjusted noninterest income  4,292     4,501     3,351     3,201     4,011  
  Adjusted operating revenues $24,908    $24,927    $23,907    $23,933    $23,090  
  Operating revenues $24,908    $24,927    $23,907    $23,870    $23,057  
                              
Adjusted nointerest expense to adjusted operating revenues                             
 Adjusted noninterest expense $18,065    $19,017    $18,595    $18,419    $17,642  
 Divided by: adjusted operating revenues  24,908     24,927     23,907     23,933     23,090  
  Adjusted noninterest expense to adjusted operating revenues  72.53 %   76.29 %   77.78 %   76.96 %   76.41 %
  Noninterest expense to operating revenues  73.20 %   76.78 %   80.76 %   86.50 %   79.09 %
                              
                         
PARK STERLING CORPORATION                        
RECONCILIATION OF NON-GAAP MEASURES                        
($ in thousands, except per share amounts)                        
(three month and period end results) June 30,    March 31,    December 31,    September 30,    June 30,  
  2015    2015    2014    2014    2014  
  (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)  
Adjusted return on average assets                             
 Adjusted net income $4,378    $3,863    $3,946    $3,968    $3,841  
 Divided by: average assets  2,406,671     2,383,506     2,342,657     2,304,501     2,168,914  
 Multiplied by: annualization factor  4.01     4.06     3.97     3.97     4.01  
  Adjusted return on average assets  0.73 %   0.66 %   0.67 %   0.68 %   0.71 %
  Return on average assets  0.71 %   0.64 %   0.59 %   0.42 %   0.63 %
                              
Adjusted return on average equity                             
 Adjusted net income $4,378    $3,863    $3,946    $3,968    $3,841  
 Divided by: average common equity  280,676     278,187     273,669     271,853     266,304  
 Multiplied by: annualization factor  4.01     4.06     3.97     3.97     4.01  
  Adjusted return on average equity  6.26 %   5.63 %   5.72 %   5.79 %   5.79 %
  Return on average equity  6.10 %   5.52 %   5.01 %   3.58 %   5.16 %
                              
Tangible common equity to tangible assets                             
 Total assets $2,443,880    $2,397,864    $2,359,230    $2,326,297    $2,245,554  
 Less: intangible assets  (39,462 )   (39,852 )   (40,200 )   (40,547 )   (40,894 )
  Tangible assets $2,404,418    $2,358,012    $2,319,030    $2,285,750    $2,204,660  
                              
 Total common equity $279,743    $279,118    $275,105    $271,171    $269,547  
 Less: intangible assets  (39,462 )   (39,852 )   (40,200 )   (40,547 )   (40,894 )
  Tangible common equity $240,281    $239,266    $234,905    $230,624    $228,653  
                              
 Tangible common equity $240,281    $239,266    $234,905    $230,624    $228,653  
 Divided by: tangible assets  2,404,418     2,358,012     2,319,030     2,285,750     2,204,660  
  Tangible common equity to tangible assets  9.99 %   10.15 %   10.13 %   10.09 %   10.37 %
  Common equity to assets  11.45 %   11.64 %   11.66 %   11.66 %   12.00 %
                              
Tangible book value per share                             
 Issued and outstanding shares  44,910,686     44,877,194     44,859,798     44,850,813     44,833,516  
 Less: nondilutive restricted stock awards  (985,531 )   (882,178 )   (921,097 )   (931,465 )   (919,216 )
  Period end dilutive shares  43,925,155     43,995,016     43,938,701     43,919,348     43,914,300  
                              
 Tangible common equity $240,281    $239,266    $234,905    $230,624    $228,653  
 Divided by: period end dilutive shares  43,925,155     43,995,016     43,938,701     43,919,348     43,914,300  
  Tangible common book value per share $5.47    $5.44    $5.35    $5.25    $5.21  
  Common book value per share $6.37    $6.34    $6.26    $6.17    $6.14  
                              
 Adjusted allowance for loan losses                             
 Allowance for loan losses $8,468    $8,590    $8,262    $9,458    $9,178  
 Plus: acquisition accounting FMV adjustments to acquired loans  31,159     32,209     35,419     37,746     39,715  
  Adjusted allowance for loan losses $39,627    $40,799    $43,681    $47,204    $48,893  
 Divided by: total loans (excluding LHFS) $1,657,463    $1,614,852    $1,580,693    $1,553,392    $1,474,898  
  Adjusted allowance for loan losses to total loans  2.39 %   2.53 %   2.76 %   3.04 %   3.32 %
  Allowance for loan losses to total loans  0.51 %   0.53 %   0.52 %   0.61 %   0.62 %
                      

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