SOURCE: Park Sterling Corporation

Park Sterling Corporation

April 28, 2016 07:00 ET

Park Sterling Corporation Announces Results for First Quarter 2016

CHARLOTTE, NC--(Marketwired - April 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 first quarter of 2016. Highlights at and for the three months ended March 31, 2016 include:

Three Month Highlights

  • Net income of $2.7 million, or $0.05 per share, compared to $3.8 million, or $0.09 per share, in the quarter ended December 31, 2015
  • Adjusted net income, which excludes merger-related expenses and gain or loss on sale of securities, increased $1.4 million (29%) to a record $6.2 million, or $0.12 per share, compared to $4.8 million, or $0.11 per share, in the prior quarter
  • Adjusted operating expenses to adjusted operating revenues fell to 65.44% in the quarter from 67.84% in the fourth quarter of 2015 due to the impact of First Capital and continued disciplined expense management
  • Loan growth, after the addition of First Capital and excluding loans held for sale, of $37.1 million, or 7% annualized growth rate
  • Nonperforming loans to total loans decreased 5 basis points to 0.42% from 0.47% at December 31, 2015
  • Nonperforming assets to total assets decreased 10 basis points to 0.44% from 0.54% at December 31, 2015
  • Tier 1 leverage ratio remained strong at 9.76% compared to 11.00% at December 31, 2015
  • Completed merger with First Capital Bancorp, Inc.
  • Declared quarterly cash dividend on common shares of $0.03 per share (April 2016)

"We are delighted to report strong operating results for the first quarter of 2016," said James C. Cherry, Chief Executive Officer. "For the quarter, we achieved higher profitability driven by steady loan growth, stable core margins, and increasing operating efficiency. Our financial condition continues to be solid as asset quality remains superior and both capital and liquidity levels continue to be strong. For the three months ended March 31, 2016, we reported record adjusted net income of $6.2 million, or $0.12 per share, an increase of $1.4 million compared to adjusted net income of $4.8 million, or $0.11 per share, reported in the prior quarter. The adjusted return on average assets was 0.79%, an increase from 0.66% in the first quarter of 2015 and 0.77% in the fourth quarter of 2015. The ratio of adjusted operating expense, which excludes merger-related expenses and amortization of intangibles, to adjusted operating revenue, which excludes gains or losses on sale of securities, improved 240 basis points to 65.44% for the first quarter, compared to the prior quarter. The company posted 7% annualized organic loan growth, led by continued strong performance in our metropolitan markets. Asset quality remained strong, as nonperforming loans to total loans were 0.42% and nonperforming assets to total assets were 0.44% at March 31, 2016. Finally, capitalization also remained strong with total common equity to total assets at 11.08%, tangible common equity to tangible assets at 8.87% and Tier 1 leverage ratio at 9.76%. 

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 $3.2 billion in total assets and 57 banking offices across Virginia, the Carolinas and North Georgia, and benefits from having almost 88% of total deposits based in markets with projected population growth rates above the national average as reported by SNL.

On the capital management front, yesterday the board declared a quarterly dividend of $0.03 per common share, payable on May 24, 2016 to all shareholders of record as of the close of business on May 10, 2016. Future dividends will be subject to board approval. Additionally, during the first quarter we repurchased approximately 98,000 shares under our previously announced 2.2 million share repurchase program.

Overall, we are pleased to report these strong results as Park Sterling continues the commitment to build a full-service regional community bank." 

Financial Results

Income Statement - Three Months Ended March 31, 2016

Park Sterling reported net income of $2.7 million, or $0.05 per share, for the three months ended March 31, 2016 ("2016Q1"). This compares to net income of $3.8 million, or $0.09 per share, for the three months ended December 31, 2015 ("2015Q4") and net income of $3.8 million, or $0.09 per share, for the three months ended March 31, 2015 ("2015Q1"). The decrease in net income from 2015Q4 and 2015Q1 resulted primarily from $5.2 million in merger-related costs, included in which is $3.9 million of termination costs of First Capital's core processing contract. This increase in expenses was partially offset by an increase in net interest income and noninterest income associated with the merger of First Capital. 

Park Sterling reported adjusted net income, which excludes merger-related expenses and gain or loss on sale of securities, of $6.2 million, or $0.12 per share, in 2016Q1. This compares to adjusted net income of $4.8 million, or $0.11 per share, in 2015Q4 and adjusted net income of $3.9 million, or $0.09 per share, in 2015Q1. Compared to 2015Q4 and 2015Q1, adjusted net income reflects higher net interest income and higher noninterest income partially offset by higher noninterest expense, much of which is associated with the merger with First Capital and organic loan growth.

Net interest income totaled $26.6 million in 2016Q1, which represents a $6.6 million or 33%, increase from $20.0 million in 2015Q4 and a $6.2 million, or 30%, increase from $20.4 million in 2015Q1. Average total earning assets increased $581.3 million, or 26%, in 2016Q1 to $2.83 billion, compared to $2.25 billion in 2015Q4 and increased $677.7 million, or 31%, compared to $2.16 billion in 2015Q1. The increase in average total earning assets in 2016Q1 from 2015Q4 included an increase in average loans (including loans held for sale) of $568.9 million, or 33%, and an increase in average other earning assets of $11.1 million, or 25%, each as a result of the acquisition of First Capital. The increase in average total earning assets in 2016Q1 from 2015Q1 resulted primarily from a $672.3 million, or 42%, increase in average loans (including loans held for sale) as a result of organic growth and the acquisition of First Capital and a $10.6 million, or 2%, increase in average marketable securities, offset by a $5.3 million, or 9%, decrease in average other earning assets. 

Net interest margin was 3.78% in 2016Q1, representing a 26 basis point increase from 3.52% in 2015Q4 and a 6 basis point decrease from 3.84% in 2015Q1. The increase in net interest margin from 2015Q4 resulted primarily from a 32 basis point increase in yield on loans to 4.80%, driven by the recognition of the acquired performing fair value mark related to the acquisition of First Capital loans, strong fee income and the addition of higher yielding loans from First Capital. Offsetting the increase in yield on average earning assets, the cost of interest-bearing liabilities increased 12 basis points to 0.63%, driven by a full quarter of interest related to the $30.0 million senior unsecured term loan incurred in December 2015 and an increase in the cost of wholesale funding following the Federal Reserves' action to raise short-term interest rates. The reduction in net interest margin from 2015Q1 resulted primarily from a 4 basis point decrease in yield on loans, due primarily to lower interest rates on new loans partially offset by the recognition of the acquired performing fair value mark related to First Capital and a 22 basis point increase in the cost of interest-bearing liabilities.

The company reported $556,000 of provision expense in 2016Q1 to support organic loan growth, compared to $409,000 of provision recorded in 2015Q4, and a provision of $180,000 in 2015Q1. Allowance for loan loss levels decreased to 0.43% of total loans at 2016Q1 compared to 0.52% at 2015Q4 due to the addition of First Capital loans for which no allowance was booked in accordance with purchase accounting standards.

Noninterest income increased $204,000, or 5%, to $4.7 million in 2016Q1, compared to $4.5 million in 2015Q4 and increased $226,000, or 5%, compared to $4.5 million in 2015Q1. The increase from 2015Q4 was driven primarily by a $617,000, or 166%, increase in BOLI income due in part to death benefits received in 2016Q1 ($402,000 in 2016Q1, $0 in 2015Q4 and $272,000 in 2015Q1). Other increases include a $50,000, or 3%, increase in service charges on deposit accounts and a $76,000, or 11%, increase in mortgage banking income. Partially offsetting these increases was (i) an $84,000, or 9%, decrease in income from wealth management activities due to a decrease in assets under management for the period; (ii) a $369,000, or 84%, decrease in income from capital market activities due to fewer transactions and a higher credit valuation adjustment and (iii) a $74,000, or 11%, decrease in ATM and card income as transactions shift from non-PIN to PIN-based when comparing 2016Q1 and 2015Q4. The increase in noninterest income from 2015Q1 reflects higher BOLI death benefits as noted above, as well as higher service charges on deposit accounts and lower amortization on the FDIC loss share indemnification asset and true-up liability expense, offset partially by lower income from capital market activities and wealth management activities and lower mortgage banking income.

Noninterest expenses increased $7.8 million, or 42%, to $26.2 million in 2016Q1 compared to $18.4 million in 2015Q4, and increased $7.0 million, or 37%, compared to $19.1 million in 2015Q1. Adjusted noninterest expenses, which exclude merger-related expenses ($5.2 million in 2016Q1, $1.4 million in 2015Q4 and $122,000 in 2015Q1), increased $4.0 million, or 24%, to $21.0 million in 2016Q1 compared to $17.0 million in 2015Q4, and increased $1.9 million, or 10%, compared to $19.0 million in 2015Q1. Overall the increase in adjusted noninterest expenses from 2015Q4 was due primarily to a $2.7 million increase in salaries and compensation expense due to the addition of First Capital employees, as well as an increase in the incentive accrual in 2016Q1 as compared to 2015Q4, as the prior quarter included a year-end incentive accrual reduction. Other increases from 2015Q4 include occupancy and equipment expense, data processing expense, legal and professional fees, deposit charges and FDIC insurance expense, postage and supplies, advertising and promotion and core deposit intangibles, all of which were due primarily to the merger with First Capital. The net cost of operation of OREO also increased compared to 2015Q4, as 2016Q1 included a loss on the sale of a branch that had been transferred to OREO in 2015. The above increases were partially offset by a $157,000 decrease in loan and collection expenses and a $52,000 decrease in the loss on disposal of assets, as 2015Q4 included branch closure costs.

The company's effective tax rate increased to 40.6% in 2016Q1, due in part to certain non-deductible merger-related expenses and adjustments made to deferred tax assets for the true-up in tax rates and re-measurement due to the First Capital merger, compared to 34.1% in 2015Q4 and 32.5% in 2015Q1.

Balance Sheet

Total assets increased $639.5 million, or 25%, to $3.2 billion at 2016Q1 compared to total assets of $2.5 billion at 2015Q4 primarily as a result of the merger with First Capital. Cash and equivalents increased $10.9 million, or 15%, to $81.2 million and total securities, including non-marketable securities, increased $11.7 million, to $514.4 million. Total loans, excluding loans held for sale, increased $537.3 million, or 31% annualized, to $2.3 billion at 2016Q1 from 2015Q4. The company's metropolitan markets, which include Charlotte, Raleigh and Wilmington, North Carolina, Greenville and Charleston, South Carolina and Richmond, Virginia, reported a $550.3 million, or 57%, increase in total loans to $1.5 billion, due to the addition of First Capital which added $500 million in loans in the Richmond market, as well as continued success in origination efforts. The community markets reported a $13.5 million, or 4%, decrease in total loans to $349.0 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 remained flat as growth in mortgage, private banking and builder finance offset reductions in special asset loans, including covered loans.

The merger with First Capital led to a shift in loan mix at 2016Q1 compared to 2015Q4. The combination of commercial and industrial and owner-occupied real estate loans decreased from 33.2% to 31.1% of total loans and investor-owned commercial real estate loans increased from 29.1% to 31.7% of total loans. Acquisition, construction and development loans increased to 14.2% from 9.4% of total loans. Total consumer loans decreased to 22.5% from 27.7% of total loans, with home equity lines of credit decreasing to 7.8% from 9.0% of total loans, residential mortgages decreasing from 12.9% to 10.3% of total loans and other consumer (including residential construction) decreasing from 5.8% to 4.3% of total loans. 

In terms of accounting designations, compared to 2015Q4: (i) non-acquired loans, which include certain renewed and/or restructured acquired performing loans that are re-designated as non-acquired, increased $80.1 million, or 6%, to $1.5 billion; (ii) acquired performing loans increased $446.1 million, or 159%, to $726.0 million; and (iii) purchase credit impaired ("PCI") loans increased $11.2 million, or 12%, to $106.1 million. At 2016Q1, noncovered performing acquired loans (which totaled $724.7 million) included a $6.0 million net acquisition accounting fair market value adjustment, representing a 0.82% "mark;" noncovered PCI loans (which totaled $91.2 million) included a $23.8 million adjustment, representing a 20.7% "mark;" and covered performing acquired and PCI loans (which totaled $16.3 million) included a $3.7 million adjustment, representing an 18.7% "mark."

Total deposits increased $545.3 million, or 28%, to $2.5 billion at 2016Q1, compared to $2.0 billion at 2015Q4 due primarily to the merger with First Capital. Noninterest bearing demand deposits increased $118.2 million, or 34%, to $469.0 million (19% of total deposits). Non-brokered money market, NOW and savings deposits increased $194.9 million, or 20%, to $1.2 billion (48% of total deposits). Time deposits less than $250,000 increased $151.3 million, or 37%, to $556.7 million (22% of total deposits) and time deposits greater than $250,000 increased $48.9 million, or 69%, to $119.9 million (5% of total deposits). Finally, brokered deposits increased $32.1 million, or 25%, to $160.5 million (6% of total deposits). Core deposits, which exclude time deposits greater than $250,000 and brokered deposits, represented 88.8% of total deposits at 2016Q1 and 89.8% of total deposits at 2015Q4.

Total borrowings increased $28.8 million, or 12%, to $268.0 million at 2016Q1 compared to $239.3 million at 2015Q4. Borrowings at 2016Q1 included $205.0 million in FHLB borrowings, $30.0 million in a senior unsecured term loan at the bank holding company level, and $33.0 million of acquired trust preferred securities, net of acquisition accounting fair market value adjustments.

Total shareholders' equity increased $64.8 million, or 23%, to $349.5 million at 2016Q1 compared to $284.7 million at 2015Q4. This increase primarily resulted from the issuance of 8,376,094 shares of common stock, valued at $61.3 million (based on the $7.32 per share closing price on the last trading day prior to consummation), as the stock component of the merger with First Capital. The company's ratio of tangible common equity to tangible assets decreased to 8.87% at 2016Q1 from 9.93% at 2015Q4. The company's Common Equity Tier 1 ("CET1") ratio decreased to 10.85% at 2016Q1 compared to 12.98% at 2015Q4 due to an increase in risk weighted assets. The company's Tier 1 leverage ratio was 9.76% at 2016Q1 compared to 11.00% at 2015Q4. 

Asset Quality

Asset quality remains a point of strength for the company. Nonperforming assets were $14.0 million at 2016Q1, or 0.44% of total assets, compared to $13.7 million at 2015Q4, or 0.54% of total assets, an increase of $292,000, or 2%. Nonperforming loans were $9.6 million at 2016Q1, and represented 0.42% of total loans, compared to $8.3 million at 2015Q4, or 0.47% of total loans, an increase of $1.3 million, or 16%. The increase in nonperforming loans was due primarily to two relationships. One of the relationships totaling $1.5 million became past due during the quarter; however a sales contract for the underlying collateral is in place and full resolution is anticipated in the near future. The company reported net recoveries of $212,000, or 0.04% of average loans (annualized), in 2016Q1, compared to net charge-offs of $87,000, or 0.02% of average loans (annualized), in 2016Q1. 

The allowance for loan losses increased $768,000, or 8%, to $9.8 million, or 0.43% of total loans, at 2016Q1, compared to $9.1 million, or 0.52% of total loans, at 2015Q4. The increase in allowance included (i) a $762,000, or 33%, decrease in the quantitative component, resulting from lower historic loss rates due to a net recovery in 2016Q1 and (ii) a $1.5 million, or 23%, increase in the qualitative component, reflecting management's judgment of inherent loss in the loan portfolio not represented in historic loss rates.

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 shares vest one-third each when the share price reaches, for 30 consecutive days, $8.125, $9.10 and $10.40 per share, respectively). The performance thresholds of the remaining restricted shares have not yet been achieved (436,590 of these restricted shares remained outstanding at 2016Q1). Accordingly, these additional shares have been excluded from earnings and tangible book value per share calculations. As of March 31, 2016, 131,670 of these shares have either been forfeited or vested in accordance with agreements between the Company and its executive officers.

Conference Call

A conference call will be held at 8:30 a.m., Eastern Time this morning (April 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 10083664.

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 $3.2 billion in assets, 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; 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)   March 31,   December 31,   September 30,   June 30,   March 31,  
    2016   2015   2015   2015   2015  
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)  
Interest income                                
  Loans, including fees   $ 27,124   $ 19,284   $ 19,475   $ 19,667   $ 19,111  
  Taxable investment securities     2,687     2,677     2,636     2,508     2,791  
  Tax-exempt investment securities     147     146     152     143     138  
  Nonmarketable equity securities     154     109     142     122     127  
  Interest on deposits at banks     42     22     23     18     18  
  Federal funds sold     8     1     1     -     -  
    Total interest income     30,162     22,239     22,429     22,458     22,185  
Interest expense                                
  Money market, NOW and savings deposits     1,017     743     654     532     520  
  Time deposits     1,398     903     841     752     707  
  Short-term borrowings     294     205     90     76     76  
  Long-term debt     410     55     134     131     128  
  Subordinated debt     446     358     348     351     328  
    Total interest expense     3,565     2,264     2,067     1,842     1,759  
    Net interest income     26,597     19,975     20,362     20,616     20,426  
Provision for loan losses     556     409     -     134     180  
    Net interest income after provision     26,041     19,566     20,362     20,482     20,246  
Noninterest income                                
  Service charges on deposit accounts     1,489     1,439     1,370     1,107     1,019  
  Mortgage banking income     775     699     700     956     951  
  Income from wealth management activities     803     887     947     906     862  
  Income from capital market activities     68     437     238     394     398  
  ATM and card income     573     647     537     629     694  
  Income from bank-owned life insurance     988     371     1,058     553     768  
  Gain (loss) on sale of securities available for sale     (6 )   -     54     -     -  
  Amortization of indemnification asset and true-up liability expense    
(147
)  
(165
)  
(162
)  
(165
)  
(394
)
  Other noninterest income     184     208     185     (88 )   203  
    Total noninterest income     4,727     4,523     4,927     4,292     4,501  
Noninterest expenses                                
  Salaries and employee benefits     13,018     9,541     9,952     10,021     10,431  
  Occupancy and equipment     3,125     2,680     2,591     2,491     2,555  
  Data processing and outside service fees     5,523     1,669     1,668     1,640     1,648  
  Legal and professional fees     725     1,471     472     660     798  
  Deposit charges and FDIC insurance     432     413     401     433     392  
  Loss on disposal of fixed assets     44     50     597     113     237  
  Communication fees     483     480     501     541     578  
  Postage and supplies     173     99     123     116     149  
  Loan and collection expense     37     194     151     242     154  
  Core deposit intangible amortization     458     347     347     347     347  
  Advertising and promotion     421     271     313     304     374  
  Net cost of operation of other real estate owned     266     (23 )   163     232     35  
  Other noninterest expense     1,448     1,170     1,140     1,092     1,441  
    Total noninterest expenses     26,153     18,362     18,419     18,232     19,139  
    Income before income taxes     4,615     5,727     6,870     6,542     5,608  
Income tax expense     1,874     1,952     2,092     2,273     1,825  
    Net income   $ 2,741   $ 3,775   $ 4,778   $ 4,269   $ 3,783  
                                 
Earnings per common share, fully diluted   $ 0.05   $ 0.09   $ 0.11   $ 0.10   $ 0.09  
Weighted average diluted common shares     52,599,584     44,322,428     44,287,019     44,301,895     44,326,833  
                                 
       
PARK STERLING CORPORATION      
CONDENSED CONSOLIDATED BALANCE SHEETS      
($ in thousands)   March 31,   December 31,   September 30,   June 30,   March 31,  
    2016   2015*   2015   2015   2015**  
    (Unaudited)       (Unaudited)   (Unaudited)   (Unaudited)  
ASSETS                                
Cash and due from banks   $ 34,038   $ 53,840   $ 16,096   $ 17,042   $ 17,402  
Interest-earning balances at banks     47,143     16,451     41,230     26,940     45,396  
Investment securities available for sale     396,863     384,934     401,820     402,489     382,946  
Investment securities held to maturity     104,459     106,458     109,072     111,633     108,918  
Nonmarketable equity securities     13,118     11,366     11,377     13,500     11,163  
Federal funds sold     11,271     235     920     360     325  
Loans held for sale     7,593     4,943     5,145     10,701     9,987  
Loans - Non-covered     2,262,294     1,724,164     1,681,227     1,637,115     1,576,760  
Loans - Covered     16,849     17,651     18,897     20,348     38,092  
Allowance for loan losses     (9,832 )   (9,064 )   (8,742 )   (8,468 )   (8,590 )
  Net loans     2,269,311     1,732,751     1,691,382     1,648,995     1,606,262  
                                 
Premises and equipment, net     65,494     55,658     56,948     58,979     58,796  
FDIC receivable for loss share agreements     1,477     943     1,190     1,209     2,333  
Other real estate owned - non-covered     3,425     4,211     7,087     8,904     8,570  
Other real estate owned - covered     985     1,240     1,056     884     1,713  
Bank-owned life insurance     69,202     58,633     58,286     57,823     57,494  
Deferred tax asset     30,088     28,971     29,711     32,137     33,314  
Goodwill     63,707     29,197     29,197     29,197     29,197  
Core deposit intangible     12,813     9,571     9,918     10,265     10,612  
Other assets     22,750     14,862     14,699     12,822     13,436  
                                 
  Total assets   $ 3,153,737   $ 2,514,264   $ 2,485,134   $ 2,443,880   $ 2,397,864  
                                 
LIABILITIES AND SHAREHOLDERS' EQUITY                                
                                 
Deposits:                                
Demand noninterest-bearing   $ 469,046   $ 350,836   $ 370,815   $ 347,162   $ 341,488  
Money market, NOW and savings     1,255,848     1,062,046     1,041,502     988,847     1,008,743  
Time deposits     773,089     539,780     534,541     538,932     533,906  
  Total deposits     2,497,983     1,952,662     1,946,858     1,874,941     1,884,137  
                                 
Short-term borrowings     170,000     185,000     130,000     180,000     125,000  
Long-term debt     65,000     30,000     55,000     55,000     55,000  
Subordinated debt     33,014     24,262     24,092     23,922     23,752  
Accrued expenses and other liabilities     38,229     37,636     44,979     30,274     30,857  
  Total liabilities     2,804,226     2,229,560     2,200,929     2,164,137     2,118,746  
                                 
Shareholders' equity:                                
  Common stock     53,038     44,854     44,909     44,911     44,877  
  Additional paid-in capital     274,706     222,596     222,587     222,271     223,139  
  Retained earnings     21,263     20,117     17,692     14,261     11,338  
  Accumulated other comprehensive income (loss)     504     (2,863 )   (983 )   (1,700 )   (236 )
  Total shareholders' equity     349,511     284,704     284,205     279,743     279,118  
                                 
Total liabilities and shareholders' equity   $ 3,153,737   $ 2,514,264   $ 2,485,134   $ 2,443,880   $ 2,397,864  
                                 
  Common shares issued and outstanding     53,038,020     44,854,509     44,909,447     44,910,686     44,877,194  
                                 
* Derived from audited financial statements.  
** Revised to reflect measurement period adjustments to goodwill.  
                                 
     
PARK STERLING CORPORATION    
SUMMARY OF LOAN PORTFOLIO    
($ in thousands)    
    March 31,   December 31,   September 30,   June 30,   March 31,
    2016   2015*   2015   2015   2015
BY LOAN TYPE   (Unaudited)       (Unaudited)   (Unaudited)   (Unaudited)
Commercial:                              
  Commercial and industrial   $ 334,027   $ 246,907   $ 211,741   $ 189,356   $ 186,295
  Commercial real estate (CRE) - owner-occupied     374,428     331,222     328,327     330,853     337,739
  CRE - investor income producing     723,539     506,110     514,118     498,190     470,555
  Acquisition, construction and development (AC&D) - 1-4 Family Construction     97,614     32,262     27,299     31,500     28,650
  AC&D - Lots and land     88,492     44,411     47,948     48,680     50,372
  AC&D - CRE construction     136,561     87,452     85,643     86,570     84,116
  Other commercial     10,167     8,601     8,830     7,212     5,931
    Total commercial loans     1,764,828     1,256,965     1,223,906     1,192,361     1,163,658
                               
Consumer:                              
  Residential mortgage     235,737     223,884     224,110     214,850     209,384
  Home equity lines of credit     177,594     157,378     157,430     156,960     154,415
  Residential construction     71,117     72,170     66,823     62,973     59,233
  Other loans to individuals     27,245     28,817     24,896     27,696     25,845
    Total consumer loans     511,693     482,249     473,259     462,479     448,877
      Total loans     2,276,521     1,739,214     1,697,165     1,654,840     1,612,535
  Deferred costs (fees)     2,622     2,601     2,959     2,623     2,317
      Total loans, net of deferred costs (fees)   $ 2,279,143   $ 1,741,815   $ 1,700,124   $ 1,657,463   $ 1,614,852
                               
* Derived from audited financial statements.                  
                               
    March 31,   December 31,   September 30,   June 30,   March 31,
    2016   2015*   2015   2015   2015
BY ACQUIRED AND NON-ACQUIRED   (Unaudited)       (Unaudited)   (Unaudited)   (Unaudited)
Acquired loans - performing   $ 726,025   $ 279,949   $ 300,102   $ 317,394   $ 341,078
Acquired loans - purchase credit impaired     106,105     94,917     102,537     112,819     119,943
  Total acquired loans     832,130     374,866     402,639     430,213     461,021
Non-acquired loans, net of deferred costs (fees)**     1,447,013     1,366,949     1,297,485     1,227,250     1,153,831
  Total loans   $ 2,279,143   $ 1,741,815   $ 1,700,124   $ 1,657,463   $ 1,614,852
                               
* 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)   March 31,   December 31,   September 30,   June 30,   March 31,  
    2016   2015   2015   2015   2015  
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)  
Beginning of period allowance   $ 9,064   $ 8,742   $ 8,468   $ 8,590   $ 8,262  
Loans charged-off     (82 )   (237 )   (121 )   (572 )   (265 )
Recoveries of loans charged-off     294     150     415     245     413  
  Net charge-offs     212     (87 )   294     (327 )   148  
                                 
Provision expense     556     409     -     205     180  
Benefit attributable to FDIC loss share agreements     -     -     -     (71 )   -  
  Total provision expense charged to operations     556     409     -     134     180  
Provision expense recorded through FDIC loss share receivable     -     -     (20 )   71     -  
  End of period allowance   $ 9,832   $ 9,064   $ 8,742   $ 8,468   $ 8,590  
                                 
Net charge-offs (recoveries)   $ (212 ) $ 87   $ (294 ) $ 327   $ (148 )
Net charge-offs (recoveries) to average loans (annualized)     -0.04
%   0.02
%   -0.07
%   0.08
%   -0.04
%
                                 
   
PARK STERLING CORPORATION  
AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS  
THREE MONTHS                  
($ in thousands)   March 31, 2016             March 31, 2015            
    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)   $ 2,274,824   $ 27,124   4.80 %   $ 1,602,483     $ 19,111   4.84 %
  Fed funds sold     6,895     8   0.47 %     460       -   0.00 %
  Taxable investment securities     487,154     2,687   2.21 %     479,731       2,791   2.33 %
  Tax-exempt investment securities     16,047     147   3.66 %     12,851       138   4.30 %
  Other interest-earning assets     48,772     196   1.62 %     60,470       145   0.97 %
                                       
    Total interest-earning assets     2,833,692     30,162   4.28 %     2,155,995       22,185   4.17 %
                                       
Allowance for loan losses     (9,864 )               (8,369 )            
Cash and due from banks     36,758                 16,937              
Premises and equipment     66,514                 59,350              
Goodwill     62,055                 29,240              
Intangible assets     12,718                 10,778              
Other assets     130,752                 119,575              
                                       
    Total assets   $ 3,132,625               $ 2,383,506              
                                       
Liabilities and shareholders' equity                                      
Interest-bearing liabilities:                                      
  Interest-bearing demand   $ 426,795   $ 85   0.08 %   $ 407,900     $ 67   0.07 %
  Savings and money market     733,301     831   0.46 %     517,344       395   0.31 %
  Time deposits - core     710,289     1,219   0.69 %     461,304       588   0.52 %
  Brokered deposits     126,824     280   0.89 %     140,563       177   0.51 %
    Total interest-bearing deposits     1,997,209     2,415   0.49 %     1,527,111       1,227   0.33 %
  Short-term borrowings     191,701     294   0.62 %     151,222       76   0.20 %
  Long-term debt     65,824     410   2.51 %     52,889       128   0.98 %
  Subordinated debt     32,930     446   5.45 %     23,664       328   5.62 %
    Total borrowed funds     290,455     1,150   1.59 %     227,775       532   0.95 %
                                       
    Total interest-bearing liabilities     2,287,664     3,565   0.63 %     1,754,886       1,759   0.41 %
                                       
Net interest rate spread           26,597   3.65 %             20,426   3.77 %
                                       
Noninterest-bearing demand deposits     456,457                 319,414              
Other liabilities     39,948                 31,019              
Shareholders' equity     348,556                 278,187              
                                       
Total liabilities and shareholders' equity   $ 3,132,625               $ 2,383,506              
                                       
Net interest margin               3.78 %                 3.84 %
   
(1) Nonaccrual loans are included in the average loan balances.
(2) Interest income and yields for the three months ended March 31, 2016 and 2015 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)   March 31,   December 31,   September 30,   June 30,   March 31,  
    2016   2015   2015   2015   2015  
    Unaudited   Unaudited   Unaudited   Unaudited   Unaudited  
ASSET QUALITY                                
  Nonaccrual loans   $ 6,595   $ 4,326   $ 5,342   $ 5,545   $ 6,397  
  Troubled debt restructuring (and still accruing)     2,696     2,774     3,090     3,115     3,273  
  Past due 90 days plus (and still accruing)     293     1,151     47     -     10  
  Nonperforming loans     9,584     8,251     8,479     8,660     9,680  
  OREO     4,410     5,451     8,143     9,788     10,283  
  Nonperforming assets     13,994     13,702     16,622     18,448     19,963  
  Past due 30-59 days (and still accruing)     217     1,222     1,790     2,559     1,285  
  Past due 60-89 days (and still accruing)     499     1,340     3,753     481     457  
                                 
  Nonperforming loans to total loans     0.42 %   0.47 %   0.50 %   0.52 %   0.60 %
  Nonperforming assets to total assets     0.44 %   0.54 %   0.67 %   0.75 %   0.83 %
  Allowance to total loans     0.43 %   0.52 %   0.51 %   0.51 %   0.53 %
  Allowance to nonperforming loans     102.59 %   109.85 %   103.10 %   97.78 %   88.74 %
  Allowance to nonperforming assets     70.26 %   66.15 %   52.59 %   45.90 %   43.03 %
  Past due 30-89 days (accruing) to total loans     0.03 %   0.15 %   0.33 %   0.18 %   0.11 %
  Net charge-offs (recoveries) to average loans (annualized)     -0.04
%   0.02
%   -0.07
%   0.08
%   -0.04
%
                                 
CAPITAL                                
  Book value per common share   $ 6.69   $ 6.49   $ 6.47   $ 6.37   $ 6.34  
  Tangible book value per common share**   $ 5.22   $ 5.60   $ 5.58   $ 5.47   $ 5.44  
  Common shares outstanding     53,038,020     44,854,509     44,909,447     44,910,686     44,877,194  
  Weighted average dilutive common shares outstanding     52,599,584     44,322,428     44,287,019     44,301,895     44,326,833  
                                 
  Common Equity Tier 1 (CET1) capital   $ 275,490   $ 251,807   $ 249,289   $ 245,328     242,197  
  Tier 1 capital     300,354     268,605     265,917     261,596   $ 256,843  
  Tier 2 capital     9,832     9,064     8,742     8,577     8,836  
  Total risk based capital     310,186     277,669     274,659     270,173     265,679  
  Risk weighted assets     2,478,547     1,939,417     1,887,065     1,844,540     1,707,551  
  Average assets for leverage ratio     3,076,505     2,441,811     2,434,376     2,359,401     2,334,285  
                                 
  Common Equity Tier 1 (CET1) ratio     11.11 %   12.98 %   13.21 %   13.30 %   n/a  
  Tier 1 ratio     12.12 %   13.85 %   14.09 %   14.18 %   15.04 %
  Total risk based capital ratio     12.51 %   14.32 %   14.55 %   14.65 %   15.56 %
  Tier 1 leverage ratio     9.76 %   11.00 %   10.92 %   11.09 %   11.00 %
  Tangible common equity to tangible assets**     8.87 %   9.93 %   10.02 %   9.99 %   10.15 %
                                 
LIQUIDITY                                
  Net loans to total deposits     90.85 %   88.74 %   86.88 %   87.95 %   85.25 %
  Reliance on wholesale funding     15.50 %   16.77 %   16.02 %   18.45 %   16.55 %
                                 
INCOME STATEMENT (THREE MONTH RESULTS; ANNUALIZED)        
  Return on Average Assets     0.35 %   0.60 %   0.77 %   0.71 %   0.64 %
  Return on Average Common Equity     3.16 %   5.26 %   6.71 %   6.10 %   5.52 %
  Net interest margin (non-tax equivalent)     3.78 %   3.52 %   3.58 %   3.78 %   3.84 %
                                 
** Non-GAAP financial measure                                
                                 

Non-GAAP Financial Measures
Tangible assets, tangible common equity, tangible book value, adjusted net income, 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 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)  
   
  March 31,     December 31,     September 30,     June 30,     March 31,  
  2016     2015     2015     2015     2015  
  (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
Adjusted net income (three months)                                      
  Pretax income (as reported) $ 4,615     $ 5,727     $ 6,870     $ 6,542     $ 5,608  
  Plus: merger-related expenses   5,193       1,396       31       167       122  
    (gain) loss on sale of securities   6       -       (54 )     -       -  
    Adjusted pretax income   9,814       7,123       6,847       6,709       5,730  
  Tax expense   3,646       2,332       2,085       2,331       1,867  
    Adjusted net income $ 6,168     $ 4,791     $ 4,762     $ 4,378     $ 3,863  
                                       
  Divided by: weighted average diluted shares   52,599,584       44,322,428       44,287,019       44,301,895       44,326,833  
    Adjusted net income per share   0.12     $ 0.11     $ 0.11     $ 0.10     $ 0.09  
  Estimated tax rate for adjustment   34.09 %     32.75 %     32.56 %     34.75 %     34.23 %
                                       
Adjusted noninterest income                                      
  Noninterest income (as reported) $ 4,727     $ 4,523     $ 4,927     $ 4,292     $ 4,501  
  Less: (gain) loss on sale of securities   6       -       (54 )     -       -  
    Adjusted noninterest income $ 4,733     $ 4,523     $ 4,873     $ 4,292     $ 4,501  
                                       
Adjusted noninterest expenses                                      
  Noninterest expenses (as reported) $ 26,153     $ 18,362     $ 18,419     $ 18,232     $ 19,139  
  Less: merger-related expenses   (5,193 )     (1,396 )     (31 )     (167 )     (122 )
    Adjusted noninterest expenses $ 20,960     $ 16,966     $ 18,388     $ 18,065     $ 19,017  
                                       
Adjusted operating expense                                      
  Noninterest expenses (as reported) $ 26,153     $ 18,362     $ 18,419     $ 18,232     $ 19,139  
  Less: merger-related expenses   (5,193 )     (1,396 )     (31 )     (167 )     (122 )
  Less: amortization of intangibles   (458 )     (347 )     (347 )     (347 )     (347 )
    Adjusted operating expense $ 20,502     $ 16,619     $ 18,041     $ 17,718     $ 18,670  
                                       
Adjusted operating revenues                                      
  Net Interest Income (as reported) $ 26,597     $ 19,975     $ 20,362     $ 20,616     $ 20,426  
  Plus: noninterest income (as reported)   4,727       4,523       4,927       4,292       4,501  
  Less: (gain) loss on sale of securities   6       -       (54 )     -       -  
    Adjusted operating revenues $ 31,330     $ 24,498     $ 25,235     $ 24,908     $ 24,927  
                                       
Adjusted operating expense to adjusted operating revenues                                      
  Adjusted operating expense $ 20,502     $ 16,619     $ 18,041     $ 17,718     $ 18,670  
  Divided by: adjusted operating revenues   31,330       24,498       25,235       24,908       24,927  
    Adjusted operating expense to operating revenues   65.44 %     67.84 %     71.49 %     71.13 %     74.90 %
                                       
Adjusted return on average assets                                      
  Adjusted net income $ 6,168     $ 4,791     $ 4,762     $ 4,378     $ 3,863  
  Divided by: average assets   3,132,625       2,480,983       2,473,034       2,406,671       2,383,506  
  Multiplied by: annualization factor   4.02       3.97       3.97       4.01       4.06  
    Adjusted return on average assets   0.79 %     0.77 %     0.76 %     0.73 %     0.66 %
    Return on average assets   0.35 %     0.60 %     0.77 %     0.71 %     0.64 %
                                       
                                       
PARK STERLING CORPORATION  
RECONCILIATION OF NON-GAAP MEASURES  
($ in thousands, except per share amounts)  
   
  March 31,     December 31,     September 30,     June 30,     March 31,  
  2016     2015     2015     2015     2015  
  (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
Adjusted return on average equity                                      
  Adjusted net income $ 6,168     $ 4,791     $ 4,762     $ 4,378     $ 3,863  
  Divided by: average common equity   348,556       284,671       282,426       280,676       278,187  
  Multiplied by: annualization factor   4.02       3.97       3.97       4.01       4.06  
    Adjusted return on average equity   7.12 %     6.68 %     6.69 %     6.26 %     5.63 %
    Return on average equity   3.16 %     5.26 %     6.71 %     6.10 %     5.52 %
                                       
Tangible common equity to tangible assets                                      
  Total assets $ 3,153,737     $ 2,514,264     $ 2,485,134     $ 2,443,880     $ 2,397,864  
  Less: intangible assets   (76,520 )     (38,768 )     (39,115 )     (39,462 )     (39,809 )
    Tangible assets $ 3,077,217     $ 2,475,496     $ 2,446,019     $ 2,404,418     $ 2,358,055  
                                       
  Total common equity $ 349,511     $ 284,704     $ 284,205     $ 279,743     $ 279,118  
  Less: intangible assets   (76,520 )     (38,768 )     (39,115 )     (39,462 )     (39,809 )
    Tangible common equity $ 272,991     $ 245,936     $ 245,090     $ 240,281     $ 239,309  
                                       
  Tangible common equity $ 272,991     $ 245,936     $ 245,090     $ 240,281     $ 239,309  
  Divided by: tangible assets   3,077,217       2,475,496       2,446,019       2,404,418       2,358,055  
    Tangible common equity to tangible assets   8.87 %     9.93 %     10.02 %     9.99 %     10.15 %
    Common equity to assets   11.08 %     11.32 %     11.44 %     11.45 %     11.64 %
                                       
Tangible book value per share                                      
  Issued and outstanding shares   53,038,020       44,854,509       44,909,447       44,910,686       44,877,194  
  Less: nondilutive restricted stock awards   (785,658 )     (959,305 )     (974,183 )     (985,531 )     (882,178 )
    Period end dilutive shares   52,252,362       43,895,204       43,935,264       43,925,155       43,995,016  
                                       
  Tangible common equity $ 272,991     $ 245,936     $ 245,090     $ 240,281     $ 239,309  
  Divided by: period end dilutive shares   52,252,362       43,895,204       43,935,264       43,925,155       43,995,016  
    Tangible common book value per share $ 5.22     $ 5.60     $ 5.58     $ 5.47     $ 5.44  
    Common book value per share $ 6.69     $ 6.49     $ 6.47     $ 6.37     $ 6.34  
                                       
Adjusted allowance for loan losses                                      
  Allowance for loan losses $ 9,832     $ 9,064     $ 8,742     $ 8,468     $ 8,590  
  Plus: acquisition accounting FMV adjustments to acquired loans   33,589       28,173       29,548       31,159       32,209  
    Adjusted allowance for loan losses $ 43,421     $ 37,237     $ 38,290     $ 39,627     $ 40,799  
  Divided by: total loans (excluding LHFS before FMV adjustments) $ 2,312,732     $ 1,769,988     $ 1,729,672     $ 1,688,622     $ 1,647,061  
    Adjusted allowance for loan losses to total loans   1.88 %     2.10 %     2.21 %     2.35 %     2.48 %
    Allowance for loan losses to total loans   0.43 %     0.52 %     0.51 %     0.51 %     0.53
%
                                       

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