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

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

Highlights

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

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

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

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

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

Second Quarter 2013 Financial Results

Income Statement

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

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

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

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

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

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

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

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

Balance Sheet

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

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

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

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

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

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

Asset Quality

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

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

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

Conference Call

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

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

About Park Sterling Corporation

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

Non-GAAP Financial Measures

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

Cautionary Statement Regarding Forward Looking Statements

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

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

Non-GAAP Financial Measures

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