Park Sterling Corporation Announces Record Operating Results for Fourth Quarter 2015

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

Three Month Highlights

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

Twelve Month Highlights

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

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

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

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

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

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

Financial Results

Income Statement - Three Months Ended December 31, 2015

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

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

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

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

Adjusted net interest margin, which excludes accelerated accretion from net acquisition accounting fair market value adjustments, was 3.54% in 2015Q4, representing a 3 basis point decrease from 3.57% in 2015Q3 and a 31 basis point decrease from 3.85% in 2014Q4. Accelerated accretion of net acquisition accounting fair market value adjustments ($(112,000) in 2015Q4, $69,000 in 2015Q3 and $134,000 in 2014Q4) reflects accelerated accretion of credit and interest rate marks resulting from borrowers repaying performing acquired loans faster than required by their contractual terms and/or restructuring loans in such a way as to effectively result in a new loan under the contractual cash flow method of accounting, both of which result in the associated remaining credit and interest rate marks being fully accreted into interest income. Adjustments to accelerated accretion resulted in a $112,000 reduction in net interest income in 2015Q4 due to the early payoff of an acquired performing loan that carried an amortizing premium purchase accounting fair market value interest rate adjustment. The reduction in adjusted net interest margin from both 2015Q3 and 2014Q4 resulted primarily from the decrease in loan yields discussed above.

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

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

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

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

Income Statement - Twelve Months Ended December 31, 2015

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

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

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

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

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

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

Balance Sheet

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

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

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

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

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

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

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

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

Asset Quality

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

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

During the first quarter of 2011, and as contemplated in Park Sterling Bank's 2010 public offering, 568,260 shares of restricted stock were issued but will not vest until the company's share price achieves certain performance thresholds above the equity offering price (these restricted stock awards, of which 554,400 remained outstanding at 2015Q3, vest one-third each when the share price reaches, for 30 consecutive days, $8.125, $9.10 and $10.40 per share, respectively). These performance thresholds have not yet been achieved. Accordingly, these additional shares have been excluded from earnings and tangible book value per share calculations.

Conference Call

A conference call will be held at 8:30 a.m., Eastern Time this morning (January 28, 2016). The conference call can be accessed by dialing (877) 512-1104 and requesting the Park Sterling Corporation earnings call. Listeners should dial in 10 minutes prior to the start of the call. The live webcast and presentation slides will be available on www.parksterlingbank.com under Investor Relations, "Investor Presentations."

A replay of the webcast will be available on www.parksterlingbank.com under Investor Relations, "Investor Presentations" shortly following the call. A replay of the conference call can be accessed approximately one hour after the call by dialing (877) 344-7529 and requesting conference number 10078029.

About Park Sterling Corporation
Park Sterling Corporation, the holding company for Park Sterling Bank, is headquartered in Charlotte, North Carolina. Park Sterling, a regional community-focused financial services company with approximately $3.1 billion in assets as of January 1, 2016, is the largest community bank headquartered in the Charlotte area and has 57 banking offices stretching across the Carolinas and into North Georgia, as well as in Richmond, Virginia. The bank serves professionals, individuals, and small and mid-sized businesses by offering a full array of financial services, including deposit, mortgage banking, cash management, consumer and business finance, capital markets and wealth management services with a commitment to "Answers You Can Bank On℠." Park Sterling prides itself on being large enough to help customers achieve their financial aspirations, yet small enough to care that they do. Park Sterling is focused on building a banking franchise that is noted for sound risk management, strong community focus and exceptional customer service. For more information, visit www.parksterlingbank.com. Park Sterling Corporation shares are traded on NASDAQ under the symbol PSTB.

Non-GAAP Financial Measures
Tangible assets, tangible common equity, tangible book value, adjusted net income, adjusted net interest margin, adjusted operating revenues, adjusted noninterest income, adjusted noninterest expenses, adjusted operating expense, adjusted allowance for loan losses, and related ratios and per share measures, including adjusted return on average assets and adjusted return on average equity, as used throughout this release, are non-GAAP financial measures. For additional information, see "Reconciliation of Non-GAAP Financial Measures" in the accompanying tables.

Cautionary Statement Regarding Forward Looking Statements
This news release contains, and Park Sterling and its management may make, certain statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts and often use words such as "may," "plan," "contemplate," "anticipate," "believe," "intend," "continue," expect," "project," "predict," "estimate," "could," "should," "would," "will," "goal," "target" and similar expressions. These forward-looking statements express management's current expectations or forecasts of future events, results and conditions and, by their nature, are subject to risks and uncertainties and there are a number of factors that could cause actual results to differ materially from those in such statements. Factors that might cause such a difference include, but are not limited to: synergies and other financial benefits from the merger with First Capital Bancorp, Inc. ("First Capital") may not be realized within the expected time frames; costs or difficulties related to integration matters might be greater than expected; changes in loan mix, deposit mix, capital and liquidity levels, emerging regulatory expectations and measures, net interest income, noninterest income, noninterest expense, credit trends and conditions, including loan losses, allowance for loan loss, charge-offs, delinquency trends and nonperforming asset levels, deterioration in the credit quality of the loan portfolio or the value of collateral securing loans, deterioration in the value of securities held for investment, the impacts of a potential increasing rate environment, and other similar matters with respect to Park Sterling; inability to identify and successfully negotiate and complete additional combinations with other potential merger partners or to successfully integrate such businesses into Park Sterling, including the company's ability to adequately estimate or to realize the benefits and cost savings from and limit any unexpected liabilities acquired as a result of any such business combinations; failure to generate an adequate return on investment related to new branches or other hiring initiatives; inability to generate future organic growth in loan balances, retail banking, wealth management, mortgage banking or capital markets results through the hiring of new personnel, development of new products, including new online and mobile banking platforms for treasury services, opening of de novo branches or otherwise; inability to capitalize on identified revenue enhancements or expense management opportunities, including the inability to achieve or maintain adjusted operating expense to adjusted operating revenue targets; inability to generate future ATM and card income from marketing expenses; variability in the performance of covered loans and associated loss-share related expenses; the effects of negative or soft economic conditions, including stress in the commercial real estate markets or failure of continued recovery in the residential real estate markets; changes in consumer and investor confidence and the related impact on financial markets and institutions; the possibility of recognizing other than temporary impairments on holdings of collateralized loan obligation securities as a result of the Volcker Rule; the potential impacts of any government shutdown or debt ceiling impasse, including the risk of a U.S. credit rating downgrade or default, or continued global economic instability, which could cause disruptions in the financial markets, impact interest rates, and cause other potential unforeseen consequences; fluctuations in the market price of the common stock, regulatory, legal and contractual requirements, other uses of capital, financial performance, market conditions generally, and future actions by the board of directors, in each case impacting repurchases of common stock or declaration of dividends; legal and regulatory developments, including changes in the federal risk-based capital rules; increased competition from both banks and nonbanks; changes in accounting standards, rules and interpretations, inaccurate estimates or assumptions in accounting, including acquisition accounting fair market value assumptions and accounting for purchased credit-impaired loans, and the impact on Park Sterling's financial statements; and management's ability to effectively manage credit risk, market risk, operational risk, legal risk, and regulatory and compliance risk.

You should not place undue reliance on any forward-looking statement and should consider all of the preceding uncertainties and risks, as well as those more fully discussed in any of Park Sterling's filings with the SEC. Forward-looking statements speak only as of the date they are made, and Park Sterling undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.

Non-GAAP Financial Measures
Tangible assets, tangible common equity, tangible book value, adjusted net income, adjusted net interest margin, adjusted noninterest income, adjusted operating revenues, adjusted noninterest expense, adjusted operating expenses, adjusted allowance for loan losses, and related ratios and per share measures, including adjusted return on average assets and adjusted return on average equity, as used throughout this release, are non-GAAP financial measures. Management uses (i) tangible assets, tangible common equity and tangible book value (which exclude goodwill and other intangibles from equity and assets), and related ratios, to evaluate the adequacy of shareholders' equity and to facilitate comparisons with peers; (ii) adjusted allowance for loan losses (which includes net FMV adjustments related to acquired loans) as supplemental information for comparing the combined allowance and fair market value adjustments to the combined acquired and non-acquired loan portfolios (fair market value adjustments are available only for losses on acquired loans); and (iii) adjusted net income and adjusted noninterest income (which exclude merger-related expenses and gain or loss on sale of securities, as applicable), adjusted net interest margin (which excludes accelerated accretion of net acquisition accounting fair market value adjustments and income from early redemption of investment securities), adjusted noninterest expense (which excludes merger-related expenses), adjusted operating expense (which excludes merger-related expenses and amortization of intangibles) and adjusted operating revenues (which includes net interest income and noninterest income and excludes gain or loss on sale of securities, as applicable) to evaluate core earnings and to facilitate comparisons with peers.