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Park Sterling Corporation Announces Third Quarter 2012 Results

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CHARLOTTE, N.C., Nov. 2, 2012 (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 third quarter of 2012. Highlights for the quarter compared to the three months and period ended September 30, 2012 include:

Financial Highlights

  • Reported net income of $620,000, or $0.02 per share
  • Excluding merger-related expenses of $1.4 million and gain on sale of securities of $1.0 million, reported net income of $987,000, or $0.03 per share
  • Increased non-acquired loan portfolio $16.8 million, or 4%, to $419.2 million
  • Increased noninterest income, excluding gain on sale of securities, $226,000, or 11%, to $2.3 million
  • Decreased nonperforming loans $3.0 million, or 15%, to 2.45% of total loans
  • Decreased nonperforming assets $4.7 million, or 13%, to 2.74% of total assets
  • Maintained strong capitalization, with tangible common equity to tangible assets of 17.31%

Business Highlights

  • Completed merger with Citizens South Banking Corporation on October 1, 2012
  • Completed merger of Citizens South Bank into Park Sterling Bank on October 10, 2012
  • Announced authorization for a 2.2 million share repurchase program

"Park Sterling's third quarter was marked by continued net loan growth in our metro markets, continued improvement in asset quality and continued profitability," said James C. Cherry, Chief Executive Officer.  "Excluding merger-related expenses and gain on sale of securities, we reported a $394,000, or 66%, increase in net income to $987,000, or $0.03 per share, for the third quarter compared to $593,000, or $0.02 per share, in the second quarter. The increase from the prior period resulted primarily from a lower provision for loan losses and higher noninterest income, led by strong results from our residential mortgage banking activities. We are very pleased with the company's financial results for both the quarter and the first nine months of the year. 

Despite continued pressure from both a continued deleveraging trend among borrowers and aggressive competitive pricing, Park Sterling was able to increase non-acquired loans by $16.8 million, or 4%, during the third quarter, matching the growth rate posted during the second quarter of 2012. Noninterest bearing deposits also continued to grow, increasing by $7.1 million, or 4%, during the period. Capitalization levels remained strong, as evidenced by a ratio of tangible common equity to tangible assets of 17.31%. Asset quality also continued to improve, as evidenced by a decrease in nonperforming assets of $4.7 million, or 13%, to $30.4 million, or 2.74% of total assets. Other measures of asset quality also improved during the period and, assuming we do not experience a 'double-dip' recession, we expect asset quality, in general, to either remain stable or improve throughout the remainder of the year.     

We completed our merger with Citizens South Banking Corporation on October 1, 2012, and the merger of Citizens South Bank into Park Sterling Bank on October 10, 2012. This partnership brings together two strong banks to create the largest community bank headquartered in the Charlotte region, with offices stretching across the Carolinas and into North Georgia. Customers of both Park Sterling and Citizens South will benefit from the enhanced product and service offerings of our larger company without sacrificing the friendly and personal service they expect from their community bank. Shareholders of both Park Sterling and Citizens South also will benefit from the enhanced scale and improved operating efficiency of the combined company.

Finally, yesterday, our board of directors approved a 2.2 million share repurchase program, which represents approximately 5% of our issued and outstanding dilutive share count. The intent of this program is take advantage of opportunities to repurchase Park Sterling shares when doing so is believed to produce an attractive risk-return for our shareholders relative to the company's other investment opportunities. We believe this authorization reflects our directors' confidence in the financial position and growth outlook for Park Sterling."    

Third Quarter 2012 Financial Results

Net Income (Loss)

Three Month Results

Park Sterling reported net income of $620,000, or $0.02 per share, for the three months ended September 30, 2012. This compares to net income of $678,000, or $0.02 per share, for the three months ended June 30, 2012 and a net loss of $1.4 million, or $0.05 per share, for the three months ended September 30, 2011. The decrease in reported net income from the prior quarter primarily reflects higher merger-related expenses related to the acquisitions of both Community Capital Corporation, in November 2011, and Citizens South Banking Corporation, in October 2012. The increase in net income from the prior year resulted primarily from lower provision for loan losses, the inclusion of Community Capital and the company's organic growth initiatives. 

Excluding merger-related expenses and gain on sale of securities, net income increased $394,000, or 66%, to $987,000, or $0.03 per share, for the three months ended September 30, 2012 compared to $593,000, or $0.02 per share, for the three months ended June 30, 2012. The increase in net income from the prior quarter primarily reflects lower provision for loan losses and higher noninterest income, led by strong results from the company's residential mortgage banking operations.

Net interest income totaled $10.0 million for the three months ended September 30, 2012, which represented a $129,000, or 1%, decrease from the second quarter of 2012 and a $6.1 million, or 159%, increase from the third quarter of 2011. The decrease from the three months ended June 30, 2012 resulted from a $210,000, or 2%, decline in interest income, which more than offset improved funding costs. This decrease in interest income included a $146,000, or 12%, decline in investment income and a $70,000, or 1%, decline in loan income, including loan fees. The decrease in investment income resulted primarily from a 15 basis point decline in investment yields to 1.87%. The decrease in loan income, including fees, resulted primarily from a $9.8 million, or 1%, decline in average loan balances during the third quarter. The increase in net interest income from the prior year resulted primarily from the acquisition of Community Capital.   

Net interest margin was 3.97% in the third quarter of 2012, representing a 4 basis point decrease from 4.01% in the second quarter of 2012 and a 129 basis point improvement from 2.68% in the third quarter of 2011.  Excluding the impact of accelerated accretion from credit and interest rate marks associated with acquisition accounting adjustments for performing acquired loans, as accounted for under the contractual cash flow method of accounting, net interest margin was 3.98% in the third quarter of 2012, representing a 8 basis point improvement from 3.90% in the second quarter of 2012 and a 130 basis point improvement from 2.68% in the third quarter of 2011. Accelerated accretion results 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 $17,000 reversal of net interest income in the third quarter of 2012, compared to a $277,000 contribution to net interest income in the second quarter of 2012.   

Provision for loan losses was $7,000 for the three months ended September 30, 2012, compared to $899,000 for the three months ended June 30, 2012 and $568,000 in the third quarter of 2011. The decrease in provision expense resulted from improvement in asset quality. In addition, second quarter results included $450,000 of provision expense associated with acquired loans, comprised of a $195,000 specific reserve associated with an acquired performing loan and a $255,000 impairment in one of the company's six purchase credit impaired (PCI) loan pools. This compares to a $37,000 provision expense associated with a net impairment in the company's PCI loan pools in the third quarter.   

Noninterest income was $3.3 million for the three months ended September 30, 2012, compared to $2.6 million for the three months ended June 30, 2012 and $111,000 for the three months ended September 30, 2011. Excluding gain on sale of securities, noninterest income increased $226,000, or 11%, to $2.3 million in the third quarter of 2012, compared to $2.1 million in the second quarter of 2012. This improvement in core operations reflects continued strength in both the company's mortgage banking operations, which reported a $122,000, or 23%, increase in revenues to $662,000, and its deposit services, which reported a $25,000, or 8%, increase in revenues to $324,000. Income from wealth management activities increased $5,000, or 1%, to $666,000 in the third quarter of 2012, compared to the second quarter of 2012. Noninterest income was a modest $111,000 for the three months ended September 30, 2011 due to the company's more limited product capabilities prior to the acquisition of Community Capital. 

Noninterest expenses totaled $12.2 million for the third quarter of 2012, which represented a $1.3 million, or 12%, increase compared to $10.9 million for the second quarter of 2012, and a $7.0 million, or 134%, increase compared to $5.2 million for the third quarter of 2011. Excluding merger-related expenses of $1.4 million and $434,000, respectively, noninterest expenses increased $410,000, or 4%, to $10.8 million for the three months ended September 30, 2012, compared to $10.4 million for the three months ended June 30, 2012. This increase resulted primarily from cyclical loan collection and OREO expenses, which together grew $294,000, or 27%, to $1.4 million in the third quarter of 2012, compared to $1.1 million in the second quarter of 2012. The increase in noninterest expense from the third quarter of 2011 resulted from the acquisition of Community Capital and the company's growth initiatives.         

Nine Month Results

Park Sterling reported net income of $3.0 million, or $0.09 per share, for the nine months ended September 30, 2012 compared to a net loss of $7.4 million, or $0.21 per share, for the nine months ended September 30, 2011. Net interest income increased $20.2 million, or 174%, to $31.8 million as a result of higher earning assets and improved margins resulting from the acquisition of Community Capital and the company's growth initiatives. Provision expense decreased $7.2 million, or 88%, to $1.0 million as a result of improved asset quality. Noninterest income increased from $214,000 for the nine months ended September 30, 2011 to $7.8 million for the nine months ended September 30, 2012 as a result of new product capabilities following the acquisition of Community Capital. Noninterest expense increased from $14.9 million for the nine months ended September 30, 2011 to $34.0 million for the nine months ended September 30, 2012 due to the merger with Community Capital, the company's growth initiatives and increased OREO expenses. 

Balance Sheet and Capital

Linked-Quarter Comparisons

Total assets decreased $8.9 million, or 1%, to $1.1 billion at September 30, 2012 compared to the total assets at June 30, 2012.  Cash and equivalents increased $31.4 million, or 42%, to $106.5 million as a result of cash generated during the third quarter from declining investment balances, including the sale of approximately $23.8 million in securities to fund the cash portion of the Citizens South merger consideration. Total loans, which exclude loans held for sale, decreased $4.2 million, or 1%, to $708.2 million at September 30, 2012.  This decrease included a $21.1 million, or 7%, reduction in acquired loans to $289.0 million, which was partially offset by a $16.8 million, or 4%, increase in non-acquired loans to $419.2 million. The net increase in non-acquired loans was driven by both new loan originations and transfers from performing acquired loan pools (due to restructurings). New loan origination remains somewhat tempered as a result of aggressive competition in the market with respect to interest rates.  However, the company posted net loan growth in Raleigh and Wilmington, North Carolina, and Greenville and Charleston, South Carolina, as well as in its asset-based lending group, during the third quarter, excluding loans managed in the company's special assets group.    

Loan mix shifted during the third quarter. The combination of commercial and industrial and owner-occupied real estate loans increased $2.2 million, or 1%, to $231.5 million at September 30, 2012. This component of the portfolio represented 32.7% of total loans at September 30, 2012 compared to 32.2% at June 30, 2012. Investor owned real estate loans increased $9.4 million, or 5%, to $206.8 million, and represented 29.2% of total loans at September 30, 2012 compared to 27.7% at June 30, 2012. Acquisition, construction and development loans decreased $5.6 million to $81.0 million, and represented 11.4% of total loans at September 30, 2012 compared to 12.2% at June 30, 2012. Residential mortgage decreased $8.8 million, or 13%, to $58.1 million as the company deemphasized balance sheet mortgage products and remediated problem assets, and represented 8.2% of total loans at September 30, 2012 compared to 9.4% at June 30, 2012. Finally, home equity lines of credit ("HELOC") decreased $971,000, or 1%, to $82.7 million during the third quarter, due in part to lower usage, and remained at 11.7% of total loans.

Total deposits decreased $10.4 million, or 1%, during the third quarter to $831.7 million, reflecting lower funding needs. Deposit mix continued to improve.  Noninterest bearing demand deposits increased $7.1 million, or 4%, during the third quarter, due primarily to continued emphasis in this area, and represented 19.9% of total deposits at September 30, 2012, compared to 18.9% at June 30, 2012. Money market, NOW and savings deposits increased $9.1 million, or 3%, during the third quarter and represented 41.1% of total deposits at September 30, 2012 compared to 39.5% at June 30, 2012. Non-brokered time deposits decreased $17.5 million, or 8%, during the third quarter due primarily to re-pricing strategies intended to enhance profitability.  As a result, non-brokered time deposits declined to 23.1% of total deposits at September 30, 2012 from 24.9% at June 30, 2012. Finally, brokered deposits decreased $9.0 million, or 6%, to $131.5 million at September 30, 2012 million due to lower funding needs. Brokered deposits represented 15.8% of total deposits at September 30, 2012, compared to 16.7% at June 30, 2012.

Total borrowings decreased $445,000, or 1%, to $68.7 million at September 30, 2012, compared $69.2 million at June 30, 2012. Borrowings currently include $5.7 million of Tier 1-eligible subordinated debt and $6.9 million of Tier 2-eligible subordinated debt. Shareholders' equity increased $1.6 million, or 1%, to $195.8 million at September 30, 2012. Tangible common equity as a percentage of tangible assets remained very strong at 17.31%. Tier 1 leverage ratio also remained very strong at 15.39%. 

Prior Year Comparisons

Total assets increased $527.8 million, or 91%, to $1.1 billion at September 30, 2012, compared to $582.4 million at September 30, 2011. This increase reflects both the acquisition of Community Capital and the company's organic growth initiatives.  Cash and equivalents increased $50.0 million, or 88%, and total loans increased $340.9 million, or 93%, net of acquisition accounting fair market value adjustments, compared to the prior year period. Loan mix improved over the twelve months, with exposure to acquisition, construction and development loans declining from 14.0% of total loans at September 30, 2011 to 11.4% of total loans at September 30, 2012. In addition, from September 30, 2011 to September 30, 2012, the combination of commercial and industrial and owner-occupied real estate increased from 31.7% to 32.7% of total loans, 1-4 family increased from 5.4% to 8.2% of total loans, and HELOC decreased from 15.5% to 11.7% of total loans.  

Total deposits increased $456.7 million, or 122%, to $831.7 million at September 30, 2012, compared to $375.0 million at September 30, 2011. This increase reflects both the merger with Community Capital and the company's organic growth initiatives. Deposit mix improved over the prior twelve months, with noninterest bearing demand deposits increasing from 11.4% to 19.9% of total deposits, MMDA, NOW and savings increasing from 32.0% to 41.1% of total deposits, and brokered deposits decreasing from 22.8% of total deposits at September 30, 2011 to 15.8% of total deposits at September 30, 2012.  

Total borrowings increased $40.7 million, or 146%, to $68.7 million at September 30, 2012, compared to $28.0 million at September 30, 2011 due to the assumption of debt, net of acquisition accounting fair market value adjustments, at Community Capital.  Shareholders' equity increased $21.2 million, or 12%, to $195.8 million due primarily to the issuance of 4,024,269 shares as consideration in the Community Capital merger, which represented approximately $15.5 million of equity capital.

Year-to-Date Comparisons

The company reported total assets of $1.1 billion at both September 30, 2012 and December 31, 2011. Cash and equivalents increased $78.0 million, or 273%, as funds were generated from a $23.5 million, or 11%, decrease in investments and a $50.8 million, or 7%, decrease in loans compared to the year-end period. Loan mix improved over the nine months, with exposure to acquisition, construction and development loans declining from 12.2% of total loans at December 31, 2011 to 11.4% of total loans at September 30, 2012. Over this same nine month period, the combination of commercial and industrial and owner-occupied real estate decreased slightly from 33.0% to 32.7%%, residential mortgage decreased from 10.5% to 8.2% of total loans, and HELOC decreased from 11.9% to 11.7% of total loans. 

Total deposits decreased $15.0 million, or 2%, to $831.7 million at September 30, 2012, compared to $846.6 million at December 31, 2011. Deposit mix improved over the nine months, with noninterest bearing demand deposits increasing from 16.8% to 19.9% of total deposits, MMDA, NOW and savings increasing from 39.4% to 41.1% of total deposits, and total time deposits decreasing from 43.7% of total deposits at December 31, 2011 to 39.0% of total deposits at September 30, 2012.  

Total borrowings increased $6.7 million, or 11%, to $68.7 million at September 30, 2012, compared to $62.1 million at December 31, 2011. Shareholders' equity increased $5.8 million, or 3%, to $195.8 million at September 30, 2012 compared to $190.1 million at December 31, 2011 due primarily to retained earnings.

Asset Quality

Asset quality continued to improve during the third quarter of 2012, reflecting stabilizing economic conditions in the company's markets, continued management focus on problem assets and continued discipline in the origination of new loans.  Pass grade loans increased to 94.9% of total loans (excluding loans held for sale and deferred fees) at September 30, 2012, up from 94.0% at June 30, 2012, 93.3% at December 31, 2011 and 85.4% at September 30, 2011.  Nonperforming loans decreased $3.0 million, or 15%, during the third quarter, to $17.3 million, or 2.45% of total loans, at September 30, 2012. This compares to 2.85% of total loans at June 30, 2012, 2.66% of total loans at December 31, 2011 and 5.84% of total loans at September 30, 2011.  Nonperforming assets decreased $4.7 million, or 13%, during the third quarter, to $30.3 million and represented 2.74% of total assets at September 30, 2012. This compares to 3.13% of total assets at June 30, 2012, 3.25% of total assets at December 31, 2011 and 4.93% of total assets at September 30, 2011. Within nonperforming assets, OREO decreased $1.7 million, or 12%, to $13.0 million during the third quarter as sales of properties outpaced new foreclosures. Troubled debt restructurings increased $4.0 million, or 116%, to $7.4 million during the third quarter, primarily due to the inclusion of a new $3.6 million restructured commercial real estate loan.    

Net charge-offs decreased $793,000, or 77%, to $231,000 in the third quarter of 2012, representing 0.13% of average loans (annualized). This compares to net charge-offs of $1.0 million, or 0.56% of average loans (annualized) in the second quarter of 2012, net charge-offs of $789,000, or 0.51% of average loans (annualized) in the fourth quarter of 2011 and net charge-offs of $2.0 million, or 2.19% of total loans (annualized) in the third quarter of 2011.  The allowance for loan losses was $9.2 million, or 1.30% of total loans at September 30, 2012. This compares to $9.4 million, or 1.32% of total loans, at June 30, 2012, $10.2 million, or 1.34% of total loans, at December 31, 2011, and $9.8 million, or 2.68% of total loans, at September 30, 2011.  The reduction in the total allowance at September 30, 2012 reflects the overall decline in total loans during the third quarter, while the slight decrease in the allowance percentage reflects improving asset quality. Adjusting for acquired loans, the allowance for loan losses represented 2.08% of non-acquired loans at September 30, 2012, compared to 2.23% of non-acquired loans at June 30, 2012, 2.57% of non-acquired loans at December 31, 2011, and 2.68% of non-acquired loans at September 30, 2011. 

During the first quarter of 2011, and as contemplated in the 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 vest one-third each when the share price reaches, for 30 consecutive days, $8.125, $9.10 and $10.40 per share, respectively). 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 (November 2, 2012). The conference call can be accessed by dialing (877) 317-6789 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 10020166.

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 over $2 billion in assets following the acquisition of Citizens South, is the largest community bank in the Charlotte area and has 45 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. 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 Measures

Tangible assets, tangible common equity, tangible book value, net income (loss) excluding merger-related expenses and gain on sale of securities, net interest margin excluding the effects of accelerated mark accretion, noninterest expenses excluding merger-related expenses, asset quality measures excluding the effects of acquired loans, and related ratios and per share measures, as used throughout this release, are non-GAAP financial measures. Management uses tangible assets, tangible common equity and tangible book value and related ratios to evaluate the adequacy of shareholders' equity and to facilitate comparisons with peers; asset quality measures excluding the effects of acquired loans to evaluate both its asset quality and asset quality trends, and to facilitate comparisons with peers; and net income (loss) excluding merger-related expenses and gain on sale of securities, noninterest expenses excluding merger-related expenses, and net interest margin excluding the effects of accelerated mark accretion to evaluate core earnings (loss). For additional information, see "Reconciliation of Non-GAAP 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, including financial and other estimates and expectations regarding the merger with Citizens South Banking Corporation; the general business strategy of engaging in bank mergers, organic growth,  branch openings and closing, expansion or addition of product capabilities, expected footprint of the banking franchise and anticipated asset size; anticipated loan growth; changes in loan mix and deposit mix; capital and liquidity levels; net interest income; credit trends and conditions, including loan losses, allowance for loan loss, charge-offs, delinquency trends and nonperforming asset levels; the amount, timing and prices of share repurchases; and other similar matters. These forward-looking statements are not guarantees of future results or performance and by their nature involve certain risks and uncertainties that are based on management's beliefs and assumptions and on the information available to Park Sterling at the time that these disclosures were prepared. Actual outcomes and results may differ materially from those expressed in, or implied by, any of these forward-looking statements.

You should not place undue reliance on any forward-looking statement and should consider all of the following uncertainties and risks, as well as those more fully discussed in any of Park Sterling's filings with the SEC: failure to realize synergies and other financial benefits from the Community Capital or Citizens South mergers within the expected time frames; increases in expected costs or decreases in expected savings or difficulties related to integration of the mergers; 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 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; the impact of deterioration of the United States credit standing; 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 or modification, extension or termination of the authorization by the board of directors, in each case impacting purchases of common 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.

 PARK STERLING CORPORATION           
 CONDENSED CONSOLIDATED INCOME STATEMENT           
 THREE MONTH RESULTS           
 ($ in thousands, except per share amounts)   September 30,   June 30,   March 31,   December 31,   September 30, 
  2012 2012 2012 2011 2011
  (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
 Interest income           
 Loans, including fees   $ 10,346  $ 10,416  $ 12,110  $ 8,285  $ 4,283
 Federal funds sold   16  15  8  5  22
 Taxable investment securities   848  996  1,084  837  681
 Tax-exempt investment securities   187  186  185  184  181
 Interest on deposits at banks   34  28  10  29  44
 Total interest income   11,431  11,641  13,397  9,340  5,211
 Interest expense           
 Money market, NOW and savings deposits   339  333  326  269  158
 Time deposits   632  720  821  836  868
 Short-term borrowings   --  --  3  1  1
 FHLB advances   149  148  161  135  140
 Subordinated debt   340  341  367  286  190
 Total interest expense   1,460  1,542  1,678  1,527  1,357
 Net interest income   9,971  10,099  11,719  7,813  3,854
 Provision for loan losses   7  899  123  1,110  568
 Net interest income after provision   9,964  9,200  11,596  6,703  3,286
 Noninterest income           
 Service charges on deposit accounts   324  299  314  241  23
 Income from fiduciary activities   605  555  540  418  --
 Fees and commissions from brokerage   61  106  59  29  --
 Gain on sale of securities available for sale   989  489  --  --  --
 Mortgage banking income   662  540  461  297  --
 Income from bank owned life insurance   294  260  259  213  52
 Other noninterest income   383  343  322  222  36
 Total noninterest income   3,318  2,592  1,955  1,420  111
 Noninterest expenses           
 Salaries and employee benefits   6,297  5,882  6,124  6,245  3,051
 Occupancy and equipment   928  860  820  662  369
 Advertising and promotion   144  108  161  132  115
 Legal and professional fees   1,198  603  312  505  721
 Deposit charges and FDIC insurance   261  270  291  116  134
 Data processing and outside service fees   784  752  1,349  402  142
 Communication fees   198  196  232  119  51
 Postage and supplies   110  125  196  279  58
 Core deposit intangible amortization   102  102  102  68  --
 Net cost of operation of other real estate owned   964  809  522  400  101
 Loan and collection expense   434  295  244  255  180
 Other noninterest expense   783  861  650  853  294
 Total noninterest expenses   12,203  10,863  11,003  10,036  5,216
 Income (loss) before income taxes   1,079  929  2,548  (1,913)  (1,819)
 Income tax expense (benefit)   459  251  825  (931)  (443)
 Net income (loss)   $ 620  $ 678  $ 1,723  $ (982)  $ (1,376)
           
 Earnings (loss) per share, fully diluted   $ 0.02  $ 0.02  $ 0.05  $ (0.03)  $ (0.05)
 Weighted average diluted shares   32,138,554  32,120,402  32,075,398  30,719,363  28,051,098
 PARK STERLING CORPORATION     
 CONDENSED INCOME STATEMENT     
 NINE MONTH RESULTS     
 ($ in thousands, expect per share amounts)  September 30, September 30,
  2012 2011
  (Unaudited) (Unaudited)
 Interest income     
 Loans, including fees   $ 32,873  $ 13,491
 Federal funds sold   38  85
 Taxable investment securities   2,928  2,046
 Tax-exempt investment securities   559  533
 Interest on deposits at banks   73  69
 Total interest income   36,471  16,224
 Interest expense     
 Money market, NOW and savings deposits   981  475
 Time deposits   2,191  3,174
 Short-term borrowings   3  2
 FHLB advances   457  422
 Subordinated debt   1,047  569
 Total interest expense   4,679  4,642
 Net interest income   31,792  11,582
 Provision for loan losses   1,029  8,275
 Net interest income after provision   30,763  3,307
 Noninterest income     
 Service charges on deposit accounts   935  74
 Income from fiduciary activities   1,700  --
 Fees and commissions from brokerage   226  --
 Gain on sale of securities available for sale   1,478  20
 Mortgage banking income   1,663  --
 Income from bank owned life insurance   813  52
 Other noninterest income   986  68
 Total noninterest income   7,801  214
 Noninterest expenses     
 Salaries and employee benefits   18,303  8,533
 Occupancy and equipment   2,712  971
 Advertising and promotion   413  240
 Legal and professional fees   2,113  2,233
 Deposit charges and FDIC insurance   777  603
 Data processing and outside service fees   2,772  347
 Communication fees   626  113
 Postage and supplies   431  144
 Core deposit intangible amortization   307  --
 Net cost of operation of other real estate owned   2,295  429
 Loan and collection expense   974  375
 Other noninterest expense   2,285  923
 Total noninterest expenses   34,008  14,911
 Income (loss) before income taxes   4,556  (11,390)
 Income tax expense (benefit)   1,535  (4,013)
 Net income (loss)   $ 3,021  $ (7,377)
     
 Earnings (loss) per share, fully diluted   $ 0.09  $ (0.21)
 Weighted average diluted shares   32,111,550  28,051,098
 PARK STERLING CORPORATION           
 CONDENSED CONSOLIDATED BALANCE SHEETS           
 ($ in thousands)   September 30,   June 30,   March 31,   December 31,   September 30, 
  2012 2012 2012 2011* 2011
   (Unaudited)   (Unaudited)   (Unaudited)     (Unaudited) 
 ASSETS           
 Cash and due from banks   $ 47,115  $ 15,898  $ 18,016  $ 18,426  $ 14,962
 Interest earning balances at banks   37,256  29,795  15,567  10,115  36,311
 Investment securities available-for-sale   186,802  222,221  232,464  210,146  130,667
 Nonmarketable equity securities   4,599  5,470  8,510  8,510  1,968
 Federal funds sold   22,165  29,455  20,085  --  5,295
 Loans held for sale   6,095  5,331  8,055  6,254  1,559
 Loans   708,283  712,506  727,862  759,047  367,412
 Allowance for loan losses   (9,207)  (9,431)  (9,556)  (10,154)  (9,833)
 Net loans   699,076  703,075  718,306  748,893  357,579
           
 Premises and equipment   26,729  24,619  24,371  24,515  5,335
 Other real estate owned   13,028  14,744  16,674  14,403  5,691
 Bank owned life insurance   26,945  26,689  26,456  26,223  8,052
 Goodwill   622  622  649  428  --
 Intangible assets   3,715  3,817  3,920  4,022  --
 Deferred tax asset   29,068  29,841  30,143  31,131  10,144
 Other assets   6,973  7,542  7,535  10,156  4,820
           
 Total assets   $ 1,110,188  $ 1,119,119  $ 1,130,751  $ 1,113,222  $ 582,383
           
 LIABILITIES AND SHAREHOLDERS' EQUITY           
           
 Deposits:           
 Demand noninterest-bearing   $ 165,899  $ 158,838  $ 148,929  $ 142,652  $ 42,890
 Money market, NOW and savings   341,788  332,648  329,633  333,968  120,017
 Time deposits   323,988  350,548  377,875  370,017  212,085
 Total deposits   831,675  842,034  856,437  846,637  374,992
           
 Short-term borrowings   1,135  1,678  852  9,765  1,083
 FHLB advances   55,000  55,000  55,000  40,000  20,000
 Subordinated debt   12,592  12,494  12,396  12,296  6,895
 Accrued expenses and other liabilities   13,982  13,727  13,250  14,470  4,796
 Total liabilities   914,384  924,933  937,935  923,168  407,766
           
 Shareholders' equity:           
 Common stock   32,707  32,644  32,644  32,644  28,619
 Additional paid-in capital   173,826  173,381  172,873  172,390  160,368
 Accumulated deficit   (14,839)  (15,459)  (16,137)  (17,860)  (16,878)
 Accumulated other comprehensive income   4,110  3,620  3,436  2,880  2,508
 Total shareholders' equity   195,804  194,186  192,816  190,054  174,617
           
 Total liabilities and shareholders' equity   $ 1,110,188  $ 1,119,119  $ 1,130,751  $ 1,113,222  $ 582,383
           
 Common shares issued and outstanding   32,706,627  32,706,627  32,643,627  32,643,627  28,619,358
           
* Derived from audited financial statements.          
PARK STERLING CORPORATION
SUMMARY OF LOAN PORTFOLIO
($ in thousands) September 30, June 30, March 31, December 31, September 30,
  2012 2012 2012 2011* 2011
  (Unaudited) (Unaudited) (Unaudited)   (Unaudited)
Commercial:          
 Commercial and industrial  $ 70,155  $ 67,821  $ 72,094  $ 80,746  $ 44,939
 Commercial real estate - owner-occupied  161,360  161,467  166,064  169,663  71,549
 Commercial real estate - investor income producing  206,808  197,368  193,641  194,460  108,558
 Acquisition, construction and development  81,027  86,612  87,065  92,349  51,522
 Other commercial  13,059  13,486  13,518  15,658  3,193
 Total commercial loans  532,409  526,754  532,382  552,876  279,761
           
Consumer:          
 Residential mortgage  58,062  66,876  75,377  79,512  19,816
 Home equity lines of credit  82,690  83,661  86,029  90,408  56,787
 Residential construction  25,872  25,559  24,670  25,126  4,787
 Other loans to individuals  9,839  10,119  9,635  11,496  6,530
 Total consumer loans  176,463  186,215  195,711  206,542  87,920
 Total loans  708,872  712,969  728,093  759,418  367,681
 Deferred costs (fees)  (589)  (463)  (231)  (371)  (269)
 Total loans, net of deferred costs (fees)  $ 708,283  $ 712,506  $ 727,862  $ 759,047  $ 367,412
           
PCI Loans (included in the table above):          
($ in thousands) September 30, June 30, March 31, December 31,  
  2012 2012 2012 2011*  
  (Unaudited) (Unaudited) (Unaudited)    
Commercial:          
 Commercial and industrial  $ 1,154  $ 1,642  $ 2,101  $ 4,276  
 Commercial real estate - owner-occupied  8,616  8,637  8,964  9,953  
 Commercial real estate - investor income producing  11,290  11,478  13,662  14,006  
 Acquisition, construction and development  14,880  19,242  20,585  24,243  
 Other commercial  48  51  53  57  
 Total commercial loans  35,988  41,050  45,365  52,535  
           
Consumer:          
 Residential mortgage  5,490  5,643  9,087  9,447  
 Home equity lines of credit  339  341  342  343  
 Residential construction  920  922  922  1,351  
 Other loans to individuals  86  89  127  142  
 Total consumer loans  6,835  6,995  10,478  11,283  
 Total loans  42,823  48,045  55,843  63,818  
 Deferred costs (fees)  --  --  --  --  
 Total loans, net of deferred costs (fees)  $ 42,823  $ 48,045  $ 55,843  $ 63,818  
           
* Derived from audited financial statements.          
PARK STERLING CORPORATION          
ALLOWANCE FOR LOAN LOSSES          
THREE MONTH RESULTS          
($ in thousands) September 30, June 30, March 31, December 31, September 30,
  2012 2012 2012 2011 2011
  (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Beginning of period allowance  $ 9,431  $ 9,556  $ 10,154  $ 9,833  $ 11,277
Provision for loan losses  7  899  123  1,110  568
Loans charged-off  1,102  1,262  828  1,295  2,113
Recoveries of loans charged-off  871  238  107  506  101
End of period allowance  9,207  9,431  9,556  10,154  9,833
           
Net loans charged-off  $ 231  $ 1,024  $ 721  $ 789  $ 2,012
Annualized net charge-offs 0.13% 0.56% 0.39% 0.51% 2.19%
PARK STERLING CORPORATION            
AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS          
THREE MONTHS            
($ in thousands) September 30, 2012     September 30, 2011    
  Average Income/ Yield/ Average Income/ Yield/
  Balance Expense Rate Balance Expense Rate (3)
Assets            
Interest-earning assets:            
 Loans with fees (1)(2)  $ 719,397  $ 10,346 5.72%  $ 368,670  $ 4,283 4.61%
 Fed funds sold  26,374  16 0.24%  36,505  22 0.24%
 Taxable investment securities  202,152  848 1.68%  120,423  681 2.26%
 Tax-exempt investment securities  17,774  187 4.21%  16,201  181 4.47%
 Other interest-earning assets  32,972  34 0.41%  28,922  44 0.60%
             
 Total interest-earning assets  998,669  11,431 4.55%  570,721  5,211 3.62%
             
Allowance for loan losses  (9,586)      (10,698)    
Cash and due from banks  17,902      14,315    
Premises and equipment  24,986      5,087    
Goodwill  622      --    
Intangible assets  3,750      --    
Other assets  76,579      27,629    
             
 Total assets  $ 1,112,922      $ 607,054    
             
Liabilities and shareholders' equity            
Interest-bearing liabilities:            
 Interest-bearing demand  $ 83,813  $ 61 0.29%  $ 12,770  $ 3 0.09%
 Savings and money market  249,760  278 0.44%  107,069  155 0.57%
 Time deposits - core  199,843  301 0.60%  141,154  487 1.37%
 Time deposits - brokered  135,950  331 0.97%  93,906  381 1.61%
 Total interest-bearing deposits  669,366  971 0.58%  354,899  1,026 1.15%
 Federal Home Loan Bank advances  55,000  149 1.08%  20,000  140 2.78%
 Subordinated debt  13,883  340 9.74%  6,895  190 10.93%
 Other borrowings  --  -- 0.00%  1,523  1 0.26%
 Total borrowed funds  68,883  489 2.82%  28,418  331 4.62%
             
 Total interest-bearing liabilities  738,249  1,460 0.79%  383,317  1,357 1.40%
             
Net interest rate spread    9,971 3.77%    3,854 2.22%
             
Noninterest-bearing demand deposits  165,050      44,130    
Other liabilities  13,610      5,210    
Shareholders' equity  196,013      174,397    
             
Total liabilities and shareholders' equity  $ 1,112,922      $ 607,054    
             
Net interest margin      3.97%     2.68%
Net interest margin (fully tax-equivalent) (4)     4.03%     2.72%
             
(1) Nonaccrual loans are included in the average loan balances.           
(2) Interest income and yields for September 30, 2012 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.
(4) Fully tax-equivalent basis at 42.54% and 24.35% tax rate at September 30, 2012 and 2011, respectively, for nontaxable securities and loans.  
PARK STERLING CORPORATION          
SELECTED RATIOS          
($ in thousands, except per share amounts) September 30, June 30, March 31, December 31, September 30,
  2012 2012 2012 2011* 2011
  Unaudited Unaudited Unaudited   Unaudited
ASSET QUALITY          
Nonaccrual loans  $ 9,792  $ 16,757  $ 17,703  $ 16,256  $ 19,448
Troubled debt restructuring  7,390  3,428  3,451  3,972  2,001
Past due 90 days plus (and still accruing)  164  131  698  --   -- 
Nonperforming loans  17,346  20,316  21,852  20,228  21,449
OREO  13,028  14,744  16,674  14,403  5,691
Loans held for sale (nonaccruing)  --   --   --   1,560  1,559
Nonperforming assets  30,374  35,060  38,526  36,191  28,699
Past due 30-59 days (and still accruing)  1,040  992  742  2,401  655
Past due 60-89 days (and still accruing)  561  74  764  924  819
           
Nonperforming loans to total loans 2.45% 2.85% 3.00% 2.66% 5.84%
Nonperforming assets to total assets 2.74% 3.13% 3.41% 3.25% 4.93%
Allowance to total loans 1.30% 1.32% 1.31% 1.34% 2.68%
Allowance to nonperforming loans 53.08% 46.42% 43.73% 50.20% 45.84%
Allowance to nonperforming assets 30.31% 26.90% 24.80% 28.06% 34.26%
Past due 30-89 days (accruing) to total loans 0.23% 0.15% 0.21% 0.44% 0.40%
           
CAPITAL          
Book value per share  $ 6.09  $ 6.04  $ 6.01  $ 5.93  $ 6.22
Tangible book value per share  $ 5.96  $ 5.90  $ 5.87  $ 5.79  $ 6.22
Common shares outstanding  32,706,627  32,706,627  32,643,627  32,643,627  28,619,358
Dilutive common shares outstanding  32,138,554  32,138,402  32,075,398  32,075,367  28,051,098
           
Tier 1 capital  $ 165,345  $ 162,167  $ 161,337  $ 160,122  $ 162,207
Tier 2 capital  16,103  16,326  16,451  17,049  13,124
Total risk based capital  181,447  178,494  177,788  177,171  175,331
Risk weighted assets  774,035  769,382  786,703  819,762  439,708
Average assets for leverage ratio  1,074,410  1,087,079  1,092,468  901,067  596,997
           
           
Tier 1 ratio 21.36% 21.08% 20.51% 19.53% 36.89%
Total risk based capital ratio 23.44% 23.20% 22.60% 21.61% 39.87%
Tier 1 leverage ratio 15.39% 14.92% 14.77% 17.77% 27.17%
Tangible common equity to tangible assets 17.31% 17.02% 16.72% 16.74% 29.98%
           
LIQUIDITY          
Net loans to total deposits 84.06% 83.50% 83.87% 88.46% 95.36%
Liquidity ratio 32.27% 32.38% 30.94% 25.36% 49.70%
           
INCOME STATEMENT (THREE MONTH RESULTS; ANNUALIZED)        
Return on Average Assets 0.22% 0.24% 0.61% -42.00% -0.91%
Return on Average Equity 1.26% 1.40% 3.60% -2.11% -3.16%
Net interest margin (non-tax equivalent) 3.97% 4.01% 4.65% 3.67% 2.69%
           
INCOME STATEMENT (ANNUAL RESULTS)          
Return on Average Assets n/a n/a n/a -1.20% n/a
Return on Average Equity n/a n/a n/a -4.69% n/a
Net interest margin (tax equivalent) n/a n/a n/a 3.06% n/a
           
* Balance sheet information derived from audited financial statements. Income statement information unaudited.     


Non-GAAP Measures

Tangible assets, tangible common equity, tangible book value, net income (loss) excluding merger-related expenses and gain on sale of securities, net interest margin excluding the effects of accelerated mark accretion, noninterest expenses excluding merger-related expenses, asset quality measures excluding the effects of acquired loans, and related ratios and per share measures, as used throughout this release, are non-GAAP financial measures. Management uses tangible assets, tangible common equity and tangible book value and related ratios to evaluate the adequacy of shareholders' equity and to facilitate comparisons with peers; asset quality measures excluding the effects of acquired loans to evaluate both its asset quality and asset quality trends, and to facilitate comparisons with peers; and net income (loss) excluding merger-related expenses and gain on sale of securities, noninterest expenses excluding merger-related expenses, and net interest margin excluding the effects of accelerated mark accretion  to evaluate core earnings (loss).

PARK STERLING CORPORATION          
RECONCILIATION OF NON-GAAP MEASURES          
($ in thousands, except per share amounts)          
   September 30,   June 30,   March 31,   December 31,   September 30, 
  2012 2012 2012 2011 2011
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
 Net income excluding merger-related expenses and gain on sale of securities         
Pretax income (loss)  $ 1,079  $ 929  $ 2,548  $ (1,913)  $ (1,819)
Plus: merger-related expenses  1,364  434  930  2,609  496
Less: gain on sale of securities  (989)  (489)  --  --  --
Pretax income (loss)  1,454  874  3,478  696  (1,323)
Tax expense (benefit)   467  281  1,118  264  (501)
Net income excluding merger-related expenses and gain on sale  $ 987  $ 593  $ 2,360  $ 432  $ (822)
Divided by: weighted average diluted shares  32,138,554  32,120,402  32,075,398  30,719,363  28,051,098
Net income per share excluding merger-related expenses and gain on sale  $ 0.03  $ 0.02  $ 0.07  $ 0.01  $ (0.03)
           
Estimated tax rate 32.15% 32.15% 32.15% 37.90% 37.90%
           
 Tangible common equity to tangible assets           
Total assets  $ 1,110,188  $ 1,119,119  $ 1,130,751  $ 1,113,222  $ 582,383
Less: intangible assets  4,337  4,439  4,569  4,644  -- 
Tangible assets  $ 1,105,851  $ 1,114,680  $ 1,126,182  $ 1,108,578  $ 582,383
           
Total common equity  $ 195,804  $ 194,186  $ 192,816  $ 190,054  $ 174,617
Less: intangible assets  4,337  4,439  4,569  4,644  -- 
Tangible common equity  $ 191,467  $ 189,747  $ 188,247  $ 185,410  $ 174,617
           
Tangible common equity  $ 191,467  $ 189,747  $ 188,247  $ 185,410  $ 174,617
Divided by: tangible assets  $ 1,105,851  $ 1,114,680  $ 1,126,182  $ 1,108,578  $ 582,383
Tangible common equity to tangible assets 17.31% 17.02% 16.72% 16.73% 29.98%
           
 Tangible book value per share           
Issued and outstanding shares  32,706,627  32,706,627  32,643,627  32,643,627  28,619,358
Add: dilutive stock options  187  35  31  --  --
Deduct: nondilutive restricted awards  568,260  568,260  568,260  568,260  568,260
Period end dilutive shares  32,138,554  32,138,402  32,075,398  32,075,367  28,051,098
           
Tangible common equity  $ 191,467  $ 189,747  $ 188,247  $ 185,410  $ 174,617
Divided by: period end dilutive shares  32,138,554  32,138,402  32,075,398  32,075,367  28,051,098
Tangible common book value per share  $ 5.96  $ 5.90  $ 5.87  $ 5.78  $ 6.22
           
 Net interest margin excluding accelerated mark accretion           
Net interest income  $ 9,971  $ 10,099  $ 11,719  $ 7,813  $ 3,854
Less: accelerated mark accretion  17  (277)  (1,469)  --  --
Net interest income excluding accelerated mark accretion  9,988  9,822  10,250  7,813  3,854
Divided by: average earning assets  998,669  1,012,579  1,013,688  844,684  570,720
Mutliplied by: annualization factor  3.98  4.02  4.02  3.97  3.97
Net interest margin excluding accelerated mark accretion 3.98% 3.90% 4.07% 3.67% 2.68%
           
 Noninterest income excluding gain on sale of securities           
Noninterest income  $ 3,318  $ 2,592  $ 1,955  $ 1,420  $ 111
Less: gain on sale of securities  (989)  (489)  --  --  --
Noninterest income excluding gain on sale of securities  $ 2,329  $ 2,103  $ 1,955  $ 1,420  $ 111
           
 Noninterest expense excluding merger-related expenses           
Noninterest expense  $ 12,203  $ 10,863  $ 11,003  $ 10,036  $ 5,216
Less: merger-related expenses  (1,364)  (434)  (930)  (2,609)  (496)
Noninterest expense excluding merger-related expenses  10,839  10,429  10,073  7,427  4,720
           
 Allowance measures excluding acquired loans           
Total loans  $ 708,283  $ 712,506  $ 727,862  $ 759,047  $ 367,412
Less: loans acquired with Community Capital  (289,090)  (310,149)  (341,017)  (363,500)  --
Loans excluding acquired loans   $ 419,193  $ 402,357  $ 386,845  $ 395,547  $ 367,412
           
Allowance for loan losses  $ 9,207  $ 9,431  $ 9,556  $ 10,154  $ 9,833
Less: allowance related to acquired loans  (486)  (450)  --  --  --
Allowance for loan losses excluding acquired loans   $ 8,721  $ 8,981  $ 9,556  $ 10,154  $ 9,833
Divided by: loans excluding acquired loans  419,193  402,357  386,845  395,547  367,412
Allowance for loan losses to loans excluding acquisition 2.08% 2.23% 2.47% 2.57% 2.68%
CONTACT: David Gaines Chief Financial Officer (704) 716-2134 dgaines@parksterlingbank.com
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