×

Park Sterling Corporation Announces Third Quarter 2012 Results

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.



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
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.

CONTACT: David Gaines Chief Financial Officer (704) 716-2134 dgaines@parksterlingbank.com

Source: Park Sterling Bank

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%