SOURCE: Park Sterling Corporation

Park Sterling Corporation

October 29, 2015 07:00 ET

Park Sterling Corporation Announces Record Results for Third Quarter 2015

CHARLOTTE, NC--(Marketwired - October 29, 2015) - 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 2015. Highlights at and for the three months ended September 30, 2015 include:

Highlights

  • Net income increased $509,000 (12%) to a record $4.8 million, or $0.11 per share, compared to $4.3 million, or $0.10 per share, in the quarter ended June 30, 2015
  • Adjusted net income, which excludes merger-related expenses and gain or loss on sale of securities, increased $384,000 (9%) to a record $4.8 million, or $0.11 per share, compared to $4.4 million, or $0.10 per share, in the prior quarter
  • Annualized return on average assets of 0.77% compared to 0.71% in the prior quarter
  • Organic loan growth, excluding loans held for sale, of $42.7 million, or 10% annualized growth rate
  • Nonperforming loans decreased $181 thousand (2%) to 0.50% of total loans from 0.52% at June 30, 2015
  • Nonperforming assets decreased $1.8 million (10%) to 0.67% of total assets from 0.75% at June 30, 2015
  • Tangible common equity to tangible assets remained strong at 10.02%
  • Declared quarterly cash dividend on common shares of $0.03 per share (October 2015)
  • Announced expansion in Richmond through proposed merger with First Capital Bancorp, Inc. (October 2015)

"We are very pleased to report Park Sterling's third consecutive quarter of record earnings," said James C. Cherry, Chief Executive Officer. "For the three months ended September 30, 2015, we reported a $509,000, or 12%, increase in net income to a record $4.8 million, or $0.11 per share, compared to net income of $4.3 million, or $0.10 per share, reported last quarter. While net interest income slipped modestly due to lower margins, the company benefitted from lower provision expense, higher noninterest income and disciplined expense management.

"Results included $642,000 in expense related to the closure of three additional branches in South Carolina, bringing the total number of branch closures to five this year. This expense was partially offset by a $417,000 non-taxable bank-owned life insurance death benefit and $54,000 in securities gains. While it is always difficult to make decisions that impact our employees and communities, we understand that reallocating resources from underperforming activities to more promising areas is essential to building a strong company and we will remain diligent on that front.

"The company posted 10% annualized organic loan growth, led by continued strong performance in our metropolitan markets which posted $36.8 million, or 16% annualized growth. Deposits increased $71.9 million, or 15% annualized, as we continued our success in attracting noninterest bearing deposits, introduced a new high-yield money market account in the Richmond market and refocused efforts on preserving retail time deposit relationships.

"In addition, asset quality continued to improve from already attractive levels, as nonperforming loans to total loans decreased two basis points to 0.50% and nonperforming assets to total assets decreased eight basis points to 0.67%, compared to June 30, 2015. Finally, capitalization remains strong with tangible common equity to tangible assets of 10.02% and a Tier 1 leverage ratio of 10.92%. On the capital management front, yesterday the board declared a quarterly dividend of $0.03 per common share, payable on November 25, 2015 to all shareholders of record as of the close of business on November 11, 2015. Future dividends will be subject to board approval. Additionally, during the third quarter we repurchased 4,000 shares under our previously announced 2.2 million share repurchase program.

"As you know, on October 1st we announced our proposed merger with First Capital Bancorp, Inc. I want to again share my excitement in partnering with First Capital. Our management teams have already begun working together toward building Richmond's premier community bank. This early work has reinforced our belief in both the strong business and cultural fits between our two companies as well as the exceptional opportunities ahead for our combined company. We remain confident, subject to receipt of requisite regulatory and shareholder approvals and other customary closing conditions, that this transformational partnership will be positive for our shareholders, customers, communities and employees.

"Overall, we are pleased to report these strong financial results and believe that Park Sterling is well positioned to continue pursuing our vision of building a full-service regional community-focused banking franchise across the Carolinas and Virginia."

Financial Results

Income Statement -- Three Months Ended September 30, 2015

Park Sterling reported a $509,000, or 12%, increase in net income to a record $4.8 million, or $0.11 per share, for the three months ended September 30, 2015 ("2015Q3"). This compares to net income of $4.3 million, or $0.10 per share, for the three months ended June 30, 2015 ("2015Q2") and net income of $2.5 million, or $0.06 per share, for the three months ended September 30, 2014 ("2014Q3"). The increase in net income from 2015Q2 resulted from lower provision expense and higher noninterest income, which were partially offset by lower net interest income and higher noninterest expense. The increase in net income from 2014Q3 resulted from higher noninterest income and lower noninterest expense, driven by a decrease in merger related expenses reported in 2014Q3 related to the acquisition of Provident Community Bancshares, Inc. ("Provident Community"), which were partially offset by lower net interest income and higher provision expense, as 2014Q3 had a net release of provision of $484,000.

Park Sterling reported a $384,000, or 9%, increase in adjusted net income, which excludes merger-related expenses and gain or loss on sale of securities, to a record $4.8 million, or $0.11 per share, in 2015Q3. This compares to adjusted net income of $4.4 million, or $0.10 per share, in 2015Q2 and adjusted net income of $4.0 million, or $0.09 per share, in 2014Q3. Compared to 2015Q2, adjusted net income reflects lower provision expense and higher noninterest income, which were partially offset by lower net interest income and higher noninterest expense. Compared to 2014Q3, adjusted net income reflects both higher noninterest income levels and lower noninterest expense, which were partially offset by lower net interest income and higher provision expense.

Net interest income totaled $20.4 million in 2015Q3, which represents a $254,000, or 1%, decrease from $20.6 million in 2015Q2. This decrease is attributable to decreased yields on interest earning assets and increased cost of interest-bearing liabilities. Net interest income decreased $370,000, or 2%, from $20.7 million in 2014Q3, resulting again from decreased yields on interest earning assets and increased cost of interest-bearing liabilities. Average total earning assets increased $70.9 million, or 3%, in 2015Q3 to $2.26 billion, compared to $2.19 billion in 2015Q2 and increased $189.4 million, or 9%, compared to $2.07 billion in 2014Q3. The increase in average total earning assets in 2015Q3 from 2015Q2 resulted from a $37.2 million, or 2% (9% annualized), increase in average loans (including loans held for sale) driven by organic growth, an $18.1 million, or 4%, increase in average marketable securities and a $15.6 million, or 30%, increase in average other interest-earning assets. The increase in average total earning assets in 2015Q3 from 2014Q3 resulted primarily from an $18.2 million, or 4%, increase in average marketable securities, a $165.3 million, or 11%, increase in average loans (including loans held for sale), and a $5.8 million, or 9%, increase in average other earning assets.

Net interest margin was 3.58% in 2015Q3, representing a 20 basis point decrease from 3.78% in 2015Q2 and a 40 basis point decrease from 3.98% in 2014Q3. The reduction in net interest margin from 2015Q2 resulted primarily from a 20 basis point decrease in yield on loans to 4.60%, driven by runoff in higher yielding seasoned loans, continued competitive pricing pressures and continued emphasis on floating rate structures. In addition, the cost of interest-bearing deposits increased 4 basis points to 0.38%, driven by the introduction of a a new high-yield money market account in our Richmond market and higher selective pricing to preserve retail time deposits. The reduction in net interest margin from 2014Q3 resulted primarily from a 56 basis point decrease in yield on loans, due primarily to lower interest rates on new loans, and a 2 basis point increase in the cost of interest-bearing liabilities.

Adjusted net interest margin, which excludes accelerated accretion from net acquisition accounting fair market value adjustments and income in 2015Q2 from the early redemptions of two investment securities, was 3.57% in 2015Q3, representing a 20 basis point decrease from 3.77% in 2015Q2 and a 38 basis point decrease from 3.95% in 2014Q3. Accelerated accretion of net acquisition accounting fair market value adjustments ($69,000 in 2015Q3, $52,000 in 2015Q2 and $173,000 in 2014Q3) reflects accelerated accretion of credit and interest rate marks resulting from borrowers repaying performing acquired loans faster than required by their contractual terms and/or restructuring loans in such a way as to effectively result in a new loan under the contractual cash flow method of accounting, both of which result in the associated remaining credit and interest rate marks being fully accreted into interest income. The reduction in adjusted net interest margin from both 2015Q2 and 2014Q3 resulted primarily from the decrease in loan yields discussed above.

The company reported no provision for loan losses in 2015Q3, compared to $134,000 in provision expense in 2015Q2 and a net release of provision of $484,000 in 2014Q3. Allowance for loan loss levels held at 0.51% of total loans at 2015Q3 compared to 2015Q2. The 2015Q2 provision was driven by impairments in the company's purchase credit impaired ("PCI") loan pools, as accounted for under ASC 310-30.

Noninterest income increased $635,000, or 15%, to $4.9 million in 2015Q3, compared to $4.3 million in 2015Q2 and increased $1.8 million, or 57%, compared to $3.1 million in 2014Q3. The increase from 2015Q2 was driven primarily by non-customer related activities, including (i) a $505,000, or 91%, increase in income from bank owned life insurance ("BOLI") due to a higher death benefit ($417,000 in 2015Q3, $47,000 in 2015Q2, $0 in 2014Q3); and (ii) a $273,000, or 310%, increase in other noninterest income due primarily to the reclassification in 2015Q2 of $250,000 in income to reductions of capital on certain limited partnership investments based on final 2014 partnership documentation received. Customer-related activities continue to reflect the value of our balanced business model, including a $263,000, or 24%, increase in service charges on deposit accounts and a $41,000, or 5%, increase in income from wealth management activities when comparing 2015Q3 and 2015Q2. Partially offsetting these net improvements in customer-related activity was (i) a $256,000, or 27%, decrease in mortgage banking income; (ii) a $156,000 decrease in income from capital markets activities; and (iii) a $92,000 decrease in ATM and card income as a result in part of a $38,000 increase in expenses related to a special marketing program designed to increase future card usage. The increase in noninterest income from 2014Q3 reflects higher service charges on deposit accounts, higher wealth management income, lower amortization on the FDIC loss share indemnification asset and true-up liability expense, and the BOLI death benefit received in 2015Q3.

Noninterest expenses increased $187,000, or 1%, to $18.4 million in 2015Q3 compared to $18.2 million in 2015Q2, and decreased $2.2 million compared to $20.6 million in 2014Q3. Adjusted noninterest expenses, which exclude merger-related expenses ($31,000 in 2015Q3, $167,000 in 2015Q2 and $2.2 million in 2014Q3), increased $323,000, or 2%, to $18.4 million in 2015Q3 compared to $18.1 million in 2015Q2, and decreased $31,000, or 0.2%, compared to $18.4 million in 2014Q3. Overall the increase in adjusted noninterest expenses from 2015Q2 resulted from $642,000 in write-downs in fixed assets and other expenses related to additional branch closures. This increase was offset by continued expense management efforts, with decreases of $69,000 in salaries and employee benefits, $162,000 in legal and professional fees, and $91,000 in loan and collection expenses, as well as a $69,000 decrease in net cost of operation of OREO.

The company's effective tax rate decreased to 30.5% in 2015Q3 compared to 34.7% in 2015Q2, which resulted from the larger nontaxable BOLI death benefit in 2015Q3. The company's effective tax rate decreased compared to 33.8% in 2014Q3, also due to the larger nontaxable BOLI death benefit in 2015Q3.

Income Statement -- Nine Months Ended September 30, 2015

Park Sterling reported a $3.4 million, or 36%, increase in net income for the nine months ended September 30, 2015 ("2015YTD") to $12.8 million, or $0.29 per share, compared to net income for the nine months ended September 30, 2014 ("2014YTD") of $9.4 million, or $0.21 per share. The increase in net income from 2014YTD resulted from higher net interest income and noninterest income, offset partially by an increase in provision expense and noninterest expenses.

Net interest income totaled $61.4 million in 2015YTD, which represents a $4.3 million, or 8%, increase from $57.1 million in 2014YTD. This increase is primarily attributable to having higher average earning assets as a result of both the Provident Community acquisition and organic loan growth. Net interest margin was 3.73% in 2015YTD, representing a 24 basis point decrease from 3.97% in 2014YTD. The reduction in net interest margin from 2014YTD resulted primarily from a 52 basis point decrease in yield on loans, due to lower interest rates on new loans, offset by a 7 basis point decrease in the cost of interest-bearing liabilities.

The company reported $314 thousand in provision for loan losses in 2015YTD, compared to a net release of provision of $866 thousand in 2014YTD. The current period provision was driven by impairments in the company's PCI loan pools, as accounted for under ASC 310-30, as well as organic loan growth.

Noninterest income increased $3.1 million, or 29%, to $13.7 million in 2015YTD, compared to $10.6 million in 2014YTD. The increase from 2014YTD reflects higher BOLI death benefits received in 2015, higher service charges on deposit accounts, in part due to the Provident Community acquisition, as well as higher income from each of mortgage banking, wealth management, and capital markets and lower amortization on the FDIC loss share indemnification asset and true-up liability expense.

Noninterest expense increased $1.2 million, or 2%, in 2015YTD to $55.8 million compared to $54.6 million in 2014YTD. The increase in noninterest expense from 2014YTD resulted primarily from increased expenses as a result of the Provident Community acquisition and costs related to the closure of branches in 2015.

The company's effective tax rate increased slightly to 32.5% in 2015YTD compared to 32.3% in 2014YTD.

Balance Sheet

Total assets increased $41.3 million, or 2%, to $2.49 billion at 2015Q3 compared to total assets of $2.44 billion at 2015Q2. Cash and equivalents increased $13.9 million, or 31%, to $58.2 million as a result of deposit growth. Total securities, including non-marketable securities, decreased $5.4 million, to $522.3 million. Total securities included one investment in a senior tranche of a collateralized loan obligation ("CLO") totaling $5.0 million in fair value at 2015Q3, with respect to which the collateral eligibility requirements have not yet been amended to comply with the new bank investment criteria under the Volcker Rule. The security had a net unrealized loss of $38,600 at 2015Q3 that could result in the company recognizing other-than-temporary impairment should it ultimately be determined not to comply with the Volcker Rule.

Total loans, excluding loans held for sale, increased $42.7 million, or 10% annualized, to $1.70 billion at 2015Q3 from 2015Q2. The company's metropolitan markets, which include Charlotte, Raleigh and Wilmington, North Carolina, Greenville and Charleston, South Carolina and Richmond, Virginia, reported a $36.8 million, or 16% annualized, increase in total loans to $938.1 million, due to continued success in origination efforts. The community markets reported a $9.0 million, or 9% annualized, decrease in total loans to $376.0 million, primarily due to more limited attractive lending opportunities. The company's central business units, which primarily include mortgage, builder finance, private banking and special assets, reported a $14.9 million, or 16% annualized, increase in total loans to $386.1 million, as growth in mortgage, private banking and builder finance more than offset reductions in special asset loans, including covered loans.

The company's loan mix shifted slightly at 2015Q3 compared to 2015Q2. The combination of commercial and industrial and owner-occupied real estate loans increased from 31.4% to 31.8% of total loans and investor-owned commercial real estate increased from 30.1% to 30.3% of total loans. Acquisition, construction and development decreased to 9.5% from 10.1% of total loans. Total consumer loans held at 27.9% of total loans, with home equity lines of credit decreasing to 9.3% from 9.5%, other consumer decreasing from 1.7% to 1.5%, residential mortgages increasing from 13.0% to 13.2% and residential construction increasing from 3.8% to 3.9%.

In terms of accounting designations, compared to 2015Q2: (i) non-acquired loans, which include certain renewed and/or restructured acquired performing loans that are re-designated as non-acquired, increased $70.2 million, or 23% annualized, to $1.30 billion; (ii) acquired performing loans decreased $17.3 million, or 22% annualized, to $300.1 million; and (iii) purchase credit impaired ("PCI") loans decreased $10.3 million, or 37% annualized, to $102.5 million. At 2015Q3, noncovered performing acquired loans (which totaled $298.5 million) included a $2.1 million net acquisition accounting fair market value adjustment, representing a 0.71% "mark;" noncovered PCI loans (which totaled $85.8 million) included a $23.2 million adjustment, representing a 21.29% "mark;" and covered performing acquired and PCI loans (which totaled $18.3 million) included a $4.2 million adjustment, representing an 18.63% "mark."

Total deposits increased $71.9 million, or 15% annualized, to $1.95 billion at 2015Q3, compared to $1.87 billion at 2015Q2, primarily reflecting continued success in attracting noninterest bearing deposits and introduction of a new high-yield money market account in Richmond. Noninterest bearing demand deposits increased $23.7 million, or 27% annualized, to $370.8 million (19% of total deposits). Non-brokered money market, NOW and savings deposits increased $50.1 million, or 21% annualized, to $976.5 million (50% of total deposits). Time deposits less than $250,000 increased $5.7 million, to $407.6 million (21% of total deposits) and time deposits greater than $250,000 decreased $5.6 million, to $57.4 million (3% of total deposits). Finally, brokered deposits decreased $1.9 million or 5% annualized, to $134.5 million (7% of total deposits). Core deposits, which exclude time deposits greater than $250,000 and brokered deposits, represented 90.1% of total deposits at 2015Q3 and 89.4% of total deposits at 2015Q2.

Total borrowings decreased $49.8 million, or 19%, to $209.1 million at 2015Q3 compared to $258.9 million at 2015Q2. Borrowings at 2015Q3 included $185.0 million in FHLB borrowings and $24.1 million of acquired trust preferred securities, net of acquisition accounting fair market value adjustments.

Total shareholders' equity increased $4.5 million, or 2%, to $284.2 million at 2015Q3 compared to $279.7 million at 2015Q2, driven by an increase in retained earnings and lower unrealized losses in the marketable securities portfolio. The company's ratio of tangible common equity to tangible assets increased to 10.02% at 2015Q3 from 9.99% at 2015Q2.

On January 1, 2015, the Basel III federal regulatory standards became effective. As permitted for regulated institutions that are not designated as "advanced approach" banking organizations (those with assets greater than $250 billion or with foreign exposures greater than $10 billion), the company made a one-time, permanent election to opt out of the requirement to include most components of accumulated other comprehensive income ("AOCI") in regulatory capital. The company's Common Equity Tier 1 ("CET1") ratio decreased modestly to 13.21% at 2015Q3 compared to 13.30% at 2015Q2 due to an increase in risk weighted assets. The company's Tier 1 leverage ratio was 10.92% at 2015Q3 compared to 11.09% at 2015Q2.

Asset Quality

Asset quality remains a point of strength for the company. Nonperforming assets decreased $1.8 million, or 10%, to $16.6 million at 2015Q3, or 0.67% of total assets, compared to $18.4 million at 2015Q2, or 0.75% of total assets. Nonperforming loans decreased $181,000, or 2%, to $8.5 million at 2015Q3, and represent 0.50% of total loans, compared to $8.7 million at 2015Q2, or 0.52% of total loans. The company reported net recoveries of $294,000, or 0.07% of average loans (annualized), in 2015Q3, compared to charge-offs of $327,000, or 0.08% of average loans (annualized), in 2015Q2. Included in charge-offs and provision expense for 2015Q2 was impairments related to PCI pools.

The allowance for loan losses increased $274,000, or 3%, to $8.7 million, or 0.51% of total loans, at 2015Q3, compared to $8.5 million, or 0.51% of total loans, at 2015Q2. The increase in allowance included (i) a $24,000, or 1%, decrease in the quantitative component, resulting from lower historic loss rates, (ii) a $347,000, or 6%, increase in the qualitative component, reflecting management judgment of inherent loss in the loan portfolio not represented in historic loss rates, and (iii) a $49,000, or 100%, decrease in reserves on PCI pools. Overall the increase in the allowance was due to loan growth, offset by a decrease in historic loss rates as well as continued improvement in nonperforming loans. Due to net recoveries of $294,000 during the quarter, there was no provision recorded in 2015Q3.

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

Conference Call

A conference call will be held at 8:30 a.m., Eastern Time this morning (October 29, 2015). The conference call can be accessed by dialing (888) 317-6016 and requesting the Park Sterling Corporation earnings call. Listeners should dial in 10 minutes prior to the start of the call. The live webcast and presentation slides will be available on www.parksterlingbank.com under Investor Relations, "Investor Presentations."

A replay of the webcast will be available on www.parksterlingbank.com under Investor Relations, "Investor Presentations" shortly following the call. A replay of the conference call can be accessed approximately one hour after the call by dialing (877) 344-7529 and requesting conference number 10067612.

About Park Sterling Corporation

Park Sterling Corporation, the holding company for Park Sterling Bank, is headquartered in Charlotte, North Carolina. Park Sterling, a regional community-focused financial services company with approximately $2.5 billion in assets, is the largest community bank headquartered in the Charlotte area and has 52 banking offices stretching across the Carolinas and into North Georgia, as well as in Richmond, Virginia. The bank serves professionals, individuals, and small and mid-sized businesses by offering a full array of financial services, including deposit, mortgage banking, cash management, consumer and business finance, capital markets and wealth management services with a commitment to "Answers You Can Bank On℠." Park Sterling prides itself on being large enough to help customers achieve their financial aspirations, yet small enough to care that they do. Park Sterling is focused on building a banking franchise that is noted for sound risk management, strong community focus and exceptional customer service. For more information, visit www.parksterlingbank.com. Park Sterling Corporation shares are traded on NASDAQ under the symbol PSTB.

Non-GAAP Financial Measures

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

Cautionary Statement Regarding Forward Looking Statements

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

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

Additional Information About the Merger and Where to Find It

In connection with the proposed merger between Park Sterling and First Capital, Park Sterling has filed with the Securities and Exchange Commission a Registration Statement on Form S-4 that includes a proxy statement of First Capital that also constitutes a preliminary prospectus of Park Sterling, as well as other relevant documents concerning the proposed merger. Once the Registration Statement is declared effective by the SEC, First Capital will mail a definitive Proxy Statement/Prospectus to its investors. INVESTORS ARE STRONGLY URGED TO READ THE REGISTRATION STATEMENT INCLUDING THE PRELIMINARY PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED MERGER FILED, AND OTHER RELEVANT DOCUMENTS THAT WILL BE FILED, WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS (INCLUDING DEFINITIVE PROXY STATEMENT/PROSPECTUS) AS THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION REGARDING THE PROPOSED MERGER. A free copy of the proxy statement/prospectus, as well as other filings containing information about Park Sterling and First Capital, may be obtained after their filing at the SEC's Internet site (http://www.sec.gov). In addition, free copies of documents filed with the SEC may be obtained on the respective websites of Park Sterling and First Capital at www.parksterlingbank.com and www.1capitalbank.com.

Participants in Solicitation

Park Sterling and First Capital and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies in connection with the proposed merger. Information about the directors and executive officers of Park Sterling and First Capital and other persons who may be deemed participants in this solicitation will be included in the proxy statement/prospectus. Information about Park Sterling's executive officers and directors can be found in Park Sterling's definitive proxy statement in connection with its 2015 Annual Meeting of Shareholders filed with the SEC on April 13, 2015. Information about First Capital's executive officers and directors can be found in First Capital's definitive proxy statement in connection with its 2015 Annual Meeting of Shareholders filed with the SEC on April 15, 2015. Free copies of these documents can be obtained from the sources indicated above.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any offer, solicitation or sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

              
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,  
  2015   2015   2015   2014   2014  
  (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)  
Interest income                         
 Loans, including fees $19,475   $19,667   $19,111   $19,482   $19,725  
 Taxable investment securities  2,636    2,508    2,791    2,598    2,597  
 Tax-exempt investment securities  152    143    138    138    138  
 Nonmarketable equity securities  142    122    127    108    103  
 Interest on deposits at banks  23    18    18    22    22  
 Federal funds sold  1    -    -    -    1  
  Total interest income  22,429    22,458    22,185    22,348    22,586  
Interest expense                         
 Money market, NOW and savings deposits  654    532    520    538    570  
 Time deposits  841    752    707    725    771  
 Short-term borrowings  90    76    76    -    1  
 Long-term FHLB advances  134    131    128    179    162  
 Subordinated debt  348    351    328    350    350  
  Total interest expense  2,067    1,842    1,759    1,792    1,854  
  Net interest income  20,362    20,616    20,426    20,556    20,732  
 Provision for loan losses  -    134    180    (420 )  (484 )
  Net interest income after provision  20,362    20,482    20,246    20,976    21,216  
Noninterest income                         
 Service charges on deposit accounts  1,370    1,107    1,019    1,109    1,137  
 Mortgage banking income  700    956    951    922    822  
 Income from wealth management activities  947    906    862    869    783  
 Income from capital market activities  238    394    398    149    364  
 ATM and card income  537    629    694    727    631  
 Income from bank-owned life insurance  1,058    553    768    491    552  
 Gain (loss) on sale of securities available for sale  54    -    -    -    (63 )
 Amortization of indemnification asset and true-up liability expense  (162 )  (165 )  (394 )  (1,224 )  (1,345 )
 Other noninterest income  185    (88 )  203    308    257  
  Total noninterest income  4,927    4,292    4,501    3,351    3,138  
                          
Noninterest expenses                         
 Salaries and employee benefits  9,952    10,021    10,431    10,386    10,240  
 Occupancy and equipment  2,591    2,491    2,555    2,627    3,527  
 Data processing and outside service fees  1,668    1,640    1,648    1,652    1,907  
 Legal and professional fees  472    660    798    816    887  
 Deposit charges and FDIC insurance  401    433    392    442    441  
 Loss on disposal of fixed assets  597    113    237    2    317  
 Communication fees  501    541    578    519    480  
 Postage and supplies  123    116    149    146    176  
 Loan and collection expense  151    242    154    461    298  
 Core deposit intangible amortization  347    347    347    348    347  
 Advertising and promotion  313    304    374    474    564  
 Net cost of operation of other real estate owned  163    232    35    215    343  
   Other noninterest expense  1,140    1,092    1,441    1,219    1,121  
   Total noninterest expenses  18,419    18,232    19,139    19,307    20,648  
 Income before income taxes  6,870    6,542    5,608    5,020    3,706  
 Income tax expense  2,092    2,273    1,825    1,564    1,254  
  Net income $4,778   $4,269   $3,783   $3,456   $2,452  
                          
Earnings per common share, fully diluted $0.11   $0.10   $0.09   $0.08   $0.06  
Weighted average diluted common shares  44,287,019    44,301,895    44,326,833    44,323,628    44,233,532  
                          
      
PARK STERLING CORPORATION        
CONDENSED CONSOLIDATED INCOME STATEMENT      
NINE MONTH RESULTS        
($ in thousands, except per share amounts) September 30,   September 30,  
  2015   2014  
  (Unaudited)   (Unaudited)  
Interest income          
 Loans, including fees $58,253   $55,385  
 Taxable investment securities  7,935    6,720  
 Tax-exempt investment securities  433    493  
 Nonmarketable equity securities  391    254  
 Interest on deposits at banks  60    96  
 Federal funds sold  1    1  
  Total interest income  67,073    62,949  
Interest expense          
 Money market, NOW and savings deposits  1,706    1,732  
 Time deposits  2,299    2,430  
 Short-term borrowings  241    3  
 Long-term FHLB advances  394    416  
 Subordinated debt  1,027    1,282  
  Total interest expense  5,667    5,863  
  Net interest income  61,406    57,086  
Provision (release) for loan losses  314    (866 )
  Net interest income after provision  61,092    57,952  
Noninterest income          
 Service charges on deposit accounts  3,495    2,771  
 Mortgage banking income  2,607    1,719  
 Income from wealth management activities  2,715    2,331  
 Income from capital market activities  1,030    399  
 ATM and card income  1,860    1,905  
 Income from bank-owned life insurance  2,379    2,197  
 Gain on sale of securities available for sale  54    180  
 Amortization of indemnification asset and true-up liability expense  (721 )  (2,565 )
 Other noninterest income  301    1,665  
  Total noninterest income  13,720    10,602  
Noninterest expenses          
 Salaries and employee benefits  30,404    29,152  
 Occupancy and equipment  7,638    7,781  
 Data processing and outside service fees  4,956    4,797  
 Legal and professional fees  1,930    2,670  
 Deposit charges and FDIC insurance  1,226    1,049  
 Loss on disposal of fixed assets  946    398  
 Communication fees  1,619    1,454  
 Postage and supplies  389    521  
 Loan and collection expense  547    890  
 Core deposit intangible amortization  1,042    921  
 Advertising and promotion  991    1,020  
 Net cost of operation of other real estate owned  429    602  
 Other noninterest expense  3,674    3,372  
  Total noninterest expenses  55,791    54,627  
  Income before income taxes  19,021    13,927  
Income tax expense  6,190    4,494  
  Net income $12,831   $9,433  
           
Earnings per common share, fully diluted $0.29   $0.21  
Weighted average diluted common shares  44,294,191    44,224,682  
           
              
PARK STERLING CORPORATION                 
CONDENSED CONSOLIDATED BALANCE SHEETS                 
                     
($ in thousands) September 30,   June 30,   March 31,   December 31,   September 30,  
  2015   2015   2015**   2014*   2014**  
  (Unaudited)   (Unaudited)   (Unaudited)       (Unaudited)  
ASSETS                         
Cash and due from banks $16,096   $17,042   $17,402   $16,549   $16,505  
Interest-earning balances at banks  41,230    26,940    45,396    34,356    41,883  
Investment securities available for sale  401,820    402,489    382,946    375,683    367,262  
Investment securities held to maturity  109,072    111,633    108,918    115,741    117,463  
Nonmarketable equity securities  11,377    13,500    11,163    11,532    9,731  
Federal funds sold  920    360    325    485    465  
Loans held for sale  5,145    10,701    9,987    11,602    4,763  
Loans - Non-covered  1,681,227    1,637,115    1,576,760    1,538,354    1,503,558  
Loans - Covered  18,897    20,348    38,092    42,339    49,834  
Allowance for loan losses  (8,742 )  (8,468 )  (8,590 )  (8,262 )  (9,458 )
 Net loans  1,691,382    1,648,995    1,606,262    1,572,431    1,543,934  
                          
Premises and equipment, net  56,948    58,979    58,796    59,247    59,334  
FDIC receivable for loss share agreements  1,190    1,209    2,333    3,964    5,078  
Other real estate owned - non-covered  7,087    8,904    8,570    8,979    8,570  
Other real estate owned - covered  1,056    884    1,713    3,011    4,703  
Bank-owned life insurance  58,286    57,823    57,494    57,712    57,293  
Deferred tax asset  29,711    32,137    33,314    35,696    37,560  
Goodwill  29,197    29,197    29,197    29,197    29,197  
Core deposit intangible  9,918    10,265    10,612    10,960    11,307  
Other assets  14,699    12,822    13,436    12,085    11,249  
                          
 Total assets $2,485,134   $2,443,880   $2,397,864   $2,359,230   $2,326,297  
                          
LIABILITIES AND SHAREHOLDERS' EQUITY                         
                          
Deposits:                         
Demand noninterest-bearing $370,815   $347,162   $341,488   $321,019   $322,097  
Money market, NOW and savings  1,041,502    988,847    1,008,743    988,954    984,448  
Time deposits  534,541    538,932    533,906    541,381    558,063  
 Total deposits  1,946,858    1,874,941    1,884,137    1,851,354    1,864,608  
                          
Short-term borrowings  130,000    180,000    125,000    125,000    85,000  
Long-term FHLB borrowings  55,000    55,000    55,000    55,000    55,000  
Subordinated debt  24,092    23,922    23,752    23,583    23,413  
Accrued expenses and other liabilities  44,979    30,274    30,857    29,188    27,105  
 Total liabilities  2,200,929    2,164,137    2,118,746    2,084,125    2,055,126  
                          
Shareholders' equity:                         
 Common stock  44,909    44,911    44,877    44,860    44,851  
 Additional paid-in capital  222,587    222,271    223,139    222,819    222,507  
 Retained earnings  17,692    14,261    11,338    8,901    6,341  
 Accumulated other comprehensive loss  (983 )  (1,700 )  (236 )  (1,475 )  (2,528 )
 Total shareholders' equity  284,205    279,743    279,118    275,105    271,171  
                          
Total liabilities and shareholders' equity $2,485,134   $2,443,880   $2,397,864   $2,359,230   $2,326,297  
                          
 Common shares issued and outstanding  44,909,447    44,910,686    44,877,194    44,859,798    44,850,813  
* Derived from audited financial statements. Revised to reflect measurement period adjustments to goodwill.
** Revised to reflect measurement period adjustments to goodwill.
 
              
PARK STERLING CORPORATION                  
SUMMARY OF LOAN PORTFOLIO                  
($ in thousands)                  
  September 30,   June 30,   March 31,   December 31,  September 30,  
  2015   2015   2015   2014*  2014  
BY LOAN TYPE (Unaudited)   (Unaudited)   (Unaudited)      (Unaudited)  
Commercial:                        
 Commercial and industrial $211,741   $189,356   $186,295   $173,786  $173,309  
 Commercial real estate (CRE) - owner-occupied  328,327    330,853    337,739    333,782   330,303  
 CRE - investor income producing  514,118    498,190    470,555    470,647   464,390  
 Acquisition, construction and development (AC&D) - 1-4 Family Construction  27,299    31,500    28,650    29,401   32,932  
 AC&D - Lots and land  47,948    48,680    50,372    55,443   55,360  
 AC&D - CRE construction  85,643    86,570    84,116    71,590   53,459  
 Other commercial  8,830    7,212    5,931    5,045   5,281  
  Total commercial loans  1,223,906    1,192,361    1,163,658    1,139,694   1,115,034  
                         
Consumer:                        
 Residential mortgage  224,110    214,850    209,384    205,150   198,968  
 Home equity lines of credit  157,430    156,960    154,415    155,297   154,792  
 Residential construction  66,823    62,973    59,233    55,882   56,482  
 Other loans to individuals  24,896    27,696    25,845    22,586   26,444  
  Total consumer loans  473,259    462,479    448,877    438,915   436,686  
   Total loans  1,697,165    1,654,840    1,612,535    1,578,609   1,551,720  
 Deferred costs (fees)  2,959    2,623    2,317    2,084   1,672  
   Total loans, net of deferred costs (fees) $1,700,124   $1,657,463   $1,614,852   $1,580,693  $1,553,392  
                         
* Derived from audited financial statements.                   
                         
   September 30,    June 30,    March 31,    December 31,   September 30,  
   2015    2015    2015    2014*   2014  
BY ACQUIRED AND NON-ACQUIRED  (Unaudited)    (Unaudited)    (Unaudited)        (Unaudited)  
Acquired loans - performing $300,102   $317,394   $341,078   $364,789  $388,243  
Acquired loans - purchase credit impaired  102,537    112,819    119,943    133,241   149,652  
 Total acquired loans  402,639    430,213    461,021    498,030   537,895  
Non-acquired loans, net of deferred costs (fees)**  1,297,485    1,227,250    1,153,831    1,082,663   1,015,497  
 Total loans $1,700,124   $1,657,463   $1,614,852   $1,580,693  $1,553,392  
* Derived from audited financial statements.
** Includes loans transferred from acquired pools following release of acquisition accounting FMV adjustments.
 
               
PARK STERLING CORPORATION                   
ALLOWANCE FOR LOAN LOSSES                   
THREE MONTH RESULTS                   
($ in thousands) September 30,   June 30,   March 31,   December 31,   September 30,  
  2015   2015   2015   2014   2014  
  (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)  
Beginning of period allowance $8,468   $8,590   $8,262   $9,458   $9,178  
Loans charged-off  (121 )  (572 )  (265 )  (984 )  (175 )
Recoveries of loans charged-off  415    245    413    208    939  
 Net charge-offs  294    (327 )  148    (776 )  764  
                          
Provision expense (release)  -    205    180    (420 )  (484 )
Benefit attributable to FDIC loss share agreements  -    (71 )  -    -    -  
 Total provision expense charged to operations  -    134    180    (420 )  (484 )
Provision expense recorded through FDIC loss share receivable  (20 )  71    -    -    -  
 End of period allowance $8,742   $8,468   $8,590   $8,262   $9,458  
                          
Net charge-offs (recoveries) $(294 ) $327   $(148 ) $776   $(764 )
Net charge-offs (recoveries) to average loans  -0.07 %  0.08 %  -0.04 %  0.20 %  -0.20 %
(annualized)                         
                          
                
PARK STERLING CORPORATION                     
AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS                    
THREE MONTHS                     
($ in thousands) September 30, 2015          September 30, 2014         
  Average   Income/  Yield/   Average   Income/  Yield/  
  Balance   Expense  Rate (3)   Balance   Expense  Rate (3)  
Assets                          
Interest-earning assets:                          
 Loans and loans held for sale, net (1)(2) $1,681,017   $19,475  4.60 % $1,515,671   $19,725  5.16 %
 Fed funds sold  1,237    1  0.32 %  777    1  0.51 %
 Taxable investment securities  491,586    2,636  2.14 %  475,779    2,597  2.18 %
 Tax-exempt investment securities  15,248    152  3.99 %  12,817    138  4.31 %
 Other interest-earning assets  67,215    165  0.97 %  61,862    125  0.80 %
                           
  Total interest-earning assets  2,256,303    22,429  3.94 %  2,066,906    22,586  4.34 %
                           
Allowance for loan losses  (8,724 )          (9,744 )        
Cash and due from banks  16,010            18,640          
Premises and equipment  57,867            59,644          
Goodwill  29,197            29,942          
Intangible assets  10,087            11,531          
Other assets  112,294            127,582          
                           
  Total assets $2,473,034           $2,304,501          
                           
Liabilities and shareholders' equity                          
Interest-bearing liabilities:                          
 Interest-bearing demand $382,897   $60  0.06 % $372,875   $81  0.09 %
 Savings and money market  564,187    530  0.37 %  525,456    431  0.33 %
 Time deposits - core  467,547    719  0.61 %  496,316    646  0.52 %
 Brokered deposits  138,655    186  0.53 %  141,526    183  0.51 %
  Total interest-bearing deposits  1,553,286    1,495  0.38 %  1,536,173    1,341  0.35 %
 Short-term borrowings  166,630    90  0.21 %  4,469    1  0.09 %
 Long-term FHLB borrowings  55,000    134  0.97 %  118,609    162  0.54 %
 Subordinated debt  24,003    348  5.75 %  23,323    350  5.95 %
  Total borrowed funds  245,633    572  0.92 %  146,401    513  1.39 %
                           
  Total interest-bearing liabilities  1,798,919    2,067  0.46 %  1,682,574    1,854  0.44 %
                           
Net interest rate spread       20,362  3.49 %       20,732  3.90 %
                           
Noninterest-bearing demand deposits  359,800            323,716          
Other liabilities  31,889            26,358          
Shareholders' equity  282,426            271,853          
                           
Total liabilities and shareholders' equity $2,473,034           $2,304,501          
                           
Net interest margin          3.58 %          3.98 %
                           
(1) Nonaccrual loans are included in the average loan balances.                  
(2) Interest income and yields for the three months ended September 30, 2015 and 2014 include accretion from acquisition accounting adjustments associated with acquired loans.    
(3) Yield/ rate calculated on Actual/Actual day count basis, except for yield on investments which is calculated on a 30/360 day count basis.  
  
               
PARK STERLING CORPORATION                     
AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS                    
NINE MONTHS                     
($ in thousands) September 30, 2015          September 30, 2014         
  Average   Income/  Yield/   Average   Income/  Yield/  
  Balance   Expense  Rate (3)   Balance   Expense  Rate (3)  
Assets                          
Interest-earning assets:                          
 Loans and loans held for sale, net (1)(2) $1,642,736   $58,253  4.74 % $1,406,750   $55,385  5.26 %
 Fed funds sold  812    1  0.16 %  551    1  0.24 %
 Taxable investment securities  482,084    7,935  2.19 %  425,530    6,720  2.11 %
 Tax-exempt investment securities  14,029    433  4.12 %  13,730    493  4.79 %
 Other interest-earning assets  59,951    451  1.01 %  77,709    350  0.60 %
                           
  Total interest-earning assets  2,199,612    67,073  4.08 %  1,924,270    62,949  4.37 %
                           
Allowance for loan losses  (8,664 )          (9,567 )        
Cash and due from banks  16,432            16,974          
Premises and equipment  58,706            57,989          
Goodwill  29,216            27,020          
Intangible assets  10,431            10,202          
Other assets  115,664            124,379          
                           
  Total assets $2,421,397           $2,151,267          
                           
Liabilities and shareholders' equity                          
Interest-bearing liabilities:                          
 Interest-bearing demand $400,776   $198  0.07 % $333,087   $232  0.09 %
 Savings and money market  535,801    1,331  0.33 %  501,517    1,371  0.37 %
 Time deposits - core  462,353    1,938  0.56 %  474,099    2,024  0.57 %
 Brokered deposits  137,726    538  0.52 %  154,054    535  0.46 %
  Total interest-bearing deposits  1,536,656    4,005  0.35 %  1,462,757    4,162  0.38 %
 Short-term borrowings  155,641    241  0.21 %  3,632    3  0.11 %
 Long-term FHLB borrowings  54,304    394  0.97 %  76,612    417  0.73 %
 Subordinated debt  23,835    1,027  5.76 %  24,180    1,281  7.08 %
  Total borrowed funds  233,780    1,662  0.95 %  104,424    1,701  2.18 %
                           
  Total interest-bearing liabilities  1,770,436    5,667  0.43 %  1,567,181    5,863  0.50 %
                           
Net interest rate spread       61,406  3.65 %       57,086  3.87 %
                           
Noninterest-bearing demand deposits  339,250            291,891          
Other liabilities  31,267            24,229          
Shareholders' equity  280,444            267,966          
                           
Total liabilities and shareholders' equity $2,421,397           $2,151,267          
                           
Net interest margin          3.73 %          3.97 %
                           
(1) Nonaccrual loans are included in the average loan balances.                  
(2) Interest income and yields for the nine months ended September 30, 2015 and 2014 include accretion from acquisition accounting adjustments associated with acquired loans.    
(3) Yield/ rate calculated on Actual/Actual day count basis, except for yield on investments which is calculated on a 30/360 day count basis.  
  
              
PARK STERLING CORPORATION                  
SELECTED RATIOS                  
($ in thousands, except per share amounts)              
  September 30,   June 30,   March 31,   December 31,   September 30,  
  2015   2015   2015   2014   2014  
  Unaudited   Unaudited   Unaudited   Unaudited   Unaudited  
ASSET QUALITY                         
 Nonaccrual loans $5,342   $5,545   $6,397   $5,585   $5,894  
 Troubled debt restructuring (and still accruing)  3,090    3,115    3,273    3,289    4,315  
 Past due 90 days plus (and still accruing)  47    -    10    30    2,485  
 Nonperforming loans  8,479    8,660    9,680    8,904    12,694  
 OREO  8,143    9,788    10,283    11,990    13,273  
 Nonperforming assets  16,622    18,448    19,963    20,894    25,967  
 Past due 30-59 days (and still accruing)  1,790    2,559    1,285    619    1,973  
 Past due 60-89 days (and still accruing)  3,753    481    457    289    1,788  
                           
 Nonperforming loans to total loans  0.50 %  0.52 %  0.60 %  0.56 %  0.82 %
 Nonperforming assets to total assets  0.67 %  0.75 %  0.83 %  0.89 %  1.12 %
 Allowance to total loans  0.51 %  0.51 %  0.53 %  0.52 %  0.61 %
 Allowance to nonperforming loans  103.10 %  97.78 %  88.74 %  92.79 %  74.51 %
 Allowance to nonperforming assets  52.59 %  45.90 %  43.03 %  39.54 %  36.42 %
 Past due 30-89 days (accruing) to total loans  0.33 %  0.18 %  0.11 %  0.06 %  0.24 %
 Net charge-offs (recoveries) to average loans  -0.07 %  0.08 %  -0.04 %  0.20 %  -0.20 %
 (annualized)                         
                          
CAPITAL                         
 Book value per common share $6.42   $6.31   $6.30   $6.21   $6.13  
 Tangible book value per common share** $5.58   $5.47   $5.44   $5.35   $5.25  
 Common shares outstanding  44,909,447    44,910,686    44,877,194    44,859,798    44,850,813  
 Weighted average dilutive common shares outstanding  44,287,019    44,301,895    44,326,833    44,323,628    44,233,532  
                           
 Common Equity Tier 1 (CET1) capital $249,289   $245,328   $242,197    n/a    n/a  
 Tier 1 capital  265,917    261,596    256,843   $231,088   $225,456  
 Tier 2 capital  8,742    8,577    8,836    8,469    9,660  
 Total risk based capital  274,659    270,173    265,679    239,557    235,116  
 Risk weighted assets  1,887,065    1,844,540    1,707,551    1,717,003    1,693,196  
 Average assets for leverage ratio  2,434,376    2,359,401    2,334,285    2,273,275    2,235,267  
                           
 Common Equity Tier 1 (CET1) ratio  13.21 %  13.30 %  14.18 %  n/a    n/a  
 Tier 1 ratio  14.09 %  14.18 %  15.04 %  13.46 %  13.32 %
 Total risk based capital ratio  14.55 %  14.65 %  15.56 %  13.95 %  13.89 %
 Tier 1 leverage ratio  10.92 %  11.09 %  11.00 %  10.17 %  10.09 %
 Tangible common equity to tangible assets**  10.02 %  9.99 %  10.15 %  10.13 %  10.09 %
                          
LIQUIDITY                         
 Net loans to total deposits  86.88 %  87.95 %  85.25 %  84.93 %  82.80 %
 Reliance on wholesale funding  15.98 %  18.52 %  16.21 %  16.81 %  14.94 %
                          
INCOME STATEMENT (THREE MONTH RESULTS; ANNUALIZED)                      
 Return on Average Assets  0.77 %  0.71 %  0.64 %  0.59 %  0.42 %
 Return on Average Common Equity  6.71 %  6.10 %  5.52 %  5.01 %  3.58 %
 Net interest margin (non-tax equivalent)  3.58 %  3.78 %  3.84 %  3.87 %  3.98 %
                           
 ** Non-GAAP financial measure                     
                     

Non-GAAP Financial Measures

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

              
PARK STERLING CORPORATION                
RECONCILIATION OF NON-GAAP MEASURES                
($ in thousands, except per share amounts)                   
(three month and period end results)               
  September 30,   June 30,   March 31,   December 31,   September 30,  
  2015   2015   2015   2014   2014  
  (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)  
Adjusted net income (three months)                         
 Pretax income (as reported) $6,870   $6,542   $5,608   $5,020   $3,706  
 Plus: merger-related expenses  31    167    122    712    2,229  
  (gain) loss on sale of securities  (54 )  -    -    -    63  
  Adjusted pretax income  6,847    6,709    5,730    5,732    5,998  
 Tax expense  2,085    2,331    1,867    1,786    2,030  
  Adjusted net income $4,762   $4,378   $3,863   $3,946   $3,968  
                          
 Divided by: weighted average diluted shares  44,287,019    44,301,895    44,326,833    44,323,628    44,233,532  
  Adjusted net income per share $0.11   $0.10   $0.09   $0.09   $0.09  
 Estimated tax rate for adjustment  32.56 %  34.75 %  34.23 %  31.15 %  33.85 %
                          
Adjusted net interest margin                         
 Net interest income (as reported) $20,362   $20,616   $20,426   $20,556   $20,732  
 Less: accelerated mark accretion  (69 )  (52 )  (79 )  (134 )  (173 )
 Less: income from early redemption of investment securities  -    -    (267 )  -    -  
  Adjusted net interest income  20,293    20,564    20,080    20,422    20,559  
 Divided by: average earning assets  2,256,303    2,185,439    2,155,995    2,107,073    2,066,906  
 Multiplied by: annualization factor  3.97    4.01    4.06    3.97    3.97  
  Adjusted net interest margin  3.57 %  3.77 %  3.78 %  3.85 %  3.95 %
  Net interest margin  3.58 %  3.78 %  3.84 %  3.87 %  3.98 %
                          
Adjusted noninterest income                         
 Noninterest income (as reported) $4,927   $4,292   $4,501   $3,351   $3,138  
 Less: (gain) loss on sale of securities  (54 )  -    -    -    63  
  Adjusted noninterest income $4,873   $4,292   $4,501   $3,351   $3,201  
                          
Operating expense and adjusted operating expense                         
Noninterest expense (as reported) $18,419   $18,232   $19,139   $19,307   $20,648  
Less: amotization of intangibles  (347 )  (347 )  (347 )  (348 )  (347 )
Operating expense  18,072    17,885    18,792    18,959    20,301  
Less: merger-related expenses  (31 )  (167 )  (122 )  (712 )  (2,229 )
Adjusted operating expense $18,041   $17,718   $18,670   $18,247   $18,072  
                          
Operating revenues and adjusted operating revenues                         
 Net Interest Income (as reported) $20,362   $20,616   $20,426   $20,556   $20,732  
 Plus: noninterest income (as reported)  4,927    4,292    4,501    3,351    3,138  
  Operating revenues  25,289    24,908    24,927    23,907    23,870  
 Less: (gain) loss on sale of securities  (54 )  -    -    -    63  
  Adjusted operating revenues $25,235   $24,908   $24,927   $23,907   $23,933  
                          
Operating expense to operating revenues                         
 Operating expense $18,072   $17,885   $18,792   $18,959   $20,301  
 Divided by: operating revenues  25,289    24,908    24,927    23,907    23,870  
  Operating expense to operating revenues  71.46 %  71.80 %  75.39 %  79.30 %  85.05 %
                          
Adjusted operating expense to adjusted operating revenues                         
 Adjusted operating expense $18,041   $17,718   $18,670   $18,247   $18,072  
 Divided by: adjusted operating revenues  25,235    24,908    24,927    23,907    23,933  
  Adjusted operating expense to operating revenues  71.49 %  71.13 %  74.90 %  76.32 %  75.51 %
                          
                 
PARK STERLING CORPORATION                        
RECONCILIATION OF NON-GAAP MEASURES                        
($ in thousands, except per share amounts)                        
(three month and period end results)          
  September 30,  June 30,  March 31,  December 31,  September 30,
  2015  2015  2015  2014  2014
  (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)
Adjusted return on average assets                         
 Adjusted net income $4,762   $4,378   $3,863   $3,946   $3,968  
 Divided by: average assets  2,473,034    2,406,671    2,383,506    2,342,657    2,304,501  
 Multiplied by: annualization factor  3.97    4.01    4.06    3.97    3.97  
  Adjusted return on average assets  0.76 %  0.73 %  0.66 %  0.67 %  0.68 %
  Return on average assets  0.77 %  0.71 %  0.64 %  0.59 %  0.42 %
                          
Adjusted return on average equity                         
 Adjusted net income $4,762   $4,378   $3,863   $3,946   $3,968  
 Divided by: average common equity  282,426    280,676    278,187    273,669    271,853  
 Multiplied by: annualization factor  3.97    4.01    4.06    3.97    3.97  
  Adjusted return on average equity  6.69 %  6.26 %  5.63 %  5.72 %  5.79 %
  Return on average equity  6.71 %  6.10 %  5.52 %  5.01 %  3.58 %
                          
Tangible common equity to tangible assets                         
 Total assets $2,485,134   $2,443,880   $2,397,864   $2,359,230   $2,326,297  
 Less: intangible assets  (39,115 )  (39,462 )  (39,852 )  (40,200 )  (40,547 )
  Tangible assets $2,446,019   $2,404,418   $2,358,012   $2,319,030   $2,285,750  
                          
 Total common equity $284,205   $279,743   $279,118   $275,105   $271,171  
 Less: intangible assets  (39,115 )  (39,462 )  (39,852 )  (40,200 )  (40,547 )
 Tangible common equity $245,090   $240,281   $239,266   $234,905   $230,624  
                          
 Tangible common equity $245,090   $240,281   $239,266   $234,905   $230,624  
 Divided by: tangible assets $2,446,019   $2,404,418   $2,358,012   $2,319,030   $2,285,750  
  Tangible common equity to tangible assets  10.02 %  9.99 %  10.15 %  10.13 %  10.09 %
  Common equity to assets  11.44 %  11.45 %  11.64 %  11.66 %  11.66 %
                          
Tangible book value per share                         
 Issued and outstanding shares  44,909,447    44,910,686    44,877,194    44,859,798    44,850,813  
 Less: nondilutive restricted stock awards  (974,183 )  (985,531 )  (882,178 )  (921,097 )  (931,465 )
  Period end dilutive shares  43,935,264    43,925,155    43,995,016    43,938,701    43,919,348  
                          
 Tangible common equity $245,090   $240,281   $239,266   $234,905   $230,624  
 Divided by: period end dilutive shares  43,935,264    43,925,155    43,995,016    43,938,701    43,919,348  
  Tangible common book value per share $5.58   $5.47   $5.44   $5.35   $5.25  
  Common book value per share $6.47   $6.37   $6.34   $6.26   $6.17  
                          
Adjusted allowance for loan losses                         
 Allowance for loan losses $8,742   $8,468   $8,590   $8,262   $9,458  
 Plus: acquisition accounting FMV adjustments to acquired loans  29,548    31,159    32,209    35,419    37,746  
  Adjusted allowance for loan losses $38,290   $39,627   $40,799   $43,681   $47,204  
 Divided by: total loans (excluding LHFS) $1,700,124   $1,657,463   $1,614,852   $1,580,693   $1,553,392  
  Adjusted allowance for loan losses to total loans  2.25 %  2.39 %  2.53 %  2.76 %  3.04 %
  Allowance for loan losses to total loans  0.51 %  0.51 %  0.53 %  0.52 %  0.61 %

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