Park Sterling Corporation Announces Results for Second Quarter 2017

CHARLOTTE, NC --(Marketwired - July 27, 2017) - Park Sterling Corporation (NASDAQ: PSTB), the holding company for Park Sterling Bank, today released unaudited results of operations and other financial information for the second quarter of 2017.

• Net income of $8.5 million, or $0.16 per share, compared to $7.5 million, or $0.14 per share, in the quarter ended March 31, 2017
• Adjusted net income (non-GAAP), which excludes merger-related expenses and gain on sale of securities, was $9.2 million, or $0.17 per share, compared to $7.5 million, or $0.14 per share in the prior quarter
• Reported annualized return on average assets and equity for the second quarter was 1.03% and 9.33%, respectively, while adjusted annualized return on average assets and average equity (non-GAAP) was 1.10% and 10.08%, respectively
• Noninterest income decreased $50 thousand from the prior quarter, with a decrease in mortgage banking income mostly offset by growth in other areas
• Noninterest expenses totaled $21.4 million, an increase of $0.84 million from the prior quarter; adjusted noninterest expenses (non-GAAP), which excludes merger-related expenses, decreased $0.1 million from the prior quarter
• Reported efficiency ratio was 63% for the second quarter, while adjusted efficiency ratio (non-GAAP) was 59% for the second quarter
• Nonperforming loans declined to a very low level of 0.48% of total loans
• Capital levels remained strong with a Tier 1 leverage ratio of 10.05%
• The Board of Directors declared a quarterly cash dividend on common shares of $0.04 per share (July 2017)

"As we began 2016, we embarked on a path to improve our returns and the efficiency of our business model by leveraging the investments in people and products we had made in previous years," said Jim Cherry, Chief Executive Officer. "At that time, our financial performance goals, adjusted for merger-related costs, were to surpass a 1% return on average assets and a 10% return on average equity, and to lower our efficiency ratio below 60% by the end of 2018. We are very pleased to report that we achieved these results in the second quarter 2017 as our annualized adjusted return on average assets was 1.10% and our adjusted return on average equity was 10.08%. Additionally, our adjusted efficiency ratio was 59%. These results reflect the very fine work of all of my colleagues at Park Sterling in supporting existing customers and winning new customers with exceptional service and market leading products. Looking forward, we are excited about our announced strategic partnership with South State Bank and the opportunity to more completely fulfill our original vision of creating the premier regional banking franchise in the southeast."

Financial Results

Income Statement - Three Months Ended June 30, 2017

Park Sterling reported net income of $8.5 million, or $0.16 per share, for the three months ended June 30, 2017 ("2017Q2"). This compares to net income of $7.5 million, or $0.14 per share, for the three months ended March 31, 2017 ("2017Q1") and net income of $5.6 million, or $0.11 per share, for the three months ended June 30, 2016 ("2016Q2"). The increase in net income from 2017Q1 resulted primarily from an increase in interest income on loans and lower provision for loan losses, partially offset by an increase in interest expense on borrowed funds, professional fees related to the South State merger and income tax expense on higher pretax income. The increase in net income from 2016Q2 was primarily a result of the increase in interest income described above, as well as a decrease in provision for loan losses and a decrease in merger-related expenses, partially offset by increased income taxes on higher pretax income in 2017Q2.

Net interest income totaled $28.6 million in 2017Q2, which represents a $1.5 million, or 6%, increase from $27.1 million in 2017Q1 and a $2.5 million, or 10%, increase from $26.1 million in 2016Q2. Average total earning assets increased $63 million in 2017Q2 to $3.05 billion, compared to $2.98 billion in 2017Q1 and increased $205 million, or 7%, compared to $2.84 billion in 2016Q2. The increase in average total earning assets in 2017Q2 from 2017Q1 included an increase in average loans (including loans held for sale) of $55 million, or 9% annualized, an increase in average marketable securities of $3.3 million, and an increase in average other interest-earning assets of $4.3 million. The increase in average total earning assets in 2017Q2 from 2016Q2 resulted primarily from a $180 million, or 8%, increase in average loans (including loans held for sale), a $4.5 million, or 1%, increase in average marketable securities and a $19.6 million, or 42%, increase in average other interest-earning assets.

Net interest margin was 3.77% in 2017Q2, representing a 9 basis point increase from 3.68% in 2017Q1 and an 8 basis point increase from 3.69% in 2016Q2. The increase in net interest margin from 2017Q1 resulted primarily from an 18 basis point increase in loan yields, partially offset by a 29 basis point increase in the cost of borrowed funds, both of which reflect the increase in the prime lending rate. The increase in net interest margin from 2016Q2 was primarily the result of a 10 basis point increase in loan yields and an improved yield on investment securities, partially offset by an increase in the cost of interest-bearing liabilities.

The Company reported no provision for loan losses expense in 2017Q2, compared to $678 thousand of provision recorded in 2017Q1, and $882 thousand of provision recorded in 2016Q2. Allowance for loan loss levels decreased to 0.51% of total loans at 2017Q2 compared to 0.52% at 2017Q1.

Noninterest income totaled $5.4 million in 2017Q2, compared to $5.5 million in 2017Q1 and $5.4 million in 2016Q2. The decrease from 2017Q1 is primarily the result of a $186 thousand decrease in mortgage banking income from the first quarter, partially offset by increases in service charges, wealth and capital markets income. The $43 thousand increase in noninterest income from 2016Q2 reflects increases in service charge income and other noninterest income, partially offset by decreases in mortgage banking, wealth and capital markets income.

Noninterest expense increased $0.8 million, or 4%, to $21.4 million in 2017Q2 from $20.6 million in 2017Q1, and decreased $0.5 million, or 2%, compared to $21.9 million in 2016Q2. The increase in noninterest expense from 2017Q1 resulted from $0.9 million in merger-related expenses incurred in the second quarter as compared to no merger-related expenses in the first quarter. The decrease in noninterest expenses from 2017Q1 was due primarily to a decrease in merger-related expenses of $0.4 million and decreases in all other categories of noninterest expense reflecting expense saving following the First Capital merger systems conversion completed in May 2016.

The Company's effective tax rate was 32.2% in 2017Q2, compared to 33.2% in 2017Q1 and 35.4% in 2016Q2. The decrease in the effective tax rate compared to 2017Q1 was the result of excess tax benefits on stock-based compensation.

Balance Sheet

Total assets increased $32.2 million, or 4% annualized, to $3.34 billion at 2017Q2, compared to total assets of $3.31 billion at 2017Q1. Total securities, including non-marketable securities, decreased $21.4 million, to $511.5 million. Total loans, excluding loans held for sale, increased $41.5 million, or 7% annualized, to $2.50 billion at 2017Q2.

The mix of commercial and consumer loans remained largely consistent with 2017Q1. Total commercial loans increased $28.4 million and represent 79% of the loan portfolio. Commercial and industrial and commercial real estate owner occupied increased $25.6 million and represent 32.6% of the portfolio, up from 32.1% at 2017Q1, reflecting an increased focus on commercial and industrial and commercial real estate owner occupied lending. Acquisition, construction and development loans decreased $31.5 million and represent 13.5% of the portfolio, down from 15.0% at 2017Q1. Total consumer loans increased $13.2 million and remain flat as a percentage of total loans at 21% of the portfolio.

Total deposits increased $28 million, or 4% annualized, to $2.54 billion at 2017Q2. Noninterest bearing demand deposits increased $30 million, or 23% annualized, to $554.4 million from 2017Q1. Money market, NOW and savings deposits were up $13.1 million from 2017Q1 and represent 51% of total deposits. Time deposits decreased $15.2 million to $691.7 million at 2017Q2.

Total borrowings increased $5.2 million, or 5% annualized, to $408.6 million at 2017Q2 compared to $403.4 million at 2017Q1. At 2017Q2, FHLB borrowings totaled $345 million, the senior unsecured term loan at the holding company totaled $29.8 million, and acquired subordinated debt, net of acquisition accounting fair value marks, totaled $33.8 million.

Total shareholders' equity increased $7.6 million to $369.3 million at 2017Q2 compared to $361.7 million at 2017Q1, driven by a $6.4 million increase in retained earnings and an increase of $0.9 million in accumulated other comprehensive income. The change in accumulated other comprehensive income was caused by the effect of market interest rates on the fair value of available for sale investment securities.

The Company's capital ratios remain strong at June 30, 2017 with the Common Equity Tier 1 ("CET1") ratio at 11.10% and the Tier 1 leverage ratio at 10.05%.

Asset Quality

Asset quality remains strong. Nonperforming assets were $15.1 million at 2017Q2, or 0.45% of total assets, compared to $15.3 million at 2017Q1, or 0.46% of total assets. Nonperforming loans were $12.0 million at 2017Q2, and represented 0.48% of total loans, compared to $12.1 million at 2017Q1, or 0.49% of total loans. The Company reported net charge-offs of $131 thousand, or 0.02% of average loans (annualized), in 2017Q2, compared to net recoveries of $30 thousand, or 0.01% of average loans (annualized), in 2017Q1.

The allowance for loan losses decreased $131 thousand, or 1%, to $12.7 million, or 0.51% of total loans, at 2017Q2, compared to $12.8 million, or 0.52% of total loans, at 2017Q1. The decrease in the allowance from 2017Q1 is primarily attributable to a change in qualitative factors reducing the required reserve, partially offset by an increase in the allowance related to loan growth for the period.

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 $3.3 billion in assets, is the largest community bank headquartered in the Charlotte area and has 54 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, average tangible common equity, adjusted net income, adjusted operating revenues, adjusted noninterest income, adjusted noninterest expenses, adjusted operating expense, adjusted allowance for loan losses, and related ratios and per share measures, including adjusted return on average assets and adjusted return on average equity, as used throughout this release, are non-GAAP financial measures. For additional information, see "Reconciliation of Non-GAAP Financial Measures" in the accompanying tables.

Cautionary Statement Regarding Forward-Looking Statements
Statements included in this communication which are not historical in nature or do not relate to current facts are intended to be, and are hereby identified as, forward-looking statements for purposes of the safe harbor provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words "may," "will," "anticipate," "could," "should," "would," "believe," "contemplate," "expect," "estimate," "continue," "plan," "project" and "intend," as well as other similar words and expressions of the future, are intended to identify forward-looking statements. South State Corporation ("South State") and Park Sterling Corporation ("Park Sterling") caution readers that forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from anticipated results. Such risks and uncertainties, include, among others, the following possibilities: the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the definitive merger agreement between South State and Park Sterling; the outcome of any legal proceedings that may be instituted against South State or Park Sterling; the failure to obtain necessary regulatory approvals (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction) and shareholder approvals or to satisfy any of the other conditions to the transaction on a timely basis or at all; the possibility that the anticipated benefits of the transaction are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where South State and Park Sterling do business; the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events; diversion of management's attention from ongoing business operations and opportunities; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction; South State's ability to complete the acquisition and integrate Park Sterling successfully; 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 in a timely, cost-efficient manner; inability to capitalize on identified revenue enhancements or expense management opportunities, including the inability to achieve or maintain adjusted operating expense to adjusted operating revenue targets; failure of assumptions underlying noninterest expense levels; failure of assumptions underlying the establishment of the allowance for loan losses; deterioration in the value of securities held in the investment securities portfolio; the company's ability to fully realize the value of its net deferred tax asset, including the impact of lower federal income tax rates on the carrying amount or the risk that the company may be required to establish a valuation allowance; uncertainties about the financial stability and growth rates of non-U.S. jurisdictions, the risk that those jurisdictions may face difficulties servicing their sovereign debt, and related stresses on the financial, credit and real estate markets generally, which could negatively impact the company's revenues and the value of its assets and liabilities; changes in general economic or business conditions, customer behavior and other uncertainties that could lead to reduced revenues and deterioration in the credit quality of the loan portfolio or the value of the collateral securing those loans and result in higher credit losses than currently expected; sensitivity to the interest rate environment, including continued low interest rates, a rapid increase in interest rates or a change in the shape of the yield curve, and the impact on net interest margins; cyber-security events; failure to anticipate or inability to adapt to rapid technological developments and changes; fluctuations in the market price of the common stock, regulatory, legal and contractual requirements, other uses of capital, financial performance, market conditions generally, and future actions by the board of directors, in each case impacting repurchases of common stock or declaration of dividends; the impact of implementation of 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; and other factors that may affect future results of South State and Park Sterling. Additional factors that could cause results to differ materially from those described above can be found in South State's Annual Report on Form 10-K for the year ended December 31, 2016, which is on file with the Securities and Exchange Commission (the "SEC") and available in the "Investor Relations" section of South State's website, http://www.southstatebank.com, under the heading "SEC Filings" and in other documents South State files with the SEC, and in Park Sterling's Annual Report on Form 10-K for the year ended December 31, 2016, which is on file with the SEC and available on the "Investor Relations" page linked to Park Sterling's website, http://www.parksterlingbank.com, under the heading "Regulatory Filings" and in other documents Park Sterling files with the SEC.

All forward-looking statements speak only as of the date they are made and are based on information available at that time. Neither South State nor Park Sterling assumes any obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.

IMPORTANT ADDITIONAL INFORMATION
In connection with the proposed transaction between South State and Park Sterling, South State has filed with the SEC a Registration Statement on Form S-4 that includes a preliminary Joint Proxy Statement of South State and Park Sterling and a Preliminary Prospectus of South State, as well as other relevant documents concerning the proposed transaction. Once the Registration Statement is declared effective by the SEC, Park Sterling and South State will mail a definitive Joint Proxy Statement/Prospectus to their respective shareholders. The proposed transaction involving South State and Park Sterling will be submitted to Park Sterling's shareholders and South State's shareholders for their consideration. This communication shall not constitute an offer to sell or the solicitation of an offer to buy any securities nor shall there be any 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. Shareholders of South State and shareholders of Park Sterling are urged to read the registration statement and the joint proxy statement/prospectus regarding the transaction when it becomes available and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information.

Shareholders will be able to obtain a free copy of the definitive joint proxy statement/prospectus, as well as other filings containing information about South State and Park Sterling, without charge, at the SEC's website (http://www.sec.gov). Copies of the joint proxy statement/prospectus and the filings with the SEC that will be incorporated by reference in the joint proxy statement/prospectus can also be obtained, without charge, by directing a request to South State Corporation, 520 Gervais Street, Columbia, South Carolina 29201, Attention: John C. Pollok, Senior Executive Vice President, CFO and COO, (800) 277-2175 or to Park Sterling Corporation, 1043 E. Morehead Street, Suite 201, Charlotte, North Carolina 28204, Attention: Donald K. Truslow, (704) 323-4292.

PARTICIPANTS IN THE SOLICITATION
South State, Park Sterling and certain of their respective directors, executive officers and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information regarding South State's directors and executive officers is available in its definitive proxy statement, which was filed with the SEC on March 6, 2017, and certain of its Current Reports on Form 8-K. Information regarding Park Sterling's directors and executive officers is available in its definitive proxy statement, which was filed with the SEC on April 13, 2017, and certain of its Current Reports on Form 8-K. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the joint proxy statement/prospectus and other relevant materials filed with the SEC. Free copies of this document may be obtained as described in the preceding paragraph.

Non-GAAP Financial Measures
Tangible assets, tangible common equity, tangible book value, adjusted average tangible common equity, adjusted net income, adjusted noninterest income, adjusted operating revenues, adjusted noninterest expense, adjusted operating expenses, adjusted allowance for loan losses, and related ratios and per share measures, including adjusted return on average assets and adjusted return on average equity, as used throughout this release, are non-GAAP financial measures. Management uses (i) tangible assets, tangible common equity, tangible book value and average tangible common equity (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) to facilitate comparisons with peers; and (iii) adjusted net income, adjusted noninterest income and adjusted noninterest expense (which exclude merger-related expenses and/or gain or loss on sale of securities, as applicable), adjusted operating expense (which excludes merger-related expenses and amortization of intangibles) and adjusted operating revenues (which includes net interest income and noninterest income and excludes gain or loss on sale of securities, as applicable) to evaluate core earnings and to facilitate comparisons with peers.