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Actionable news in PSTB: Park Sterling Corporation,

Park Sterling Corporation Announces Record

The following excerpt is from the company's SEC filing.

Results for

Quarter

Charlotte, NC – 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:

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, in creased $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 1

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

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.

– 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...


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