Park Sterling Corporation Announces Results for First Quarter 2014

CHARLOTTE, N.C., April 24, 2014 (GLOBE NEWSWIRE) -- Park Sterling Corporation (Nasdaq:PSTB), the holding company for Park Sterling Bank, today released unaudited results of operations and other financial information for the first quarter of 2014. Highlights at and for the three months ended March 31, 2014 include:

Highlights

• Net income available to common shareholders of $3.6 million, or $0.08 per share, compared to $4.0 million, or $0.09 per share, in the prior quarter
• Adjusted net income available to common shareholders, which excludes merger-related expenses and gain or loss on sale of securities, of $3.4 million, or $0.08 per share, compared to $4.3 million, or $0.10 per share, in the prior quarter
• Nonperforming loans decreased to 0.70% of total loans from 0.95% at December 31, 2013
• Nonperforming assets decreased to 1.23% of total assets from 1.37% at December 31, 2013
• Tier 1 leverage ratio increased to 11.73% from 11.63% at December 31, 2013
• Declared quarterly cash dividend on common shares of $0.02 per share (April 2014)
• Completed de novo entry into Virginia with opening of Richmond loan production office
• Expanded origination capabilities through additional hires in several markets and business lines
• Announced merger with Provident Community Bancshares, Inc. on March 5, 2014

"Park Sterling's first quarter once again demonstrated our ability to produce solid profitability while concurrently investing in future growth opportunities," said James C. Cherry, Chief Executive Officer. "For the three months ended March 31, 2014, we reported net income available to common shareholders of $3.6 million, or $0.08 per share. While down modestly from the $4.0 million, or $0.09 per share, reported last quarter, current period results include an $842,000 increase in personnel expense related to hiring additional bankers, product specialists and related support that we expect to help drive future growth and increased profitability. Hiring activity included the earlier announced de novo entry into Richmond and new leadership for wealth management, mortgage banking and marketing, as well as added wealth specialists in Richmond and Charlotte, commercial bankers in Charleston, Greenville and Charlotte, a treasury services specialist in Greenville, and product specialists in Retail Banking. We expect to continue adding exceptional talent when available, as evidenced earlier this week by our hiring of Janet Sarn as Market Executive for Gaston County.

On the product development front, we rolled out phase two of our proprietary Sterling at Work offering, which is a bundled suite of consumer product solutions offered to small business and commercial customers through a unique approach of emphasizing financial education over product push. We also rolled out phase three of our new mobile banking platform which includes, among other features, two capabilities not believed to be offered by any competitor in our markets at this time. The first is Picture Pay™, which allows retail customers to pay a bill simply by taking a picture of the invoice with their smartphone and keying in the payment amount, without needing to enter any additional payee information. The second is Debit On/Off, which allows a retail customer to instantaneously activate or de-activate their debit card, for security or other purposes, simply by touching a single button on our mobile application. Finally, we established a new private banking segment and expect to begin releasing tailored product solutions to this target market during the second quarter.  

On the merger front, we announced our partnership with Provident Community Bancshares, Inc., ("Provident Community") headquartered in Rock Hill, South Carolina, on March 5, 2014. The merger, which is expected to be completed during the second quarter of 2014, will strengthen our position in the attractive Charlotte metro market. Additionally, the partnership will improve our branch density in South Carolina's Upstate and Midlands regions, provide an attractive source of core deposits to help fund organic loan growth, and create efficiencies which are expected to enhance financial returns to shareholders. We remain active in seeking like-minded partners to work together in building an attractive regional franchise that is recognized for delivering customized solutions and exceptional service to customers.

On the capital management front, the company repurchased approximately 69,000 shares of common stock at an average cost of $6.49 per share during the first quarter under our previously announced 2.2 million share authorization, bringing total repurchases under the authorization to approximately 128,000 shares. In addition, yesterday the board declared a quarterly dividend of $0.02 per common share, payable on May 20, 2014 to all shareholders of record as of the close of business on May 6, 2014. Future dividends will be subject to board approval. We remain very well capitalized with tangible common equity to tangible assets of 11.73% and a Tier 1 leverage ratio of 11.73% at March 31, 2014.

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

Financial Results

Income Statement – Three Months Ended March 31, 2014

Park Sterling reported net income available to common shareholders of $3.6 million, or $0.08 per share, for the three months ended March 31, 2014 ("2014Q1"). This compares to net income available to common shareholders of $4.0 million, or $0.09 per share, for the three months ended December 31, 2013 ("2013Q4") and net income available to common shareholders of $3.2 million, or $0.07 per share, for the three months ended March 31, 2013 ("2013Q1"). The decrease in net income available to common shareholders from 2013Q4 resulted from the combination of lower net interest income, due primarily to having two less days in the current quarter, and lower noninterest income levels, which were partially offset by a net release in provision for loan losses. Results also included an $842,000, or 10%, increase in personnel expenses related to hiring initiatives which were partially offset by reductions in other expenses categories.  

Park Sterling reported adjusted net income available to common shareholders, which excludes merger-related expenses and gain or loss on sale of securities, of $3.4 million, or $0.08 per share, in 2014Q1. This compares to adjusted net income available to common shareholders of $4.3 million, or $0.10 per share, in 2013Q4 and adjusted net income available to common shareholders of $3.8 million, or $0.09 per share, in 2013Q1. Compared to 2013Q4, adjusted net income available to common shareholders reflects a lower adjustment for merger-related expenses and a higher adjustment for gain on sale of securities.

Net interest income totaled $17.3 million in 2014Q1, which represents a $427,000, or 2%, decrease from $17.7 million in 2013Q4. Approximately $384,000, or 90%, of this decrease is attributable to having two less days in 2014Q1. Net interest income decreased $461,000, or 3%, from $17.7 million in 2013Q1, resulting from both lower average earning assets and lower net interest margin. Average total earning assets increased $41.5 million, or 2%, in 2014Q1 to $1.76 billion, compared to $1.72 billion in 2013Q4 and increased $32.0 million, or 2%, compared to $1.73 billion in 2013Q1. The increase in average total earning assets in 2014Q1 from 2013Q4 resulted from a $42.3 million, or 12%, increase in average marketable securities and a $4.4 million, or 8%, increase in average other earning assets, which together more than offset a $5.2 million, or 0%, decrease in average loans (including loans held for sale). The increase in average total earnings assets in 2014Q1 from 2013Q1 resulted from a $136.4 million, or 52%, increase in average marketable securities, which more than offset a combined $41.4 million, or 3%, decrease in average loans (including loans held for sale) and $63.0 million, or 51%, decrease in average other earning assets.     

Net interest margin was 3.97% in 2014Q1, representing an 11 basis point decrease from 4.08% in 2013Q4 and an 18 basis point decrease from 4.15% in 2013Q1. The reduction in net interest margin from 2013Q4 resulted primarily from a 12 basis point decrease in yield on loans to 5.26%, driven by a decrease in accelerated accretion from net acquisition accounting fair market value adjustments on performing acquired loans, which more than offset a 20 basis point increase in yield on marketable securities to 2.23% and a 44 basis point increase in yield on other earning assets to 0.59%. Accelerated accretion of net acquisition accounting fair market value adjustments ($2,000 in 2014Q1, $365,000 in 2013Q4 and $0 in 2013Q1) 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 net interest margin from 2013Q1 resulted primarily from a 20 basis point decrease in yield on loans, due primarily to lower interest rates on new loans, and a 10 basis point increase in the cost of interest-bearing liabilities, driven primarily by the expiration of accounting-related fair market value adjustments on acquired deposits in 2013Q4.

Adjusted net interest margin, which excludes accelerated accretion from net acquisition accounting fair market value adjustments, was 3.97% in 2014Q1, representing a 2 basis point decrease from 3.99% in 2013Q4 and an 18 basis point decrease from 4.15% in 2013Q1. The modest reduction in adjusted net interest margin from 2013Q4 resulted from a higher mix of other earning assets, which represented a yield of only 0.59%. Loan yields, excluding accelerated accretion, held flat at 5.26% as competitive pricing pressure on new loans was offset by higher yields on Purchase Credit Impaired ("PCI") loans. Yields on marketable securities also improved to 2.23%, due primarily to higher market rates. The reduction in adjusted net interest margin from 2013Q1 resulted primarily from the decreased yield on new loans and increased cost of interest-bearing liabilities discussed above.

The company reported a $17,000 net release in provision for loan losses in 2014Q1, compared to net expense of $780,000 in 2013Q4 and $309,000 in 2013Q1. The current period release was driven primarily by a $698,000 net recovery in nonacquired loans, reflecting favorable resolution of problem assets from the legacy Park Sterling portfolio, including both disposition of the single troubled debt restructuring that was designated a nonaccrual loan last quarter as well as recoveries from a large residential development nonaccrual loan. This net recovery in nonacquired loans was partially offset by (i) $82,000 in provision expense associated with nonacquired loans; (ii) $312,000 in provision expense from the net impact of adding a newly impaired noncovered PCI pool and returning a previously impaired covered PCI pool to non-impaired status, both as accounted for under ASC 310-30 (formerly SOP 03-3); and (iii) $287,000 in provision expense reversing the benefit of FDIC loss share protection on the previously impaired covered PCI pool that returned to non-impaired status.

Noninterest income decreased $918,000, or 21%, to $3.5 million in 2014Q1, compared to $4.4 million in 2013Q4 and increased $28,000, or 1%, compared to $3.5 million in 2013Q1. Approximately $173,000, or 16%, of the decrease from 2013Q4 reflected the absence of a $1.1 million nontaxable gain generated in 2013Q4 from settling, at a discount, the contingent underwriting fee liability remaining from Park Sterling Bank's public offering in August 2010, which was partially offset in 2014Q1 by a $651,000 nontaxable BOLI death benefit and a $276,000 gain on sale of securities. The remaining decrease from 2013Q4 occurred in the company's customary business activities, including (i) a $533,000, or 69%, decrease in mortgage banking income due to lower activity levels in both current period loan closings and the period end pipeline (which resulted in a $364,000 decrease in mortgage banking income related to ASC 815-10-S99-1 (formerly SAB 109)); (ii) a $73,000, or 9%, decrease in income from wealth management activities resulting primarily from the company's exit from the custody business; and (iii) a $264,000, or 121%, increase in amortization on the FDIC loss share indemnification asset reflecting lower expected claims.  

Noninterest expense held flat in 2014Q1 at $15.7 million, compared to 2013Q4, and decreased $178,000, or 1%, compared to $15.9 million in 2013Q1. Adjusted noninterest expenses, which exclude merger-related expenses ($81,000 in 2014Q1, $386,000 in 2013Q4 and $836,000 in 2013Q1), increased $322,000, or 2%, to $15.7 million in 2014Q1, compared to $15.3 million in 2013Q4 and increased $577,000, or 4%, compared to $15.1 million in 2013Q1. The increase in adjusted noninterest expenses from 2013Q4 resulted primarily from an $842,000, or 10%, increase in personnel expenses due to hiring initiatives designed to drive future organic growth opportunities. This increase was partially offset by lower data processing and service fees, which included $75,000 in one-time processing fees related to exiting the custody business in 2013Q4, reduced deposit charges and FDIC insurance, resulting from a true-up of the estimated assessment, decreased loan and collection expenses, in part reflecting improved asset quality, and decreased loss on disposal of fixed assets, which included a $432,000 write-off of a former branch in 2013Q4. The company reported $53,000 in the cost of operation of OREO in 2014Q1 compared to a net recovery of $48,000 in 2013Q4. The increase in adjusted noninterest expense from 2013Q1 resulted primarily from the aforementioned increase in personnel expense as well as higher cost of operation of OREO, which represented a $428,000 net recovery in the corresponding quarter of the prior year.

The company's effective tax rate increased slightly to 29.4% in 2014Q1 compared to 27.9% in 2013Q due primarily to the smaller $651,000 nontaxable BOLI death benefit compared to the $1.1 million nontaxable gain on settling the contingent underwriting fee liability in the prior quarter. The company's effective tax rate decreased compared to 34.7% in 2013Q1, due primarily to the nontaxable BOLI death benefit.

Balance Sheet

Total assets increased $44.5 million, or 2%, to $2.00 billion at 2014Q1, compared to total assets of $1.96 billion at 2013Q4. Cash and equivalents increased $49.8 million, or 90%, to $104.8 million, due both to lower securities balances and to growth in total deposits. Total securities, including non-marketable securities, decreased $10.6 million, or 3%, to $396.8 million, due in part to the sale of $2.1 million in municipal bonds at the parent level to generate cash to support the pending merger with Provident Community, which is expected to close during the second quarter of 2014. Cash merger consideration will total $6.5 million, including $1.4 million payable to Provident Community's common stockholders and $5.4 million payable to the United States Department of the Treasury for all of Provident Community's outstanding Fixed Rate Cumulative Perpetual Preferred Stock, Series A (representing a 45%, or $4.2 million, discount from its face value).   

The company continued to hold four investments in senior tranches of collateralized loan obligations ("CLOs") totaling $23.5 million in fair value at 2014Q1. The collateral eligibility language in one of the securities, totaling $5.0 million, has been amended to comply with the new bank investment criteria under the Volcker Rule. The company is awaiting intended document amendment strategies from the CLO managers, if any, on the three other securities before determining any disposition plans for those investments. The three other securities had a net unrealized loss of $294,000 at 2014Q1 that may result in the company recognizing other than temporary impairment should they be determined not to comply with the Volcker Rule. The company held no other securities potentially affected by the Volcker Rule at 2014Q1.  

Total loans, excluding loans held for sale, increased $7.0 million, or 1%, to $1.30 billion at 2014Q1. The company's metropolitan markets, which include Charlotte, Raleigh and Wilmington, North Carolina, Greenville and Charleston, South Carolina and Richmond, Virginia, reported a $24.0 million, or 17% annualized, increase in total loans to $603.6 million, due to continued success in origination efforts. The community markets reported a $14.1 million, or 14% annualized, decrease in total loans to $400.1 million, primarily due to expected runoff in acquired loans. The company's central business units, which primarily include mortgage, builder finance, asset-based lending and special assets, reported a $3.0 million, or 4% annualized, decrease in total loans to $299.1 million, as growth in asset-based lending and builder finance were more than offset by reductions in special asset loans, including covered loans.

The company's loan mix shifted slightly at 2014Q1 compared to 2013Q4. Total consumer loans held at 30% of total loans, with residential mortgages and home equity lines of credit at 13% and 11% of total, respectively. The combination of commercial and industrial and owner-occupied real estate loans also held at 30% of total loans. Investor owned commercial real estate increased to 31% from 29% of total loans. Acquisition, construction and development decreased to 9% from 11% of total loans.  

In terms of accounting designations, compared to 2013Q4: (i) non-acquired loans, which include certain renewed and/or restructured acquired performing loans that are redesignated as non-acquired, increased $50.1 million, or 27% annualized, to $777.6 million; (ii) acquired performing loans decreased $28.8 million, or 28% annualized, to $375.7 million; and (iii) PCI loans decreased $14.3 million, or 35% annualized, to $149.5 million. At 2014Q1, performing acquired loans included a $4.0 million net acquisition accounting fair market value adjustment, representing a 1.05% "mark;" noncovered PCI loans (which totaled $87.3 million) included a $19.6 million adjustment, representing an 18.4% "mark;" and covered PCI loans (which totaled $62.2 million) included an $11.0 million adjustment, representing a 14.5% "mark."

Total deposits increased $37.6 million, or 10% annualized, to $1.64 billion at 2014Q1, compared to $1.60 billion at 2013Q4, reflecting strong results in both retail and commercial banking. Noninterest bearing demand deposits increased $10.1 million, or 16% annualized, to $265.9 million (16% of total deposits). Non-brokered money market, NOW and savings deposits increased $36.5 million, or 20% annualized, to $772.3 million (47% of total deposits).  Local time deposits decreased $5.9 million, or 5% annualized, to $436.1 million (27% of total deposits). Finally, brokered deposits, which include $62.9 million in broker-dealer sweep accounts utilized to fund an investment strategy initiated in 2013Q4, decreased $3.1 million, or 8% annualized, to $163.2 million (10% of total deposits). The managed decrease in local time deposits and brokered deposits reflects the company's continued emphasis on growing transaction account relationships. Core deposits, which exclude time deposits greater than $250,000 and brokered deposits, represented 87% of total deposits at both 2014Q1 and 2013Q4. In 2013Q4, the company entered into a $12.5 million five-year interest rate swap, a $12.5 million seven-year interest rate swap and a $25 million two-year forward starting five-year interest rate swap as a cash flow hedge against future interest rate risk in the floating rate broker-dealer sweep accounts.

Total borrowings increased $1.4 million, or 2%, to $79.5 million at 2014Q1 compared to $78.0 million at 2013Q4. Borrowings at 2014Q1 included $55.0 million in FHLB borrowings, $15.3 million of acquired trust preferred securities, net of acquisition accounting fair market value adjustments, and $6.9 million of Tier 2-eligible subordinated debt. In 2013Q4, the company entered into a $20 million three-year forward starting, five-year interest rate swap as a cash flow hedge against future interest rate risk in a portion of its floating rate FHLB borrowings.  

Total shareholders' equity increased $3.9 million, or 1%, to $266.0 million at 2014Q1 compared to $262.1 million at 2013Q4, driven by retained earnings and lower unrealized losses in the marketable securities portfolio. In 2014Q1, the company repurchased approximately 69,000 shares of common stock at an average cost of $6.49 per share, for a total of approximately $447,000. The repurchases were conducted in the open market under the previously announced 2.2 million share repurchase authorization. The company's ratio of tangible common equity to tangible assets decreased to 11.73% at 2014Q1 from 11.79% at 2013Q4. The company's Tier 1 leverage ratio increased to 11.73% in 2014Q1 from 11.63% at 2013Q4.      

Asset Quality

Asset quality continued to improve in the first quarter and remains a point of strength for the company. Nonperforming loans decreased $3.2 million, or 26%, to $9.1 million at 2014Q1, or 0.70% of total loans, compared to $12.3 million at 2013Q4, or 0.95% of total loans. Nonperforming assets decreased $2.1 million, or 8%, to $24.7 million at 2014Q1, or 1.23% of total assets, compared to $26.8 million at 2013Q4, or 1.37% of total assets. Nonperforming assets include $6.7 million of covered OREO representing 27% of total nonperforming assets at 2014Q1, compared to $5.1 million of covered OREO representing 19% of total nonperforming assets at 2013Q4. The company currently expects 80% of losses and associated expenses on covered OREO to be reimbursed under its FDIC loss share agreements.

The company reported a net recovery of $549,000, or 0.17% of average loans (annualized), in 2014Q1, compared to net charge-offs of $805,000, or 0.24% of average loans (annualized), in 2013Q4. The company reported an adjusted net recovery, which excludes net charge-offs related to PCI loans, of $698,000, or 0.22% of average loans (annualized), in 2014Q1, compared to an adjusted net charge-off of $805,000, or 0.24% of average loans (annualized) in 2013Q4.

The allowance for loan losses increased $245,000, or 3%, to $9.1 million, or 0.70% of total loans, at 2014Q1, compared to $8.8 million, or 0.68% of total loans, at 2013Q4. The increase in allowance included (i) a $49,000, or 1%, increase in the quantitative component, which included an increase in the historical lookback period for residential mortgages and HELOCs to provide a better estimate of the inherent loss in those portfolios; (ii) a $204,000, or 19%, increase in the qualitative component, due primarily to a $150,000 qualitative adjustment to better estimate inherent loss in the residential mortgage portfolio not captured by historical losses; (iii) a $171,000, or 19%, decrease in the specific component, resulting from lower impaired loan balances; and (iv) a net $163,000, or 45%, increase in the PCI component.

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 2014Q1, 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 (April 24, 2014). 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 10043599.

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 billion in assets, is the largest community bank headquartered in the Charlotte area and has 43 banking offices stretching across the Carolinas and into North Georgia, as well as a loan production office in the Greater Richmond region. 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, and wealth management services. 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 available to common shareholders, adjusted net interest margin, adjusted noninterest income, adjusted noninterest expenses, adjusted allowance for loan losses, adjusted net charge-offs/ recoveries, 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 Provident Community Bancshares, Inc. ("Provident Community"); the risk that a closing condition to the merger may not be satisfied, including the inability to obtain governmental approvals of the merger on the proposed terms and schedule or the failure of Provident Community shareholders to approve the merger; failure to realize synergies and other financial benefits from the proposed merger within the expected time frames; increases in expected costs or difficulties related to integration matters; changes in loan mix, deposit mix, capital and liquidity levels, emerging regulatory expectations and measures, net interest income, credit trends and conditions, including loan losses, allowance for loan loss, charge-offs, delinquency trends and nonperforming asset levels, and other similar matters with respect to Park Sterling or Provident Community; 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 effectively redeploy resources from the custody business to the core asset management business; inability to generate future organic growth in loan balances or retail banking or wealth management results through the hiring of new personnel, development of new products or otherwise; the effects of negative or soft economic conditions or a "double dip" recession, including stress in the commercial real estate markets or failure of continued recovery in the residential real estate markets; deterioration in consumer and investor confidence and the related impact on financial markets and institutions; changes in interest rates; failure of assumptions underlying the establishment of allowances for loan losses of Park Sterling or Provident Community; deterioration in the credit quality of the loan portfolio or in the value of the collateral securing those loans of Park Sterling or Provident Community; deterioration in the value of securities held in the investment securities portfolio of Park Sterling or Provident Community; the possibility of recognizing other than temporary impairments on holdings of collateralized loan obligation securities as a result of the Volcker Rule; the impacts on Park Sterling or Provident Community of a potential increasing rate environment; the potential impacts of any additional government shutdown and further 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 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 following 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 and Provident Community undertake 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.

Non-GAAP Financial Measures

Tangible assets, tangible common equity, tangible book value, adjusted net income available to common shareholders, adjusted net interest margin, adjusted noninterest income, adjusted noninterest expenses, adjusted allowance for loan losses, adjusted net charge-offs (recoveries), 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); (iii) adjusted net charge-offs/ recoveries (which exclude the impact of acquisition accounting related to PCI loans) to evaluate both its asset quality and asset quality trends, and to facilitate comparisons with peers; and (iii) adjusted net income, adjusted noninterest income and adjusted noninterest expenses (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), adjusted return on average assets and adjusted return on average equity (which exclude merger-related expenses and gain on or loss sale of securities) to evaluate core earnings and to facilitate comparisons with peers.