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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 
 FORM 10-K
 
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 001-35032
 
 PARK
STERLING CORPORATION
 (Exact name of registrant as specified in its charter)
 NORTH CAROLINA
    
    27-4107242(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)1043 E. Morehead Street, Suite 201Charlotte, North Carolina
    
    28204(Address of principal executive offices)
    
    (Zip Code)
 (704) 716-2134  (Registrants telephone number, including area code)
 
 Securities Registered Pursuant to Section 12(b) of the Securities Exchange Act of 1934:
 Title of each class
    
    Name of each exchange 
on which registeredCommon Stock, $1.00 par value
    
    NASDAQ Global Market
  Yes o No þ
 Yes o No þ
 Yes þ No o
 Yes o No o
 Form 10-K. o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 Yes o No þ




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##### 



PARK STERLING CORPORATION
 TABLE OF CONTENTS
 PART IItem 1. Business
    
    
    5Item 1A. Risk Factors
    
    
    14Item 1B. Unresolved Staff Comments
    
    
    25Item 2. Properties
    
    
    25Item 3. Legal Proceedings
    
    
    25Item 4. Submission of Matters to a Vote of Security Holders
    
    
    25PART IIItem 5. Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
    
    
    26Item 6. Selected Financial Data
    
    
    27Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    29Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    48Item 8. Financial Statements and Supplementary Data
    
    
    49Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
    
    
    78Item 9A. Controls and Procedures
    
    
    78Item 9B. Other Information
    
    
    78PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    78Item 11. Executive Compensation
    
    
    79Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    80Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    80Item 14. Principal Accounting Fees and Services
    
    
    80PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    80Signatures
    
    
    81Exhibit Index
    
    
    82Exhibit 10.5Exhibit 10.12Exhibit 10.13Exhibit 10.14Exhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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PART I
 EXPLANATORY NOTE
    CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 Information set forth in this Annual Report on Form 10-K, including information incorporated by
reference in this document may 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. The forward-looking statements made represent the Companys current expectations,
plans or forecasts of its future results and condition, including expectations regarding its new
business strategy of engaging in bank mergers and organic growth and anticipated asset size, the
proposed merger with Community Capital Corporation, the future growth in the markets in which the
Company operates, refinement of the loan loss allowance methodology, recruiting of key leadership
positions, decreases in construction and development loans and other changes in loan mix, changes
in deposit mix, capital and liquidity levels, emerging regulatory expectations and measures, net
interest income, credit trends and conditions, including loan losses, allowance, charge-offs,
delinquency trends and nonperforming asset levels, and other similar matters. These statements are
not guarantees of future results or performance and involve certain risks and uncertainties that
are based on our beliefs and assumptions and on the information available to us at the time that
these disclosures were prepared. Actual outcomes and results may differ materially from those
expressed in, or implied by, any of these forward-looking statements.
  3




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You should not place undue reliance on any forward-looking statement and should consider the
following uncertainties and risks, as well as the risks and uncertainties more fully discussed
elsewhere in this report, including Item 1A. Risk Factors, and in any of the Companys
subsequent filings with the SEC: the Companys inability to identify and successfully negotiate and
complete combinations with potential merger partners, including Community Capital, or to
successfully integrate such businesses into the Company, including the Companys ability to realize
the benefits and cost savings from and limit any unexpected liabilities acquired as a result of any
such business combination including the proposed Community Capital merger; inability to obtain
governmental approvals of the proposed Community Capital Corporation merger on the proposed terms
and schedule; failure of Community Capitals shareholders to approve the proposed merger;
fluctuation in the trading price of Park Sterlings stock prior to the closing of the proposed
Community Capital merger, which would affect the total value of
the proposed merger transaction; the effects of negative economic conditions, including stress in
the commercial real estate markets or delay or failure of recovery in the residential real estate
markets; changes in consumer and investor confidence and the related impact on financial markets
and institutions; changes in interest rates; failure of assumptions underlying the establishment of
our allowance; deterioration in the credit quality of our loan portfolios or in the value of the
collateral securing those loans; deterioration in the value of securities held in our investment
securities portfolio; legal and regulatory developments; increased competition from both banks and
nonbanks; changes in accounting standards, rules and interpretations, inaccurate estimates or
assumptions in accounting and the impact on the Companys financial statements; the Companys
ability to attract new employees; and managements ability to effectively manage credit risk,
market risk, operational risk, legal risk, and regulatory and compliance risk.
 Forward-looking statements speak only as of the date they are made, and the Company 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.
  4




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Item 1.
    
    Business
 General
      Recent Developments
     5




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Market Area
  Charlotte.
 Wilmington.
 Charleston.
 Competition
   6




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Employees
  Supervision and Regulation
  Financial Reform Legislation .
 Increased Capital Standards and Enhanced Supervision.
  7




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The Bureau of Consumer Financial Protection.
 Deposit Insurance.
 Transactions with Affiliates.
 Transactions with Insiders.
 Enhanced Lending Limits.
 Corporate Governance.
   8




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General.
   Bank Holding Companies.
    Interstate Banking and Branching de novo de
novo de novo de novo
  9




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de novo de novo do novo de novo
 Safety and Soundness Regulations
    Capital Adequacy Guidelines.
   10




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Deposit Insurance and Assessments.
   11




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Dividends and Repurchase Limitations.
   Transactions with Affiliates of the Bank.
 Community Reinvestment Act.
  12




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Loans to Insiders.
 Bank Secrecy Act.
 
 
 
 
 
 CRE and C&D Concentration Guidance.
 Consumer Laws and Regulations.
  13




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Sarbanes-Oxley Act of 2002.
 Proposed Legislation and Regulatory Action.
 Website Access to the Companys SEC Filings
  
 Item 1A.
    
    Risk Factors
  Risks Associated with Our Growth Strategy
 We may not be able to implement aspects of our growth strategy.
     14




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Future expansion involves risks.
  
    
    we may incur substantial costs in identifying and evaluating potential acquisitions
and merger partners, or in evaluating new markets, hiring experienced local managers, and
opening new offices;
 
    
    our estimates and judgments used to evaluate credit, operations, management and
market risks relating to target institutions may not be accurate;
 
    
    the institutions we acquire may have distressed assets and there can be no assurance
that we will be able to realize the value we predict from those assets or that we will
make sufficient provisions or have sufficient capital for future losses;
 
    
    we may be required to take write-downs or write-offs, restructuring and impairment,
or other charges related to the institutions we acquire that could have a significant
negative effect on our financial condition and results of operations;
 
    
    there may be substantial lag-time between completing an acquisition or opening a new
office and generating sufficient assets and deposits to support costs of the expansion;
 
    
    we may not be able to finance an acquisition, or the financing we obtain may have an
adverse effect on our results of operations or result in dilution to our existing
shareholders;
 
    
    our managements attention in negotiating a transaction and integrating the
operations and personnel of the combining businesses may be diverted from our existing
business and we may not be able to successfully integrate such operations and personnel;
 
    
    we may not be able to obtain regulatory approval for an acquisition;
 
    
    we may enter new markets where we lack local experience or which introduce new risks
to our operations, or which otherwise result in adverse effects on our results of
operations;
 
    
    we may introduce new products and services we are not equipped to manage or which
introduce new risks to our operations, or which otherwise result in adverse effects on our
results of operations;
 
    
    we may incur intangible assets in connection with an acquisition, or the intangible
assets we incur may become impaired, which results in adverse short-term effects on our
results of operations;
 
    
    we may assume liabilities in connection with an acquisition, including unrecorded liabilities that are not discovered at the time of the
transaction, and the repayment of those liabilities may have an adverse effect on our results of operations and financial condition; or
 
    
    we may lose key employees and clients.
  We may not be able to maintain and manage our organic growth, which may adversely affect our
results of operations and financial condition.
   15




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New bank office facilities and other facilities may not be profitable.
  Acquisition of assets and assumption of liabilities may expose us to intangible asset risk which
could impact our results of operations and financial condition.
  The success of our growth strategy depends on our ability to identify and retain individuals with
experience and relationships in the markets in which we intend to expand.
  We may need additional access to capital, which we may be unable to obtain on attractive terms or
at all.
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Risks Associated with Our Business
 The current economic environment poses significant challenges for us and could adversely affect our
financial condition and results of operations.
  
    
    increases in loan delinquencies;
 
    
    increases in nonperforming assets and foreclosures;
 
    
    decreases in demand for our products and services, which could adversely affect our
liquidity position;
 
    
    decreases in the value of the collateral securing our loans, especially real estate,
which could reduce clients borrowing power; and
 
    
    decreases in our ability to raise additional capital on terms acceptable to us or at
all
  Our estimated allowance for loan losses may not be sufficient to cover actual loan losses, which
could adversely affect our earnings.
  If our nonperforming assets increase, our earnings will suffer.
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Our concentration in loans secured by real estate, particularly commercial real estate and
construction and development, may increase our loan losses.
     Since we engage in lending secured by real estate and may be forced to foreclose on the collateral
property and own the underlying real estate, we may be subject to the increased costs associated
with the ownership of real property, which could adversely impact our results of operations.
    We maintain a number of large lending relationships, any of which could have a material adverse
effect on our results of operations if our borrowers were not to perform according to the terms of
these loans.
   18




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As a result of our limited operating history, our loan portfolio is unseasoned.
  Our reliance on time deposits, including out-of-market and brokered certificates of deposit, as a
source of funds for loans and our other liquidity needs could have an adverse effect on our results
of operations.
  Recent negative developments in the financial industry and the increased level of recent bank
failures may lead to regulatory changes that may adversely affect our operations and results.
  The FDIC deposit insurance assessments that we are required to pay may increase in the future,
which would have an adverse effect on our earnings.
   19




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Recent legislation and administrative actions authorizing the U.S. government to take direct
actions within the financial services industry may not stabilize the U.S. financial system.
      20




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Our net interest income could be negatively affected by further interest rate adjustments by the
Federal Reserve Board.
   We are subject to extensive regulation that could limit or restrict our activities.
   Our success depends significantly on economic conditions in our market areas.
    21




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Current levels of market volatility are unprecedented.
  We rely heavily on the services of key executives and directors, a number of which are new
additions to our management team.
  To be profitable, we must compete successfully with other financial institutions which have greater
resources and capabilities than we do.
  
    
    other commercial banks
 
    
    savings banks
 
    
    thrifts
 
    
    trust companies
 
    
    credit unions
 
    
    securities brokerage firms
 
    
    mortgage brokers
 
    
    insurance companies
 
    
    mutual funds
 
    
    industrial loan companies
    22




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Liquidity needs of the Company could adversely affect our results of operations and financial
condition.
  We depend on the accuracy and completeness of information about clients and counterparties, which,
if incorrect or incomplete, could harm our earnings.
  Negative public opinion could damage our reputation and adversely impact our earnings.
  We are subject to security and operational risks relating to our use of technology that, if not
managed properly, could damage our reputation, business or operating results.
  Risks Related to an Investment in our common stock
 We may issue additional shares of stock or equity derivative securities, including awards to
current and future executive officers, directors and employees, that could result in dilution of
your investment.
   23




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Our stock price may be volatile, which could result in losses to our investors and litigation
against us.
   Future sales of our common stock by our shareholders or the perception that those sales could occur
may cause our common stock price to decline.
  State laws and provisions in our articles of incorporation or bylaws could make it more difficult
for another company to purchase us, even though such a purchase may increase shareholder value.
  We do not currently intend to pay dividends and may be unable to pay dividends in the future.
   24




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Your right to receive liquidation and dividend payments on the common stock is junior to our
existing and future indebtedness and to any other senior securities we may issue in the future.
   Our common stock is not insured by the FDIC.
  
 Item 1B.
    
    Unresolved Staff Comments
  
 Item 2.
    
    Properties
   
 Item 3.
    
    Legal Proceedings
  
 Item 4.
    
    Submission of Matters to a Vote of Security Holders [Removed and reserved]
  25




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PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 Market for the Common Stock of the Company.
 Common Stock2010
    
    High
    
    
    LowFirst Quarter
    
    $
    6.50
    
    
    $
    5.80Second Quarter
    
    
    8.95
    
    
    
    6.24Third Quarter (through August 12, 2010)
    
    
    8.91
    
    
    
    6.35Third Quarter (August 13, 2010 through
September 30, 2010)
    
    
    6.45
    
    
    
    5.56Fourth Quarter
    
    
    6.40
    
    
    
    5.03
 Common Stock2009
    
    High
    
    
    LowFirst Quarter
    
    $
    9.00
    
    
    $
    5.50Second Quarter
    
    
    7.20
    
    
    
    6.00Third Quarter
    
    
    7.00
    
    
    
    5.50Fourth Quarter
    
    
    6.75
    
    
    
    6.00
  Dividend Policy.
 Unregistered sales of equity securities.
 Securities authorized for issuance under equity compensation plans. .
  26




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Item 6.
    
     Selected Financial Data
 At or for the Years Ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006 (1)(Dollars in thousands, except per share data)Operating DataTotal interest income
    
    $
    22,642
    
    
    $
    21,668
    
    
    $
    20,102
    
    
    $
    10,988
    
    
    $
    690Total interest expense
    
    
    7,607
    
    
    
    9,290
    
    
    
    10,471
    
    
    
    4,837
    
    
    
    134Net interest income
    
    
    15,035
    
    
    
    12,378
    
    
    
    9,631
    
    
    
    6,151
    
    
    
    556Provision for loan losses
    
    
    17,005
    
    
    
    3,272
    
    
    
    2,544
    
    
    
    2,758
    
    
    
    640Net interest income (loss) after provision
    
    
    (1,970
    )
    
    
    9,106
    
    
    
    7,087
    
    
    
    3,393
    
    
    
    (84
    )Noninterest income (loss)
    
    
    130
    
    
    
    (293
    )
    
    
    26
    
    
    
    13
    
    
    
    1Noninterest expense
    
    
    11,057
    
    
    
    7,997
    
    
    
    7,099
    
    
    
    5,278
    
    
    
    1,811Income (loss) before taxes
    
    
    (12,897
    )
    
    
    816
    
    
    
    14
    
    
    
    (1,872
    )
    
    
    (1,894
    )Income tax expense (benefit)
    
    
    (5,038
    )
    
    
    239
    
    
    
    (1,532
    )
    
    
    
    
    
    
    Net income (loss)
    
    $
    (7,859
    )
    
    $
    577
    
    
    $
    1,546
    
    
    $
    (1,872
    )
    
    $
    (1,894
    )Per Share Data (2)Basic earnings (loss) per common share
    
    $
    (0.58
    )
    
    $
    0.12
    
    
    $
    0.31
    
    
    $
    (0.38
    )
    
    $
    (0.38
    )Diluted earnings (loss) per common share
    
    $
    (0.58
    )
    
    $
    0.12
    
    
    $
    0.31
    
    
    $
    (0.38
    )
    
    $
    (0.38
    )Weighted-average common shares outstanding:Basic
    
    
    13,558,221
    
    
    
    4,951,098
    
    
    
    4,951,098
    
    
    
    4,950,355
    
    
    
    4,950,000Diluted
    
    
    13,558,221
    
    
    
    4,951,098
    
    
    
    5,000,933
    
    
    
    4,950,355
    
    
    
    4,950,000Balance Sheet DataCash and cash equivalents
    
    $
    65,378
    
    
    $
    23,238
    
    
    $
    16,511
    
    
    $
    1,423
    
    
    $
    20,371Investment securities
    
    
    140,590
    
    
    
    42,567
    
    
    
    31,588
    
    
    
    14,883
    
    
    
    4,572Loans
    
    
    399,829
    
    
    
    397,564
    
    
    
    371,272
    
    
    
    226,541
    
    
    
    42,647Allowance for loan losses
    
    
    (12,424
    )
    
    
    (7,402
    )
    
    
    (5,568
    )
    
    
    (3,398
    )
    
    
    (640
    )Total assets
    
    
    616,108
    
    
    
    473,855
    
    
    
    428,073
    
    
    
    246,667
    
    
    
    68,424Deposits
    
    
    407,820
    
    
    
    392,633
    
    
    
    351,327
    
    
    
    185,602
    
    
    
    25,409Borrowings
    
    
    20,874
    
    
    
    26,989
    
    
    
    27,962
    
    
    
    16,804
    
    
    
    Subordinated debt
    
    
    6,895
    
    
    
    6,895
    
    
    
    
    
    
    
    
    
    
    
    Stockholders equity
    
    $
    177,101
    
    
    $
    46,095
    
    
    $
    45,697
    
    
    $
    42,421
    
    
    $
    42,964
 (1)
    
    Operating and per share data from September 8, 2006 (date of incorporation) to December 31,
2006.(2)
    
    Per share data has been adjusted for the effects of an eleven-for-ten stock split in the
third quarter of 2008.
  27




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At or for the Years Ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006 (1)Profitability RatiosReturn on average total assets
    
    
    -1.46
    %
    
    
    0.13
    %
    
    
    0.46
    %
    
    
    -1.27
    %Return on average shareholders equity
    
    
    -8.00
    %
    
    
    1.26
    %
    
    
    3.59
    %
    
    
    -4.43
    %Net interest margin (2)
    
    
    2.95
    %
    
    
    2.76
    %
    
    
    2.88
    %
    
    
    4.22
    %Efficiency ratio (3)
    
    
    71.39
    %
    
    
    64.19
    %
    
    
    73.51
    %
    
    
    85.62
    %Asset Quality RatiosNet charge-offs to total loans
    
    
    3.00
    %
    
    
    0.36
    %
    
    
    0.09
    %
    
    
    0.00
    %Allowance for loan losses to total loans
    
    
    3.11
    %
    
    
    1.86
    %
    
    
    1.50
    %
    
    
    1.50
    %Nonperforming assets to total loans and OREO
    
    
    10.51
    %
    
    
    1.06
    %
    
    
    0.38
    %
    
    
    Nonperforming assets to total assets
    
    
    6.84
    %
    
    
    0.89
    %
    
    
    0.33
    %
    
    
    Liquidity RatiosNet loans to total deposits
    
    
    94.99
    %
    
    
    99.37
    %
    
    
    104.09
    %
    
    
    120.23
    %Liquidity ratio
    
    
    50.50
    %
    
    
    15.81
    %
    
    
    13.69
    %
    
    
    8.79
    %Equity to total assets
    
    
    28.75
    %
    
    
    9.73
    %
    
    
    10.67
    %
    
    
    17.20
    %Capital RatiosTangible common equity to tangible assets (4)
    
    
    28.75
    %
    
    
    9.73
    %
    
    
    10.67
    %
    
    
    17.20
    %Tier 1 leverage
    
    
    27.39
    %
    
    
    9.40
    %
    
    
    10.71
    %
    
    
    19.67
    %Tier 1 risk-based capital
    
    
    40.20
    %
    
    
    10.66
    %
    
    
    10.92
    %
    
    
    16.84
    %Total risk-based capital
    
    
    43.06
    %
    
    
    13.55
    %
    
    
    12.71
    %
    
    
    18.09
    %
 (1)
    
    Bank incorporated on September 8, 2006. Information is not meaningful and has been
excluded.(2)
    
    Net interest margin is presented on a tax equivalent basis.(3)
    
    Calculated by dividing noninterest expense by the sum of net interest income and noninterest
income. Gains and losses on sales of securities and OREO are excluded from the calculation.(4)
    
    Information regarding the calculation of these non-GAAP measures is included in Results of
Operations in Item 7. under the caption Summary.
  28




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Consolidated Selected Quarterly Statement of Income (Loss)
 2010 (unaudited)4th
    
    
    3rd
    
    
    2nd
    
    
    1stQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(Dollars in thousands, except per share amounts)Total interest income
    
    $
    5,793
    
    
    $
    5,559
    
    
    $
    5,639
    
    
    $
    5,651Total interest expense
    
    
    1,896
    
    
    
    1,929
    
    
    
    1,882
    
    
    
    1,900Net interest income
    
    
    3,897
    
    
    
    3,630
    
    
    
    3,757
    
    
    
    3,751Provision for loan losses
    
    
    8,237
    
    
    
    6,143
    
    
    
    1,094
    
    
    
    1,531Net interest income (loss) after provision
    
    
    (4,340
    )
    
    
    (2,513
    )
    
    
    2,663
    
    
    
    2,220Noninterest income
    
    
    43
    
    
    
    26
    
    
    
    23
    
    
    
    38Noninterest expense
    
    
    3,548
    
    
    
    2,990
    
    
    
    2,477
    
    
    
    2,042Income (loss) before taxes
    
    
    (7,845
    )
    
    
    (5,477
    )
    
    
    209
    
    
    
    216Income tax expense (benefit)
    
    
    (3,324
    )
    
    
    (1,809
    )
    
    
    36
    
    
    
    59Net income (loss)
    
    $
    (4,521
    )
    
    $
    (3,668
    )
    
    $
    173
    
    
    $
    157Basic earnings (loss) per common share
    
    $
    (0.16
    )
    
    $
    (0.23
    )
    
    $
    0.03
    
    
    $
    0.03Diluted earnings (loss) per common share
    
    $
    (0.16
    )
    
    $
    (0.23
    )
    
    $
    0.03
    
    
    $
    0.03
 2009 (unaudited)4th
    
    
    3rd
    
    
    2nd
    
    
    1stQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(Dollars in thousands, except per share amounts)Total interest income
    
    $
    5,650
    
    
    $
    5,568
    
    
    $
    5,389
    
    
    $
    5,061Total interest expense
    
    
    2,021
    
    
    
    2,283
    
    
    
    2,336
    
    
    
    2,650Net interest income
    
    
    3,629
    
    
    
    3,285
    
    
    
    3,053
    
    
    
    2,411Provision for loan losses
    
    
    1,418
    
    
    
    1,150
    
    
    
    419
    
    
    
    285Net interest income after provision
    
    
    2,211
    
    
    
    2,135
    
    
    
    2,634
    
    
    
    2,126Noninterest income (loss)
    
    
    14
    
    
    
    26
    
    
    
    (335
    )
    
    
    2Noninterest expense
    
    
    2,078
    
    
    
    2,018
    
    
    
    2,044
    
    
    
    1,857Income before taxes
    
    
    147
    
    
    
    143
    
    
    
    255
    
    
    
    271Income tax expense
    
    
    29
    
    
    
    27
    
    
    
    97
    
    
    
    86Net income
    
    $
    118
    
    
    $
    116
    
    
    $
    158
    
    
    $
    185Basic earnings per common share
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    0.03
    
    
    $
    0.03Diluted earnings per common share
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    0.03
    
    
    $
    0.03
 
 Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following is a discussion of our financial position and results of operations and should be
read in conjunction with the information set forth in Part I, Item 1A. Risk Factors and in the
Companys consolidated financial statements and notes thereto (Consolidated Financial Statements)
contained in Part II, Item 8, Financial Statements and Supplementary Data, of this Report.
 Summary of Recent Events
   29




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##### Table of Contents



Critical Accounting Policies
   30




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##### Table of Contents



Allowance for Loan Losses.
 Income Taxes.
  Fair Value Measurements.
  Available-for-Sale Investment Securities.
 Impaired loans.
 Results of Operations
 Summary.
  31




---



##### Table of Contents



Non-GAAP Financial Measures
 2010
    
    
    2009
    
    
    2008(Dollars in thousands, except share and per share amounts)Tangible assets:Total assets
    
    $
    616,108
    
    
    $
    473,855
    
    
    $
    428,073Less: intangible assets
    
    
    
    
    
    
    
    
    
    
    Tangible assets
    
    $
    616,108
    
    
    $
    473,855
    
    
    $
    428,073Tangible common equity:Total common equity
    
    $
    177,101
    
    
    $
    46,095
    
    
    $
    45,697Less: intangible assets
    
    
    
    
    
    
    
    
    
    
    Tangible common equity
    
    $
    177,101
    
    
    $
    46,095
    
    
    $
    45,697Tangible common equity to tangible assets:Tangible common equity
    
    $
    177,101
    
    
    $
    46,095
    
    
    $
    45,697Divided by: tangible assets
    
    
    616,108
    
    
    
    473,855
    
    
    
    428,073Tangible common equity to tangible assets
    
    
    28.75
    %
    
    
    9.73
    %
    
    
    10.68
    %Tangible book value per share:Tangible common equity
    
    $
    177,101
    
    
    $
    46,095
    
    
    $
    45,697Divided by: period end outstanding shares
    
    
    28,051,098
    
    
    
    4,951,098
    
    
    
    4,951,098Tangible common book value per share
    
    $
    6.31
    
    
    $
    9.31
    
    
    $
    9.23
 Net Income (Loss).
 Components of Net Income (Loss)
 2010
    
    
    2009
    
    
    2008
    
    
    Change 2010 vs. 2009
    
    
    Change 2009 vs. 2008(Dollars in thousands)Interest income
    
    $
    22,642
    
    
    $
    21,668
    
    
    $
    20,102
    
    
    $
    974
    
    
    
    4.5
    %
    
    $
    1,566
    
    
    
    7.8
    %Interest expense
    
    
    7,607
    
    
    
    9,290
    
    
    
    10,471
    
    
    
    (1,683
    )
    
    
    -18.1
    %
    
    
    (1,181
    )
    
    
    -11.3
    %Net interest income
    
    
    15,035
    
    
    
    12,378
    
    
    
    9,631
    
    
    
    2,657
    
    
    
    21.5
    %
    
    
    2,747
    
    
    
    28.5
    %Provision for loan losses
    
    
    17,005
    
    
    
    3,272
    
    
    
    2,544
    
    
    
    13,733
    
    
    
    419.7
    %
    
    
    728
    
    
    
    28.6
    %Noninterest income
    
    
    130
    
    
    
    (293
    )
    
    
    26
    
    
    
    423
    
    
    
    -144.4
    %
    
    
    (319
    )
    
    
    -1226.9
    %Noninterest expense
    
    
    11,057
    
    
    
    7,997
    
    
    
    7,099
    
    
    
    3,060
    
    
    
    38.3
    %
    
    
    898
    
    
    
    12.6
    %Net income (loss) before taxes
    
    
    (12,897
    )
    
    
    816
    
    
    
    14
    
    
    
    (13,713
    )
    
    
    -1680.5
    %
    
    
    802
    
    
    
    5728.6
    %Income tax expense (benefit)
    
    
    (5,038
    )
    
    
    239
    
    
    
    (1,532
    )
    
    
    (5,277
    )
    
    
    -2207.9
    %
    
    
    1,771
    
    
    
    -115.6
    %Net income (loss)
    
    $
    (7,859
    )
    
    $
    577
    
    
    $
    1,546
    
    
    $
    (8,436
    )
    
    
    -1462.0
    %
    
    $
    (969
    )
    
    
    -62.7
    %
   32




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##### Table of Contents



Net Interest Income and Expense.
   33




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##### Table of Contents



Net Interest Margin
 2010
    
    
    2009
    
    
    2008Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate(Dollars in thousands)AssetsInterest-earning assets:Loans with fees (1)
    
    $
    399,965
    
    
    $
    20,260
    
    
    
    5.07
    %
    
    $
    389,036
    
    
    $
    19,710
    
    
    
    5.07
    %
    
    $
    307,665
    
    
    $
    18,767
    
    
    
    6.10
    %Federal funds sold
    
    
    45,794
    
    
    
    107
    
    
    
    0.23
    %
    
    
    19,274
    
    
    
    41
    
    
    
    0.21
    %
    
    
    3,677
    
    
    
    60
    
    
    
    1.63
    %Investment securities  taxable
    
    
    57,877
    
    
    
    1,567
    
    
    
    2.71
    %
    
    
    26,153
    
    
    
    1,365
    
    
    
    5.22
    %
    
    
    19,345
    
    
    
    1,112
    
    
    
    5.75
    %Investment securities  tax-exempt (2)
    
    
    14,378
    
    
    
    1,045
    
    
    
    7.27
    %
    
    
    11,264
    
    
    
    867
    
    
    
    7.70
    %
    
    
    2,336
    
    
    
    174
    
    
    
    7.45
    %Other interest-earning assets
    
    
    6,341
    
    
    
    66
    
    
    
    1.04
    %
    
    
    3,314
    
    
    
    19
    
    
    
    0.57
    %
    
    
    1,847
    
    
    
    56
    
    
    
    3.03
    %Total interest-earning assets
    
    
    524,355
    
    
    
    23,045
    
    
    
    4.39
    %
    
    
    449,041
    
    
    
    22,002
    
    
    
    4.90
    %
    
    
    334,870
    
    
    
    20,169
    
    
    
    6.02
    %Allowance for loan losses
    
    
    (9,556
    )
    
    
    
    
    
    
    
    
    
    
    (6,307
    )
    
    
    
    
    
    
    
    
    
    
    (4,517
    )Cash and due from banks
    
    
    7,340
    
    
    
    
    
    
    
    
    
    
    
    4,695
    
    
    
    
    
    
    
    
    
    
    
    1,866Premises and equipment
    
    
    4,602
    
    
    
    
    
    
    
    
    
    
    
    4,788
    
    
    
    
    
    
    
    
    
    
    
    4,647Other assets
    
    
    10,496
    
    
    
    
    
    
    
    
    
    
    
    7,462
    
    
    
    
    
    
    
    
    
    
    
    2,030Total assets
    
    $
    537,237
    
    
    
    
    
    
    
    
    
    
    $
    459,679
    
    
    
    
    
    
    
    
    
    
    $
    338,896Liabilities and shareholders equityInterest-bearing liabilities:Interest-bearing demand
    
    $
    9,831
    
    
    $
    10
    
    
    
    0.10
    %
    
    $
    8,205
    
    
    $
    6
    
    
    
    0.07
    %
    
    $
    4,374
    
    
    $
    8
    
    
    
    0.18
    %Savings and money market
    
    
    50,954
    
    
    
    398
    
    
    
    0.78
    %
    
    
    42,249
    
    
    
    347
    
    
    
    0.82
    %
    
    
    44,202
    
    
    
    989
    
    
    
    2.24
    %Time deposits  core
    
    
    189,841
    
    
    
    3,615
    
    
    
    1.90
    %
    
    
    146,109
    
    
    
    4,086
    
    
    
    2.80
    %
    
    
    82,384
    
    
    
    3,338
    
    
    
    4.05
    %Time deposits  brokered
    
    
    125,123
    
    
    
    2,254
    
    
    
    1.80
    %
    
    
    161,331
    
    
    
    3,882
    
    
    
    2.41
    %
    
    
    124,123
    
    
    
    5,481
    
    
    
    4.42
    %Total interest-bearing deposits
    
    
    375,749
    
    
    
    6,277
    
    
    
    1.67
    %
    
    
    357,894
    
    
    
    8,321
    
    
    
    2.32
    %
    
    
    255,083
    
    
    
    9,816
    
    
    
    3.85
    %Federal Home Loan Bank advances
    
    
    22,110
    
    
    
    572
    
    
    
    2.59
    %
    
    
    25,000
    
    
    
    590
    
    
    
    2.36
    %
    
    
    20,164
    
    
    
    535
    
    
    
    2.65
    %Other borrowings
    
    
    8,755
    
    
    
    758
    
    
    
    8.66
    %
    
    
    6,124
    
    
    
    379
    
    
    
    6.19
    %
    
    
    5,598
    
    
    
    120
    
    
    
    2.14
    %Total borrowed funds
    
    
    30,865
    
    
    
    1,330
    
    
    
    4.31
    %
    
    
    31,124
    
    
    
    969
    
    
    
    3.11
    %
    
    
    25,762
    
    
    
    655
    
    
    
    2.54
    %Total interest-bearing liabilities
    
    
    406,614
    
    
    
    7,607
    
    
    
    1.87
    %
    
    
    389,018
    
    
    
    9,290
    
    
    
    2.39
    %
    
    
    280,845
    
    
    
    10,471
    
    
    
    3.73
    %Net interest rate spread
    
    
    
    
    
    
    15,438
    
    
    
    2.52
    %
    
    
    
    
    
    
    12,712
    
    
    
    2.51
    %
    
    
    
    
    
    
    9,698
    
    
    
    2.29
    %Noninterest-bearing demand deposits
    
    
    30,462
    
    
    
    
    
    
    
    
    
    
    
    22,039
    
    
    
    
    
    
    
    
    
    
    
    12,438Other liabilities
    
    
    1,735
    
    
    
    
    
    
    
    
    
    
    
    2,685
    
    
    
    
    
    
    
    
    
    
    
    2,552Shareholders equity
    
    
    98,426
    
    
    
    
    
    
    
    
    
    
    
    45,937
    
    
    
    
    
    
    
    
    
    
    
    43,061Total liabilities and shareholders equity
    
    $
    537,237
    
    
    
    
    
    
    
    
    
    
    $
    459,679
    
    
    
    
    
    
    
    
    
    
    $
    338,896Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.94
    %
    
    
    
    
    
    
    
    
    
    
    2.83
    %
    
    
    
    
    
    
    
    
    
    
    2.90
    %
 (1)
    
    Nonaccrual loans are included in the average loan balances.(2)
    
    Interest income and yields are presented on a fully tax-equivalent basis.
  Tax Equivalent Adjustments
 2010
    
    
    2009
    
    
    2008(Dollars in thousands)Net interest income, as reported
    
    $
    15,035
    
    
    $
    12,378
    
    
    $
    9,631Tax equivalent adjustments
    
    
    403
    
    
    
    334
    
    
    
    67Fully tax equivalent net interest income
    
    $
    15,438
    
    
    $
    12,712
    
    
    $
    9,698
  34




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##### Table of Contents



Volume and Rate Variance Analysis
 Year Ended December 31,2010 vs. 2009
    
    
    2009 vs. 2008Increase/(Decrease) Due toVolume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    Total(Dollars in thousands)Interest-earning assets:Loans
    
    $
    554
    
    
    $
    (4
    )
    
    $
    550
    
    
    $
    4,543
    
    
    $
    (3,600
    )
    
    $
    943Federal funds sold
    
    
    59
    
    
    
    7
    
    
    
    66
    
    
    
    144
    
    
    
    (163
    )
    
    
    (19
    )Investment securities  taxable
    
    
    1,257
    
    
    
    (1,055
    )
    
    
    202
    
    
    
    373
    
    
    
    (120
    )
    
    
    253Investment securities  tax-exempt
    
    
    233
    
    
    
    (56
    )
    
    
    177
    
    
    
    676
    
    
    
    17
    
    
    
    693Other interest-earning assets
    
    
    24
    
    
    
    23
    
    
    
    47
    
    
    
    26
    
    
    
    (63
    )
    
    
    (37
    )Total earning assets
    
    
    2,128
    
    
    
    (1,085
    )
    
    
    1,043
    
    
    
    5,763
    
    
    
    (3,930
    )
    
    
    1,833Interest-bearing liabilities:Interest bearing demand
    
    
    1
    
    
    
    3
    
    
    
    4
    
    
    
    5
    
    
    
    (7
    )
    
    
    (2
    )Savings and money market
    
    
    70
    
    
    
    (19
    )
    
    
    51
    
    
    
    (30
    )
    
    
    (612
    )
    
    
    (642
    )Time deposits  core
    
    
    1,028
    
    
    
    (1,499
    )
    
    
    (471
    )
    
    
    2,182
    
    
    
    (1,434
    )
    
    
    748Time deposits  brokered
    
    
    (762
    )
    
    
    (866
    )
    
    
    (1,628
    )
    
    
    1,269
    
    
    
    (2,868
    )
    
    
    (1,599
    )Total interest bearing deposits
    
    
    337
    
    
    
    (2,381
    )
    
    
    (2,044
    )
    
    
    3,426
    
    
    
    (4,921
    )
    
    
    (1,495
    )Federal Home Loan Bank advances
    
    
    (71
    )
    
    
    53
    
    
    
    (18
    )
    
    
    121
    
    
    
    (66
    )
    
    
    56Other borrowings
    
    
    195
    
    
    
    184
    
    
    
    379
    
    
    
    22
    
    
    
    237
    
    
    
    259Total borrowed funds
    
    
    124
    
    
    
    237
    
    
    
    361
    
    
    
    143
    
    
    
    171
    
    
    
    314Total interest-bearing liabilities
    
    
    461
    
    
    
    (2,144
    )
    
    
    (1,683
    )
    
    
    3,569
    
    
    
    (4,750
    )
    
    
    (1,181
    )Increase in net interest income
    
    $
    1,668
    
    
    $
    1,059
    
    
    $
    2,726
    
    
    $
    2,194
    
    
    $
    820
    
    
    $
    3,014
      Provision for Loan Losses.
  35




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##### Table of Contents



Noninterest Income.
 Noninterest Expense.
         36




---



##### Table of Contents



Noninterest Expense
 2010
    
    
    2009
    
    
    2008
    
    
    Change 2010 vs. 2009
    
    
    Change 2009 vs. 2008(Dollars in thousands)Salaries and employee benefits
    
    $
    6,442
    
    
    $
    4,723
    
    
    $
    4,757
    
    
    $
    1,719
    
    
    
    36
    %
    
    $
    (34
    )
    
    
    -1
    %Occupancy and equipment
    
    
    916
    
    
    
    820
    
    
    
    720
    
    
    
    96
    
    
    
    12
    %
    
    
    100
    
    
    
    14
    %Advertising and promotion
    
    
    287
    
    
    
    236
    
    
    
    335
    
    
    
    51
    
    
    
    22
    %
    
    
    (99
    )
    
    
    -30
    %Legal and professional fees
    
    
    445
    
    
    
    212
    
    
    
    229
    
    
    
    233
    
    
    
    110
    %
    
    
    (17
    )
    
    
    -7
    %Deposit charges and FDIC insurance
    
    
    728
    
    
    
    965
    
    
    
    191
    
    
    
    (237
    )
    
    
    -25
    %
    
    
    774
    
    
    
    405
    %Data processing and outside service fees
    
    
    411
    
    
    
    395
    
    
    
    350
    
    
    
    16
    
    
    
    4
    %
    
    
    45
    
    
    
    13
    %Director fees
    
    
    392
    
    
    
    
    
    
    
    
    
    
    
    392
    
    
    
    0
    %
    
    
    
    
    
    
    0
    %Other real estate owned expense
    
    
    411
    
    
    
    161
    
    
    
    5
    
    
    
    250
    
    
    
    155
    %
    
    
    156
    
    
    
    3120
    %Other noninterest expense
    
    
    1,025
    
    
    
    485
    
    
    
    512
    
    
    
    540
    
    
    
    111
    %
    
    
    (27
    )
    
    
    -5
    %Total noninterest expense
    
    $
    11,057
    
    
    $
    7,997
    
    
    $
    7,099
    
    
    $
    3,060
    
    
    
    38
    %
    
    $
    898
    
    
    
    13
    %
 Income Taxes.
  Financial Condition
 Summary.
  Investment Securities. .
  37




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##### Table of Contents



Fair Value of Investment Portfolio
 %
    
    
    
    
    
    
    %2010
    
    
    of Total
    
    
    2009
    
    
    of Total(Dollars in thousands)U.S. Government agencies
    
    $
    13,160
    
    
    
    9
    %
    
    $
    5,759
    
    
    
    14
    %Mortgage-backed securities
    
    
    111,118
    
    
    
    79
    %
    
    
    19,994
    
    
    
    47
    %Municipal securities
    
    
    13,808
    
    
    
    10
    %
    
    
    13,884
    
    
    
    33
    %Corporate and other securities
    
    
    2,504
    
    
    
    2
    %
    
    
    2,930
    
    
    
    7
    %Total investment securities
    
    $
    140,590
    
    
    
    100
    %
    
    $
    42,567
    
    
    
    100
    %
  Contractual Maturities of Investment Portfolio  Amortized Cost
 1-5 years
    
    
    5-10 years
    
    
    Over 10 years
    
    
    TotalWeighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageDecember 31, 2010
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield(Dollars in thousands)U.S. Government agencies
    
    $
    12,548
    
    
    
    1.85
    %
    
    $
    527
    
    
    
    4.05
    %
    
    $
    
    
    
    
    
    
    
    $
    13,075
    
    
    
    1.94
    %Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    16,298
    
    
    
    2.10
    %
    
    
    96,755
    
    
    
    2.83
    %
    
    
    113,053
    
    
    
    2.73
    %Municipal securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,772
    
    
    
    6.86
    %
    
    
    13,772
    
    
    
    6.86
    %Corporate and other securities
    
    
    
    
    
    
    
    
    
    
    500
    
    
    
    9.14
    %
    
    
    2,174
    
    
    
    7.33
    %
    
    
    2,674
    
    
    
    7.67
    %Total investment securities
    
    $
    12,548
    
    
    
    1.85
    %
    
    $
    17,325
    
    
    
    2.36
    %
    
    $
    112,701
    
    
    
    3.41
    %
    
    $
    142,574
    
    
    
    3.15
    %
  Loans.
  38




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##### Table of Contents



Summary of Loans By Segment and Class
 2010
    
    
    %
    
    
    2009
    
    
    %(Dollars in thousands)Commercial:Commercial and industrial
    
    $
    48,401
    
    
    
    12
    %
    
    $
    41,980
    
    
    
    11
    %Commercial real estate  owner occupied
    
    
    55,089
    
    
    
    14
    %
    
    
    50,693
    
    
    
    13
    %Commercial real estate  investor income producing
    
    
    110,407
    
    
    
    28
    %
    
    
    112,508
    
    
    
    28
    %Acquisition, construction and development
    
    
    87,846
    
    
    
    22
    %
    
    
    100,668
    
    
    
    25
    %Other commercial
    
    
    3,225
    
    
    
    1
    %
    
    
    1,115
    
    
    
    0
    %Total commercial loans
    
    
    304,968
    
    
    
    76
    %
    
    
    306,964
    
    
    
    77
    %Consumer:Residential mortgage
    
    
    21,716
    
    
    
    5
    %
    
    
    20,577
    
    
    
    5
    %Home equity lines of credit
    
    
    56,968
    
    
    
    14
    %
    
    
    52,026
    
    
    
    13
    %Residential construction
    
    
    9,051
    
    
    
    2
    %
    
    
    11,639
    
    
    
    3
    %Other loans to individuals
    
    
    7,245
    
    
    
    2
    %
    
    
    6,471
    
    
    
    2
    %Total consumer loans
    
    
    94,980
    
    
    
    24
    %
    
    
    90,713
    
    
    
    23
    %Total loans
    
    
    399,948
    
    
    
    100
    %
    
    
    397,677
    
    
    
    100
    %Deferred fees
    
    
    (119
    )
    
    
    0
    %
    
    
    (113
    )
    
    
    0
    %Total loans, net of deferred fees
    
    $
    399,829
    
    
    
    100
    %
    
    $
    397,564
    
    
    
    100
    %
   Loan Portfolio Maturities by Loan Class and Rate Type
 Within
    
    
    OneOne
    
    
    Year to
    
    
    After FiveDecember 31, 2010
    
    Year
    
    
    Five Years
    
    
    Years
    
    
    Total(Dollars in thousands)Commercial and industrial
    
    $
    22,892
    
    
    $
    25,509
    
    
    $
    
    
    
    $
    48,401Commercial real estate  owner-occupied
    
    
    3,943
    
    
    
    46,517
    
    
    
    4,629
    
    
    
    55,089Commercial real estate  investor income producing
    
    
    16,439
    
    
    
    93,740
    
    
    
    228
    
    
    
    110,407Acquisition, construction and development
    
    
    76,093
    
    
    
    11,753
    
    
    
    
    
    
    
    87,846Other commercial
    
    
    2,180
    
    
    
    1,035
    
    
    
    10
    
    
    
    3,225Residential mortgages
    
    
    4,728
    
    
    
    14,934
    
    
    
    2,054
    
    
    
    21,716Home equity lines of credit
    
    
    
    
    
    
    13,842
    
    
    
    43,126
    
    
    
    56,968Residential construction
    
    
    7,002
    
    
    
    2,049
    
    
    
    
    
    
    
    9,051Other loans to individuals
    
    
    5,881
    
    
    
    1,364
    
    
    
    
    
    
    
    7,245Total loans
    
    $
    139,158
    
    
    $
    210,743
    
    
    $
    50,047
    
    
    $
    399,948Fixed interest rate
    
    $
    24,349
    
    
    $
    133,522
    
    
    $
    4,517
    
    
    $
    162,388Variable interest rate
    
    
    114,809
    
    
    
    77,221
    
    
    
    45,530
    
    
    
    237,560Total loans
    
    $
    139,158
    
    
    $
    210,743
    
    
    $
    50,047
    
    
    $
    399,948
 Allowance for Loan Losses.
  39




---



##### Table of Contents



1)
    
    Specific Reserve Component. Specific reserves represent the current impairment
estimate on specific loans, which is an estimate of the amount for which it is probable
that the Bank will be unable to collect all amounts due on such loans, if any, according
to contractual terms based on current information and events. Impairment measurement
reflects only a deterioration of credit quality and not changes in market rates that may
cause a change in the fair value of the impaired loan. The amount of impairment may be
measured in one of three ways, including (i) calculating the present value of expected
future cash flows, discounted at the loans interest rate and deducting estimated selling
costs, if any; (ii) observing quoted market prices for identical or similar instruments
traded in active markets, or employing model-based valuation techniques for which all
significant assumptions are observable in the market; and, (iii) determining the fair
value of collateral, for both collateral dependent loans and for loans when foreclosure is
probable.
 2)
    
    Quantitative Reserve Component. Quantitative reserves represent the current loss
contingency estimate on pools of loans, which is an estimate of the amount for which it is
probable that the Bank will be unable to collect all amounts due on homogeneous groups of
loans according to contractual terms should one or more events occur, excluding those
loans specifically identified above. This component of the allowance for loan losses is
based on estimates of historical loss rates for groups of loans with similar risk
characteristics utilizing the Banks internal risk grades. The data series for collecting
historical loss rates should generally extend through one full economic cycle, but may be
adjusted through weightings or other means during periods of significant economic
volatility. Given the limited operating history of the Bank, historical loss rates
associated with each loan risk grade are currently based on the loss experience of
comparable institutions.
 3)
    
    Qualitative Reserve Component. Qualitative reserves represent an estimate of the
amount for which it is probable that environmental factors will cause the aforementioned
loss contingency estimate to differ from historical results or other assumptions. The
Bank has identified six environmental factors for inclusion in our allowance methodology
at this time including (i) portfolio trends, (ii) portfolio concentrations, (iii) economic
and market trends, (iv) changes in lending practices, (v) regulatory environment, and (vi)
other factors. The first three factors are believed by management to present the most
significant risk to the portfolio, and are therefore associated with both higher absolute
and range of potential reserve percentage. The reserve percentages for each of the six
factors are derived from available industry information combined with management judgment.
The Bank may consider both trends and absolute levels of such factors, if applicable.
    40




---



##### Table of Contents



Allowance for Loans Losses
 2010
    
    
    2009
    
    
    2008Balance, beginning of year
    
    $
    7,402
    
    
    $
    5,568
    
    
    $
    3,398Provision for loan losses
    
    
    17,005
    
    
    
    3,272
    
    
    
    2,544Charge-offs
    
    
    (12,042
    )
    
    
    (1,438
    )
    
    
    (374
    )Recoveries
    
    
    59
    
    
    
    
    
    
    
    Net charge-offs
    
    
    (11,983
    )
    
    
    (1,438
    )
    
    
    (374
    )Balance, end of year
    
    $
    12,424
    
    
    $
    7,402
    
    
    $
    5,568Net charge-offs to total loans
    
    
    3.00
    %
    
    
    0.36
    %
    
    
    0.10
    %Allowance for loan losses to total loans
    
    
    3.11
    %
    
    
    1.86
    %
    
    
    1.50
    %
  Nonperforming Assets.
     41




---



##### Table of Contents



Nonperforming Assets
 2010
    
    
    2009
    
    
    2008(Dollars in thousands)Nonaccrual loans
    
    $
    40,911
    
    
    $
    2,688
    
    
    $
    Past due 90 days or more and accruing
    
    
    
    
    
    
    
    
    
    
    Total nonperforming loans
    
    
    40,911
    
    
    
    2,688
    
    
    
    Other real estate owned
    
    
    1,246
    
    
    
    1,550
    
    
    
    1,431Total nonperforming assets
    
    $
    42,157
    
    
    $
    4,238
    
    
    $
    1,431Nonperforming loans to total loans
    
    
    10.23
    %
    
    
    0.68
    %
    
    
    Nonperforming assets to total assets
    
    
    6.84
    %
    
    
    0.89
    %
    
    
    0.33
    %Allowance for loan losses to nonperforming assets
    
    
    29.47
    %
    
    
    175
    %
    
    
    389
    %
  Deposits.
   Average Deposits and Costs
 2010
    
    
    2009Average
    
    
    % of
    
    
    Average
    
    
    Average
    
    
    % of
    
    
    AverageBalance
    
    
    Total
    
    
    Cost
    
    
    Balance
    
    
    Total
    
    
    Cost(Dollars in thousands)Demand deposits
    
    $
    40,293
    
    
    
    10
    %
    
    
    0.02
    %
    
    $
    30,244
    
    
    
    8
    %
    
    
    0.02
    %Savings and money market
    
    
    50,954
    
    
    
    13
    %
    
    
    0.78
    %
    
    
    42,249
    
    
    
    11
    %
    
    
    0.82
    %Time deposits  core
    
    
    189,841
    
    
    
    47
    %
    
    
    1.90
    %
    
    
    146,109
    
    
    
    38
    %
    
    
    2.80
    %Time deposits  brokered
    
    
    125,123
    
    
    
    31
    %
    
    
    1.80
    %
    
    
    161,331
    
    
    
    42
    %
    
    
    2.41
    %Total deposits
    
    $
    406,211
    
    
    
    100
    %
    
    
    1.55
    %
    
    $
    379,933
    
    
    
    100
    %
    
    
    2.19
    %
  42




---



##### Table of Contents



Maturities of Time Deposits
 Within
    
    
    3-6
    
    
    6-12
    
    
    1-5December 31, 2010
    
    3 Months
    
    
    Months
    
    
    Months
    
    
    Years
    
    
    Total(Dollars in thousands)Time deposits of $100,000 or more
    
    $
    47,698
    
    
    $
    45,561
    
    
    $
    55,876
    
    
    $
    71,695
    
    
    $
    220,830Other time deposits
    
    
    26,807
    
    
    
    23,345
    
    
    
    20,767
    
    
    
    8,072
    
    
    
    78,991Total time deposits
    
    $
    74,505
    
    
    $
    68,906
    
    
    $
    76,643
    
    
    $
    79,767
    
    
    $
    299,821
 Borrowings.
  Schedule of Borrowed Funds
 % Change
    
    
    
    
    
    
    % ChangeFrom Prior
    
    
    
    
    
    
    From Prior2010
    
    
    Year
    
    
    2009
    
    
    Year
    
    
    2008(Dollars in thousands)Short-term:Repurchase agreements
    
    $
    874
    
    
    
    -56.1
    %
    
    $
    1,989
    
    
    
    -32.8
    %
    
    $
    2,962Federal Home Loan Bank advances
    
    
    
    
    
    
    -100.0
    %
    
    
    5,000
    
    
    
    
    
    
    
    5,000Total short-term
    
    
    874
    
    
    
    -87.5
    %
    
    
    6,989
    
    
    
    -12.2
    %
    
    
    7,962Long-term:Federal Home Loan Bank advances
    
    
    20,000
    
    
    
    
    
    
    
    20,000
    
    
    
    
    
    
    
    20,000Subordinated debt
    
    
    6,895
    
    
    
    
    
    
    
    6,895
    
    
    
    100.0
    %
    
    
    Total long-term
    
    
    26,895
    
    
    
    0.0
    %
    
    $
    26,895
    
    
    
    34.5
    %
    
    
    20,000Total borrowed funds
    
    $
    27,769
    
    
    
    -18.0
    %
    
    $
    33,884
    
    
    
    21.2
    %
    
    $
    27,962
  Short-Term Borrowings
 Weighted
    
    
    Maximum
    
    
    Average
    
    
    AverageAverage
    
    
    Amount
    
    
    Daily Balance
    
    
    AnnualBalance at
    
    
    Interest Rate
    
    
    Outstanding
    
    
    Outstanding
    
    
    InterestYear end
    
    
    at Year End
    
    
    During Year
    
    
    During Year
    
    
    Rate Paid(Dollars in thousands)2010Repurchase agreements
    
    $
    874
    
    
    
    0.15
    %
    
    $
    4,722
    
    
    $
    2,351
    
    
    
    0.12
    %Federal funds purchased
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    1
    
    
    
    0.09
    %Federal Home Loan Bank
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    2,110
    
    
    
    0.31
    %Total
    
    $
    874
    
    
    
    0.15
    %2009Repurchase agreements
    
    $
    1,989
    
    
    
    0.15
    %
    
    $
    5,883
    
    
    $
    2,614
    
    
    
    0.15
    %Federal funds purchased
    
    
    
    
    
    
    
    
    
    
    2,503
    
    
    
    16
    
    
    
    0.69
    %Federal Home Loan Bank
    
    
    5,000
    
    
    
    0.25
    %
    
    
    5,000
    
    
    
    5,000
    
    
    
    0.43
    %Total
    
    $
    6,989
    
    
    
    0.40
    %
 Liquidity and Capital Resources
   43




---



##### Table of Contents



Capital Ratios
 To Be WellFor Capital
    
    
    Capitalized UnderAdequacy
    
    
    Prompt CorrectiveActual
    
    
    Purposes
    
    
    Actions ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars in thousands)2010Total capital (to risk-weighted assets)
    
    $
    185,768
    
    
    
    43.06
    %
    
    $
    34,035
    
    
    
    8.00
    %
    
    $
    42,543
    
    
    
    10.00
    %Tier 1 capital (to risk-weighted assets)
    
    
    173,395
    
    
    
    40.20
    %
    
    
    17,017
    
    
    
    4.00
    %
    
    
    25,525
    
    
    
    6.00
    %Tier 1 capital (to average assets)
    
    
    173,395
    
    
    
    27.39
    %
    
    
    22,227
    
    
    
    4.00
    %
    
    
    27,784
    
    
    
    5.00
    %2009Total capital (to risk-weighted assets)
    
    $
    57,061
    
    
    
    13.55
    %
    
    $
    33,684
    
    
    
    8.00
    %
    
    $
    42,105
    
    
    
    10.00
    %Tier 1 capital (to risk-weighted assets)
    
    
    44,877
    
    
    
    10.66
    %
    
    
    16,842
    
    
    
    4.00
    %
    
    
    25,263
    
    
    
    6.00
    %Tier 1 capital (to average assets)
    
    
    44,877
    
    
    
    9.40
    %
    
    
    19,097
    
    
    
    4.00
    %
    
    
    23,871
    
    
    
    5.00
    %
    44




---



##### Table of Contents



Off-Balance Sheet Arrangements and Contractual Obligations
   Contractual Obligations
 Less Than
    
    
    
    
    
    
    
    
    
    
    More ThanDecember 31, 2010
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years
    
    
    Total(Dollars in thousands)Certificate of deposits
    
    $
    220,054
    
    
    $
    72,677
    
    
    $
    7,090
    
    
    $
    
    
    
    $
    299,821Deposits without a stated maturity
    
    
    107,999
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107,999Repurchase agreements
    
    
    874
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    874FHLB advances
    
    
    
    
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    20,000Subordinated debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,895
    
    
    
    6,895Operating lease obligations
    
    
    496
    
    
    
    1,328
    
    
    
    1,392
    
    
    
    498
    
    
    
    3,714Total
    
    $
    329,423
    
    
    $
    94,005
    
    
    $
    8,482
    
    
    $
    7,393
    
    
    $
    439,303
   Impact of Inflation and Changing Prices
  Interest Rate Sensitivity
    45




---



##### Table of Contents



46




---



##### Table of Contents



Interest Rate Gap Sensitivity
 Within
    
    
    Three
    
    
    One YearThree
    
    
    Months to
    
    
    to Five
    
    
    AfterAt December 31, 2010
    
    Months
    
    
    One Year
    
    
    Years
    
    
    Five Years
    
    
    Total(Dollars in thousands)Interest-earning assets:Interest-bearing deposits
    
    $
    5,040
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    5,040Federal funds sold
    
    
    57,905
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,905Securities
    
    
    
    
    
    
    
    
    
    
    12,590
    
    
    
    128,000
    
    
    
    140,590Loans
    
    
    245,364
    
    
    
    16,532
    
    
    
    133,416
    
    
    
    4,517
    
    
    
    399,829Other interest-earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,275
    
    
    
    2,275Total interest-earning assets
    
    
    308,309
    
    
    
    16,532
    
    
    
    146,006
    
    
    
    134,792
    
    
    
    605,639Interest-bearing liabilities:Demand deposits
    
    
    9,372
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,372MMDA and savings
    
    
    62,293
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,293Time deposits
    
    
    74,505
    
    
    
    145,549
    
    
    
    79,767
    
    
    
    
    
    
    
    299,821Short term borrowings
    
    
    874
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    874Long term borrowings
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    6,895
    
    
    
    26,895Total interest-bearing liabilities
    
    
    147,044
    
    
    
    145,549
    
    
    
    99,767
    
    
    
    6,895
    
    
    
    399,255Derivatives
    
    
    (29,316
    )
    
    
    40,000
    
    
    
    (7,036
    )
    
    
    (3,648
    )
    
    
    Interest sensitivity gap
    
    $
    131,949
    
    
    $
    (89,017
    )
    
    $
    39,203
    
    
    $
    124,249
    
    
    $
    206,384Cumulative interest sensitivity gap
    
    $
    131,949
    
    
    $
    42,932
    
    
    $
    82,135
    
    
    $
    206,384Percentage of total assets
    
    
    
    
    
    
    6.97
    %
  47




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##### Table of Contents



Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
   48




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##### Table of Contents



Item 8.
    
    Financial Statements and Supplementary Data
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
  49




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##### Table of Contents



PARK STERLING CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2010 and 2009
 December 31,2010
    
    
    2009(Dollars in thousands)ASSETSCash and due from banks
    
    $
    2,433
    
    
    $
    6,504Interest-earning balances at banks
    
    
    5,040
    
    
    
    2,758Federal funds sold
    
    
    57,905
    
    
    
    13,975Investment securities available-for-sale, at fair value
    
    
    140,590
    
    
    
    42,567Loans
    
    
    399,829
    
    
    
    397,564Allowance for loan losses
    
    
    (12,424
    )
    
    
    (7,402
    )Net loans
    
    
    387,405
    
    
    
    390,162Federal Home Loan Bank stock
    
    
    1,757
    
    
    
    1,896Premises and equipment, net
    
    
    4,477
    
    
    
    4,665Accrued interest receivable
    
    
    1,640
    
    
    
    1,614Other real estate owned
    
    
    1,246
    
    
    
    1,550Other assets
    
    
    13,615
    
    
    
    8,164Total assets
    
    $
    616,108
    
    
    $
    473,855LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Noninterest-bearing demand deposits
    
    $
    36,333
    
    
    $
    24,085Money market, NOW and savings deposits
    
    
    71,666
    
    
    
    52,308Time deposits of less than $100,000
    
    
    78,242
    
    
    
    76,456Time deposits of $100,000 through $250,000
    
    
    79,020
    
    
    
    65,551Time deposits of more than $250,000
    
    
    142,559
    
    
    
    174,233Total deposits
    
    
    407,820
    
    
    
    392,633Short-term borrowings
    
    
    874
    
    
    
    6,989Long-term borrowings
    
    
    20,000
    
    
    
    20,000Subordinated debt
    
    
    6,895
    
    
    
    6,895Accrued interest payable
    
    
    290
    
    
    
    436Accrued expenses and other liabilities
    
    
    3,128
    
    
    
    807Total liabilities
    
    
    439,007
    
    
    
    427,760Commitments (Notes J and K)Shareholders equity:Preferred stock, no par value 
5,000,000 shares authorized; 0 issued and outstanding
at December 31, 2010 and 2009, respectively
    
    
    
    
    
    
    Common stock, $1.00 par value 
200,000,000 and 45,000,000 shares authorized at December 31,
2010 and 2009, respectively; 28,051,098 and 4,951,098
outstanding at December 31, 2010 and 2009, respectively
    
    
    130,438
    
    
    
    23,023Additional paid-in capital
    
    
    57,102
    
    
    
    23,496Accumulated deficit
    
    
    (9,501
    )
    
    
    (1,642
    )Accumulated other comprehensive income (loss)
    
    
    (938
    )
    
    
    1,218Total shareholders equity
    
    
    177,101
    
    
    
    46,095Total liabilities and shareholders equity
    
    $
    616,108
    
    
    $
    473,855
   50




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##### Table of Contents



PARK STERLING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Years Ended December 31, 2010, 2009 and 2008
 2010
    
    
    2009
    
    
    2008(Dollars in thousands, except per share data)Interest incomeLoans, including fees
    
    $
    20,260
    
    
    $
    19,710
    
    
    $
    18,767Federal funds sold
    
    
    107
    
    
    
    41
    
    
    
    60Taxable investment securities
    
    
    1,567
    
    
    
    1,365
    
    
    
    1,167Tax-exempt investment securities
    
    
    642
    
    
    
    533
    
    
    
    107Interest on deposits at banks
    
    
    66
    
    
    
    19
    
    
    
    1Total interest income
    
    
    22,642
    
    
    
    21,668
    
    
    
    20,102Interest expenseMoney market, NOW and savings deposits
    
    
    408
    
    
    
    353
    
    
    
    997Time deposits
    
    
    5,869
    
    
    
    7,968
    
    
    
    8,819Short-term borrowings
    
    
    9
    
    
    
    25
    
    
    
    228Long-term borrowings
    
    
    563
    
    
    
    565
    
    
    
    427Subordinated debt
    
    
    758
    
    
    
    379
    
    
    
    Total interest expense
    
    
    7,607
    
    
    
    9,290
    
    
    
    10,471Net interest income
    
    
    15,035
    
    
    
    12,378
    
    
    
    9,631Provision for loan losses
    
    
    17,005
    
    
    
    3,272
    
    
    
    2,544Net interest income (loss) after provision for loan losses
    
    
    (1,970
    )
    
    
    9,106
    
    
    
    7,087Noninterest incomeService charges on deposit accounts
    
    
    66
    
    
    
    38
    
    
    
    13Gain on sale of securities available-for-sale
    
    
    19
    
    
    
    349
    
    
    
    Other than temporary securities impairment loss
    
    
    
    
    
    
    (698
    )
    
    
    Other noninterest income
    
    
    45
    
    
    
    18
    
    
    
    13Total noninterest income (loss)
    
    
    130
    
    
    
    (293
    )
    
    
    26Noninterest expenseSalaries and employee benefits
    
    
    6,442
    
    
    
    4,723
    
    
    
    4,757Occupancy and equipment
    
    
    916
    
    
    
    820
    
    
    
    720Advertising and promotion
    
    
    287
    
    
    
    236
    
    
    
    335Legal and professional fees
    
    
    445
    
    
    
    212
    
    
    
    229Deposit charges and FDIC insurance
    
    
    728
    
    
    
    965
    
    
    
    191Data processing and outside service fees
    
    
    411
    
    
    
    395
    
    
    
    350Director fees
    
    
    392
    
    
    
    
    
    
    
    Other real estate owned expense
    
    
    411
    
    
    
    161
    
    
    
    5Other noninterest expense
    
    
    1,025
    
    
    
    485
    
    
    
    512Total noninterest expense
    
    
    11,057
    
    
    
    7,997
    
    
    
    7,099Income (loss) before income taxes
    
    
    (12,897
    )
    
    
    816
    
    
    
    14Income tax expense (benefit)
    
    
    (5,038
    )
    
    
    239
    
    
    
    (1,532
    )Net income (loss)
    
    $
    (7,859
    )
    
    $
    577
    
    
    $
    1,546Basic earnings (loss) per common share
    
    $
    (0.58
    )
    
    $
    0.12
    
    
    $
    0.31Diluted earnings (loss) per common share
    
    $
    (0.58
    )
    
    $
    0.12
    
    
    $
    0.31Weighted-average common shares outstandingBasic
    
    
    13,558,221
    
    
    
    4,951,098
    
    
    
    4,951,098Diluted
    
    
    13,558,221
    
    
    
    4,951,098
    
    
    
    5,000,933
   51




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##### Table of Contents



PARK STERLING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
Years Ended December 31, 2010, 2009 and 2008
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    Equity(Dollars in thousands)Balance at December 31, 2007
    
    
    4,501,000
    
    
    $
    20,930
    
    
    $
    24,282
    
    
    $
    (3,765
    )
    
    $
    974
    
    
    $
    42,421Share-based compensation expense
    
    
    
    
    
    
    
    
    
    
    665
    
    
    
    
    
    
    
    
    
    
    
    665Eleven-for-ten stock split, effected in
the form of a 10% stock dividend
    
    
    450,098
    
    
    
    2,093
    
    
    
    (2,093
    )
    
    
    
    
    
    
    
    
    
    
    Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,546
    
    
    
    
    
    
    
    1,546Unrealized holding losses on
available-for-sale securities,
net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (94
    )
    
    
    (94
    )Unrealized holding gains on
interest rate swaps, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,159
    
    
    
    1,159Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,611Balance at December 31, 2008
    
    
    4,951,098
    
    
    
    23,023
    
    
    
    22,854
    
    
    
    (2,219
    )
    
    
    2,039
    
    
    
    45,697Share-based compensation expense
    
    
    
    
    
    
    
    
    
    
    642
    
    
    
    
    
    
    
    
    
    
    
    642Comprehensive loss:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    577
    
    
    
    
    
    
    
    577Unrealized holding gains on
available-for-sale securities,
net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    261
    
    
    
    261Unrealized holding losses on
interest rate swaps, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,082
    )
    
    
    (1,082
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (244
    )Balance at December 31, 2009
    
    
    4,951,098
    
    
    
    23,023
    
    
    
    23,496
    
    
    
    (1,642
    )
    
    
    1,218
    
    
    
    46,095Issuance of common stock,
net of costs
    
    
    23,100,000
    
    
    
    107,415
    
    
    
    32,796
    
    
    
    
    
    
    
    
    
    
    
    140,211Share-based compensation expense
    
    
    
    
    
    
    
    
    
    
    810
    
    
    
    
    
    
    
    
    
    
    
    810Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,859
    )
    
    
    
    
    
    
    (7,859
    )Unrealized holding losses on
available-for-sale securities,
net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,515
    )
    
    
    (1,515
    )Unrealized holding losses on
interest rate swaps, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (641
    )
    
    
    (641
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,015
    )Balance at December 31, 2010
    
    
    28,051,098
    
    
    $
    130,438
    
    
    $
    57,102
    
    
    $
    (9,501
    )
    
    $
    (938
    )
    
    $
    177,101
   52




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##### Table of Contents



PARK STERLING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2010, 2009 and 2008
 2010
    
    
    2009
    
    
    2008(Dollars in thousands)Cash flows from operating activitiesNet income (loss)
    
    $
    (7,859
    )
    
    $
    577
    
    
    $
    1,546Adjustments to reconcile net income (loss) to net
cash provided (used for) by operating activities:Depreciation and amortization
    
    
    1,008
    
    
    
    563
    
    
    
    326Provision for loan losses
    
    
    17,005
    
    
    
    3,272
    
    
    
    2,544Stock option expense
    
    
    810
    
    
    
    643
    
    
    
    665Income on termination of swap
    
    
    (353
    )
    
    
    (852
    )
    
    
    (796
    )Deferred income taxes
    
    
    (3,190
    )
    
    
    (574
    )
    
    
    (2,976
    )Net gains on sales of investment securities available-for-sale
    
    
    (19
    )
    
    
    (349
    )
    
    
    Net losses on sales of other real estate owned
    
    
    343
    
    
    
    15
    
    
    
    Other than temporary securities impairment loss
    
    
    
    
    
    
    698
    
    
    
    Change in assets and liabilities:Increase in accrued interest receivable
    
    
    (26
    )
    
    
    (296
    )
    
    
    (275
    )Increase in other assets
    
    
    (2,363
    )
    
    
    (3,632
    )
    
    
    (1,041
    )Increase (decrease) in accrued interest payable
    
    
    (146
    )
    
    
    (1,163
    )
    
    
    617Increase (decrease) in accrued expenses and other liabilities
    
    
    3,086
    
    
    
    (169
    )
    
    
    2,038Net cash provided by (used for) operating activities
    
    
    8,296
    
    
    
    (1,267
    )
    
    
    2,648Cash flows from investing activitiesNet increase in loans
    
    
    (17,118
    )
    
    
    (28,764
    )
    
    
    (146,545
    )Purchases of premises and equipment
    
    
    (217
    )
    
    
    (100
    )
    
    
    (1,053
    )Proceeds from disposals of premises and equipment
    
    
    51
    
    
    
    
    
    
    
    Purchases of investment securities available-for-sale
    
    
    (117,000
    )
    
    
    (26,026
    )
    
    
    (18,354
    )Proceeds from sales of investment securities available-for-sale
    
    
    2,155
    
    
    
    11,490
    
    
    
    Proceeds from maturities and call of investment securities 
available-for-sale
    
    
    13,727
    
    
    
    3,761
    
    
    
    1,517Improvements to other real estate owned
    
    
    (93
    )
    
    
    (432
    )
    
    
    Proceeds from sale of other real estate owned
    
    
    2,918
    
    
    
    1,227
    
    
    
    Proceeds from sale of interest rate swap
    
    
    
    
    
    
    
    
    
    
    1,987Redemption (purchase) of Federal Home Loan Bank stock
    
    
    139
    
    
    
    (327
    )
    
    
    (1,446
    )Purchase of other assets
    
    
    
    
    
    
    (65
    )
    
    
    (549
    )Net cash used for investing activities
    
    
    (115,438
    )
    
    
    (39,236
    )
    
    
    (164,443
    )Cash flows from financing activitiesNet increase in deposits
    
    
    15,187
    
    
    
    41,306
    
    
    
    165,725Net decrease in short-term borrowings
    
    
    (6,115
    )
    
    
    (972
    )
    
    
    (8,842
    )Proceeds from long-term borrowings
    
    
    
    
    
    
    
    
    
    
    20,000Proceeds from issuance of subordinated debt
    
    
    
    
    
    
    6,895
    
    
    
    Proceeds from issuance of common stock, net of costs
    
    
    140,211
    
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    149,283
    
    
    
    47,229
    
    
    
    176,883Net increase in cash and cash equivalents
    
    
    42,141
    
    
    
    6,726
    
    
    
    15,088Cash and cash equivalents, beginning
    
    
    23,237
    
    
    
    16,511
    
    
    
    1,423Cash and cash equivalents, ending
    
    $
    65,378
    
    
    $
    23,237
    
    
    $
    16,511Supplemental disclosures of cash flow information:Cash paid for interest
    
    $
    7,753
    
    
    $
    10,453
    
    
    $
    9,853Cash paid for income taxes
    
    
    950
    
    
    
    2,105
    
    
    
    256Supplemental disclosure of noncash investing and financing activities:Change in unrealized gain on available-for-sale securities, net of tax
    
    $
    (1,515
    )
    
    $
    261
    
    
    $
    (94
    )Change in unrealized loss on interest rate swaps, net of tax
    
    
    (641
    )
    
    
    (1,082
    )
    
    
    1,159Loans transferred to other real estate owned
    
    
    2,864
    
    
    
    982
    
    
    
    1,431
  53




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##### Table of Contents



PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
 NOTE A  ORGANIZATION AND OPERATIONS
    NOTE B  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
 Use of Estimates 
 Reclassifications
 Cash and Cash Equivalents 
 Investment Securities
 Loans
  54




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##### Table of Contents



PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
 Nonperforming Loans
  Impaired Loans
 Loans Modified in a Troubled Debt Restructuring
 Allowance for Loan Losses
 Other Real Estate Owned
  55




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##### Table of Contents



PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
 Premises and Equipment
 Federal Home Loan Bank Securities
 Securities Sold Under Agreements to Repurchase
 Advertising Costs
 Income Taxes
 Per Share Results
   2010
    
    
    2009
    
    
    2008Weighted-average number of common
shares outstanding
    
    
    13,558,221
    
    
    
    4,951,098
    
    
    
    4,951,098Effect of dilutive stock options
    
    
    
    
    
    
    
    
    
    
    49,835Weighted-average number of common
shares and dilutive potential common
shares outstanding
    
    
    13,558,221
    
    
    
    4,951,098
    
    
    
    5,000,933
   56




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##### Table of Contents



PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
 Share-Based Compensation
  Comprehensive Income
 2010
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    (7,859
    )
    
    $
    577
    
    
    $
    1,546Unrealized holding gains (losses) on
available-for-sale securities
    
    
    (2,447
    )
    
    
    774
    
    
    
    (153
    )Income tax effect
    
    
    944
    
    
    
    (299
    )
    
    
    59Reclassification of gains recognized in net income
    
    
    (19
    )
    
    
    (349
    )
    
    
    Income tax effect
    
    
    7
    
    
    
    135
    
    
    
    Net-of-tax amount
    
    
    (1,515
    )
    
    
    261
    
    
    
    (94
    )Unrealized holding gains (loss) on swaps
    
    
    (1,043
    )
    
    
    (1,760
    )
    
    
    1,886Income tax effect
    
    
    402
    
    
    
    678
    
    
    
    (727
    )Net-of-tax amount
    
    
    (641
    )
    
    
    (1,082
    )
    
    
    1,159Total comprehensive income (loss)
    
    $
    (10,015
    )
    
    $
    (244
    )
    
    $
    2,611
 Derivative Financial Instruments and Hedging Activities
   Recent Accounting Pronouncements Transfers
and Servicing (Topic 860)Accounting for Transfers of Financial Assets.
  57




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##### Table of Contents



PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
 Consolidations (Topic 810)Improvements to
Financial Reporting by Enterprises Involved with Variable Interest Entities.
 Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements,
 Subsequent Events (Topic 855): Amendments
to Certain Recognition and Disclosure Requirements,
 Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses
 Deferral of the Effective Date of
Disclosures about Troubled Debt Restructurings in Update No. 2010-20.
  58




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PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
 NOTE C  INVESTMENTS
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value2010U.S. Government agencies
    
    $
    13,075
    
    
    $
    181
    
    
    $
    (96
    )
    
    $
    13,160Residential mortgage-backed securities
    
    
    52,342
    
    
    
    495
    
    
    
    (438
    )
    
    
    52,399Collateralized agency mortgage obligations
    
    
    60,711
    
    
    
    111
    
    
    
    (2,103
    )
    
    
    58,719Municipal securities
    
    
    13,771
    
    
    
    183
    
    
    
    (146
    )
    
    
    13,808Corporate and other securities
    
    
    2,675
    
    
    
    5
    
    
    
    (176
    )
    
    
    2,504Total investment securities
    
    $
    142,574
    
    
    $
    975
    
    
    $
    (2,959
    )
    
    $
    140,5902009U.S. Government agencies
    
    $
    5,586
    
    
    $
    189
    
    
    $
    (16
    )
    
    $
    5,759Residential mortgage-backed securities
    
    
    16,444
    
    
    
    396
    
    
    
    (67
    )
    
    
    16,773Collateralized agency mortgage obligations
    
    
    3,232
    
    
    
    12
    
    
    
    (23
    )
    
    
    3,221Municipal securities
    
    
    13,641
    
    
    
    448
    
    
    
    (205
    )
    
    
    13,884Corporate and other securities
    
    
    3,182
    
    
    
    14
    
    
    
    (266
    )
    
    
    2,930Total investment securities
    
    $
    42,085
    
    
    $
    1,059
    
    
    $
    (577
    )
    
    $
    42,567
   2010
    
    
    2009Amortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueDue after one year through five years
    
    $
    12,548
    
    
    $
    12,590
    
    
    $
    5,055
    
    
    $
    5,219Due after five years through ten years
    
    
    17,325
    
    
    
    17,126
    
    
    
    1,685
    
    
    
    1,606Due after ten years
    
    
    112,701
    
    
    
    110,874
    
    
    
    35,345
    
    
    
    35,742Total investment securities
    
    $
    142,574
    
    
    $
    140,590
    
    
    $
    42,085
    
    
    $
    42,567
  2010
    
    
    2009
    
    
    2008Proceeds from sales
    
    $
    2,155
    
    
    $
    11,490
    
    
    $
    Gross realized gains
    
    
    50
    
    
    
    349
    
    
    
    Gross realized losses
    
    
    (31
    )
    
    
    
    
    
    
    
   59




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##### Table of Contents



PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
 Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses2010U.S. Government agencies
    
    $
    9,904
    
    
    $
    (96
    )
    
    $
    
    
    
    $
    
    
    
    $
    9,904
    
    
    $
    (96
    )Mortgage-backed securities
    
    
    37,052
    
    
    
    (438
    )
    
    
    
    
    
    
    
    
    
    
    37,052
    
    
    
    (438
    )Collateralized mortgage obligations
    
    
    53,232
    
    
    
    (2,103
    )
    
    
    
    
    
    
    
    
    
    
    53,232
    
    
    
    (2,103
    )Municipal securities
    
    
    6,215
    
    
    
    (146
    )
    
    
    
    
    
    
    
    
    
    
    6,215
    
    
    
    (146
    )Corporate and other securities
    
    
    
    
    
    
    
    
    
    
    1,475
    
    
    
    (176
    )
    
    
    1,475
    
    
    
    (176
    )Total temporarily impaired securities
    
    $
    106,403
    
    
    $
    (2,783
    )
    
    $
    1,475
    
    
    $
    (176
    )
    
    $
    107,878
    
    
    $
    (2,959
    )2009U.S. Government agencies
    
    $
    984
    
    
    $
    (16
    )
    
    $
    
    
    
    $
    
    
    
    $
    984
    
    
    $
    (16
    )Mortgage-backed securities
    
    
    5,442
    
    
    
    (67
    )
    
    
    
    
    
    
    
    
    
    
    5,442
    
    
    
    (67
    )Collateralized mortgage obligations
    
    
    2,555
    
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    2,555
    
    
    
    (23
    )Municipal securities
    
    
    2,723
    
    
    
    (22
    )
    
    
    3,289
    
    
    
    (183
    )
    
    
    6,012
    
    
    
    (205
    )Corporate and other securities
    
    
    400
    
    
    
    (100
    )
    
    
    2,016
    
    
    
    (166
    )
    
    
    2,416
    
    
    
    (266
    )Total temporarily impaired securities
    
    $
    12,104
    
    
    $
    (228
    )
    
    $
    5,305
    
    
    $
    (349
    )
    
    $
    17,409
    
    
    $
    (577
    )
  NOTE D  LOANS
  2010
    
    
    2009Commercial:Commercial and industrial
    
    $
    48,401
    
    
    $
    41,980Commercial real estate  owner-occupied
    
    
    55,089
    
    
    
    50,693Commercial real estate  investor income producing
    
    
    110,407
    
    
    
    112,508Acquisition, construction and development
    
    
    87,846
    
    
    
    100,668Other commercial
    
    
    3,225
    
    
    
    1,115Total commercial loans
    
    
    304,968
    
    
    
    306,964Consumer:Residential mortgage
    
    
    21,716
    
    
    
    20,577Home equity lines of credit
    
    
    56,968
    
    
    
    52,026Residential construction
    
    
    9,051
    
    
    
    11,639Other loans to individuals
    
    
    7,245
    
    
    
    6,471Total consumer loans
    
    
    94,980
    
    
    
    90,713Total loans
    
    
    399,948
    
    
    
    397,677Deferred fees
    
    
    (119
    )
    
    
    (113
    )Total loans, net of deferred fees
    
    $
    399,829
    
    
    $
    397,564
  Concentrations of Credit 
  60




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PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
 Allowance for Loan Losses
 Commercial
    
    
    Consumer
    
    
    Unallocated
    
    
    TotalFor the year ended December 31, 2010Allowance for Loan Losses:Balance, beginning of year
    
    $
    5,799
    
    
    $
    1,603
    
    
    $
    
    
    
    $
    7,402Provision for loan losses
    
    
    13,336
    
    
    
    1,785
    
    
    
    1,884
    
    
    
    17,005Charge-offs
    
    
    (10,025
    )
    
    
    (2,017
    )
    
    
    
    
    
    
    (12,042
    )Recoveries
    
    
    54
    
    
    
    5
    
    
    
    
    
    
    
    59Net charge-offs
    
    
    (9,971
    )
    
    
    (2,012
    )
    
    
    
    
    
    
    (11,983
    )Ending balance
    
    $
    9,165
    
    
    $
    1,375
    
    
    $
    1,884
    
    
    $
    12,424At December 31, 2010Allowance for Loan Losses:Individually evaluated for impairment
    
    $
    4,092
    
    
    $
    115
    
    
    $
    
    
    
    $
    4,207Collectively evaluated for impairment
    
    
    5,073
    
    
    
    1,260
    
    
    
    1,884
    
    
    
    8,217Total
    
    $
    9,165
    
    
    $
    1,375
    
    
    $
    1,884
    
    
    $
    12,424Recorded Investment in Loans:Individually evaluated for impairment
    
    $
    37,451
    
    
    $
    3,460
    
    
    $
    
    
    
    $
    40,911Collectively evaluated for impairment
    
    
    267,517
    
    
    
    91,520
    
    
    
    
    
    
    
    359,037Total
    
    $
    304,968
    
    
    $
    94,980
    
    
    $
    
    
    
    $
    399,948
  2009
    
    
    2008Balance, beginning of year
    
    $
    5,568
    
    
    $
    3,398Provision for loan losses
    
    
    3,272
    
    
    
    2,544Charge-offs
    
    
    (1,438
    )
    
    
    (374
    )Recoveries
    
    
    
    
    
    
    Net charge-offs
    
    
    (1,438
    )
    
    
    (374
    )Balance, end of year
    
    $
    7,402
    
    
    $
    5,568
    61




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##### Table of Contents



PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
 Credit Quality Indicators 
  Pass:
    
    Loans in classes that comprise the commercial and
consumer portfolio segments that are not adversely rated,
are contractually current as to principal and interest,
and are otherwise in compliance with the contractual
terms of the loan agreement. Management believes that
there is a low likelihood of loss related to those loans
that are considered pass.Special Mention:
    
    Loans in classes that comprise the commercial and
consumer portfolio segments that have potential
weaknesses that deserve managements close attention. If
not addressed, these potential weaknesses may result in
deterioration of the repayment prospects for the loan.
Management believes that there is a moderate likelihood
of some loss related to those loans that are considered
special mention.Classified:
    
    Loans in the classes that comprise the commercial
portfolio segment that are inadequately protected by the
sound worth and paying capacity of the borrower or of the
collateral pledged, if any. Classified loans are also
those in the classes that comprise the consumer portfolio
segment that are past due 90 days or more as to principal
or interest. Residential mortgage and home equity loans
that are past due 90 days or more as to principal or
interest may be considered pass if the Company is in the
process of collection and the current loan-to-value ratio
is 60% or less. Residential mortgage and home equity
loans may be current as to principal and interest, but
may be considered classified for a period of up to six
months. Following a period of demonstrated performance in
accordance with contractual terms, the loan may be
removed from classified status. Management believes that
there is a distinct possibility that the Company will
sustain some loss if the deficiencies related to
classified loans are not corrected in a timely manner.
  CommercialCommercial
    
    
    Real Estate
    
    
    CRE-Investor
    
    
    Acquisition,and
    
    
    (CRE)-Owner
    
    
    Income
    
    
    Construction
    
    
    Other
    
    
    TotalIndustrial
    
    
    Occupied
    
    
    Producing
    
    
    and Development
    
    
    Commercial
    
    
    CommercialPass
    
    $
    46,888
    
    
    $
    52,746
    
    
    $
    98,195
    
    
    $
    37,435
    
    
    $
    3,225
    
    
    $
    238,489Special mention
    
    
    262
    
    
    
    
    
    
    
    9,520
    
    
    
    14,289
    
    
    
    
    
    
    
    24,071Classified
    
    
    1,251
    
    
    
    2,343
    
    
    
    2,692
    
    
    
    36,122
    
    
    
    
    
    
    
    42,408Total
    
    $
    48,401
    
    
    $
    55,089
    
    
    $
    110,407
    
    
    $
    87,846
    
    
    $
    3,225
    
    
    $
    304,968Residential
    
    
    Home Equity
    
    
    Residential
    
    
    Other Loans to
    
    
    
    
    
    
    TotalMortgage
    
    
    Lines of Credit
    
    
    Construction
    
    
    Individuals
    
    
    
    
    
    
    ConsumerPass
    
    $
    19,160
    
    
    $
    53,839
    
    
    $
    7,951
    
    
    $
    7,245
    
    
    
    
    
    
    $
    88,195Special mention
    
    
    1,359
    
    
    
    1,607
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,966Classified
    
    
    1,197
    
    
    
    1,522
    
    
    
    1,100
    
    
    
    
    
    
    
    
    
    
    
    3,819Total
    
    $
    21,716
    
    
    $
    56,968
    
    
    $
    9,051
    
    
    $
    7,245
    
    
    
    
    
    
    $
    94,980Total Recorded Investment in Loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    399,948
 Impaired Loans
  62




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##### Table of Contents



PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
  Unpaid
    
    
    Related
    
    
    Average
    
    
    InterestRecorded
    
    
    Principal
    
    
    Allowance For
    
    
    Recorded
    
    
    IncomeInvestment
    
    
    Balance
    
    
    Loan Losses
    
    
    Investment
    
    
    RecognizedImpaired Loans with No Related
Allowance Recorded:Commercial:Commercial and industrial
    
    $
    722
    
    
    $
    913
    
    
    $
    
    
    
    $
    69
    
    
    $
    CRE  owner-occupied
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    CRE  investor income producing
    
    
    583
    
    
    
    841
    
    
    
    
    
    
    
    15
    
    
    
    Acquisition, construction and
development
    
    
    19,054
    
    
    
    25,909
    
    
    
    
    
    
    
    3,753
    
    
    
    Other commercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total commercial loans
    
    
    20,359
    
    
    
    27,663
    
    
    
    
    
    
    
    3,837
    
    
    
    Consumer:Residential mortgage
    
    
    1,197
    
    
    
    1,255
    
    
    
    
    
    
    
    111
    
    
    
    Home equity lines of credit
    
    
    164
    
    
    
    165
    
    
    
    
    
    
    
    3
    
    
    
    Residential construction
    
    
    1,100
    
    
    
    2,174
    
    
    
    
    
    
    
    27
    
    
    
    Other loans to individuals
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total consumer loans
    
    
    2,461
    
    
    
    3,594
    
    
    
    
    
    
    
    141
    
    
    
    Total impaired loans with no related
allowance recorded
    
    $
    22,820
    
    
    $
    31,257
    
    
    $
    
    
    
    $
    3,978
    
    
    $
    Impaired Loans with an
Allowance Recorded:Commercial:Commercial and industrial
    
    $
    437
    
    
    $
    437
    
    
    $
    280
    
    
    $
    2
    
    
    $
    CRE  owner-occupied
    
    
    717
    
    
    
    741
    
    
    
    136
    
    
    
    393
    
    
    
    CRE  investor income producing
    
    
    1,119
    
    
    
    1,209
    
    
    
    277
    
    
    
    404
    
    
    
    Acquisition, construction and
development
    
    
    14,818
    
    
    
    14,828
    
    
    
    3,399
    
    
    
    328
    
    
    
    Other commercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total commercial loans
    
    
    17,091
    
    
    
    17,215
    
    
    
    4,092
    
    
    
    1,127
    
    
    
    Consumer:Residential mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Home equity lines of credit
    
    
    1,000
    
    
    
    1,000
    
    
    
    115
    
    
    
    22
    
    
    
    Residential construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other loans to individuals
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total consumer loans
    
    
    1,000
    
    
    
    1,000
    
    
    
    115
    
    
    
    22
    
    
    
    Total impaired loans with an
allowance recorded
    
    $
    18,091
    
    
    $
    18,215
    
    
    $
    4,207
    
    
    $
    1,149
    
    
    $
    Impaired Loans:Commercial
    
    $
    37,450
    
    
    $
    44,878
    
    
    $
    4,092
    
    
    $
    4,964
    
    
    $
    Consumer
    
    
    3,461
    
    
    
    4,594
    
    
    
    115
    
    
    
    163
    
    
    
    Total impaired loans
    
    $
    40,911
    
    
    $
    49,472
    
    
    $
    4,207
    
    
    $
    5,127
    
    
    $
    
  63




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##### Table of Contents



PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
  AverageRecorded
    
    
    RecordedInvestment
    
    
    InvestmentImpaired loans without a related allowance for loan losses
    
    $
    4,160
    
    
    $
    783Impaired loans with a related allowance for loan losses
    
    
    1,168
    
    
    
    496Total impaired loans
    
    $
    5,328
    
    
    $
    1,279Allowance for loan losses related to impaired loans
    
    $
    175
  Nonaccrual and Past Due Loans 
 2010
    
    
    2009Commercial:Commercial and industrial
    
    $
    1,159
    
    
    $
    CRE  owner-occupied
    
    
    717
    
    
    
    CRE  investor income producing
    
    
    1,702
    
    
    
    Acquisition, construction and development
    
    
    33,872
    
    
    
    860Other commercial
    
    
    
    
    
    
    Total commercial loans
    
    
    37,450
    
    
    
    860Consumer:Residential mortgage
    
    
    1,197
    
    
    
    1,520Home equity lines of credit
    
    
    1,164
    
    
    
    Residential construction
    
    
    1,100
    
    
    
    308Other loans to individuals
    
    
    
    
    
    
    Total consumer loans
    
    
    3,461
    
    
    
    1,828Total nonaccrual loans
    
    $
    40,911
    
    
    $
    2,688
    Related Party Loans 
 2010
    
    
    2009Balance, beginning of year
    
    $
    13,913
    
    
    $
    11,789Disbursements
    
    
    2,030
    
    
    
    7,872Repayments
    
    
    (2,597
    )
    
    
    (5,748
    )Loans associated with former board
members and executive officers
    
    
    (8,271
    )
    
    
    Balance, end of year
    
    $
    5,075
    
    
    $
    13,913
   64




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##### Table of Contents



PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
 NOTE E  PREMISES AND EQUIPMENT
  2010
    
    
    2009Buildings
    
    $
    1,620
    
    
    $
    1,620Leasehold improvements
    
    
    490
    
    
    
    437Furniture and equipment
    
    
    1,225
    
    
    
    1,062Autos
    
    
    55
    
    
    
    135Land
    
    
    2,368
    
    
    
    2,368Fixed assets in process
    
    
    
    
    
    
    2Premises and equipment
    
    
    5,758
    
    
    
    5,624Accumulated depreciation
    
    
    (1,281
    )
    
    
    (959
    )Premises and equipment, net
    
    $
    4,477
    
    
    $
    4,665
  NOTE F  DEPOSITS
  2010
    
    
    2009Retail certificates of deposit:$100,000 or more
    
    $
    115,920
    
    
    $
    104,854Less than $100,000
    
    
    78,242
    
    
    
    76,456Total retail certificates of deposit
    
    
    194,162
    
    
    
    181,310Demand accounts
    
    
    9,372
    
    
    
    9,650Savings and market accounts
    
    
    62,293
    
    
    
    42,660Total retail interest-bearing deposits
    
    
    265,827
    
    
    
    233,620Brokered certificates of deposits
    
    
    105,659
    
    
    
    134,930Total interest-bearing deposits
    
    
    371,486
    
    
    
    368,550Noninterest-bearing deposits
    
    
    36,334
    
    
    
    24,083Total deposits
    
    $
    407,820
    
    
    $
    392,633
  Less Than
    
    
    $100$100
    
    
    ThousandThousand
    
    
    or More
    
    
    Total2011
    
    $
    70,169
    
    
    $
    149,885
    
    
    $
    220,0542012
    
    
    6,492
    
    
    
    41,165
    
    
    
    47,6572013
    
    
    1,449
    
    
    
    23,571
    
    
    
    25,0202014
    
    
    132
    
    
    
    6,958
    
    
    
    7,090Total time deposits
    
    $
    78,242
    
    
    $
    221,579
    
    
    $
    299,821
   65




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##### Table of Contents



PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
 NOTE G  BORROWINGS
  2010
    
    
    2009Weighted
    
    
    
    
    
    
    WeightedInterest
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageMaturity
    
    
    Rate
    
    
    Balance
    
    
    Interest Rate
    
    
    Balance
    
    
    Interest RateShort-term borrowings:Repurchase agreements
    
    various
    
    
    0.15
    %
    
    $
    874
    
    
    
    
    
    
    $
    1,989Federal Home Loan Bank
    
    
    01/05/10
    
    
    
    0.25
    %
    
    
    
    
    
    
    
    
    
    
    5,000Total short-term borrowings
    
    
    
    
    
    
    
    
    
    
    874
    
    
    
    0.15
    %
    
    
    6,989
    
    
    
    0.33
    %Long-term borrowings:Federal Home Loan Bank
    
    
    02/28/13
    
    
    
    2.5750
    %
    
    
    5,000
    
    
    
    
    
    
    
    5,000Federal Home Loan Bank
    
    
    02/28/13
    
    
    
    2.9600
    %
    
    
    5,000
    
    
    
    
    
    
    
    5,000Federal Home Loan Bank
    
    
    05/22/13
    
    
    
    3.2625
    %
    
    
    5,000
    
    
    
    
    
    
    
    5,000Federal Home Loan Bank
    
    
    08/29/13
    
    
    
    2.3425
    %
    
    
    5,000
    
    
    
    
    
    
    
    5,000Total Federal Home Loan Bank
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    2.79
    %
    
    
    20,000
    
    
    
    2.79
    %Subordinated debt
    
    
    06/30/19
    
    
    
    11.0
    %
    
    
    6,895
    
    
    
    11.00
    %
    
    
    6,895
    
    
    
    11.00
    %Total long-term borrowings
    
    
    
    
    
    
    
    
    
    
    26,895
    
    
    
    4.89
    %
    
    
    26,895
    
    
    
    4.89
    %Total borrowings
    
    
    
    
    
    
    
    
    
    $
    27,769
    
    
    
    
    
    
    $
    33,884
    NOTE H  INCOME TAXES
  2010
    
    
    2009
    
    
    2008Current tax provision:Federal
    
    $
    (1,848
    )
    
    $
    648
    
    
    $
    1,196State
    
    
    
    
    
    
    165
    
    
    
    248Total current tax provision
    
    
    (1,848
    )
    
    
    813
    
    
    
    1,444Deferred tax provision:Federal
    
    
    (2,322
    )
    
    
    (483
    )
    
    
    (1,108
    )State
    
    
    (868
    )
    
    
    (91
    )
    
    
    (242
    )Total deferred tax provision
    
    
    (3,190
    )
    
    
    (574
    )
    
    
    (1,350
    )Provision for income tax expense before adjustment
to deferred tax asset valuation allowance
    
    
    (5,038
    )
    
    
    239
    
    
    
    94Decrease in valuation allowance
    
    
    
    
    
    
    
    
    
    
    (1,626
    )Net provision for income taxes
    
    $
    (5,038
    )
    
    $
    239
    
    
    $
    (1,532
    )
   66




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##### Table of Contents



PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
  2010
    
    
    2009
    
    
    2008Tax at the statutory federal rate
    
    $
    (4,385
    )
    
    $
    278
    
    
    $
    5Increase (decrease) resulting from:State income taxes, net of federal tax effect
    
    
    (573
    )
    
    
    49
    
    
    
    4Tax exempt income
    
    
    (204
    )
    
    
    (165
    )
    
    
    (31
    )Change to deferred tax asset valuation allowance
    
    
    
    
    
    
    
    
    
    
    (1,626
    )Other permanent differences
    
    
    124
    
    
    
    77
    
    
    
    116Provision for income taxes
    
    $
    (5,038
    )
    
    $
    239
    
    
    $
    (1,532
    )
  2010
    
    
    2009Deferred tax assets relating to:Allowance for loan losses
    
    $
    4,513
    
    
    $
    2,546Stock option expense
    
    
    869
    
    
    
    635Pre-opening costs and expenses
    
    
    398
    
    
    
    435Property and equipment
    
    
    105
    
    
    
    9Unrealized gain on interest rate swap
    
    
    
    
    
    
    131Net unrealized security losses
    
    
    765
    
    
    
    Net operating loss carryforwards
    
    
    1,053
    
    
    
    Other
    
    
    157
    
    
    
    67Total deferred tax assets
    
    
    7,860
    
    
    
    3,823Deferred tax liabilities relating to:Net unrealized security gains
    
    
    (177
    )
    
    
    (765
    )Deferred loan costs
    
    
    (101
    )
    
    
    (94
    )Prepaid expenses
    
    
    (119
    )
    
    
    (48
    )Other
    
    
    (26
    )
    
    
    (20
    )Total deferred tax liabilities
    
    
    (423
    )
    
    
    (927
    )Net recorded deferred tax asset
    
    $
    7,437
    
    
    $
    2,896
     67




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##### Table of Contents



PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
 NOTE I  REGULATORY MATTERS
  Minimum To Be WellMinimum for
    
    
    Capitalized UnderAdequacy
    
    
    Prompt CorrectiveActual
    
    
    Purposes
    
    
    Actions ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio2010Total capital (to risk-weighted assets)
    
    $
    185,768
    
    
    
    43.06
    %
    
    $
    34,035
    
    
    
    8.00
    %
    
    $
    42,543
    
    
    
    10.00
    %Tier 1 capital (to risk-weighted assets)
    
    
    173,395
    
    
    
    40.20
    %
    
    
    17,017
    
    
    
    4.00
    %
    
    
    25,525
    
    
    
    6.00
    %Tier 1 capital (to average assets)
    
    
    173,395
    
    
    
    27.39
    %
    
    
    22,227
    
    
    
    4.00
    %
    
    
    27,784
    
    
    
    5.00
    %2009Total capital (to risk-weighted assets)
    
    $
    57,061
    
    
    
    13.55
    %
    
    $
    33,684
    
    
    
    8.00
    %
    
    $
    42,105
    
    
    
    10.00
    %Tier 1 capital (to risk-weighted assets)
    
    
    44,877
    
    
    
    10.66
    %
    
    
    16,842
    
    
    
    4.00
    %
    
    
    25,263
    
    
    
    6.00
    %Tier 1 capital (to average assets)
    
    
    44,877
    
    
    
    9.40
    %
    
    
    19,097
    
    
    
    4.00
    %
    
    
    23,871
    
    
    
    5.00
    %
        68




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##### Table of Contents



PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
 NOTE J  LEASES
  2011
    
    $
    4962012
    
    
    6642013
    
    
    6642014
    
    
    6852015
    
    
    707Thereafter
    
    
    498Total
    
    $
    3,714
  NOTE K  OFF-BALANCE SHEET RISK
      ContractualAmountFinancial instruments whose contract amounts represent credit risk:Commitments to extend credit
    
    $
    3,842Undisbursed lines of credit
    
    $
    69,568Standby letters of credit
    
    $
    2,209Commercial letters of credit
    
    $
    710
  69




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##### Table of Contents



PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
 NOTE L  DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
    FloatingOriginal
    
    Current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    RateNotional

    Notional
    
    
    Termination
    
    
    Fixed
    
    
    Floating
    
    PayerAmount

    Amount
    
    
    Date
    
    
    Rate
    
    
    Rate
    
    Spread$
    2,670

    $
    2,469
    
    
    
    04/10/13
    
    
    
    5.85
    %
    
    USD-LIBOR-BBA
    
    
    0.238
    %1,800

    
    441
    
    
    
    04/09/13
    
    
    
    5.80
    %
    
    USD-LIBOR-BBA
    
    
    0.233
    %1,100

    
    1,019
    
    
    
    05/11/13
    
    
    
    6.04
    %
    
    USD-LIBOR-BBA
    
    
    0.227
    %3,775

    
    3,572
    
    
    
    02/15/13
    
    
    
    5.90
    %
    
    USD-LIBOR-BBA
    
    
    0.220
    %1,870

    
    1,631
    
    
    
    02/15/13
    
    
    
    5.85
    %
    
    USD-LIBOR-BBA
    
    
    0.225
    %$
    11,215

    $
    9,132
 NOTE M  FAIR VALUE OF FINANCIAL INSTRUMENTS
   70




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PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
  Cash and Cash Equivalents 
 Investment Securities 
 Federal Home Loan Bank Stock 
 Interest Rate Swap 
 Loans, net of allowance 
 Accrued Interest Receivable 
 Deposits 
 Borrowings 
 Accrued Interest Payable 
 Financial Instruments with Off-Balance Sheet Risk 
  2010
    
    
    2009Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    EstimatedAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueFinancial assets:Cash and cash equivalents
    
    $
    65,378
    
    
    $
    65,378
    
    
    $
    23,237
    
    
    $
    23,237Investment securities
    
    
    140,590
    
    
    
    140,590
    
    
    
    42,567
    
    
    
    42,567FHLB stock
    
    
    1,757
    
    
    
    1,757
    
    
    
    1,896
    
    
    
    1,896Loans, net of allowance
    
    
    387,405
    
    
    
    382,854
    
    
    
    390,162
    
    
    
    385,041Interest rate swap
    
    
    459
    
    
    
    459
    
    
    
    1,149
    
    
    
    1,149Accrued interest receivable
    
    
    1,640
    
    
    
    1,640
    
    
    
    1,614
    
    
    
    1,614Financial liabilities:Deposits with no stated maturity
    
    $
    107,999
    
    
    $
    107,999
    
    
    $
    76,393
    
    
    $
    76,393Deposits with stated maturities
    
    
    299,821
    
    
    
    300,393
    
    
    
    316,240
    
    
    
    316,112Swap fair value hedge
    
    
    569
    
    
    
    569
    
    
    
    496
    
    
    
    496Borrowings
    
    
    27,769
    
    
    
    26,913
    
    
    
    33,884
    
    
    
    33,263Accrued interest payable
    
    
    290
    
    
    
    290
    
    
    
    436
    
    
    
    436
  71




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##### Table of Contents



PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
       Investment Securities Available-for-Sale 
 Derivative Instruments 
 Loans 
  Other Real Estate Owned 
  72




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##### Table of Contents



PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
  Quoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets for
    
    
    Other
    
    
    Unobservable
    
    
    Assets/Identical Assets
    
    
    Observable Inputs
    
    
    Inputs
    
    
    LiabilitiesDescription
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    at Fair Value2010 recurringU.S. Government agencies
    
    $
    
    
    
    $
    13,160
    
    
    $
    
    
    
    $
    13,160Residential mortgage-backed securities
    
    
    
    
    
    
    52,399
    
    
    
    
    
    
    
    52,399Collateralized agency mortgage obligations
    
    
    
    
    
    
    58,719
    
    
    
    
    
    
    
    58,719Municipal securities
    
    
    
    
    
    
    13,808
    
    
    
    
    
    
    
    13,808Debt securities
    
    
    
    
    
    
    
    
    
    
    350
    
    
    
    350Corporate and other securities
    
    
    
    
    
    
    2,154
    
    
    
    
    
    
    
    2,154Interest rate swap
    
    
    
    
    
    
    459
    
    
    
    
    
    
    
    459Fair value loans
    
    
    
    
    
    
    9,702
    
    
    
    
    
    
    
    9,702Swap fair value hedge
    
    
    
    
    
    
    (569
    )
    
    
    
    
    
    
    (569
    )2009 recurringU.S. Government agencies
    
    $
    
    
    
    $
    5,759
    
    
    $
    
    
    
    $
    5,759Residential mortgage-backed securities
    
    
    
    
    
    
    16,773
    
    
    
    
    
    
    
    16,773Collateralized agency mortgage obligations
    
    
    
    
    
    
    3,221
    
    
    
    
    
    
    
    3,221Municipal securities
    
    
    
    
    
    
    13,884
    
    
    
    
    
    
    
    13,884Debt securities
    
    
    
    
    
    
    
    
    
    
    400
    
    
    
    400Corporate and other securities
    
    
    
    
    
    
    2,530
    
    
    
    
    
    
    
    2,530Interest rate swap
    
    
    
    
    
    
    1,149
    
    
    
    
    
    
    
    1,149Fair value loans
    
    
    
    
    
    
    11,180
    
    
    
    
    
    
    
    11,180Swap fair value hedge
    
    
    
    
    
    
    (496
    )
    
    
    
    
    
    
    (496
    )2010 nonrecurringOther real estate owned
    
    $
    
    
    
    $
    1,246
    
    
    $
    
    
    
    $
    1,246Impaired loans
    
    
    
    
    
    
    
    
    
    
    37,724
    
    
    
    37,7242009 nonrecurringOther real estate owned
    
    $
    
    
    
    $
    1,550
    
    
    $
    
    
    
    $
    1,550Impaired loans
    
    
    
    
    
    
    
    
    
    
    5,328
    
    
    
    5,328
   73




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##### Table of Contents



PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
  DebtSecurities2010Balance, beginning of year
    
    $
    400Unrealized losses
    
    
    (50
    )Balance, end of year
    
    $
    3502009Balance, beginning of year
    
    $
    1,000Unrealized losses
    
    
    (100
    )Impairment write-down
    
    
    (500
    )Balance, end of year
    
    $
    400
 NOTE N  EMPLOYEE AND DIRECTOR BENEFIT PLANS
 Employment Contracts 
 Retirement Savings Plan 
 Stock Option Plans 
   74




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##### Table of Contents



PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
  Outstanding OptionsOptions
    
    
    
    
    
    
    Weighted
    
    
    WeightedAvailable
    
    
    
    
    
    
    Average
    
    
    Averagefor Future
    
    
    Number
    
    
    Exercise
    
    
    Contractual
    
    
    IntrinsicGrants
    
    
    Outstanding
    
    
    Price
    
    
    Term (Years)
    
    
    ValueAt December 31, 2007
    
    
    203,914
    
    
    
    786,086
    
    
    $
    10.37
    
    
    
    9.25
    
    
    $
    Granted
    
    
    (8,250
    )
    
    
    8,250
    
    
    
    13.86
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired and forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    At December 31, 2008
    
    
    195,664
    
    
    
    794,336
    
    
    
    10.41
    
    
    
    8.26
    
    
    
    Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired and forfeited
    
    
    5,684
    
    
    
    (5,684
    )
    
    
    12.43
    
    
    
    4.33
    
    
    
    At December 31, 2009
    
    
    201,348
    
    
    
    788,652
    
    
    
    10.39
    
    
    
    7.26
    
    
    
    Approved for issuance
    
    
    1,859,550
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    (1,534,980
    )
    
    
    1,534,980
    
    
    
    6.51
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired and forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    At December 31, 2010
    
    
    525,918
    
    
    
    2,323,632
    
    
    $
    7.83
    
    
    
    8.50
    
    
    $
    Exercisable at December 31, 2010
    
    
    
    
    
    
    785,902
    
    
    $
    10.38
    
    
    
    6.25
    
    
    $
    
  WeightedAverageNon-vested
    
    
    Grant DateOptions
    
    
    Fair ValueAt December 31, 2007
    
    
    382,007
    
    
    $
    4.48Granted
    
    
    8,250
    
    
    
    4.69Vested
    
    
    (164,952
    )
    
    
    3.50Stock dividend
    
    
    38,194
    
    
    
    Forfeited
    
    
    
    
    
    
    At December 31, 2008
    
    
    263,499
    
    
    
    4.16Granted
    
    
    
    
    
    
    Vested
    
    
    (167,704
    )
    
    
    3.50Forfeited
    
    
    (4,584
    )
    
    
    4.33At December 31, 2009
    
    
    91,211
    
    
    
    4.51Granted
    
    
    1,534,980
    
    
    
    2.62Vested
    
    
    (88,461
    )
    
    
    4.50Forfeited
    
    
    
    
    
    
    At December 31, 2010
    
    
    1,537,730
    
    
    $
    2.63
   75




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##### Table of Contents



PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
   NOTE O  SUBSEQUENT EVENTS
      76




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##### Table of Contents



PARK STERLING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table amounts in thousands, except share and per share amounts)
 NOTE P  SUMMARIZED QUARTERLY INFORMATION (UNAUDITED)
  2010 (unaudited)4th
    
    
    3rd
    
    
    2nd
    
    
    1stQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterTotal interest income
    
    $
    5,793
    
    
    $
    5,559
    
    
    $
    5,639
    
    
    $
    5,651Total interest expense
    
    
    1,896
    
    
    
    1,929
    
    
    
    1,882
    
    
    
    1,900Net interest income
    
    
    3,897
    
    
    
    3,630
    
    
    
    3,757
    
    
    
    3,751Provision for loan losses
    
    
    8,237
    
    
    
    6,143
    
    
    
    1,094
    
    
    
    1,531Net interest income (loss) after provision
    
    
    (4,340
    )
    
    
    (2,513
    )
    
    
    2,663
    
    
    
    2,220Noninterest income
    
    
    43
    
    
    
    26
    
    
    
    23
    
    
    
    38Noninterest expense
    
    
    3,548
    
    
    
    2,990
    
    
    
    2,477
    
    
    
    2,042Income (loss) before taxes
    
    
    (7,845
    )
    
    
    (5,477
    )
    
    
    209
    
    
    
    216Income tax expense (benefit)
    
    
    (3,324
    )
    
    
    (1,809
    )
    
    
    36
    
    
    
    59Net income (loss)
    
    $
    (4,521
    )
    
    $
    (3,668
    )
    
    $
    173
    
    
    $
    157Basic earnings (loss) per common share
    
    $
    (0.16
    )
    
    $
    (0.23
    )
    
    $
    0.03
    
    
    $
    0.03Diluted earnings (loss) per common share
    
    $
    (0.16
    )
    
    $
    (0.23
    )
    
    $
    0.03
    
    
    $
    0.03
 2009 (unaudited)4th
    
    
    3rd
    
    
    2nd
    
    
    1stQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterTotal interest income
    
    $
    5,650
    
    
    $
    5,568
    
    
    $
    5,389
    
    
    $
    5,061Total interest expense
    
    
    2,021
    
    
    
    2,283
    
    
    
    2,336
    
    
    
    2,650Net interest income
    
    
    3,629
    
    
    
    3,285
    
    
    
    3,053
    
    
    
    2,411Provision for loan losses
    
    
    1,418
    
    
    
    1,150
    
    
    
    419
    
    
    
    285Net interest income after provision
    
    
    2,211
    
    
    
    2,135
    
    
    
    2,634
    
    
    
    2,126Noninterest income (loss)
    
    
    14
    
    
    
    26
    
    
    
    (335
    )
    
    
    2Noninterest expense
    
    
    2,078
    
    
    
    2,018
    
    
    
    2,044
    
    
    
    1,857Income before taxes
    
    
    147
    
    
    
    143
    
    
    
    255
    
    
    
    271Income tax expense
    
    
    29
    
    
    
    27
    
    
    
    97
    
    
    
    86Net income
    
    $
    118
    
    
    $
    116
    
    
    $
    158
    
    
    $
    185Basic earnings per common share
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    0.03
    
    
    $
    0.03Diluted earnings per common share
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    0.03
    
    
    $
    0.03
  77




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##### Table of Contents



Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures
  
 Item 9A.
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
 Managements Annual Report on Internal Control Over Financial Reporting.
 Changes in Internal Control Over Financial Reporting.
 
 Item 9B.
    
    Other Information
  
 PART III
 
 Item 10. 
    
    Directors, Executive Officers and Corporate Governance
 Board of Directors.
 Walter C. Ayers, Jr.
 Leslie M. (Bud) Baker, Jr.
 Larry W. Carroll.
 James. C. Cherry.
 Jean E. Davis.
 Thomas B. Henson.
 Jeffrey S. Kane.
   78




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##### Table of Contents



Executive Officers.
 James C. Cherry
 Bryan F. Kennedy III
 David L. Gaines
 Nancy J. Foster
 Additional Information
 
 Item 11.
    
    Executive Compensation
   79




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##### Table of Contents



Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  (a)
    
    
    (b)
    
    
    (c)Number of securities remainingNumber of securities to
    
    
    Weighted-average
    
    
    available for future issuance underbe issued upon exercise
    
    
    exercise price of
    
    
    equity compensation plans (excludingPlan category
    
    of outstanding options
    
    
    outstanding options
    
    
    securities reflected in column (a))Equity compensation plans
approved by our stockholders
    
    
    2,323,632
    
    
    $
    7.83
    
    
    
    525,918Equity compensation plans not
approved by our stockholders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    2,323,632
    
    
    $
    7.83
    
    
    
    525,918
  
 Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
  
 Item 14.
    
    Principal Accounting Fees and Services
   
 PART IV
 
 Item 15. 
    
    Exhibits and Financial Statement Schedules
   
    80




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##### Table of Contents



SIGNATURES
  Park Sterling CorporationMarch 31, 2011
    By:
    /S/ JAMES C. CHERRYJames C. CherryChief Executive Officer  /S/ JAMES C. CHERRY

James C. Cherry
Chief Executive Officer and Director
(Principal Executive Officer)
    
    March 31, 2011/S/ DAVID L. GAINES

David L. Gaines
Chief Financial Officer
(Principal Financial Officer)
    
    March 31, 2011/S/ STEPHEN A. ARNALL

Stephen A. Arnall
Treasurer
(Principal Accounting Officer)
    
    March 31, 2011/S/ WALTER C. AYERS

Walter C. Ayers
Director
    
    March 31, 2011/S/ LESLIE M. BAKER JR.

Leslie M. Baker Jr.
Chairman of the Board
    
    March 31, 2011/S/ LARRY W. CARROLL

Larry W. Carroll
Director
    
    March 31, 2011/S/ JEAN E. DAVIS

Jean E. Davis
Director
    
    March 31, 2011/S/ THOMAS B. HENSON

Thomas B. Henson
Director
    
    March 31, 2011/S/ JEFFREY S. KANE

Jeffrey S. Kane
Director
    
    March 31, 2011
  81




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description2.1
    
    
    Agreement and Plan of Reorganization and Share Exchange
dated October 22, 2010 by and between the Bank and the
Company, incorporated by reference to Exhibit 2.1 of the
Companys Current Report on Form 8-K (File No. 001-35032)
filed January 13, 20113.1
    
    
    Articles of Incorporation of the Company, incorporated by
reference to Exhibit 3.1 of the Companys Current Report on
Form 8-K (File No. 001-35032) filed January 13, 20113.2
    
    
    Bylaws of the Company, incorporated by reference to Exhibit
3.2 of the Companys Current Report on Form 8-K (File No.
001-35032) filed January 13, 20114.1
    
    
    Specimen Stock Certificate of the Company, incorporated by
reference to Exhibit 4.1 of the Companys Current Report on
Form 8-K (File No. 001-35032) filed January 13, 20114.2
    
    
    Form of 11% Subordinated Note, due June 30, 2019,
incorporated by reference to Exhibit 4.2 of the Companys
Current Report on Form 8-K (File No. 001-35032) filed
January 13, 20114.3
    
    
    Notes Agency Agreement by and between the Bank and
First-Citizens Bank & Trust Company, dated June 29, 2009 in
connection with the 11% Subordinated Notes due June 30,
2019, incorporated by reference to Exhibit 10.5 of the
Banks Registration Statement on Form 10 filed with the
FDIC on April 26, 201010.1
    
    
    Underwriting Agreement dated August 12, 2010 between the
Bank and Keefe, Bruyette & Woods, Inc. as representative of
the several underwriters, incorporated by reference to
Exhibit 1.1 of the Banks Current Report on Form 8-K filed
with the FDIC on August 18, 201010.2
    
    
    Employment Agreement by and between James C. Cherry and the
Bank effective August 18, 2010, incorporated by reference
to Exhibit 10.1 of the Companys Current Report on Form 8-K
(File No. 001-35032) filed January 13, 2011*10.3
    
    
    Employment Agreement by and between Bryan F. Kennedy III
and the Bank effective August 18, 2010, incorporated by
reference to Exhibit 10.2 of the Companys Current Report
on Form 8-K (File No. 001-35032) filed January 13, 2011*10.4
    
    
    Employment Agreement by and between David L. Gaines and the
Bank effective August 18, 2010, incorporated by reference
to Exhibit 10.3 of the Companys Current Report on Form 8-K
(File No. 001-35032) filed January 13, 2011*10.5
    
    
    Employment Agreement by and between Nancy J. Foster and the
Bank dated November 12, 2010*10.6
    
    
    Employment Agreement by and between Stephen A. Arnall and
the Bank effective October 4, 2006, incorporated by
reference to Exhibit 10.2 of the Banks Registration
Statement on Form 10 filed with the FDIC on April 26, 2010*10.7
    
    
    Park Sterling Bank 2006 Employee Stock Option Plan and
related form of award agreement, incorporated by reference
to Exhibit 10.4 of the Companys Current Report on Form 8-K
(File No. 001-35032) filed January 13, 2011*10.8
    
    
    Park Sterling Bank 2006 Stock Option Plan for Directors and
related form of award agreement, incorporated by reference
to Exhibit 10.5 of the Companys Current Report on Form 8-K
(File No. 001-35032) filed January 13, 2011*10.9
    
    
    Park Sterling Bank 2010 Employee Stock Option Plan and
related form of award agreement, incorporated by reference
to Exhibit 4.3 of the Companys Registration Statement on
Form S-8 (Registration No. 333-172016) filed February 2,
2011*
  82




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##### Table of Contents



ExhibitNumber
    
    Description10.10
    
    
    Park Sterling Bank 2010 Stock Option Plan for Directors and
related form of award agreement, incorporated by reference
to Exhibit 4.4 of the Companys Registration Statement on
Form S-8 (Registration No. 333-172016) filed February 2,
2011*10.11
    
    
    Park Sterling Corporation Long-Term Incentive Plan and
related form of award agreements incorporated by reference
to Exhibit 10.8 of the Companys Current Report on Form 8-K
(File No. 001-35032) filed January 13, 2011*10.12
    
    
    Form of Non-Employee Director Nonqualified Stock Option Award pursuant to the
Park Sterling Corporation Long-Term Incentive Plan *10.13
    
    
    Form of Employee Restricted Stock Award Agreement pursuant
to the Park Sterling Corporation Long-Term Incentive Plan *10.14
    
    
    Form of Non-Employee Director Restricted Stock Award Agreement pursuant
to the Park Sterling Corporation Long-Term Incentive Plan *21.1
    
    
    Subsidiaries of the Company23.1
    
    
    Consent of Dixon Hughes PLLC31.1
    
    
    Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 *
    
    Management contract or compensatory plan or arrangement  83