##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2011
 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 LOGO)
 PARK
STERLING CORPORATION
 (Exact name of registrant as specified in its charter)
 NORTH CAROLINA
    
    27-4107242(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
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)
 
 þ o
 o o
  Large accelerated filer o
    
    Accelerated Filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ
 As of May 12, 2011, the registrant had outstanding 28,619,358 shares of common stock, $1.00 par value per share.




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##### 



PARK STERLING CORPORATION
 Table of Contents
 Page No.Part I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets

March 31, 2011 and December 31, 2010
    
    
    2Condensed Consolidated Statements of Income (Loss)

Three Months Ended March 31, 2011 and 2010
    
    
    3Condensed Consolidated Statements of Changes in Shareholders Equity

Three Months Ended March 31, 2011 and 2010
    
    
    4Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31, 2011 and 2010
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    29Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    44Item 4. Controls and Procedures
    
    
    44Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    44Item 1A. Risk Factors
    
    
    44Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    45Item 3. Defaults Upon Senior Securities
    
    
    45Item 4. [Removed and Reserved]
    
    
    45Item 5. Other Information
    
    
    45Item 6. Exhibits
    
    
    46Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



PARK STERLING CORPORATION
 
 Part I. FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements
 
 CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)
 March 31,
    
    
    December 31,2011
    
    
    2010 *(Dollars in thousands)ASSETSCash and due from banks
    
    $
    54,192
    
    
    $
    2,433Interest-earning balances at banks
    
    
    3,796
    
    
    
    5,040Federal funds sold
    
    
    57,525
    
    
    
    57,905Investment securities available-for-sale, at fair value
    
    
    112,273
    
    
    
    140,590Loans
    
    
    388,187
    
    
    
    399,829Allowance for loan losses
    
    
    (11,768
    )
    
    
    (12,424
    )Net loans
    
    
    376,419
    
    
    
    387,405Federal Home Loan Bank stock
    
    
    1,910
    
    
    
    1,757Premises and equipment, net
    
    
    4,525
    
    
    
    4,477Accrued interest receivable
    
    
    1,469
    
    
    
    1,640Other real estate owned
    
    
    1,565
    
    
    
    1,246Other assets
    
    
    14,742
    
    
    
    13,615Total assets
    
    $
    628,416
    
    
    $
    616,108LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Noninterest-bearing demand deposits
    
    $
    37,098
    
    
    $
    36,333Money market, NOW and savings deposits
    
    
    107,186
    
    
    
    71,666Time deposits of less than $100,000
    
    
    70,026
    
    
    
    78,242Time deposits of $100,000 through $250,000
    
    
    73,949
    
    
    
    79,020Time deposits of more than $250,000
    
    
    133,253
    
    
    
    142,559Total deposits
    
    
    421,512
    
    
    
    407,820Short-term borrowings
    
    
    1,213
    
    
    
    874Long-term borrowings
    
    
    20,000
    
    
    
    20,000Subordinated debt
    
    
    6,895
    
    
    
    6,895Accrued interest payable
    
    
    245
    
    
    
    290Accrued expenses and other liabilities
    
    
    3,781
    
    
    
    3,128Total liabilities
    
    
    453,646
    
    
    
    439,007Shareholders equity:Preferred stock, no par value

5,000,000 shares authorized; -0- issued and outdstanding at March 31,
2011 and
December 31, 2010, respectively
    
    
    
    
    
    
    Common stock, $1.00 par value

200,000,000 shares authorized at March 31, 2011 and December 31, 2010;
28,619,358 and 28,051,098 shares outstanding at March 31, 2011 and
December 31, 2010, respectively
    
    
    28,619
    
    
    
    28,051Additional paid-in capital
    
    
    159,367
    
    
    
    159,489Accumulated deficit
    
    
    (12,388
    )
    
    
    (9,501
    )Accumulated other comprehensive loss
    
    
    (828
    )
    
    
    (938
    )Total shareholders equity
    
    
    174,770
    
    
    
    177,101Total liabilities and shareholders equity
    
    $
    628,416
    
    
    $
    616,108
   2




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##### Table of Contents



PARK STERLING CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited)
(Dollars in thousands, except per share data)
 Three Months EndedMarch 31,2011
    
    
    2010Interest incomeLoans, including fees
    
    $
    4,758
    
    
    $
    5,143Federal funds sold
    
    
    30
    
    
    
    9Taxable investment securities
    
    
    681
    
    
    
    326Tax-exempt investment securities
    
    
    171
    
    
    
    160Interest on deposits at banks
    
    
    14
    
    
    
    13Total interest income
    
    
    5,654
    
    
    
    5,651Interest expenseMoney market, NOW and savings deposits
    
    
    141
    
    
    
    83Time deposits
    
    
    1,226
    
    
    
    1,484Short-term borrowings
    
    
    
    
    
    
    5Long-term borrowings
    
    
    141
    
    
    
    138Subordinated debt
    
    
    190
    
    
    
    190Total interest expense
    
    
    1,698
    
    
    
    1,900Net interest income
    
    
    3,956
    
    
    
    3,751Provision for loan losses
    
    
    4,462
    
    
    
    1,531Net interest income (loss) after
provision for loan losses
    
    
    (506
    )
    
    
    2,220Noninterest incomeService charges on deposit accounts
    
    
    26
    
    
    
    14Gain on sale of securities available-for-sale
    
    
    19
    
    
    
    18Other noninterest income
    
    
    27
    
    
    
    6Total noninterest income
    
    
    72
    
    
    
    38Noninterest expenseSalaries and employee benefits
    
    
    2,507
    
    
    
    1,252Occupancy and equipment
    
    
    256
    
    
    
    206Advertising and promotion
    
    
    38
    
    
    
    57Legal and professional fees
    
    
    307
    
    
    
    76Deposit charges and FDIC insurance
    
    
    287
    
    
    
    176Data processing and outside service fees
    
    
    123
    
    
    
    93Director fees
    
    
    41
    
    
    
    Net cost of operation of other real estate
    
    
    235
    
    
    
    36Other noninterest expense
    
    
    440
    
    
    
    146Total noninterest expense
    
    
    4,234
    
    
    
    2,042Income (loss) before income taxes
    
    
    (4,668
    )
    
    
    216Income tax expense (benefit)
    
    
    (1,781
    )
    
    
    59Net income (loss)
    
    $
    (2,887
    )
    
    $
    157Basic earnings (loss) per common share
    
    $
    (0.10
    )
    
    $
    0.03Diluted earnings (loss) per common share
    
    $
    (0.10
    )
    
    $
    0.03Weighted-average common shares outstandingBasic
    
    
    28,051,098
    
    
    
    4,951,098Diluted
    
    
    28,051,098
    
    
    
    4,951,098
   3




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##### Table of Contents



PARK STERLING CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

(Unaudited)
Three Months Ended March 31, 2011 and 2010
(Dollars in thousands)
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    EquityBalance at December 31, 2009
    
    
    4,951,098
    
    
    $
    23,023
    
    
    $
    23,496
    
    
    $
    (1,642
    )
    
    $
    1,218
    
    
    $
    46,095Share-based compensation expense
    
    
    
    
    
    
    
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    104Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    157
    
    
    
    
    
    
    
    157Unrealized holding gains on
available-for-sale securities,
net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    289
    
    
    
    289Unrealized holding losses on
interest rate swaps, net of
taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (224
    )
    
    
    (224
    )Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    222Balance at March 31, 2010
    
    
    4,951,098
    
    
    $
    23,023
    
    
    $
    23,600
    
    
    $
    (1,485
    )
    
    $
    1,283
    
    
    $
    46,421Balance at December 31, 2010
    
    
    28,051,098
    
    
    $
    28,051
    
    
    $
    159,489
    
    
    $
    (9,501
    )
    
    $
    (938
    )
    
    $
    177,101Issuance of restricted stock
grants
    
    
    568,260
    
    
    
    568
    
    
    
    (568
    )
    
    
    
    
    
    
    
    
    
    
    Share-based compensation expense
    
    
    
    
    
    
    
    
    
    
    446
    
    
    
    
    
    
    
    
    
    
    
    446Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,887
    )
    
    
    
    
    
    
    (2,887
    )Unrealized holding gains on
available-for-sale securities,
net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    275
    
    
    
    275Unrealized holding losses on
interest rate swaps, net of
taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (165
    )
    
    
    (165
    )Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,777
    )Balance at March 31, 2011
    
    
    28,619,358
    
    
    $
    28,619
    
    
    $
    159,367
    
    
    $
    (12,388
    )
    
    $
    (828
    )
    
    $
    174,770
   4




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PARK STERLING CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)
(Dollars in thousands)
 Three Months EndedMarch 31,2011
    
    
    2010Cash flows from operating activitiesNet income (loss)
    
    $
    (2,887
    )
    
    $
    157Adjustments to reconcile net income (loss) to net
cash provided by operating activities:Depreciation and amortization
    
    
    394
    
    
    
    98Provision for loan losses
    
    
    4,462
    
    
    
    1,531Stock option expense
    
    
    446
    
    
    
    104Income on termination of swap
    
    
    
    
    
    
    (210
    )Gain on sales of investment securities available-for-sale
    
    
    (19
    )
    
    
    (18
    )Gain on sales of other real estate
    
    
    (24
    )
    
    
    Change in assets and liabilities:Decrease in accrued interest receivable
    
    
    171
    
    
    
    76(Increase) decrease in other assets
    
    
    (1,465
    )
    
    
    127Decrease in accrued interest payable
    
    
    (45
    )
    
    
    (4
    )Increase in accrued expenses and other liabilities
    
    
    653
    
    
    
    142Net cash provided by operating activities
    
    
    1,686
    
    
    
    2,003Cash flows from investing activitiesNet decrease in loans
    
    
    5,480
    
    
    
    1,109Purchases of bank premises and equipment
    
    
    (139
    )
    
    
    (24
    )Purchases of investment securities available-for-sale
    
    
    (1,746
    )
    
    
    (4,225
    )Proceeds from sales of investment securities available-for-sale
    
    
    24,314
    
    
    
    2,161Proceeds from maturities and call of investment securities available-for-sale
    
    
    5,887
    
    
    
    1,892Writedowns (improvements) to other real estate
    
    
    241
    
    
    
    (92
    )Proceeds from sale of other real estate
    
    
    534
    
    
    
    Purchase of Federal Home Loan Bank stock
    
    
    (153
    )
    
    
    Net cash provided by investing activities
    
    
    34,418
    
    
    
    821Cash flows from financing activitiesNet increase in deposits
    
    
    13,692
    
    
    
    533Decrease in short-term borrowings
    
    
    339
    
    
    
    157Net cash provided by financing activities
    
    
    14,031
    
    
    
    690Net increase in cash and cash equivalents
    
    
    50,135
    
    
    
    3,514Cash and cash equivalents, beginning
    
    
    65,378
    
    
    
    23,237Cash and cash equivalents, ending
    
    $
    115,513
    
    
    $
    26,751Supplemental disclosures of cash flow information:Cash paid for interest
    
    $
    1,743
    
    
    $
    1,904Cash paid for income taxes
    
    
    
    
    
    
    64Supplemental disclosure of noncash investing and financing activities:Change in unrealized gain on available-for-sale securities, net of tax
    
    $
    275
    
    
    $
    289Change in unrealized loss on swap, net of tax
    
    
    (165
    )
    
    
    (224
    )Loans transferred to other real estate owned
    
    
    1,070
    
    
    
    1,424
   5




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PARK STERLING CORPORATION
 
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 Note 1  Basis of Presentation
         6




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##### Table of Contents



PARK STERLING CORPORATION
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 Note 2  Recent Accounting Pronouncements
 Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurement
  Disclosures about the Credit Quality of
Financing Receivables and the Allowance for Credit Losses (Topic 310)
 A Creditors Determination of Whether a
Restructuring Is a Troubled Debt Restructuring (Topic 310)
  7




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PARK STERLING CORPORATION
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 Note 3  Shareholders Equity
 Common Stock
    Share-Based Plans
     8




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##### Table of Contents



PARK STERLING CORPORATION
 Notes to Condensed Consolidated Financial Statements (Unaudited)
  Outstanding Options
    
    
    Nonvested Restricted SharesOptions
    
    
    
    
    
    
    Weighted
    
    
    Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAvailable
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    Aggregatefor Future
    
    
    Number
    
    
    Exercise
    
    
    Contractual
    
    
    Intrinsic
    
    
    Number
    
    
    Grant Date
    
    
    IntrinsicGrants
    
    
    Outstanding
    
    
    Price
    
    
    Term (Years)
    
    
    Value
    
    
    Outstanding
    
    
    Fair Value
    
    
    ValueAt December 31, 2010
    
    
    525,918
    
    
    
    2,323,632
    
    
    $
    7.83
    
    
    
    8.50
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    Approved for issuance
    
    
    1,016,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options Granted
    
    
    (82,340
    )
    
    
    82,340
    
    
    
    5.74
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted Shares Granted
    
    
    (568,260
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    568,260
    
    
    
    3.91
    
    
    
    2,756,061Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired and forfeited
    
    
    176,083
    
    
    
    (176,083
    )
    
    
    6.50
    
    
    
    2.62
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    At March 31, 2011
    
    
    1,067,801
    
    
    
    2,229,889
    
    
    $
    7.86
    
    
    
    8.23
    
    
    $
    
    
    
    
    568,260
    
    
    $
    3.91
    
    
    $
    2,756,061Exercisable at March 31, 2011
    
    
    
    
    
    
    785,902
    
    
    $
    10.38
    
    
    
    6.01
    
    
    $
    
  Assumptions in Estimating Option Values
 Weighted-average volatility
    
    
    36.86
    %Expected dividend yield
    
    
    0
    %Risk-free interest rate
    
    
    4.40
    %Expected life
    
    7 years
    9




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PARK STERLING CORPORATION
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 Note 4  Investment Securities
  Amortized Cost and Fair Value of Investment Portfolio
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)March 31, 2011Securities available-for-sale:U.S. Government agencies
    
    $
    10,526
    
    
    $
    44
    
    
    $
    (152
    )
    
    $
    10,418Residential mortgage-backed securities
    
    
    30,960
    
    
    
    447
    
    
    
    (408
    )
    
    
    30,999Collateralized agency mortgage obligations
    
    
    55,285
    
    
    
    120
    
    
    
    (1,879
    )
    
    
    53,526Municipal securities
    
    
    15,515
    
    
    
    439
    
    
    
    (23
    )
    
    
    15,931Corporate and other securities
    
    
    1,523
    
    
    
    24
    
    
    
    (148
    )
    
    
    1,399Total investment securities
    
    $
    113,809
    
    
    $
    1,074
    
    
    $
    (2,610
    )
    
    $
    112,273December 31, 2010Securities available-for-sale:U.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
    )
    
    $
    140,590
  Maturities of Investment Portfolio
 March 31, 2011Amortized
    
    
    FairCost
    
    
    Value(Dollars in thousands)U.S. Government agenciesDue after one year through five years
    
    $
    10,000
    
    
    $
    9,848Due after five years through ten years
    
    
    526
    
    
    
    570Residential mortgage-backed securitiesDue after five years through ten years
    
    
    1,341
    
    
    
    1,351Due after ten years
    
    
    29,619
    
    
    
    29,648Collateralized agency mortgage obligationsDue after ten years
    
    
    55,285
    
    
    
    53,526Municipal securitiesDue after ten years
    
    
    15,515
    
    
    
    15,931Corporate and other securitiesDue after five years through ten years
    
    
    500
    
    
    
    352Due after ten years
    
    
    1,023
    
    
    
    1,047Total
investment securites
    
    $
    113,809
    
    
    $
    112,273
  10




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PARK STERLING CORPORATION
 Notes to Condensed Consolidated Financial Statements (Unaudited)
  Investment Portfolio Gross Unrealized Losses and Fair Value
 Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(Dollars in thousands)March 31, 2011Securities available-for-sale:U.S. Government agencies
    
    $
    9,848
    
    
    $
    (152
    )
    
    $
    
    
    
    $
    
    
    
    $
    9,848
    
    
    $
    (152
    )Residential Mortgage-backed securities
    
    
    19,607
    
    
    
    (408
    )
    
    
    
    
    
    
    
    
    
    
    19,607
    
    
    
    (408
    )Collateralized mortgage obligations
    
    
    49,541
    
    
    
    (1,879
    )
    
    
    
    
    
    
    
    
    
    
    49,541
    
    
    
    (1,879
    )Municipal securities
    
    
    814
    
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    814
    
    
    
    (23
    )Corporate and other securities
    
    
    
    
    
    
    
    
    
    
    353
    
    
    
    (148
    )
    
    
    353
    
    
    
    (148
    )Total temporarily impaired
securities
    
    $
    79,810
    
    
    $
    (2,462
    )
    
    $
    353
    
    
    $
    (148
    )
    
    $
    80,163
    
    
    $
    (2,610
    )December 31, 2010Securities available-for-sale:U.S. Government agencies
    
    $
    9,904
    
    
    $
    (96
    )
    
    $
    
    
    
    $
    
    
    
    $
    9,904
    
    
    $
    (96
    )Residential 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
    )
   11




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##### Table of Contents



PARK STERLING CORPORATION
 Notes to Condensed Consolidated Financial Statements (Unaudited)
  Note 5  Loans and Allowance for Loan Losses
  2011
    
    
    2010Commercial:Commercial and industrial
    
    $
    48,107
    
    
    $
    48,401Commercial real estate  owner-occupied
    
    
    52,764
    
    
    
    55,089Commercial real estate  investor income producing
    
    
    113,612
    
    
    
    110,407Acquisition, construction and development
    
    
    75,977
    
    
    
    87,846Other commercial
    
    
    5,232
    
    
    
    3,225Total commercial loans
    
    
    295,692
    
    
    
    304,968Consumer:Residential mortgage
    
    
    25,034
    
    
    
    21,716Home equity lines of credit
    
    
    53,725
    
    
    
    56,968Residential construction
    
    
    7,018
    
    
    
    9,051Other loans to individuals
    
    
    6,811
    
    
    
    7,245Total consumer loans
    
    
    92,588
    
    
    
    94,980Total loans
    
    
    388,280
    
    
    
    399,948Deferred fees
    
    
    (93
    )
    
    
    (119
    )Total loans, net of deferred fees
    
    $
    388,187
    
    
    $
    399,829
  Concentrations of Credit 
  12




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##### Table of Contents



PARK STERLING CORPORATION
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 Allowance for Loan Losses
 Commercial
    
    
    Consumer
    
    
    Unallocated
    
    
    TotalFor the quarter ended March 31, 2011Allowance for Loan Losses:Balance, beginning of period
    
    $
    9,165
    
    
    $
    1,375
    
    
    $
    1,884
    
    
    $
    12,424Provision for loan losses
    
    
    2,705
    
    
    
    1,782
    
    
    
    (25
    )
    
    
    4,462Charge-offs
    
    
    (4,296
    )
    
    
    (1,285
    )
    
    
    
    
    
    
    (5,581
    )Recoveries
    
    
    460
    
    
    
    3
    
    
    
    
    
    
    
    463Net charge-offs
    
    
    (3,836
    )
    
    
    (1,282
    )
    
    
    
    
    
    
    (5,118
    )Ending balance
    
    $
    8,034
    
    
    $
    1,875
    
    
    $
    1,859
    
    
    $
    11,768At March 31, 2011Allowance for Loan Losses:Individually evaluated for impairment
    
    $
    1,410
    
    
    $
    450
    
    
    $
    
    
    
    $
    1,860Collectively evaluated for impairment
    
    
    6,624
    
    
    
    1,425
    
    
    
    1,859
    
    
    
    9,908Total
    
    $
    8,034
    
    
    $
    1,875
    
    
    $
    1,859
    
    
    $
    11,768Recorded Investment in Loans:Individually evaluated for impairment
    
    $
    29,832
    
    
    $
    4,195
    
    
    $
    
    
    
    $
    34,027Collectively evaluated for impairment
    
    
    265,860
    
    
    
    88,393
    
    
    
    
    
    
    
    354,253Total
    
    $
    295,692
    
    
    $
    92,588
    
    
    $
    
    
    
    $
    388,280At 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
  Three Months EndedMarch 31,2011
    
    
    2010Balance, beginning of period
    
    $
    12,424
    
    
    $
    7,402Provision for loan losses
    
    
    4,462
    
    
    
    1,531Charge-offs
    
    
    (5,581
    )
    
    
    (554
    )Recoveries
    
    
    463
    
    
    
    1Net charge-offs
    
    
    (5,118
    )
    
    
    (553
    )Balance, end of period
    
    $
    11,768
    
    
    $
    8,380
   13




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##### Table of Contents



PARK STERLING CORPORATION
 Notes to Condensed Consolidated Financial Statements (Unaudited)
  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 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 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
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.
  14




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##### Table of Contents



PARK STERLING CORPORATION
 Notes to Condensed Consolidated Financial Statements (Unaudited)
  As of March 31, 2011CommercialCommercial
    
    
    Real Estate
    
    
    CRE-Investor
    
    
    Acquisition,and
    
    
    (CRE)-Owner
    
    
    Income
    
    
    Construction
    
    
    Other
    
    
    TotalIndustrial
    
    
    Occupied
    
    
    Producing
    
    
    and Development
    
    
    Commercial
    
    
    CommercialPass
    
    $
    44,718
    
    
    $
    46,542
    
    
    $
    99,857
    
    
    $
    26,277
    
    
    $
    5,232
    
    
    $
    222,626Special mention
    
    
    2,767
    
    
    
    1,892
    
    
    
    4,893
    
    
    
    18,016
    
    
    
    
    
    
    
    27,568Classified
    
    
    622
    
    
    
    4,330
    
    
    
    8,862
    
    
    
    31,684
    
    
    
    
    
    
    
    45,498Total
    
    $
    48,107
    
    
    $
    52,764
    
    
    $
    113,612
    
    
    $
    75,977
    
    
    $
    5,232
    
    
    $
    295,692Residential
    
    
    Home Equity
    
    
    Residential
    
    
    Other Loans to
    
    
    
    
    
    
    TotalMortgage
    
    
    Lines of Credit
    
    
    Construction
    
    
    Individuals
    
    
    
    
    
    
    ConsumerPass
    
    $
    20,002
    
    
    $
    51,050
    
    
    $
    6,077
    
    
    $
    6,723
    
    
    
    
    
    
    $
    83,852Special mention
    
    
    1,368
    
    
    
    1,081
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,449Classified
    
    
    3,664
    
    
    
    1,594
    
    
    
    941
    
    
    
    88
    
    
    
    
    
    
    
    6,287Total
    
    $
    25,034
    
    
    $
    53,725
    
    
    $
    7,018
    
    
    $
    6,811
    
    
    
    
    
    
    $
    92,588Total
Recorded Investment
in Loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    388,280As of December 31, 2010CommercialCommercial
    
    
    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
  15




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##### Table of Contents



PARK STERLING CORPORATION
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 Aging Analysis of Accruing and Non-Accruing Loans 
 30-59
    
    
    60-89
    
    
    Past DueDays
    
    
    Days
    
    
    90 Days(dollars in thousands)
    
    Past Due
    
    
    Past Due
    
    
    or More
    
    
    Current
    
    
    Total LoansAs of March 31, 2011Commercial:Commercial and industrial
    
    $
    
    
    
    $
    
    
    
    $
    327
    
    
    $
    47,780
    
    
    $
    48,107Commercial real estate  owner-occupied
    
    
    
    
    
    
    
    
    
    
    581
    
    
    
    52,183
    
    
    
    52,764Commercial real estate  investor income
producing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    113,612
    
    
    
    113,612Acquisition, construction and development
    
    
    5,264
    
    
    
    524
    
    
    
    11,036
    
    
    
    59,153
    
    
    
    75,977Other commercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,232
    
    
    
    5,232Total commercial loans
    
    
    5,264
    
    
    
    524
    
    
    
    11,944
    
    
    
    277,960
    
    
    
    295,692Consumer:Residential mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,034
    
    
    
    25,034Home equity lines of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,725
    
    
    
    53,725Residential construction
    
    
    
    
    
    
    
    
    
    
    843
    
    
    
    6,175
    
    
    
    7,018Other loans to individuals
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,811
    
    
    
    6,811Total consumer loans
    
    
    
    
    
    
    
    
    
    
    843
    
    
    
    91,745
    
    
    
    92,588Total loans
    
    $
    5,264
    
    
    $
    524
    
    
    $
    12,787
    
    
    $
    369,705
    
    
    $
    388,280As of December 31, 2010Commercial:Commercial and industrial
    
    $
    
    
    
    $
    593
    
    
    $
    111
    
    
    $
    47,697
    
    
    $
    48,401Commercial real estate  owner-occupied
    
    
    717
    
    
    
    
    
    
    
    
    
    
    
    54,372
    
    
    
    55,089Commercial real estate  investor income
producing
    
    
    
    
    
    
    
    
    
    
    261
    
    
    
    110,146
    
    
    
    110,407Acquisition, construction and development
    
    
    4,025
    
    
    
    4,188
    
    
    
    5,676
    
    
    
    73,957
    
    
    
    87,846Other commercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,225
    
    
    
    3,225Total commercial loans
    
    
    4,742
    
    
    
    4,781
    
    
    
    6,048
    
    
    
    289,397
    
    
    
    304,968Consumer:Residential mortgage
    
    
    
    
    
    
    
    
    
    
    374
    
    
    
    21,342
    
    
    
    21,716Home equity lines of credit
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    55,968
    
    
    
    56,968Residential construction
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    8,051
    
    
    
    9,051Other loans to individuals
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,245
    
    
    
    7,245Total consumer loans
    
    
    1,000
    
    
    
    1,000
    
    
    
    374
    
    
    
    92,606
    
    
    
    94,980Total loans
    
    $
    5,742
    
    
    $
    5,781
    
    
    $
    6,422
    
    
    $
    382,003
    
    
    $
    399,948
 Impaired Loans
  16




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##### Table of Contents



PARK STERLING CORPORATION
 Notes to Condensed Consolidated Financial Statements (Unaudited)
  Unpaid
    
    
    Related
    
    
    Average
    
    
    InterestRecorded
    
    
    Principal
    
    
    Allowance For
    
    
    Recorded
    
    
    IncomeInvestment
    
    
    Balance
    
    
    Loan Losses
    
    
    Investment
    
    
    RecognizedImpaired Loans with No Related
Allowance Recorded:Commercial:Commercial and industrial
    
    $
    30
    
    
    $
    821
    
    
    $
    
    
    
    $
    144
    
    
    $
    CRE  owner-occupied
    
    
    581
    
    
    
    741
    
    
    
    
    
    
    
    705
    
    
    
    CRE  investor income producing
    
    
    575
    
    
    
    841
    
    
    
    
    
    
    
    531
    
    
    
    Acquisition, construction and
development
    
    
    22,575
    
    
    
    32,088
    
    
    
    
    
    
    
    25,475
    
    
    
    Other commercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total commercial loans
    
    
    23,761
    
    
    
    34,491
    
    
    
    
    
    
    
    26,855
    
    
    
    Consumer:Residential mortgage
    
    
    811
    
    
    
    823
    
    
    
    
    
    
    
    819
    
    
    
    Home equity lines of credit
    
    
    
    
    
    
    1,700
    
    
    
    
    
    
    
    
    
    
    
    Residential construction
    
    
    941
    
    
    
    2,175
    
    
    
    
    
    
    
    1,092
    
    
    
    Other loans to individuals
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    Total consumer loans
    
    
    1,752
    
    
    
    4,708
    
    
    
    
    
    
    
    1,911
    
    
    
    Total impaired loans with no related
allowance recorded
    
    $
    25,513
    
    
    $
    39,199
    
    
    $
    
    
    
    $
    28,766
    
    
    $
    Impaired Loans with an
Allowance Recorded:Commercial:Commercial and industrial
    
    $
    500
    
    
    $
    625
    
    
    $
    152
    
    
    $
    501
    
    
    $
    CRE  owner-occupied
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    CRE  investor income producing
    
    
    783
    
    
    
    792
    
    
    
    137
    
    
    
    577
    
    
    
    Acquisition, construction and
development
    
    
    4,788
    
    
    
    4,828
    
    
    
    1,121
    
    
    
    2,662
    
    
    
    Other commercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total commercial loans
    
    
    6,071
    
    
    
    6,245
    
    
    
    1,410
    
    
    
    3,740
    
    
    
    Consumer:Residential mortgage
    
    
    2,443
    
    
    
    2,560
    
    
    
    450
    
    
    
    1,609
    
    
    
    Home equity lines of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Residential construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other loans to individuals
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total consumer loans
    
    
    2,443
    
    
    
    2,560
    
    
    
    450
    
    
    
    1,609
    
    
    
    Total impaired loans with an
allowance recorded
    
    $
    8,514
    
    
    $
    8,805
    
    
    $
    1,860
    
    
    $
    5,349
    
    
    $
    Impaired Loans:Commercial
    
    $
    29,832
    
    
    $
    40,736
    
    
    $
    1,410
    
    
    $
    30,595
    
    
    $
    Consumer
    
    
    4,195
    
    
    
    7,268
    
    
    
    450
    
    
    
    3,520
    
    
    
    Total impaired loans
    
    $
    34,027
    
    
    $
    48,004
    
    
    $
    1,860
    
    
    $
    34,115
    
    
    $
    
  17




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PARK STERLING CORPORATION
 Notes to Condensed Consolidated Financial Statements (Unaudited)
  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
    
    
    $
    
   18




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PARK STERLING CORPORATION
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 Nonaccrual and Past Due Loans 
 March 31,
    
    
    December 31,2011
    
    
    2010Commercial:Commercial and industrial
    
    $
    530
    
    
    $
    1,159CRE  owner-occupied
    
    
    581
    
    
    
    717CRE  investor income producing
    
    
    1,358
    
    
    
    1,702Acquisition, construction and development
    
    
    27,363
    
    
    
    33,872Other commercial
    
    
    
    
    
    
    Total commercial loans
    
    
    29,832
    
    
    
    37,450Consumer:Residential mortgage
    
    
    3,254
    
    
    
    1,197Home equity lines of credit
    
    
    
    
    
    
    1,164Residential construction
    
    
    941
    
    
    
    1,100Other loans to individuals
    
    
    
    
    
    
    Total consumer loans
    
    
    4,195
    
    
    
    3,461Total nonaccrual loans
    
    $
    34,027
    
    
    $
    40,911
   Related Party Loans 
 Three Months EndedMarch 31,2011(Dollars in thousands)Beginning balance
    
    $
    5,075Disbursements
    
    
    368Repayments
    
    
    (719
    )Ending balance
    
    $
    4,724
   19




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PARK STERLING CORPORATION
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 Note 6  Per Share Results
   Weighted-Average Shares for Earnings Per Share Calculation
 Three Months EndedMarch 312011
    
    
    2010Weighted-average number of common
shares outstanding
    
    
    28,051,098
    
    
    
    4,951,098Effect of dilutive stock options and
restricted shares
    
    
    
    
    
    
    Weighted-average number of common
shares and dilutive potential common
shares outstanding
    
    
    28,051,098
    
    
    
    4,951,098
    20




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##### Table of Contents



PARK STERLING CORPORATION
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 Note 7  Total Comprehensive Income (Loss)
  Comprehensive Income (Loss)
 Three Months EndedMarch 31,2011
    
    
    2010(Dollars in thousands)Net income (loss)
    
    
    (2,887
    )
    
    
    157Unrealized holding gains on
available-for-sale securities
    
    $
    467
    
    
    $
    488Tax effect
    
    
    (180
    )
    
    
    (188
    )Reclassification of gain recognized
in net income
    
    
    (19
    )
    
    
    (18
    )Tax effect
    
    
    7
    
    
    
    7275
    
    
    
    289Unrealized holding loss on swaps
    
    
    (270
    )
    
    
    (155
    )Tax effect
    
    
    105
    
    
    
    (69
    )(165
    )
    
    
    (224
    ).Total comprehensive income (loss)
    
    $
    (2,777
    )
    
    $
    222
 Note 8  Derivative Financial Instruments and Hedging Activities
    21




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PARK STERLING CORPORATION
 Notes to Condensed Consolidated Financial Statements (Unaudited)
  Individual Loan Swap Information
(Dollars in thousands)
 FloatingOriginal
    
    
    Current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    RateNotional
    
    
    Notional
    
    
    Termination
    
    
    Fixed
    
    
    Floating
    
    
    PayerAmount
    
    
    Amount
    
    
    Date
    
    
    Rate
    
    
    Rate
    
    Spread$
    2,670
    
    
    $
    2,447
    
    
    
    04/10/13
    
    
    
    5.85
    %
    
    USD-LIBOR-BBA
    
    
    0.238
    %1,800
    
    
    
    437
    
    
    
    04/09/13
    
    
    
    5.80
    %
    
    USD-LIBOR-BBA
    
    
    0.233
    %1,100
    
    
    
    1,010
    
    
    
    05/11/13
    
    
    
    6.04
    %
    
    USD-LIBOR-BBA
    
    
    0.227
    %3,775
    
    
    
    3,552
    
    
    
    02/15/13
    
    
    
    5.90
    %
    
    USD-LIBOR-BBA
    
    
    0.220
    %1,870
    
    
    
    1,608
    
    
    
    02/15/13
    
    
    
    5.85
    %
    
    USD-LIBOR-BBA
    
    
    0.225
    %2,555
    
    
    
    2,555
    
    
    
    10/15/15
    
    
    
    5.50
    %
    
    USD-LIBOR-BBA
    
    
    0.288
    %$
    13,770
    
    
    $
    11,609
 Note 9  Fair Value Measurements
  Cash and Cash Equivalents
 The carrying amounts of cash and short-term instruments including due from banks and federal
funds sold approximate their fair value.
 Investment Securities
 Fair value for investment securities is based on the quoted market price if such information
is available. If a quoted market price is not available, fair values are based on quoted
market prices of comparable instruments.
 FHLB Stock
 The Bank, as a member of the FHLB, is required to maintain an investment in FHLB capital
stock and the carrying amount is estimated to be fair value.
  22




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PARK STERLING CORPORATION
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 Loans, net of allowance
 For certain homogenous categories of loans, such as residential mortgages, fair value is
estimated using the quoted market prices for securities backed by similar loans, adjusted
for differences in loan characteristics. The fair value of other types of loans is estimated
by discounting the future cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining maturities. Further
adjustments are made to reflect current market conditions. There is no discount for
liquidity included in the expected cash flow assumptions.
 Accrued Interest Receivable
 The carrying amount is a reasonable estimate of fair value.
 Deposits
 The fair value of deposits that have no stated maturities, including demand deposits,
savings, money market and NOW accounts, is the amount payable on demand at the reporting
date. The fair value of deposits that have stated maturity dates, primarily time deposits,
is estimated by discounting expected cash flows using the rates currently offered for
instruments of similar remaining maturities.
 Borrowings
 The fair values of short-term and long-term borrowings are based on discounting expected
cash flows at the interest rate for debt with the same or similar remaining maturities and
collateral requirements.
 Accrued Interest Payable
 The carrying amount is a reasonable estimate of fair value.
 Derivative Instruments
 Derivative instruments, including interest rate swaps and swap fair value hedges, are
recorded at fair value on a recurring basis. Fair value measurement is based on discounted
cash flow models. All future floating cash flows are projected and both floating and fixed
cash flows are discounted to the valuation date.
 Financial Instruments with Off-Balance Sheet Risk
 With regard to financial instruments with off-balance sheet risk discussed in Note K of the
2010 Audited Financial Statements, it is not practicable to estimate the fair value of
future financing commitments.
  Financial Instruments Carrying Amounts and Estimated Fair Values
 March 31, 2011
    
    
    December 31, 2010Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    EstimatedAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair Value(Dollars in thousands)Financial
assets:Cash and cash equivalents
    
    $
    115,513
    
    
    $
    115,513
    
    
    $
    65,378
    
    
    $
    65,378Investment securities
    
    
    112,273
    
    
    
    112,273
    
    
    
    140,590
    
    
    
    140,590FHLB stock
    
    
    1,910
    
    
    
    1,910
    
    
    
    1,757
    
    
    
    1,757Loans, net of allowance
    
    
    376,419
    
    
    
    372,183
    
    
    
    387,405
    
    
    
    382,854Interest rate swap
    
    
    188
    
    
    
    188
    
    
    
    459
    
    
    
    459Accrued interest receivable
    
    
    1,469
    
    
    
    1,469
    
    
    
    1,640
    
    
    
    1,640Financial
liabilities:Deposits with no stated maturity
    
    $
    144,284
    
    
    $
    144,284
    
    
    $
    107,999
    
    
    $
    107,999Deposits with stated maturities
    
    
    277,228
    
    
    
    278,067
    
    
    
    299,821
    
    
    
    300,393Swap fair value hedge
    
    
    491
    
    
    
    491
    
    
    
    569
    
    
    
    569Borrowings
    
    
    28,108
    
    
    
    27,365
    
    
    
    27,769
    
    
    
    26,913Accrued interest payable
    
    
    245
    
    
    
    245
    
    
    
    290
    
    
    
    290
  23




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PARK STERLING CORPORATION
 Notes to Condensed Consolidated Financial Statements (Unaudited)
   Level 1
    
    Valuation is based upon quoted prices for identical instruments traded in
active markets.
 Level 2
    
    Valuation is based upon quoted prices for similar instruments in active
markets, quoted prices for identical or similar instruments in markets that are not
active and model-based valuation techniques for which all significant assumptions are
observable in the market.
 Level 3
    
    Valuation is generated from model-based techniques that use at least one
significant assumption not observable in the market. These unobservable assumptions
reflect estimates of assumptions that market participants would use in pricing the
asset or liability. Valuation techniques may include the use of option pricing models,
discounted cash flow models and similar techniques.
  Investment Securities Available-for-Sale
 Investment securities available-for-sale are recorded at fair value on a recurring basis.
Fair value measurement is based upon quoted prices, if available. If quoted prices are not
available, fair values are measured using independent pricing models or other model-based
valuation techniques such as present value of future cash flows, adjusted for the
securitys credit rating, prepayment assumptions and other factors such as credit loss
assumptions. Level 1 securities include those traded on an active exchange, such as the
New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in
active over-the-counter markets and money market funds. Level 2 securities include
mortgage-backed securities issued by government-sponsored entities, municipal bonds and
corporate debt securities that are valued using quoted prices for similar instruments in
active markets. Securities classified as Level 3 include a corporate debt security in a
less liquid market whose value is determined by reference to the going rate of a similar
debt security if it were to enter the market at period end. The derived market value
requires significant management judgment and is further substantiated by discounted cash
flow methodologies.
 Derivative Instruments
 Derivative instruments held or issued by the Company for risk management purposes are
traded in over-the-counter markets where quoted market prices are not readily available.
For those derivatives, the Company uses a third party to measure the fair value. The
Company classifies derivatives instruments held or issued for risk management purposes as
Level 2. As of March 31, 2011 and December 31, 2010, the Companys derivative instruments
consist of interest rate swaps and swap fair value hedges.
  24




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PARK STERLING CORPORATION
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 Loans
 Loans for which it is probable that payment of interest and principal will not be made in
accordance with the contractual terms of the loan agreement are considered impaired. Once
a loan is identified as individually impaired, management measures it for the estimated
impairment. The fair value of impaired loans is estimated using one of several methods,
including collateral value, a loans observable market price and discounted cash flows.
Those impaired loans not requiring a specific allowance represent loans for which the fair
value exceeds the recorded investments in such loans. Impaired loans where a specific
allowance is established based on the fair value of collateral require classification in
the fair value hierarchy. When the fair value of the collateral is based on an observable
market price or a current appraised value, the Company records the impaired loan as
nonrecurring Level 2. When an appraised value is not available or management determines
the fair value of the collateral is further impaired below the appraised value and there
is no observable market price for the collateral, the Company records the impaired loan as
nonrecurring Level 3.
 At March 31, 2011 and December 31, 2010, substantially all of the total impaired loans
were evaluated based on the fair value of the collateral. The Company recorded the six
loans involved in fair value hedges at fair market value on a recurring basis. The Company
does not record other loans at fair value on a recurring basis.
 Other real estate owned
 Other real estate owned (OREO) is adjusted to fair value upon transfer of the loans to
OREO. Subsequently, OREO is carried at the lower of carrying value or fair value. Fair
value is based upon independent market prices, appraised values of the collateral or
managements estimation of the value of the collateral. When the fair value of the
collateral is based on an observable market price or a current appraised value, the
Company records the foreclosed asset as nonrecurring Level 2. When an appraised value is
not available or management determines the fair value of the collateral is further
impaired below the appraised value and there is not an observable market price for the
collateral, the Company records the OREO as nonrecurring Level 3.
  25




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PARK STERLING CORPORATION
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 Assets and Liabilities Recorded at Fair Value on a Recurring Basis
  Fair Value on a Recurring Basis
 Quoted Prices in
    
    
    SignificantActive Markets for
    
    
    Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable Inputs
    
    
    Assets/LiabilitiesDescription
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    at Fair Value(Dollars in thousands)March 31, 2011U.S. Government agencies
    
    $
    
    
    
    $
    10,418
    
    
    $
    
    
    
    $
    10,418Residential mortgage-backed securities
    
    
    
    
    
    
    30,999
    
    
    
    
    
    
    
    30,999Collateralized agency mortgage obligations
    
    
    
    
    
    
    53,526
    
    
    
    
    
    
    
    53,526Municipal securities
    
    
    
    
    
    
    15,931
    
    
    
    
    
    
    
    15,931Debt Securities
    
    
    
    
    
    
    
    
    
    
    353
    
    
    
    353Corporate and other Securities
    
    
    
    
    
    
    1,046
    
    
    
    
    
    
    
    1,046Interest rate swap
    
    
    
    
    
    
    188
    
    
    
    
    
    
    
    188Fair value loans
    
    
    
    
    
    
    12,100
    
    
    
    
    
    
    
    12,100Swap fair value hedge
    
    
    
    
    
    
    (491
    )
    
    
    
    
    
    
    (491
    )December 31, 2010U.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
    )
   Level 3 Assets Reconciliation
(Dollars in thousands)
 Three Months EndedMarch 31,2011
    
    
    2010Debt Securities:Balance, beginning of period
    
    $
    350
    
    
    $
    400Decrease in unrealized loss
    
    
    3
    
    
    
    Balance, end of period
    
    $
    353
    
    
    $
    400
  26




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PARK STERLING CORPORATION
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 Assets Recorded at Fair Value on a Nonrecurring Basis
  Fair Value on a Nonrecurring Basis
 Quoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    Unobservable
    
    
    Assets/Assets
    
    
    Inputs
    
    
    Inputs
    
    
    (Liabilities)Description
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    at Fair Value(Dollars in thousands)March 31, 2011OREO
    
    $
    
    
    
    $
    1,565
    
    
    $
    
    
    
    $
    1,565Impaired loans
    
    $
    
    
    
    $
    
    
    
    $
    25,832
    
    
    $
    25,832December 31, 2010OREO
    
    $
    
    
    
    $
    1,246
    
    
    $
    
    
    
    $
    1,246Impaired loans
    
    $
    
    
    
    $
    
    
    
    $
    37,724
    
    
    $
    37,724
   Note 10  Commitments and Contingencies
    27




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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
     28




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Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
  Overview
        29




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30




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Recent Accounting Pronouncements
  Critical Accounting Policies and Estimates
    Financial Condition at March 31, 2011 and December 31, 2010
    Selected Ratios
 Three months endedMarch 31,(annualized and unaudited)
    
    
    At December 31,2011
    
    
    2010
    
    
    2010*Return on Average Assets
    
    
    -1.93
    %
    
    
    0.13
    %
    
    
    -2.81
    %Return on Average Equity
    
    
    -6.60
    %
    
    
    1.36
    %
    
    
    -9.75
    %Period End Equity to Total Assets
    
    
    27.81
    %
    
    
    9.77
    %
    
    
    28.75
    %
 
 *
    
    Derived from audited financial statements.  31




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Loans
   Asset Quality and Allowance for Loan Losses
     32




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Nonperforming Assets
        33




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Investments and Other Interest-earning Assets
   Deposits and Other Borrowings
   Results of Operations
 Comparison of Results of Operations for the Three Months Ended March 31, 2011 and March 31, 2010
  Condensed Consolidated Statements of Income (Loss)
 Three Months EndedMarch 31,2011
    
    
    2010
    
    
    Change(Unaudited)
    
    
    $
    
    
    %(Dollars in thousands)Gross interest income
    
    $
    5,654
    
    
    $
    5,651
    
    
    $
    3
    
    
    
    0.1
    %Gross interest expense
    
    
    1,698
    
    
    
    1,900
    
    
    
    (202
    )
    
    
    -10.6
    %Net interest income
    
    
    3,956
    
    
    
    3,751
    
    
    
    205
    
    
    
    5.5
    %Provision for loan losses
    
    
    4,462
    
    
    
    1,531
    
    
    
    2,931
    
    
    
    191.4
    %Noninterest income
    
    
    72
    
    
    
    38
    
    
    
    34
    
    
    
    89.5
    %Noninterest expense
    
    
    4,234
    
    
    
    2,042
    
    
    
    2,192
    
    
    
    107.3
    %Net income (loss) before taxes
    
    
    (4,668
    )
    
    
    216
    
    
    
    (4,884
    )
    
    
    -2261.1
    %Income tax expense (benefit)
    
    
    (1,781
    )
    
    
    59
    
    
    
    (1,840
    )
    
    
    -3118.6
    %Net income (loss)
    
    $
    (2,887
    )
    
    $
    157
    
    
    $
    (3,044
    )
    
    
    -1938.9
    %
  34




---



##### Table of Contents



Net Income (Loss)
 Net Interest Income
    35




---



##### Table of Contents



Average Balance Sheets and Net Interest Analysis
 For the Three Months Ended March 31,2011
    
    
    2010Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate(Dollars in thousands)AssetsInterest-earning assets:Loans, including fees (1)
    
    $
    397,066
    
    
    $
    4,758
    
    
    
    4.79
    %
    
    $
    395,441
    
    
    $
    5,143
    
    
    
    5.20
    %Federal funds sold
    
    
    52,726
    
    
    
    30
    
    
    
    0.23
    %
    
    
    15,267
    
    
    
    9
    
    
    
    0.24
    %Taxable investment securities
    
    
    121,424
    
    
    
    681
    
    
    
    2.24
    %
    
    
    28,441
    
    
    
    326
    
    
    
    4.58
    %Tax-exempt investment securities
    
    
    14,698
    
    
    
    171
    
    
    
    4.65
    %
    
    
    14,082
    
    
    
    160
    
    
    
    4.54
    %Other interest-earning assets
    
    
    4,572
    
    
    
    14
    
    
    
    1.22
    %
    
    
    2,759
    
    
    
    13
    
    
    
    1.88
    %Total interest-earning assets
    
    
    590,486
    
    
    
    5,654
    
    
    
    3.83
    %
    
    
    455,990
    
    
    
    5,651
    
    
    
    4.96
    %Allowance for loan losses
    
    
    (12,343
    )
    
    
    
    
    
    
    
    
    
    
    (7,686
    )Cash and due from banks
    
    
    8,530
    
    
    
    
    
    
    
    
    
    
    
    7,683Premises and equipment
    
    
    4,474
    
    
    
    
    
    
    
    
    
    
    
    4,641Other assets
    
    
    18,829
    
    
    
    
    
    
    
    
    
    
    
    12,468Total assets
    
    $
    609,976
    
    
    
    
    
    
    
    
    
    
    $
    473,096Liabilities and stockholders equityInterest-bearing liabilities:Interest-bearing demand
    
    $
    55,393
    
    
    $
    3
    
    
    
    0.02
    %
    
    $
    36,609
    
    
    $
    2
    
    
    
    0.02
    %Savings and money market
    
    
    24,778
    
    
    
    138
    
    
    
    2.23
    %
    
    
    11,659
    
    
    
    81
    
    
    
    2.78
    %Time deposits  core
    
    
    182,405
    
    
    
    739
    
    
    
    1.62
    %
    
    
    184,487
    
    
    
    935
    
    
    
    2.03
    %Time deposits  brokered
    
    
    101,696
    
    
    
    487
    
    
    
    1.92
    %
    
    
    133,028
    
    
    
    549
    
    
    
    1.65
    %Total interest-bearing deposits
    
    
    364,272
    
    
    
    1,367
    
    
    
    1.50
    %
    
    
    365,783
    
    
    
    1,567
    
    
    
    1.71
    %Federal Home Loan Bank advances
    
    
    20,000
    
    
    
    141
    
    
    
    2.82
    %
    
    
    25,000
    
    
    
    143
    
    
    
    2.29
    %Other borrowings
    
    
    8,029
    
    
    
    190
    
    
    
    9.47
    %
    
    
    9,108
    
    
    
    190
    
    
    
    8.34
    %Total borrowed funds
    
    
    28,029
    
    
    
    331
    
    
    
    4.72
    %
    
    
    34,108
    
    
    
    333
    
    
    
    3.91
    %Total interest-bearing liabilities
    
    
    392,301
    
    
    
    1,698
    
    
    
    1.73
    %
    
    
    399,891
    
    
    
    1,900
    
    
    
    1.90
    %Net interest rate spread
    
    
    
    
    
    
    3,956
    
    
    
    2.10
    %
    
    
    
    
    
    
    3,751
    
    
    
    3.06
    %Noninterest-bearing demand deposits
    
    
    37,048
    
    
    
    
    
    
    
    
    
    
    
    25,904Other liabilities
    
    
    3,612
    
    
    
    
    
    
    
    
    
    
    
    572Stockholders equity
    
    
    177,015
    
    
    
    
    
    
    
    
    
    
    
    46,729Total liabilities and stockholders equity
    
    $
    609,976
    
    
    
    
    
    
    
    
    
    
    $
    473,096Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.68
    %
    
    
    
    
    
    
    
    
    
    
    3.29
    %
 
 (1)
    
    Average loan balances include nonaccrual loans. Provision for Loan Losses
  36




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##### Table of Contents



Noninterest Income
 Noninterest Expense
  Noninterest Expense
 Three months endedMarch 31,2011
    
    
    2010
    
    
    Change(Unaudited)
    
    
    $
    
    
    %(Dollars in thousands)Salaries and benefits
    
    $
    2,507
    
    
    $
    1,252
    
    
    $
    1,255
    
    
    
    100.2
    %Occupancy and equipment
    
    
    256
    
    
    
    206
    
    
    
    50
    
    
    
    24.3
    %Advertising and promotion
    
    
    38
    
    
    
    57
    
    
    
    (19
    )
    
    
    -33.3
    %Legal and professional fees
    
    
    307
    
    
    
    76
    
    
    
    231
    
    
    
    303.9
    %Deposit charges and FDIC insurance
    
    
    287
    
    
    
    176
    
    
    
    111
    
    
    
    63.1
    %Data processing and outside service fees
    
    
    123
    
    
    
    93
    
    
    
    30
    
    
    
    32.3
    %Directors fees
    
    
    41
    
    
    
    
    
    
    
    41
    
    
    
    100.0
    %Other real estate owned expense
    
    
    235
    
    
    
    36
    
    
    
    199
    
    
    
    552.8
    %Other expenses
    
    
    440
    
    
    
    146
    
    
    
    294
    
    
    
    201.4
    %Total noninterest expense
    
    $
    4,234
    
    
    $
    2,042
    
    
    $
    2,192
    
    
    
    107.3
    %
 Income Taxes
  37




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##### Table of Contents



Liquidity and Capital Resources
       38




---



##### Table of Contents



Capital Ratios
 To Be WellFor Capital
    
    
    Capitalized UnderAdequacy
    
    
    Prompt CorrectiveActual
    
    
    Purposes
    
    
    Actions ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars in thousands)Park Sterling CorporationMarch 31, 2011Total Risk-Based Capital Ratio
    
    $
    182,243
    
    
    
    44.27
    %
    
    $
    32,935
    
    
    
    8.00
    %
    
    $
    41,169
    
    
    
    10.00
    %Tier 1 Capital Ratio
    
    
    170,120
    
    
    
    41.32
    %
    
    
    16,468
    
    
    
    4.00
    %
    
    
    24,701
    
    
    
    6.00
    %Tier 1 Leverage Ratio
    
    
    170,120
    
    
    
    28.14
    %
    
    
    24,180
    
    
    
    4.00
    %
    
    
    30,225
    
    
    
    5.00
    %December 31, 2010Total Risk-Based Capital Ratio
    
    $
    185,768
    
    
    
    43.06
    %
    
    $
    34,035
    
    
    
    8.00
    %
    
    $
    42,543
    
    
    
    10.00
    %Tier 1 Capital Ratio
    
    
    173,395
    
    
    
    40.20
    %
    
    
    17,017
    
    
    
    4.00
    %
    
    
    25,525
    
    
    
    6.00
    %Tier 1 Leverage Ratio
    
    
    173,395
    
    
    
    27.39
    %
    
    
    22,227
    
    
    
    4.00
    %
    
    
    27,784
    
    
    
    5.00
    %Park Sterling BankMarch 31, 2011Total Risk-Based Capital Ratio
    
    $
    106,280
    
    
    
    25.74
    %
    
    $
    33,037
    
    
    
    8.00
    %
    
    $
    41,297
    
    
    
    10.00
    %Tier 1 Capital Ratio
    
    
    94,141
    
    
    
    22.80
    %
    
    
    16,519
    
    
    
    4.00
    %
    
    
    24,778
    
    
    
    6.00
    %Tier 1 Leverage Ratio
    
    
    94,141
    
    
    
    15.78
    %
    
    
    23,862
    
    
    
    4.00
    %
    
    
    29,828
    
    
    
    5.00
    %December 31, 2010Total Risk-Based Capital Ratio
    
    $
    185,768
    
    
    
    43.06
    %
    
    $
    34,035
    
    
    
    8.00
    %
    
    $
    42,543
    
    
    
    10.00
    %Tier 1 Capital Ratio
    
    
    173,395
    
    
    
    40.20
    %
    
    
    17,017
    
    
    
    4.00
    %
    
    
    25,525
    
    
    
    6.00
    %Tier 1 Leverage Ratio
    
    
    173,395
    
    
    
    27.39
    %
    
    
    22,227
    
    
    
    4.00
    %
    
    
    27,784
    
    
    
    5.00
    %
  Disclosure of Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
    39




---



##### Table of Contents



Interest Rate Sensitivity
         40




---



##### Table of Contents



41




---



##### Table of Contents



Interest Rate Gap Sensitivity
 Within
    
    
    Three
    
    
    One YearThree
    
    
    Months to
    
    
    to Five
    
    
    AfterMonths
    
    
    One Year
    
    
    Years
    
    
    Five Years
    
    
    Total(Dollars in thousands)At March 31, 2011:Interest-earning assets:Interest-bearing deposits
    
    $
    3,796
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,796Federal funds sold
    
    
    57,525
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,525Securities
    
    
    2,407
    
    
    
    17,405
    
    
    
    46,953
    
    
    
    45,508
    
    
    
    112,273Loans
    
    
    240,816
    
    
    
    26,428
    
    
    
    120,913
    
    
    
    30
    
    
    
    388,187Other interest-earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total interest-earning assets
    
    
    304,544
    
    
    
    43,833
    
    
    
    167,866
    
    
    
    45,538
    
    
    
    561,781Interest-bearing liabilities:Demand deposits
    
    
    2,722
    
    
    
    
    
    
    
    6,224
    
    
    
    4,666
    
    
    
    13,612MMDA and savings
    
    
    93,574
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93,574Time deposits
    
    
    73,484
    
    
    
    123,668
    
    
    
    80,076
    
    
    
    
    
    
    
    277,228Short term borrowings
    
    
    1,213
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,213Long term borrowings
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    6,895
    
    
    
    26,895Total interest-bearing liabilities
    
    
    170,993
    
    
    
    123,668
    
    
    
    106,300
    
    
    
    11,561
    
    
    
    412,522Derivatives
    
    
    10,684
    
    
    
    2,555
    
    
    
    (13,239
    )
    
    
    
    
    
    
    Interest sensitivity gap
    
    $
    144,235
    
    
    $
    (77,280
    )
    
    $
    48,327
    
    
    $
    33,977
    
    
    $
    149,259Cummulative interest sensitivity gap
    
    $
    144,235
    
    
    $
    66,955
    
    
    $
    115,282
    
    
    $
    149,259Percentage of total assets
    
    
    
    
    
    
    10.65
    %At December 31, 2010: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
    
    
    $
    206,384Cummulative interest sensitivity gap
    
    $
    131,949
    
    
    $
    42,932
    
    
    $
    82,135
    
    
    $
    206,384Percentage of total assets
    
    
    
    
    
    
    6.97
    %
  42




---



##### Table of Contents



Impact of Inflation and Changing Prices
   43




---



##### Table of Contents



Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk.
  
 Item 4.
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  
 Part II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A Risk Factors
  The Community Capital merger will not be completed unless important conditions to the merger are
satisfied, including the receipt of regulatory approvals.
   44




---



##### Table of Contents



We expect to incur significant transaction and merger-related integration costs in connection with
the merger with Community Capital and, even if completed, we may not realize all of the anticipated
benefits of the merger.
  The Community Capital merger may distract our management from other responsibilities.
  Sales of substantial amounts of our common stock in the open market by former Community Capital
shareholders could depress the stock price.
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
 ,
 
 Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    [Removed and Reserved]
 
 Item 5.
    
    Other Information
   45




---



##### Table of Contents



Item 6.
    
    Exhibits
  ExhibitNumber
    
    Description of Exhibits2.1
    
    
    Agreement and Plan of Merger dated March 31, 2011 by and
between Park Sterling Corporation and Community Capital
Corporation, incorporated by reference to Exhibit 2.1 of
the Companys Current Report on Form 8-K (File No.
001-35032) filed April 5, 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, 201131.1
    
    
    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
  46




---



##### Table of Contents



SIGNATURES
  PARK STERLING CORPORATIONDate: May 13, 2011
    By:
    /s/ James C. CherryJames C. CherryChief Executive Officer (authorized officer)Date: May 13, 2011
    By:
    /s/ David L. GainesDavid L. GainesChief Financial Officer  47




---



##### Table of Contents



Exhibit Index
 ExhibitNumber
    
    Description of Exhibits2.1
    
    
    Agreement and Plan of Merger dated March 31, 2011 by and
between Park Sterling Corporation and Community Capital
Corporation, incorporated by reference to Exhibit 2.1 of
the Companys Current Report on Form 8-K (File No.
001-35032) filed April 5, 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, 201131.1
    
    
    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
  48