Exhibit 2.1

AGREEMENT AND PLAN OF MERGER        BY AND BETWEEN        STERLING FINANCIAL CORPORATION        AND        EMPIRE FEDERAL BANCORP, INC.

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AGREEMENT AND PLAN OF MERGER        BY AND BETWEEN        STERLING FINANCIAL CORPORATION AND EMPIRE FEDERAL BANCORP, INC.        TABLE OF CONTENTS

|                                                        |  |      |  |                                                               |  | Page
|------------------------------------------------------- |  | ---- |  | ------------------------------------------------------------- |  | ----
|ARTICLE I    THE MERGER                                 |  | 1   
|                                                        |  | 1.1  |  | The Merger                                                    |  | 1   
|                                                        |  | 1.2  |  | Effective Time                                                |  | 1   
|                                                        |  | 1.3  |  | Effects of the Merger                                         |  | 1   
|                                                        |  | 1.4  |  | Conversion of Empire Common Stock                             |  | 3   
|                                                        |  | 1.5  |  | Sterling Common Stock                                         |  | 3   
|                                                        |  | 1.6  |  | Options                                                       |  | 3   
|                                                        |  | 1.7  |  | Articles of Incorporation                                     |  | 3   
|                                                        |  | 1.8  |  | Bylaws                                                        |  | 3   
|                                                        |  | 1.9  |  | Directors and Officers                                        |  | 3   
|                                                        |  | 1.10 |  | Tax Consequences                                              |  | 3   
|                                                        |  | 1.11 |  | Accounting Treatment                                          |  | 3   
|ARTICLE II    EXCHANGE OF SHARES                        |  | 4   
|                                                        |  | 2.1  |  | Sterling to Make Shares Available                             |  | 4   
|                                                        |  | 2.2  |  | Exchange of Shares; Payment for Options                       |  | 4   
|ARTICLE III    REPRESENTATIONS AND WARRANTIES OF EMPIRE |  | 5   
|                                                        |  | 3.1  |  | Corporate Organization                                        |  | 5   
|                                                        |  | 3.2  |  | Capitalization                                                |  | 6   
|                                                        |  | 3.3  |  | Authority; No Violation                                       |  | 7   
|                                                        |  | 3.4  |  | Consents and Approvals                                        |  | 9   
|                                                        |  | 3.5  |  | Loan Portfolio; Reports                                       |  | 9   
|                                                        |  | 3.6  |  | Financial Statements; Exchange Act Filings; Books and Records |  | 10  
|                                                        |  | 3.7  |  | Broker's Fees                                                 |  | 10  
|                                                        |  | 3.8  |  | Absence of Certain Changes or Events                          |  | 10  
|                                                        |  | 3.9  |  | Legal Proceedings                                             |  | 11  
|                                                        |  | 3.10 |  | Taxes and Tax Returns                                         |  | 11  
|                                                        |  | 3.11 |  | Employee Plans                                                |  | 12  
|                                                        |  | 3.12 |  | Certain Contracts                                             |  | 13  
|                                                        |  | 3.13 |  | Regulatory Agreements                                         |  | 14  
|                                                        |  | 3.14 |  | State Takeover Laws                                           |  | 15  
|                                                        |  | 3.15 |  | Environmental Matters                                         |  | 15  
|                                                        |  | 3.16 |  | Reserves for Losses                                           |  | 15  
|                                                        |  | 3.17 |  | Properties and Assets                                         |  | 15  
|                                                        |  | 3.18 |  | Insurance                                                     |  | 16  
|                                                        |  | 3.19 |  | Compliance with Applicable Laws                               |  | 26  
|                                                        |  | 3.20 |  | Loans                                                         |  | 17  
|                                                        |  | 3.21 |  | Undisclosed Liabilities                                       |  | 17  
|                                                        |  | 3.22 |  | Intellectual Property Rights                                  |  | 18  
|                                                        |  | 3.23 |  | Indemnification                                               |  | 18  
|                                                        |  | 3.24 |  | Insider Interests                                             |  | 18  
|                                                        |  | 3.25 |  | Fairness Opinion                                              |  | 18  

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|                                                         |  | 3.26 |  | Tax and Accounting Treatment of Merger                        |  | 18
|-------------------------------------------------------- |  | ---- |  | ------------------------------------------------------------- |  | --
|                                                         |  | 3.27 |  | Empire Information                                            |  | 19
|ARTICLE IV    REPRESENTATIONS AND WARRANTIES OF STERLING |  | 19  
|                                                         |  | 4.1  |  | Corporate Organization                                        |  | 19
|                                                         |  | 4.2  |  | Capitalization                                                |  | 19
|                                                         |  | 4.3  |  | Authority; No Violation                                       |  | 20
|                                                         |  | 4.4  |  | Consents and Approvals                                        |  | 21
|                                                         |  | 4.5  |  | Reports                                                       |  | 21
|                                                         |  | 4.6  |  | Financial Statements; Exchange Act Filings; Books and Records |  | 21
|                                                         |  | 4.7  |  | Broker's Fees                                                 |  | 22
|                                                         |  | 4.8  |  | Absence of Certain Changes or Events                          |  | 22
|                                                         |  | 4.9  |  | Legal Proceedings                                             |  | 22
|                                                         |  | 4.10 |  | Taxes and Tax Returns                                         |  | 22
|                                                         |  | 4.11 |  | Employee Plans                                                |  | 23
|                                                         |  | 4.12 |  | Regulatory Agreements                                         |  | 23
|                                                         |  | 4.13 |  | Reserves for Losses                                           |  | 23
|                                                         |  | 4.14 |  | Compliance with Applicable Laws                               |  | 23
|                                                         |  | 4.15 |  | Tax and Accounting Treatment of Merger                        |  | 23
|                                                         |  | 4.16 |  | Sterling Information                                          |  | 24
|                                                         |  | 4.17 |  | Undisclosed Liabilities                                       |  | 24
|ARTICLE V    COVENANTS RELATING TO CONDUCT OF BUSINESS   |  | 24  
|                                                         |  | 5.1  |  | Covenants of Empire                                           |  | 24
|                                                         |  | 5.2  |  | Covenants of Sterling                                         |  | 27
|                                                         |  | 5.3  |  | Merger Covenants                                              |  | 27
|ARTICLE VI    ADDITIONAL AGREEMENTS.                     |  | 28  
|                                                         |  | 6.1  |  | Regulatory Matters                                            |  | 28
|                                                         |  | 6.2  |  | Access to Information                                         |  | 29
|                                                         |  | 6.3  |  | Stockholder Meetings                                          |  | 29
|                                                         |  | 6.4  |  | Legal Conditions to Merger                                    |  | 30
|                                                         |  | 6.5  |  | Stock Exchange Listing                                        |  | 30
|                                                         |  | 6.6  |  | Employees                                                     |  | 30
|                                                         |  | 6.7  |  | Indemnification                                               |  | 31
|                                                         |  | 6.8  |  | Subsequent Interim and Annual Financial Statements            |  | 32
|                                                         |  | 6.9  |  | Additional Agreements                                         |  | 32
|                                                         |  | 6.10 |  | Advice of Changes                                             |  | 32
|                                                         |  | 6.11 |  | Current Information                                           |  | 32
|                                                         |  | 6.12 |  | Execution and Authorization of Institution Merger Agreement   |  | 32
|                                                         |  | 6.13 |  | Change in Structure                                           |  | 32
|                                                         |  | 6.14 |  | Transaction Expenses of Empire                                |  | 33
|                                                         |  | 6.15 |  | Affiliate Agreements                                          |  | 33
|ARTICLE VII    CONDITIONS PRECEDENT                      |  | 34  
|                                                         |  | 7.1  |  | Conditions to Each Party's Obligation To Effect the Merger    |  | 34
|                                                         |  | 7.2  |  | Conditions to Obligations of Sterling                         |  | 35
|                                                         |  | 7.3  |  | Conditions to Obligations of Empire                           |  | 35

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|ARTICLE VIII    TERMINATION AND AMENDMENT |  | 36  
|----------------------------------------- |  | ----
|                                          |  | 8.1 
|                                          |  | 8.2 
|                                          |  | 8.3 
|                                          |  | 8.4 
|ARTICLE IX    GENERAL PROVISIONS          |  | 39  
|                                          |  | 9.1 
|                                          |  | 9.2 
|                                          |  | 9.3 
|                                          |  | 9.4 
|                                          |  | 9.5 
|                                          |  | 9.6 
|                                          |  | 9.7 
|                                          |  | 9.8 
|                                          |  | 9.9 
|                                          |  | 9.10
|                                          |  | 9.11
|                                          |  | 9.12

EXHIBITS

|A    | Institution Merger Agreement          
|---- | --------------------------------------
|B    | Empire Disclosure Schedule            
|C(1) | Certificate of Merger                 
|C(2) | Articles of Merger                    
|D    | Form of Agreement of Empire Affiliates
|E    | Stockholders Agreement                

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AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER, dated as of September 19, 2002 (this "Agreement"), is entered into by and between Sterling Financial Corporation, a
Washington corporation ("Sterling") and Empire Federal Bancorp, Inc., a Delaware corporation ("Empire").

WHEREAS,
the Boards of Directors of Sterling and Empire have determined that it is in the best interests of their respective companies and stockholders to consummate the business
combination transaction provided for herein in which Empire will, subject to the terms and conditions set forth herein, merge with and into Sterling, with Sterling being the surviving corporation in
such merger (the "Merger");

WHEREAS,
prior to the consummation of the Merger, Sterling and Empire will respectively cause Sterling Savings Bank, a Washington State chartered savings and loan association and
wholly-owned subsidiary of Sterling, and Empire Bank ("Empire Bank"), a federal stock savings bank and wholly-owned subsidiary of Empire, to enter into a merger agreement, in the form attached hereto
as Exhibit A (the "Institution Merger Agreement"), providing for the merger (the "Institution Merger") of Empire Bank with and into Sterling Savings Bank, with Sterling Savings Bank, a
Washington State-chartered savings and loan association, being the "Surviving Institution" of the Institution Merger;

WHEREAS,
the Merger is intended to be treated as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); and

WHEREAS,
the parties desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe certain conditions to the Merger;

NOW,
THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained herein, and intending to be legally bound hereby, the parties agree as
follows:

ARTICLE I  THE MERGER

1.1THE MERGER.

Subject
to the terms and conditions of this Agreement, at the Effective Time (as defined in Section 1.2 hereof), Empire shall merge with and into Sterling, with Sterling being the
surviving corporation (hereinafter sometimes called the "Surviving Corporation") in the Merger. Upon consummation of the Merger, the corporate existence of Empire shall cease and the Surviving
Corporation shall continue to exist as a Washington corporation.

1.2EFFECTIVE TIME.

The
Merger shall become effective on the Closing Date (as defined in Section 9.1 hereof), as set forth in the certificate of merger (the "Certificate of Merger") in the form
attached as Exhibit C(1) hereto which shall be filed with the Secretary of State of the State of Delaware on the Closing Date and the articles of merger (the "Articles of Merger") in the form
attached as Exhibit C(2) hereto which shall be filed with the Secretary of State of the State of Washington on the Closing Date. The term "Effective Time" shall be the date and time when the
Merger becomes effective on the Closing Date, as set forth in the Certificate of Merger.

1.3EFFECTS OF THE MERGER.

At
and after the Effective Time, the Merger shall have the effects set forth in Sections 259 and 261 of the Delaware General Corporation Law (the "DGCL") and
Section 23B.11.060 of the Washington Business Corporation Act (the "WBCA").

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1.4CONVERSION OF EMPIRE COMMON STOCK.





"Trading
Day" means a day that Sterling Common Stock is traded on NASDAQ.

"Determination
Date" means the fifth business day immediately prior to the Closing Date.



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1.5STERLING COMMON STOCK.

Each
share of Sterling Common Stock issued and outstanding immediately prior to the Effective Time shall be unchanged and shall remain issued and outstanding as common stock of the
Surviving Corporation.

1.6OPTIONS.

At
the Effective Time, each option granted by Empire, pursuant to the Empire Federal Bancorp, Inc. 1997 Stock Option Plan (the "Empire Stock Option Plan"), to purchase shares of
Empire Common Stock which is outstanding and unexercised immediately prior thereto shall be converted automatically into the right to receive cash in an amount equal to the greater of:



Optionees
entitled to cash payments shall receive such payments, without interest and less applicable withholdings, within five business days of the Closing Date.

1.7ARTICLES OF INCORPORATION.

At
the Effective Time, the Articles of Incorporation of Sterling, as in effect at the Effective Time, shall be the Articles of Incorporation of the Surviving Corporation.

1.8BYLAWS.

At
the Effective Time, the Bylaws of Sterling, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation.

1.9DIRECTORS AND OFFICERS.

At
the Effective Time, the directors and officers of Sterling immediately prior to the Effective Time shall continue to be directors and officers of the Surviving Corporation.

1.10TAX CONSEQUENCES.

It
is intended that the Merger, either alone or in conjunction with the Institution Merger, shall constitute a reorganization within the meaning of Section 368(a) of the Code, and
that this Agreement shall constitute a "plan of reorganization" for the purposes of the Code.

1.11ACCOUNTING TREATMENT.

It
is intended that the Merger shall be accounted for as a "purchase" under generally accepted accounting principles ("GAAP").

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ARTICLE II  EXCHANGE OF SHARES

2.1STERLING TO MAKE SHARES AVAILABLE.

At
or prior to the Effective Time, Sterling shall deposit, or shall cause to be deposited, with Sterling's transfer agent, Mellon Investor Services, LLC, or such other
similarly-qualified bank, trust company or transfer agent as Sterling may select (the "Exchange Agent"), for the benefit of the holders of Certificates, for exchange in accordance with this
Article II, certificates representing the shares of Sterling Common Stock and the cash in lieu of fractional shares (such cash and certificates for shares of Sterling Common Stock, being
hereinafter referred to as the "Exchange Fund") to be issued pursuant to Section 1.4 and paid pursuant to Section 2.2(a) hereof in exchange for outstanding shares of Empire Common Stock.

2.2EXCHANGE OF SHARES; PAYMENT FOR OPTIONS.



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ARTICLE III  REPRESENTATIONS AND WARRANTIES OF EMPIRE

Empire hereby makes the following representations and warranties to Sterling, each of which is being relied upon by Sterling as a material inducement to Sterling
to enter into and perform this Agreement.

3.1CORPORATE ORGANIZATION.



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3.2CAPITALIZATION.



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3.3AUTHORITY; NO VIOLATION.



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3.4CONSENTS AND APPROVALS.



3.5LOAN PORTFOLIO; REPORTS.



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3.6FINANCIAL STATEMENTS; EXCHANGE ACT FILINGS; BOOKS AND RECORDS.

Empire
has previously made available to Sterling true, correct and complete copies of (i) the audited consolidated balance sheets of Empire and its Subsidiaries as of
December 31, 2001 and the related audited consolidated statements of income, stockholders' equity and comprehensive income and cash flows for the fiscal years 2001 and 2000, inclusive, as
reported in Empire's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2001 filed with the SEC under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), in each case accompanied by the audit report of KPMG, LLP, independent public accountants with respect to Empire and (ii) the unaudited consolidated balance sheets of Empire
and its Subsidiaries as of June 30, 2002 and December 31, 2001 and the related unaudited consolidated statements of income, stockholders' equity and comprehensive income and cash flows
for the three- and six-month periods ended June 30, 2002, as reported on Empire's Quarterly Report on Form 10-QSB for the period ended June 30, 2002 filed
with the SEC under the Exchange Act. Empire will deliver as soon as is reasonably practicable, a draft of the consolidated balance sheet of Empire and its Subsidiaries as of September 30, 2002
and the related consolidated statements of income, stockholders' equity and comprehensive income and cash flows for the quarter ended September 30, 2002, in the form Empire expects to file
under the Exchange Act in connection with its Form 10-QSB for the quarter ended September 30, 2002. The financial statements referred to in this Section 3.6 (including
the related notes, where applicable but excluding the draft statements referred to herein) fairly present, and the financial statements referred to in Section 6.8 hereof will fairly present
(subject, in the case of the unaudited statements, to normal recurring audit adjustments), the results of the consolidated operations and consolidated financial condition of Empire and its
Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth; each of such statements (including the related notes, where applicable) comply, and the financial
statements referred to in Section 6.8 hereof will comply, with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto and each of such
statements (including the related notes, where applicable) has been, and the financial statements referred to in Section 6.8
hereof will be prepared in accordance with GAAP consistently applied during the periods involved, except in each case as indicated in such statements or in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-QSB. Empire's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2001 and all reports
subsequently filed under the Exchange Act (the "Empire Exchange Act Reports") comply in all material respects with the appropriate requirements for such reports under the Exchange Act, and Empire has
previously delivered or made available to Sterling true, correct and complete copies of such reports. The books and records of Empire and its Subsidiaries have been, and are being, maintained in all
material respects in accordance with GAAP and any other applicable legal and accounting requirements.

3.7BROKER'S FEES.

Neither
Empire nor any of its Subsidiaries nor any of their respective officers or directors has employed any broker or finder or incurred any liability for any broker's fees,
commissions or finder's fees in connection with any of the transactions contemplated by this Agreement or the Institution Merger Agreement, except that Empire has engaged, and will pay a fee to D.A.
Davidson & Co. ("Davidson") in accordance with the terms of a letter agreement between Davidson and Empire, dated May 6, 2002, a true, complete and correct copy of which is set forth in
Section 3.7 of the Empire Disclosure Schedule.

3.8ABSENCE OF CERTAIN CHANGES OR EVENTS.



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3.9LEGAL PROCEEDINGS.



3.10TAXES AND TAX RETURNS.



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3.11EMPLOYEE PLANS.



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3.12CERTAIN CONTRACTS.



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3.13REGULATORY AGREEMENTS.

Neither
Empire nor any of its Subsidiaries is subject to any cease-and-desist or other order issued by, or is a party to any written agreement, consent agreement
or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or has been a recipient of any extraordinary
supervisory letter from, or has adopted any board resolutions (each of the foregoing, a "Regulatory Agreement"), at the request of any Governmental Entity that restricts the conduct of its business or
that in any manner relates to its capital adequacy, its credit policies, its management or its business, nor has Empire or any of its Subsidiaries been advised by any Governmental Entity that it is
considering issuing or requesting any Regulatory Agreement.

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3.14STATE TAKEOVER LAWS.

Empire
and its Board of Directors have taken all necessary action so that the provisions of Section 203 of the DGCL and any applicable provisions of the takeover laws of any other
state (and any comparable provisions of Empire's Certificate of Incorporation and Bylaws) do not and will not apply to this Agreement, the Merger or the transactions contemplated hereby or thereby.

3.15ENVIRONMENTAL MATTERS.

There
are no legal, administrative, arbitral or other proceedings, claims, actions, causes of action, private environmental investigations or remediation activities or governmental
investigations of any nature seeking to impose, or that reasonably could be expected to result in the imposition, on Empire or any of its Subsidiaries of any liability or obligation arising under
common law standards relating to environmental protection, human health or safety, or under any local, state or federal environmental statute, regulation or ordinance, including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (collectively, the "Environmental Laws"), pending or, to the knowledge of Empire, threatened against Empire
or any of its Subsidiaries, which liability or obligation would have or would reasonably be expected to have a Material Adverse Effect on Empire. To the knowledge of Empire, there is no reasonable
basis for any such proceeding, claim, action or governmental investigation that would impose any liability or obligation that would have or would reasonably be expected to have a Material Adverse
Effect on Empire. To the knowledge of Empire, during or prior to the period of (i) its or any of its Subsidiaries' ownership or operation of any of their respective current properties,
(ii) its or any of its Subsidiaries' participation in the management of any property, or (iii) its or any of its Subsidiaries' holding of a security interest or other interest in any
property, there were no releases or threatened releases of hazardous, toxic, radioactive or dangerous materials or other materials regulated under Environmental Laws in, on, under or affecting any
such property which would reasonably be expected to have a Material Adverse Effect on Empire. Neither Empire nor any of its Subsidiaries is subject to any agreement, order, judgment, decree, letter or
memorandum by or with any court, governmental authority, regulatory agency or third party imposing any material liability or obligation pursuant to or under any Environmental Law that would have or
would reasonably be expected to have a Material Adverse Effect on Empire.

3.16RESERVES FOR LOSSES.

All
reserves or other allowances for possible losses reflected in Empire's most recent financial statements referred to in Section 3.6 complied with all Laws and are reported in
accordance with GAAP. Neither Empire nor any of its Subsidiaries has been notified by the OTS, the FDIC, any other regulatory authority or by Empire's independent auditor, in writing or otherwise,
that such reserves are inadequate or that the practices and policies of Empire or any of its Subsidiaries in establishing such reserves and in accounting for delinquent and classified assets generally
fail to comply with applicable accounting or regulatory requirements, or that the OTS, the FDIC, any other regulatory authority or Empire's independent auditor believes such reserves to be inadequate
or inconsistent with the historical loss experience of Empire or any of its Subsidiaries. Section 3.16 of the Empire Disclosure Schedule sets forth a complete list of all extensions of credit
and other real estate owned ("OREO") that have been classified by any regulatory examiner as special mention, substandard, doubtful, loss, criticized, credit risk assets, concerned loans or words of
similar import. All OREO, if any, held by Empire or any of its Subsidiaries is being carried at fair value.

3.17PROPERTIES AND ASSETS.

Section 3.17
of the Empire Disclosure Schedule lists as of the date of this Agreement (i) all real property owned by Empire and its Subsidiaries; (ii) each real
property lease, sublease or installment purchase arrangement to which Empire or any of its Subsidiaries is a party; (iii) a description of each contract for the purchase, sale, or development
of real estate to which Empire or any of its Subsidiaries

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is a party; and (iv) all items of Empire's or any of its Subsidiaries' tangible personal property and equipment with a net book value of $10,000 or more or having any annual lease payment of
$10,000 or more. Except for (a) items reflected in Empire's consolidated financial statements as of December 31, 2001 referred to in Section 3.6 hereof, (b) exceptions to
title that do not interfere materially with Empire's or any of its Subsidiaries' use and enjoyment of owned or leased real property (other than OREO), (c) liens for current real estate taxes
not yet delinquent, or being contested in good faith, properly reserved against, (d) properties and assets sold or transferred in the ordinary course of business consistent with past practices
since December 31, 2001, and (e) items listed in Section 3.17 of the Empire Disclosure Schedule, Empire and its Subsidiaries have good and, as to owned real property, marketable
and insurable title to all their properties and assets, reflected in the consolidated financial statements of Empire as of December 31, 2001, free and clear of all material liens, claims,
charges and other encumbrances. Empire and its Subsidiaries, as lessees, have the right under valid and subsisting leases to occupy, use and possess all property leased by them. All properties and
assets used by Empire and its Subsidiaries are in good operating condition and repair (subject to ordinary wear and tear) suitable for the purposes for which they are currently utilized and, to the
knowledge of Empire, comply in all material respects with all Laws relating thereto now in effect. Empire and its Subsidiaries enjoy peaceful and undisturbed possession under all leases for the use of
all property under which they are the lessees, and all leases to which Empire or any of its Subsidiaries is a party are valid and binding obligations of Empire or any of its Subsidiaries in accordance
with the terms thereof. Neither Empire nor any of its Subsidiaries is in material default with respect to any such lease, and there has occurred no default by Empire or any of its Subsidiaries or
event which with the lapse of time or the giving of notice, or both, would constitute a material default by Empire or any of its Subsidiaries under any such lease. To the knowledge of Empire, there
are no Laws, conditions of record, or other impediments which materially interfere with the intended use by Empire or any of its Subsidiaries of any of the property owned, leased, or occupied by them.

3.18INSURANCE.



3.19COMPLIANCE WITH APPLICABLE LAWS.

Each
of Empire and its Subsidiaries has complied in all material respects with all Laws applicable to it or to the operation of its business. Neither Empire nor its Subsidiaries have
received any notice of any material alleged or threatened claim, violation or liability under any such Laws that has not heretofore been cured and for which there is no remaining liability.

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3.20LOANS.



3.21UNDISCLOSED LIABILITIES.

Except
(i) for those liabilities that are fully reflected or reserved against on the consolidated balance sheet of Empire included in the Empire Form 10-QSB for
the quarter ended June 30, 2002 or (ii) for liabilities incurred in the ordinary course of business consistent with past practice since December 31, 2001, neither Empire nor any
of its Subsidiaries has incurred any liability of any nature whatsoever (whether absolute, accrued or contingent or otherwise and whether due or to become due)

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that, either alone or when combined with all similar liabilities, has had, or would be reasonably expected to have, a Material Adverse Effect on Empire.

3.22INTELLECTUAL PROPERTY RIGHTS.

Empire
and each of its Subsidiaries owns or possesses all legal rights, or is licensed or otherwise has the right to use, all proprietary rights, including without limitation all
trademarks, trade names, service marks and copyrights, that are material to the conduct of their existing businesses. Neither Empire nor any of its Subsidiaries is bound by or a party to any options,
licenses or agreements of any kind with respect to any trademarks, service marks or trade names which it claims to own. Neither Empire nor any of its Subsidiaries has received any communications
alleging that any of them has violated any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or any other proprietary rights of any other person or entity.

3.23INDEMNIFICATION.

Empire
has no knowledge of any action or failure to take action by any director, officer, employee or agent of Empire or any Empire Subsidiary which would give rise to a claim or a
potential claim by any such person for indemnification from Empire or any Empire Subsidiary under the Certificate or Articles of Incorporation, Bylaws or Laws applicable to Empire or any Empire
Subsidiary.

3.24INSIDER INTERESTS.

All
outstanding Loans and other contractual arrangements (including deposit relationships) between Empire or any Empire Subsidiary and any officer, director or employee of Empire or any
Empire Subsidiary conform to applicable Laws. Except as disclosed in Section 3.24 of the Empire Disclosure Schedule, no officer, director or employee of Empire or any Empire Subsidiary has any
material interest in any property, real or personal, tangible or intangible, used in or pertaining to the business of Empire or any Empire Subsidiary.

3.25FAIRNESS OPINION.

Empire
has received an opinion from Davidson dated as of the date hereof to the effect that, in its opinion, the Exchange Ratio pursuant to this Agreement is fair to the holders of
Empire Common Stock from a financial point of view.

3.26TAX AND ACCOUNTING TREATMENT OF MERGER.

As
of the date of this Agreement, Empire is not aware of any fact or state of affairs relating to Empire that could cause the Merger not to be treated as a "reorganization" under
Section 368(a) of the Code.

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3.27EMPIRE INFORMATION.

The
information relating to Empire and its Subsidiaries to be provided by Empire to be contained in the Registration Statement and the Proxy Statement/Prospectus will not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they are made, not misleading and will comply in
all material respects with the provisions of the Exchange Act and the rules and regulations thereunder.

ARTICLE IV  REPRESENTATIONS AND WARRANTIES OF STERLING

Sterling hereby makes the following representations and warranties to Empire, each of which is being relied upon by Empire as a material inducement to Empire to
enter into and perform this Agreement.

4.1CORPORATE ORGANIZATION.



4.2CAPITALIZATION.



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4.3AUTHORITY; NO VIOLATION.



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4.4CONSENTS AND APPROVALS.



4.5REPORTS.

Since
January 1, 2000, Sterling and Sterling Savings Bank have timely filed all reports, registrations and statements, together with any amendments required to be made with
respect thereto, that they have been required to file with any Governmental Entities. As of its respective date, each such report, registration, statement and amendment complied in all material
respects with all rules and regulations promulgated by the applicable Governmental Entity and did not contain any untrue statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Except for normal examinations conducted by a
Governmental Entity in the regular course of the business of Sterling and its Subsidiaries, no Governmental Entity is conducting, or has conducted, any proceeding or investigation into the business or
operations of Sterling since January 1, 2000.

4.6FINANCIAL STATEMENTS; EXCHANGE ACT FILINGS; BOOKS AND RECORDS.

Sterling
has previously made available to Empire true, correct and complete copies of (i) the audited consolidated balance sheets of Sterling and its Subsidiaries as of
December 31, 2001 and the related consolidated statements of income, changes in shareholders' equity and comprehensive income and cash flows for the years 2001 and 2000, inclusive, as reported
in Sterling's Annual Report on Form 10-K for the year ended December 31, 2001 filed with the SEC under the Exchange Act, in each case accompanied by the audit report of
PricewaterhouseCoopers LLP and BDO Seidman, LLP, independent public accountants with respect to Sterling; and (ii) the unaudited consolidated balance sheets of Sterling and its Subsidiaries as
of June 30, 2002 and December 31, 2001 and the related unaudited consolidated statements of income, changes in shareholders' equity and comprehensive income and cash flows for the three-
and six-month periods ended June 30, 2002, as reported on Sterling's Quarterly Report on Form 10-Q filed with the SEC under the Exchange Act. The financial
statements referred to in this Section 4.6 (including the related notes, where applicable) fairly present, and the financial statements referred to in Section 6.8 hereof will fairly
present (subject, in the case of

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the unaudited statements, to normal recurring audit adjustments), the results of the consolidated operations and consolidated financial condition of Sterling and its Subsidiaries for the respective
fiscal periods or as of the respective dates therein set forth; each of such statements (including the related notes, where applicable) comply, and the financial statements referred to in
Section 6.8 hereof will comply, with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto; and each of such statements (including the
related notes, where applicable) has been, and the financial statements referred to in Section 6.8 hereof will be, prepared in accordance with GAAP consistently applied during the periods
involved, except as indicated in the notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q. Sterling's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001 and all subsequently filed reports under the Exchange Act comply in all material respects with the appropriate requirements for such reports under the
Exchange Act, and Sterling has previously delivered or made available to Empire true, correct and complete copies of such reports. The books and records of Sterling and Sterling Savings Bank have
been, and are being, maintained in all material respects in accordance with GAAP and any other applicable legal and accounting requirements and reflect only actual transactions.

4.7BROKER'S FEES.

Neither
Sterling nor any Sterling Subsidiary nor any of their respective officers or directors has employed any broker or finder or incurred any liability for any broker's fees,
commissions or finder's fees in connection with any of the transactions contemplated by this Agreement or the Institution Merger Agreement.

4.8ABSENCE OF CERTAIN CHANGES OR EVENTS.



4.9LEGAL PROCEEDINGS.



4.10TAXES AND TAX RETURNS.

Each
of Sterling and its Subsidiaries has duly filed all material Federal, state, local and foreign Tax Returns required to be filed by it on or prior to the date hereof (all such
returns being accurate and complete in all material respects) and has duly paid or made provisions for the payment of all material Taxes which have been incurred or are due or claimed to be due from
it by Federal, state, local and foreign taxing authorities on or prior to the date hereof. All liability with respect to the income tax returns of Sterling and its Subsidiaries has been satisfied for
all years to and including December 31, 2001. The IRS has not notified Sterling of, or otherwise asserted, that there are any material

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deficiencies with respect to the income tax returns of Sterling. There are no material disputes pending, or claims asserted for, Taxes or assessments upon Sterling or any of its Subsidiaries, nor has
Sterling or any of its Subsidiaries been requested to give any waivers extending the statutory period of limitation applicable to any Federal, state or local income tax return for any period.

4.11EMPLOYEE PLANS.

Sterling
has heretofore made available for inspection, or delivered (if requested) to Empire true, correct and complete copies of each employee benefit plan arrangement or agreement that
is maintained as of the date of this Agreement (the "Sterling Plans") by Sterling or any of its Subsidiaries. No "accumulated funding deficiency" as defined in Section 302(a)(2) of ERISA or
Section 412 of the Code, whether or not waived, and no "unfunded current liability" as determined under Section 412(l) of the Code exists with respect to any Sterling Plan. The Sterling
Plans are in compliance in all material respects with the applicable requirements of ERISA and the Code.

4.12REGULATORY AGREEMENTS.

Neither
Sterling nor any of its Subsidiaries is subject to any Regulatory Agreement with any Governmental Entity that restricts the conduct of its business or that in any manner relates
to its capital adequacy, its credit policies, its management or its business, nor has Sterling or Sterling Savings Bank been advised by any Governmental Entity that it is considering issuing or
requesting any Regulatory Agreement.

4.13RESERVES FOR LOSSES.

All
reserves or other allowances for possible losses reflected in Sterling's most recent financial statements referred to in Section 4.6 complied with all Laws and are reported in
accordance with GAAP. Neither Sterling nor Sterling Savings Bank has been notified by the OTS, the FDIC, any other regulator authority or by Sterling's independent auditor, in writing or otherwise,
that the reserves or other allowances for possible loan losses reflected in Sterling's most recent financial statements referred to in Section 4.6 are inadequate or that the practices and
policies of Sterling or Sterling Savings Bank in establishing such reserves and in accounting for delinquent and classified assets generally fail to comply with applicable accounting or regulatory
requirements or that the OTS, the FDIC, any other regulatory authority or Sterling's independent auditor believes such reserves to be inadequate or inconsistent with the historical loss experience of
Sterling or Sterling Savings Bank. Sterling has previously furnished Empire with a complete list of all extensions of credit or OREO that have been classified by any bank examiner (regulatory or
internal) as other loans specially mentioned, special mention, substandard, doubtful, loss, classified or criticized, credit risk assets, concerned loans or words of similar import. All OREO held by
Sterling or Sterling Savings Bank is being carried net of reserves at fair value.

4.14COMPLIANCE WITH APPLICABLE LAWS.

Sterling
and each Sterling Subsidiary has complied in all material respects with all Laws applicable to it or to the operation of its business. Neither Sterling nor any Sterling
Subsidiary has received any notice of any material alleged or threatened claim, violation of or liability under any such Laws that has not heretofore been cured and for which there is no remaining
liability.

4.15TAX AND ACCOUNTING TREATMENT OF MERGER.

As
of the date of this Agreement, Sterling is not aware of any fact or state of affairs relating to Sterling that could cause the Merger not to be treated as a "reorganization" under
Section 368(a) of the Code.

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4.16STERLING INFORMATION.

The
information relating to Sterling and its Subsidiaries to be provided by Sterling to be contained in the Proxy Statement/Prospectus and the Registration Statement will not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of
the circumstances in which they are made, not misleading. The Proxy Statement/Prospectus (except for such portions thereof that relate only to Empire or its Subsidiaries) will comply in all material
respects with the provisions of the Exchange Act and the rules and regulations thereunder. The Registration Statement will comply in all material respects with the provisions of the Securities Act and
the rules and regulations thereunder.

4.17UNDISCLOSED LIABILITIES.

Except
(i) for those liabilities that are fully reflected or reserved against on the consolidated balance sheet of Sterling included in the Sterling Form 10-Q
for the quarter ended June 30, 2002 or (ii) for liabilities incurred in the ordinary course of business consistent with past practice since December 31, 2001, neither Sterling nor
any of its Subsidiaries has incurred any liability of any nature whatsoever (whether absolute, accrued or contingent or otherwise and whether due or to become due) that, either alone or when combined
with all similar liabilities, has had, or would be reasonably expected to have, a Material Adverse Effect on Sterling.

ARTICLE V  COVENANTS RELATING TO CONDUCT OF BUSINESS

5.1COVENANTS OF EMPIRE.

During
the period from the date of this Agreement and continuing until the Effective Time, except as expressly contemplated or permitted by this Agreement or the Institution Merger
Agreement, or with the prior written consent of Sterling, Empire and Empire Bank shall carry on their respective businesses in the ordinary course consistent with past practices and consistent with
prudent banking practices. Empire will use its reasonable best efforts to (x) preserve its business organization and that of Empire Bank intact, (y) keep available to itself and Sterling
the present services of the employees of Empire and Empire Bank and (z) preserve for itself and Sterling the goodwill of the customers of Empire and Empire Bank and others with whom business
relationships exist. Without limiting the generality of the foregoing, and except as set forth in the Empire Disclosure Schedule or as otherwise contemplated by this Agreement or consented to by
Sterling in writing, Empire shall not, and shall not permit Empire Bank to:



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25

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The
consent of Sterling to any action by Empire or Empire Bank that is not permitted by any of the preceding paragraphs shall be evidenced only by a writing signed by the President or
any Executive or Senior Vice President of Sterling.

5.2COVENANTS OF STERLING.

During
the period from the date of this Agreement and continuing until the Effective Time, except as expressly contemplated or permitted by this Agreement or with Empire's prior written
consent, Sterling shall not, and shall not permit Sterling Savings Bank to:



The
consent of Empire to any action by Sterling or Sterling Savings Bank that is not permitted by any of the preceding paragraphs shall be evidenced only by a writing signed by the
President or any Executive or Senior Vice President of Empire.

5.3MERGER COVENANTS.



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ARTICLE VI  ADDITIONAL AGREEMENTS

6.1REGULATORY MATTERS.



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6.2ACCESS TO INFORMATION.



6.3STOCKHOLDER MEETINGS.

Empire
shall take all steps necessary to duly call, give notice of, convene and hold the Empire Meeting within 40 days after the Registration Statement becomes effective for the
purpose of voting

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upon the approval of this Agreement and the Merger. Management and the Board of Directors of Empire shall recommend to Empire's stockholders approval of this Agreement, including the Merger, and the
transactions contemplated hereby, together with any matters incident thereto; and in each case shall oppose any third party proposal or other action that is inconsistent with this Agreement or the
consummation of the transactions contemplated hereby (subject in each case to compliance with the provisions of Section 5.1(e)). Empire and Sterling shall coordinate and cooperate with respect
to the foregoing matters.

6.4LEGAL CONDITIONS TO MERGER.

Each
of Sterling and Empire shall use their reasonable best efforts (a) to take, or cause to be taken, all actions reasonably necessary, proper or advisable to comply promptly
with all legal requirements which may be imposed on such party with respect to the Merger and, subject to the conditions set forth in Article VII hereof, to consummate the transactions
contemplated by this Agreement and (b) to obtain (and to cooperate with the other party to obtain) any consent, authorization, order or approval of, or any exemption by, any Governmental Entity
and any other third party which is required to be obtained by Empire or Sterling in connection with the Merger and the other transactions contemplated by this Agreement.

6.5STOCK EXCHANGE LISTING.

Sterling
shall use its reasonable best efforts to cause the shares of Sterling Common Stock to be issued in the Merger and pursuant to options referred to herein to be approved for
quotation on NASDAQ (or such other exchange on which the Sterling Common Stock has become listed, or approved for listing) prior to or at the Effective Time.

6.6EMPLOYEES.



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6.7INDEMNIFICATION.



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6.8SUBSEQUENT INTERIM AND ANNUAL FINANCIAL STATEMENTS.

As
soon as reasonably available, but in no event later than the SEC filing deadlines, Sterling will deliver to Empire and Empire will deliver to Sterling their respective Quarterly and
Annual Reports, as filed with the SEC under the Exchange Act. Each party shall deliver to the other any Current Reports on Form 8-K promptly after filing such reports with the SEC.

6.9ADDITIONAL AGREEMENTS.

In
case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, or to vest the Surviving Corporation or the
Surviving Institution with full title to all properties, assets, rights, approvals, immunities and franchises of any of the parties to the Merger, or the constituent parties to the Institution Merger,
as the case may be, the proper officers and directors of each party to this Agreement and Sterling's Subsidiaries and Empire Bank shall take all such necessary action as may be reasonably requested by
Sterling.

6.10ADVICE OF CHANGES.

Sterling
and Empire shall promptly advise the other party of any change or event that, individually or in the aggregate, has had or would be reasonably certain to have a Material Adverse
Effect on it or to cause or constitute a material breach of any of its representations, warranties or covenants contained herein. From time to time prior to the Effective Time, each party will
promptly supplement or amend its disclosure schedule delivered in connection with the execution of this Agreement to reflect any matter which, if existing, occurring or known at the date of this
Agreement, would have been required to be set forth or described in such disclosure schedule or which is necessary to correct any information in such disclosure schedule which has been rendered
inaccurate thereby. No supplement or amendment to such disclosure schedule shall have any effect for the purpose of determining satisfaction of the conditions set forth in Sections 7.2(a) or 7.3(a)
hereof, as the case may be, or the compliance by Empire or Sterling, as the case may be, with the respective covenants set forth in Sections 5.1 and 5.2 hereof.

6.11CURRENT INFORMATION.

During
the period from the date of this Agreement to the Effective Time, Empire will cause one or more of its designated representatives to confer on a regular and frequent basis (not
less than monthly) with representatives of Sterling and to report the general status of the ongoing operations of Empire. Empire will promptly notify Sterling of any material change in the normal
course of business or in the operation of the properties of Empire and of any governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated), or
the institution or the threat of litigation involving Empire, and will keep Sterling fully informed of such events.

6.12EXECUTION AND AUTHORIZATION OF INSTITUTION MERGER AGREEMENT.

Prior
to the Effective Time, (a) Sterling and Empire shall each approve the Institution Merger Agreement as the sole stockholder of Sterling Savings Bank and Empire Bank,
respectively, and (b) Empire Bank shall execute and deliver the Institution Merger Agreement.

6.13CHANGE IN STRUCTURE.

Sterling
may, prior to the time the Proxy Statement/Prospectus is mailed to the Empire stockholders, elect to modify the structure of the transactions contemplated by this Agreement as
noted herein so long as (i) there are no adverse tax consequences to the Empire stockholders as a result of such modification, (ii) the consideration to be paid to the Empire
stockholders under this Agreement is not thereby changed or reduced in amount, and (iii) such modification will not delay or jeopardize receipt of any Requisite Regulatory Approvals. In the
event that the structure of the Merger is modified pursuant to this Section 6.13, the parties agree to modify this Agreement and the various

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exhibits hereto to reflect such revised structure. In such event, Sterling shall prepare appropriate amendments to this Agreement and the exhibits hereto for execution by the parties hereto. Empire
agrees to cooperate fully with Sterling to effect such amendments.

6.14TRANSACTION EXPENSES OF EMPIRE.

As
promptly as practicable after the execution of this Agreement, Empire will provide to Sterling an estimate of the expenses Empire expects to incur in connection with the Merger, and
shall keep Sterling reasonably informed of material changes in such estimate.

6.15AFFILIATE AGREEMENTS.



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ARTICLE VII  CONDITIONS PRECEDENT

7.1CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.

The
respective obligation of each party to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions:



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7.2CONDITIONS TO OBLIGATIONS OF STERLING.

The
obligation of Sterling to effect the Merger is also subject to the satisfaction or waiver by Sterling at or prior to the Effective Time of the following conditions:



7.3CONDITIONS TO OBLIGATIONS OF EMPIRE.

The
obligation of Empire to effect the Merger is also subject to the satisfaction or waiver by Empire at or prior to the Effective Time of the following conditions:



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ARTICLE VIII  TERMINATION AND AMENDMENT

8.1TERMINATION.

This
Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of this Agreement by the stockholders of Empire:



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8.2EFFECT OF TERMINATION.



8.3AMENDMENT.

Subject
to compliance with applicable Law, this Agreement may be amended by the parties hereto, by action taken or authorized by their respective Boards of Directors, at any time before
or after approval of the matters presented in connection with the Merger by the stockholders of Empire; provided, however, that after any approval of the transactions contemplated by this Agreement by

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Empire's stockholders, there may not be, without further approval of such stockholders, any amendment of this Agreement which reduces the amount or changes the form of the consideration to be
delivered to Empire stockholders hereunder other than as contemplated by this Agreement. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties
hereto.

8.4EXTENSION; WAIVER.

At
any time prior to the Effective Time, the parties hereto, by action taken or authorized by their respective Boards of Directors, may, to the extent legally allowed, (a) extend
the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto, and (c) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on behalf of such party, but such extension or waiver or failure to insist on strict compliance with an obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.

ARTICLE IX  GENERAL PROVISIONS

9.1CLOSING.

Subject
to the terms and conditions of this Agreement, the closing of the Merger (the "Closing") will take place at 10:00 a.m. at the offices of Witherspoon, Kelley,
Davenport & Toole, P.S. on December 31, 2002 or such other date, place and time as the parties may agree (the "Closing Date").

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9.2NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.

None
of the representations, warranties, covenants and agreements in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time, except for
those covenants and agreements contained herein or therein which by their terms apply in whole or in part after the Effective Time.

9.3EXPENSES.

All
costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense.

9.4NOTICES.

All
notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, mailed by registered or certified mail (return receipt requested) or
delivered by an express courier (with confirmation) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):







9.5INTERPRETATION.

When
a reference is made in this Agreement to Sections, Exhibits or Schedules, such reference shall be to a Section of or an Exhibit or Schedule to this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the
words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". No provision of this Agreement shall be construed to
require Sterling,

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Empire or any of their respective Subsidiaries or affiliates to take any action that would violate any applicable Law, rule or regulation.

9.6COUNTERPARTS.

This
Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the
parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.

9.7ENTIRE AGREEMENT.

This
Agreement (including the disclosure schedules, documents and the instruments referred to herein) constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the subject matter hereof, other than the Confidentiality Agreement, the Institution Merger Agreement and the Certificate of
Merger.

9.8GOVERNING LAW.

This
Agreement shall be governed and construed in accordance with the laws of the State of Washington, without regard to any applicable conflicts of law rules.

9.9ENFORCEMENT OF AGREEMENT.

The
parties hereto agree that irreparable damage would occur in the event that the provisions of this Agreement were not performed in accordance with its specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an Injunction or Injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions thereof
in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity.

9.10SEVERABILITY.

Any
term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this
Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable.

9.11PUBLICITY.

Except
as otherwise required by Law or the rules of NASDAQ (or such other exchange on which the Sterling Common Stock may become listed), so long as this Agreement is in effect, neither
Sterling nor Empire shall, or shall permit any of Sterling's Subsidiaries or Empire Bank to, issue or cause the publication of any press release or other public announcement with respect to, or
otherwise make any public statement concerning, the transactions contemplated by this Agreement or the Institution Merger Agreement without the consent of the other party, which consent shall not be
unreasonably withheld.

9.12ASSIGNMENT; LIMITATION OF BENEFITS.

Neither
this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of Law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective
successors and assigns. Except as otherwise specifically provided in Section 6.7 hereof, this Agreement (including the documents and instruments referred to herein) is not intended to confer
upon any person other than

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the parties hereto any rights or remedies hereunder, and the covenants, undertakings and agreements set out herein shall be solely for the benefit of, and shall be enforceable only by, the parties
hereto and their permitted assigns.

IN
WITNESS WHEREOF, Sterling and Empire have caused this Agreement to be executed and delivered by their respective officers thereunto duly authorized as of the date first above written.

| |  |                                |  |                                                              
| |  | ------------------------------ |  | -------------------------------------------------------------
| |  | STERLING FINANCIAL CORPORATION
| |  |                                |  |                                                              
| |  | By                             |  | /s/HAROLD B. GILKEY                                          
| |  |                                |  | HAROLD B. GILKEY
    Chairman and Chief Executive Officer    
| |  |                                |  |                                                              
| |  | EMPIRE FEDERAL BANCORP, INC.  
| |  | By                             |  | /s/WILLIAM H. RUEGAMER                                       
| |  |                                |  | WILLIAM H. RUEGAMER
    President and Chief Executive Officer

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EXHIBIT A  INSTITUTION MERGER AGREEMENT  BETWEEN  STERLING SAVINGS BANK  AND  EMPIRE BANK

THIS INSTITUTION MERGER AGREEMENT (the "Plan") is dated as of the            day
of                        , 2002, by and between Sterling Savings Bank, a Washington
State-chartered savings and loan association ("Sterling Savings Bank"), and Empire Bank, a federally chartered savings and loan association ("Empire Bank").

WHEREAS,
pursuant to the Agreement and Plan of Merger (the "Agreement") dated as of                        , 2002, by and among Sterling
Financial Corporation, a Washington corporation and 100%
shareholder of Sterling Savings Bank ("Sterling"), and Empire Federal Bancorp, Inc., a Delaware corporation and 100% shareholder of Empire Bank ("Empire"), Sterling and Empire will cause Empire
Bank to merge with and into Sterling Savings Bank (the "Merger");

NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Sterling Savings Bank and Empire Bank hereby agree that, subject to the
terms
and conditions hereinafter set forth, and in accordance with all applicable Laws and regulations, Empire Bank shall be merged with and into Sterling Savings Bank on the Effective Date (as hereinafter
defined) (the "Consolidation"). The parties hereto do hereby agree and covenant as follows:

1.CONDITIONS OF APPROVAL.

The
Consolidation shall not become effective unless and until all terms and conditions to such effectiveness contained in the Agreement, which conditions are incorporated herein by
reference, shall have been satisfied or waived and the Merger shall have become effective.

2.IDENTITY OF RESULTING INSTITUTION.

The
resulting institution as a result of the Consolidation shall be Sterling Savings Bank.

3.ARTICLES OF ASSOCIATION, BYLAWS AND FACILITIES OF CONTINUING INSTITUTION.

On
the Effective Date and until thereafter amended in accordance with Law, the Charter of Sterling Savings Bank shall be the Charter of Empire Bank as in effect on the Effective Date.
Until altered, amended or repealed as therein provided and in the Charter of Sterling Savings Bank, the Bylaws of Sterling Savings Bank shall be the Bylaws of Empire Bank as in effect on the Effective
Date. Unless and until changed by the Board of Directors of Sterling Savings Bank, the main office of Sterling Savings Bank shall be the main office of Empire Bank as of the Effective Date. The
established offices and facilities of Empire Bank immediately prior to the Consolidation shall become established offices and facilities of Sterling Savings Bank. Until thereafter changed in
accordance with the Law or the Charter or Bylaws of Sterling Savings Bank, all corporate acts, plans, policies, contracts, approvals and authorizations of Empire Bank and its respective shareholders,
boards of directors, committees elected or appointed thereby, officers and agents, which were valid and effective immediately prior to the Effective Date, shall be taken for all purposes as the acts,
plans, policies, contracts, approvals and authorizations of Sterling Savings Bank and shall be as effective and binding thereon as the same were with respect to Empire Bank as of the Effective Date.

4.EFFECT OF CONSOLIDATION.

On
the Effective Date, the corporate existence of Empire Bank shall, as provided by Law, be consolidated into and continued in Sterling Savings Bank, and Sterling Savings Bank shall be
deemed

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to be a continuation in entity and identity of Empire Bank. All rights, franchises and interests of Empire Bank in and to any type of property and choses in action shall be transferred to and vested
in Sterling Savings Bank by virtue of such Consolidation without any deed or other transfer. Sterling Savings Bank, without any order or other action on the part of any court or otherwise, shall hold
and enjoy all rights of property, franchises and interest, including appointments, designations and nominations, and all other rights and interests as trustee, executor, administrator, transfer agent
or registrar of stocks and bonds, guardian of estates, assignee, receiver and in every other fiduciary capacity, in the same manner and to the same extent as such rights, franchises, and interests
were held or enjoyed by Empire Bank as of the Effective Date.

5.LIABILITIES OF CONTINUING INSTITUTION.

On
the Effective Date of the Consolidation, Sterling Savings Bank shall be liable for all liabilities of Empire Bank. All deposits, debts, liabilities, obligations and contracts of
Empire Bank, matured or unmatured, whether accrued, absolute, contingent or otherwise, and whether or not reflected or reversed against on balance sheets, books of account, or records of Empire Bank
shall be those of Sterling Savings Bank and shall not be released or impaired by the Consolidation. All rights of creditors and other obligees and all liens on property of Sterling Savings Bank shall
be preserved unimpaired subsequent to the Consolidation.

6.EFFECTIVE DATE.

The
Consolidation shall become effective ("Effective Date") immediately following the Effective Time of the Merger, as contemplated in the Agreement. Closing shall take place on or prior
to the Effective Date following the receipt of all necessary regulatory and governmental approvals and consents and the expiration of all statutory waiting periods in respect thereof and the
satisfaction or waiver of the conditions to the consummation of the Consolidation specified in the Agreement.

7.CANCELLATION OF STOCK.

On
the Effective Date, all of the outstanding shares of capital stock of Empire Bank, all of which shares shall be owned by Sterling, shall be canceled and shall not be deemed to be
authorized, issued or outstanding for any purpose, and no cash, property, rights or securities shall be delivered with respect to said shares.

8.CONDITIONS PRECEDENT.

The
respective obligations of each party under this Plan shall be subject to and contingent upon the satisfaction, or waiver by the party permitted to do so, of the following:



9.TERMINATION.

This
Plan shall be terminated upon the termination of the Agreement in accordance with Article VIII thereof; provided, that any such termination of this Plan shall not relieve any
party hereto from liability on account of a breach of such party of any of the terms hereof or thereof.

10.AMENDMENTS.

To
the extent permitted by Law, this Plan may be amended by a subsequent writing signed by all of the parties hereto upon the approval of the Board of Directors of each of the parties.

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11.SUCCESSORS.

This
Plan shall be binding on the successors of Empire Bank.

IN
WITNESS WHEREOF, Sterling Savings Bank and Empire Bank have caused this Plan to be executed by their duly authorized officers as of the date first above written.

| |  |                       |  | 
| |  | --------------------- |  | 
| |  |                       |  | 
| |  | STERLING SAVINGS BANK
| |  | By:                   |  | 
| |  |                       |  | 
| |  | Title:                |  | 
| |  |                       |  | 
| |  |                       |  | 
| |  | EMPIRE BANK          
| |  | By:                   |  | 
| |  |                       |  | 
| |  | Title:                |  | 
| |  |                       |  | 

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EXHIBIT B  EMPIRE FEDERAL BANCORP, INC.  DISCLOSURE SCHEDULE

This Disclosure Schedule is provided by Empire Federal Bancorp, Inc. as contemplated by the Agreement and Plan of Merger dated as of September 19,
2002 (the "Agreement") by and between Sterling Financial Corporation and Empire Federal Bancorp, Inc. Capitalized terms used in this Disclosure Schedule unless otherwise defined herein, are
accorded the meaning given such terms in the Agreement. Matters disclosed on this Schedule under a caption or heading are disclosed for all purposes and sections of the Agreement. Captions or headings
on this Disclosure Schedule are provided for convenience only and are not intended to limit matters disclosed.



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There
are no plan documents or summary plan descriptions available for the Life and Disability Income Insurance Plan, or the Voluntary Dime plans.





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Certain
of the foregoing agreements and plans contain provisions requiring vesting of certain rights or benefits or payment of certain compensation upon a change of control. Reference is
made to those documents for further information.



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Certain
artwork located at the Livingston main banking office are owned by Director Bev Harris or related persons. Displayed under an oral agreement between Empire Bank and Director
Harris.

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EXHIBIT C(1)  CERTIFICATE OF MERGER  OF  EMPIRE FEDERAL BANCORP, INC.  INTO  STERLING FINANCIAL CORPORATION(Under Section 252 of the General  Corporation Law
of the State of Delaware)

Sterling
Financial Corporation hereby certifies that:





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IN
WITNESS WHEREOF, Sterling has caused this Certificate of Merger to be signed by              , its Chief Executive Officer, and attested
by              , its Secretary, on the
    day of September, 2002.

| |  | STERLING FINANCIAL CORPORATION
| |  | ------------------------------
| |  | By:                           
| |  | Title:                        

|        |  |           | 
|------- |  | --------- | 
|ATTEST: | 
|By:     |  | Secretary | 

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EXHIBIT C(2)  ARTICLES OF MERGER  of  STERLING FINANCIAL CORPORATION  (A Washington corporation)

The undersigned corporation, in accordance with Chapter 23B.11 of the Revised Code of Washington, hereby submits the following Articles of Merger for filing for
the purpose of merging Empire Federal Bancorp, Inc., a Delaware corporation, into Sterling Financial Corporation, a Washington corporation.

I.

The plan of merger is attached hereto as exhibit "A" and incorporated by reference.

II.

Approval of the plan of merger by the shareholders of Sterling Financial Corporation was not required. Approval of the plan of merger by the shareholders of
Empire Federal Bancorp, Inc. was obtained in accordance with applicable Washington and Delaware law.

|DATED: September     , 2002. |  |                                | 
|---------------------------- |  | ------------------------------ | 
|                             |  |                                | 
|                             |  | STERLING FINANCIAL CORPORATION
|                             |  |                                | 
|                             |  | By:                            | 
|                             |  | Title:                         | 

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EXHIBIT D  [FORM OF AGREEMENT OF EMPIRE AFFILIATES]

,
2002

EMPIRE
FEDERAL BANCORP, INC.
123 South Main Street
Livingston, Montana 59047
Attn: William H. Ruegamer
President & Chief Executive Officer

STERLING
FINANCIAL CORPORATION
N. 111 Wall Street
Spokane, WA 99201
Attn: Daniel G. Byrne
Senior Vice President-Finance

Ladies
and Gentlemen:

I
have been advised that I may be deemed to be, but do not admit that I am, an "affiliate" of Empire Federal Bancorp, Inc., a Delaware corporation ("Empire"), as that term is
defined in Rule 145 promulgated by the Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "Securities Act"), and/or SEC Accounting Series Releases
130 and 135. I understand that pursuant to the terms of the Agreement and Plan of Merger, dated as of September    , 2002 (the "Merger Agreement"), by and between Empire and Sterling
Financial Corporation, a Washington corporation ("Sterling"), Empire plans to merge with and into Sterling (the "Merger").

I
further understand that as a result of the Merger, I may receive shares of common stock, par value $1.00 per share, of Sterling ("Sterling Stock") in exchange for shares of common
stock, par value $.01 per share, of Empire ("Empire Stock").

I
have carefully read this letter and reviewed the Merger Agreement and discussed the requirements and other applicable limitations upon my ability to sell, transfer, or otherwise
dispose of Sterling Stock and Empire Stock, to the extent I felt necessary, with my counsel or counsel for Empire.

I
represent, warrant and covenant with and to Sterling that in the event I receive any Sterling Stock as a result of the Merger:

1.    I
shall not make any sale, transfer, or other disposition of such Sterling Stock unless (i) such sale, transfer or other disposition has been registered under the
Securities Act, (ii) such sale, transfer or other disposition is made in conformity with the provisions of Rule 145 under the Securities Act (as such rule may be amended from time to
time), or (iii) in the opinion of counsel in form and substance reasonably satisfactory to Sterling, such sale, transfer or other disposition will not violate or is otherwise exempt from
registration under the Securities Act.

2.    I
understand that Sterling is under no obligation to register the sale, transfer or other disposition of shares of Sterling Stock held by me or on my behalf under the
Securities Act or to take any other action necessary in order to make compliance with an exemption from such registration available.

3.    I
understand that stop transfer instructions will be given to Sterling's transfer agent with respect to shares of Sterling Stock issued to me as a result of the Merger
and that there will be placed on the certificates for such shares, or any substitutions therefor, a legend stating in substance:



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4.    I
understand that, unless a transfer by me of the Sterling Stock issued to me as a result of the Merger has been registered under the Securities Act or such transfer is
made in conformity with the provisions of Rule 145(d) under the Securities Act, Sterling reserves the right, in its sole discretion, to place the following legend on the certificates issued to
my transferee:



It
is understood and agreed that the legends set forth in paragraphs (3) and (4) above shall be removed by delivery of substitute certificates without such legends if I
shall have delivered to Sterling (i) an opinion of counsel in form and substance reasonably satisfactory to Sterling, to the effect that such legend is not required for purposes of the Act, or
(ii) evidence or representations satisfactory to Sterling that the Sterling Stock represented by such certificates is being or has been sold in conformity with the provisions of
Rule 145(d).

I
further represent, warrant and covenant with and to Sterling that I will not sell, transfer or otherwise dispose of, or reduce my risk relative to, any shares of Empire Stock or
Sterling Stock (whether or not acquired by me in the Merger) during the period commencing 30 days prior to effective date of the Merger and ending at such time as Sterling notifies me that
results covering at least 30 days of combined operations of Empire and Sterling after the Merger have been published by Sterling. I understand that Sterling is not obligated to publish such
combined financial results except in accordance with its normal financial reporting practice.

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I
further understand and agree that this letter agreement shall apply to all shares of Empire Stock and Sterling Stock that I am deemed to beneficially own pursuant to applicable federal
securities law.

| |  | Very truly yours,
| |  | -----------------
| |  | By               

|                                                |  | 
|----------------------------------------------- |  | 
|Accepted this            day of September, 2002 | 
|                                                |  | 
|EMPIRE FEDERAL BANCORP, INC.                    | 
|                                                |  | 
|                                                |  | 
|By:                                             |  | 
|Title:                                          |  | 
|STERLING FINANCIAL CORPORATION                  | 
|By:                                             |  | 
|Title:                                          |  | 

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EXHIBIT E  STOCKHOLDERS AGREEMENT

This Stockholders Agreement (the "Stockholders Agreement"), dated as of September    , 2002, is made by each of the Persons listed on the signature
pages attached hereto (individually, a "Stockholder", and collectively the "Stockholders"), and Sterling Financial Corporation ("Sterling").

RECITALS

A.    Sterling
and Empire Federal Bancorp, Inc., a Delaware corporation ("Empire") have entered into an Agreement and Plan of Merger as of September    , 2002
(the "Merger Agreement"). The Merger Agreement is hereby incorporated by reference herein. All capitalized terms used but not otherwise defined herein shall have the meanings given to such terms in
the Merger Agreement.

B.    Each
Stockholder owns shares of Empire Common Stock and/or Options.

C.    In
connection with the Merger Agreement, in furtherance of its purposes and as an inducement to Sterling to enter into the Merger Agreement, the Stockholders desire to
enter into and perform the obligations under this Stockholders Agreement.

NOW,
THEREFORE, in consideration of the foregoing and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

1.REPRESENTATIONS AND WARRANTIES.

Each
Stockholder hereby represents and warrants that from the date hereof until the termination of this Stockholders Agreement pursuant to Section 7 hereof;



2.DEFINITIONS.

For
purposes of this Stockholders Agreement, the following terms shall have the following meanings:



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3.SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.

All
representations, warranties and covenants contained herein shall survive the execution of this Stockholders Agreement and the consummation of the transactions contemplated hereby.

4.SUCCESSORS AND ASSIGNS.

This
Stockholders Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective heirs, personal representatives, successors, assigns and
Affiliates, but shall not be assignable by any Stockholder without the prior written consent of Sterling.

5.AMENDMENT

This
Stockholders Agreement may not be amended except by an instrument in writing duly signed on behalf of each of the parties hereto.

6.GOVERNING LAW.

This
Stockholders Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Washington, without giving effect to the principles of conflict
of laws thereof. No provision of this Stockholders Agreement shall be construed to require Sterling, Empire or any of their respective Subsidiaries or affiliates or any Stockholder to take any action
that would violate any applicable Laws.

7.TERMINATION.

This
Stockholders Agreement shall be terminated and of no further force and effect if the Merger is terminated in accordance with its terms, provided however that no Stockholder shall be
relieved or released from any liability or damages arising out of a willful breach of this Stockholders Agreement.

8.ENTIRE AGREEMENT.

This
Stockholders Agreement constitutes the entire agreement and supersedes all other and prior agreements and understandings, both written and oral, among the parties hereto other than
the Stockholders Agreement and the agreements referred to therein.

9.EXPENSES.

Each
party hereto shall pay its own expenses incident to preparing for, entering into and carrying out this Stockholders Agreement and the consummation of the transactions contemplated
hereby.

10.ENFORCEMENT OF AGREEMENT

The
parties hereto agree that irreparable damage would occur in the event that the provisions of this Stockholders Agreement were not performed in accordance with its specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be entitled to an Injunction or Injunctions to prevent breaches of this Stockholders Agreement and to enforce specifically the
terms and provisions thereof as provided in Section 8 hereof, this being in addition to any other remedy to which they are entitled at law or in equity.

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11.SEVERABILITY

Any
term or provision of this Stockholders Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity
or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Stockholders Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Stockholders Agreement in any other jurisdiction. If any provision of this Stockholders Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.

12.COUNTERPARTS.

This
Stockholders Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument.

IN
WITNESS WHEREOF, the parties hereto have caused this Stockholders Agreement to be executed as of the date first written above.

| |  | STERLING FINANCIAL CORPORATION                       
| |  | -----------------------------------------------------
| |  | By:                                                  
| |  | Title:                                               
| |  | EMPIRE STOCKHOLDERS:                                 
| |  | WILLIAM H. RUEGAMER, Individually and as Joint Tenant
| |  | BEVERLY D. HARRIS, Individually and as Joint Tenant  
| |  | KENNETH P. COCHRAN, Individually and as Joint Tenant 
| |  | EDWIN H. DOIG, Individually and as Joint Tenant      

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| |  | WALTER R. SALES, Individually and as Joint Tenant       
| |  | --------------------------------------------------------
| |  | BURTON "TONY" WASTCOAT, Individually and as Joint Tenant
| |  | LEWIS P. ZIMMER, Individually and as Joint Tenant       

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