##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549



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FORM 10 - Q



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|x | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended March 31, 2004



| ̈ | 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: 0-20750



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STERLING BANCSHARES, INC.

(Exact name of registrant as specified in its
charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Texas                                                          |  | 74-2175590                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                               | 
|2550 North Loop West, Suite 600 Houston, Texas                 |  | 77092                                  
|(Address of principal executive office)                        |  | (Zip Code)                             



713-466-8300

(Registrants telephone number, including area code)



---



Indicate by
check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 (Act) during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act).    Yes   x    No ̈



As of March 31, 2004, there were outstanding 44,757,214 shares of common stock, par value $1.00 per share, of the registrant.



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##### Table of Contents

STERLING BANCSHARES, INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2004

TABLE OF CONTENTS



|           |  |                                                                                                    |  |   
|---------- |  | -------------------------------------------------------------------------------------------------- |  | --
|PART I.    |  | FINANCIAL INFORMATION                                                                              |  |   
|           |  |                                                                                                   
|Item 1.    |  | Financial Statements                                                                               |  |   
|           |  |                                                                                                   
|           |  | Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003                             |  | 1 
|           |  |                                                                                                   
|           |  | Consolidated Statements of Income for the Three Months Ended March 31, 2004 and 2003               |  | 2 
|           |  |                                                                                                   
|           |  | Consolidated Statements of Shareholders Equity for the Three Months Ended March 31, 2004 and 2003 |  | 3 
|           |  |                                                                                                   
|           |  | Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003           |  | 4 
|           |  |                                                                                                   
|           |  | Notes to Consolidated Financial Statements                                                         |  | 5 
|           |  |                                                                                                   
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations              |  | 9 
|           |  |                                                                                                   
|Item 3.    |  | Quantitative and Qualitative Disclosures about Market Risk                                         |  | 16
|           |  |                                                                                                   
|Item 4.    |  | Controls and Procedures                                                                            |  | 17
|           |  |                                                                                                   
|PART II.   |  | OTHER INFORMATION                                                                                  |  |   
|           |  |                                                                                                   
|Item 1.    |  | Legal Proceedings                                                                                  |  | 17
|           |  |                                                                                                   
|Item 2.    |  | Changes in Securities and Use of Proceeds                                                          |  | 17
|           |  |                                                                                                   
|Item 3.    |  | Defaults Upon Senior Securities                                                                    |  | 17
|           |  |                                                                                                   
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                |  | 17
|           |  |                                                                                                   
|Item 5.    |  | Other Information                                                                                  |  | 17
|           |  |                                                                                                   
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                   |  | 17
|           | 
|SIGNATURES |  | 18                                                                                                



(i)



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##### Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS



STERLING BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands, except
share amounts)



|                                                                                                                                                                  |  |               |           |   |                  |   |           |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                                  |  | March 31,2004 |           |   | December 31,2003 |  
|ASSETS                                                                                                                                                            |  |               |           |   |                  |   |           |  
|Cash and cash equivalents                                                                                                                                         |  | $             | 118,240   |   |                  | $ | 136,764   |  
|Interest-bearing deposits in financial institutions                                                                                                               |  |               | 1,324     |   |                  |   | 1,358     |  
|Trading assets                                                                                                                                                    |  |               | 137,623   |   |                  |   | 172,825   |  
|Available-for-sale securities, at fair value                                                                                                                      |  |               | 542,636   |   |                  |   | 522,936   |  
|Held-to-maturity securities, at amortized cost                                                                                                                    |  |               | 39,053    |   |                  |   | 42,157    |  
|Loans held for sale                                                                                                                                               |  |               | 10,730    |   |                  |   | 26,308    |  
|Loans held for investment                                                                                                                                         |  |               | 2,137,245 |   |                  |   | 2,130,731 |  
|                                                                                                                                                                  |  |               |           |   |                  |   |           |  
|Total loans                                                                                                                                                       |  |               | 2,147,975 |   |                  |   | 2,157,039 |  
|Allowance for credit losses                                                                                                                                       |  |               | (26,609   | ) |                  |   | (30,722   | )
|                                                                                                                                                                  |  |               |           |   |                  |   |           |  
|Loans, net                                                                                                                                                        |  |               | 2,121,366 |   |                  |   | 2,126,317 |  
|Premises and equipment                                                                                                                                            |  |               | 48,572    |   |                  |   | 48,541    |  
|Real estate acquired by foreclosure                                                                                                                               |  |               | 1,497     |   |                  |   | 2,124     |  
|Goodwill                                                                                                                                                          |  |               | 62,480    |   |                  |   | 62,933    |  
|Core deposit intangibles, net                                                                                                                                     |  |               | 2,202     |   |                  |   | 2,326     |  
|Accrued interest receivable                                                                                                                                       |  |               | 12,203    |   |                  |   | 12,046    |  
|Other assets                                                                                                                                                      |  |               | 76,089    |   |                  |   | 76,553    |  
|                                                                                                                                                                  |  |               |           |   |                  |   |           |  
|TOTAL ASSETS                                                                                                                                                      |  | $             | 3,163,285 |   |                  | $ | 3,206,880 |  
|                                                                                                                                                                  |  |               |           |   |                  |   |           |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                              |  |               |           |   |                  |   |           |  
|LIABILITIES:                                                                                                                                                      |  |               |           |   |                  |   |           |  
|Deposits:                                                                                                                                                         |  |               |           |   |                  |   |           |  
|Noninterest-bearing demand                                                                                                                                        |  | $             | 862,729   |   |                  | $ | 834,313   |  
|Interest-bearing demand                                                                                                                                           |  |               | 911,983   |   |                  |   | 929,577   |  
|Certificates and other time deposits                                                                                                                              |  |               | 731,640   |   |                  |   | 654,479   |  
|                                                                                                                                                                  |  |               |           |   |                  |   |           |  
|Total deposits                                                                                                                                                    |  |               | 2,506,352 |   |                  |   | 2,418,369 |  
|Other borrowed funds                                                                                                                                              |  |               | 201,950   |   |                  |   | 324,160   |  
|Subordinated debt                                                                                                                                                 |  |               | 48,319    |   |                  |   | 46,533    |  
|Junior subordinated debt                                                                                                                                          |  |               | 82,475    |   |                  |   | 82,475    |  
|Accrued interest payable and other liabilities                                                                                                                    |  |               | 24,329    |   |                  |   | 42,747    |  
|                                                                                                                                                                  |  |               |           |   |                  |   |           |  
|Total liabilities                                                                                                                                                 |  |               | 2,863,425 |   |                  |   | 2,914,284 |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                     |  |               |          |   |                  |   |          |  
|                                                                                                                                                                  |  |              
|SHAREHOLDERS EQUITY:                                                                                                                                             |  |               |           |   |                  |   |           |  
|Convertible preferred stock, $1 par value, 1,000,000 shares authorized, 20,000 issued and outstanding                                                             |  |               | 20        |   |                  |   | 20        |  
|Common stock, $1 par value, 100,000,000 shares authorized, 44,756,314 and 44,642,109 issued and outstanding at March 31, 2004 and December 31,
2003, respectively |  |               | 44,756    |   |                  |   | 44,642    |  
|Capital surplus                                                                                                                                                   |  |               | 50,036    |   |                  |   | 48,953    |  
|Retained earnings                                                                                                                                                 |  |               | 200,818   |   |                  |   | 197,819   |  
|Accumulated other comprehensive incomenet unrealized gain on available-for-sale securities, net of tax                                                           |  |               | 4,230     |   |                  |   | 1,162     |  
|                                                                                                                                                                  |  |               |           |   |                  |   |           |  
|Total shareholders equity                                                                                                                                        |  |               | 299,860   |   |                  |   | 292,596   |  
|                                                                                                                                                                  |  |               |           |   |                  |   |           |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                        |  | $             | 3,163,285 |   |                  | $ | 3,206,880 |  
|                                                                                                                                                                  |  |               |           |   |                  |   |           |  



See Notes to Consolidated Financial
Statements.



1



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##### Table of Contents

STERLING BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(In thousands, except
per share amounts)



|                                                        |  |                              |        |      |   |       
|------------------------------------------------------- |  | ---------------------------- | ------ | ---- | - | ------
|                                                        |  | Three Months Ended March 31,
|                                                        |  | 2004                         |        | 2003
|Interest income:                                        |  |                              |        |      |   |       
|Loans, including fees                                   |  | $                            | 33,234 |      | $ | 40,024
|Securities:                                             |  |                              |        |      |   |       
|Taxable                                                 |  |                              | 5,280  |      |   | 2,724 
|Tax-exempt                                              |  |                              | 455    |      |   | 649   
|Trading assets                                          |  |                              | 1,202  |      |   | 862   
|Federal funds sold                                      |  |                              | 20     |      |   | 47    
|Deposits in financial institutions                      |  |                              | 15     |      |   | 19    
|                                                        |  |                              |        |      |   |       
|Total interest income                                   |  |                              | 40,206 |      |   | 44,325
|                                                        |  |                              |        |      |   |       
|Interest expense:                                       |  |                              |        |      |   |       
|Demand and savings deposits                             |  |                              | 953    |      |   | 1,461 
|Certificates and other time deposits                    |  |                              | 3,365  |      |   | 4,226 
|Other borrowed funds                                    |  |                              | 681    |      |   | 1,348 
|Notes payable                                           |  |                              |       |      |   | 165   
|Subordinated debt                                       |  |                              | 595    |      |   |      
|Junior subordinated debt                                |  |                              | 1,591  |      |   | 1,600 
|                                                        |  |                              |        |      |   |       
|Total interest expense                                  |  |                              | 7,185  |      |   | 8,800 
|                                                        |  |                              |        |      |   |       
|Net interest income                                     |  |                              | 33,021 |      |   | 35,525
|Provision for credit losses                             |  |                              | 3,500  |      |   | 4,450 
|                                                        |  |                              |        |      |   |       
|Net interest income after provision for credit losses   |  |                              | 29,521 |      |   | 31,075
|                                                        |  |                              |        |      |   |       
|Noninterest income:                                     |  |                              |        |      |   |       
|Customer service fees                                   |  |                              | 3,921  |      |   | 4,314 
|Net gain on the sale of banking office                  |  |                              |       |      |   | 3,382 
|Net gain on the sale of securities                      |  |                              | 143    |      |   | 374   
|Net gain on the sale of trading assets                  |  |                              | 348    |      |   | 347   
|Other                                                   |  |                              | 2,805  |      |   | 2,859 
|                                                        |  |                              |        |      |   |       
|Total noninterest income                                |  |                              | 7,217  |      |   | 11,276
|                                                        |  |                              |        |      |   |       
|Noninterest expense:                                    |  |                              |        |      |   |       
|Salaries and employee benefits                          |  |                              | 17,687 |      |   | 17,251
|Occupancy expense                                       |  |                              | 3,597  |      |   | 3,752 
|Technology                                              |  |                              | 1,388  |      |   | 1,200 
|Professional fees                                       |  |                              | 1,062  |      |   | 694   
|Postage and delivery charges                            |  |                              | 535    |      |   | 597   
|Supplies                                                |  |                              | 340    |      |   | 354   
|Core deposit intangible amortization                    |  |                              | 124    |      |   | 114   
|Other                                                   |  |                              | 4,329  |      |   | 4,129 
|                                                        |  |                              |        |      |   |       
|Total noninterest expense                               |  |                              | 29,062 |      |   | 28,091
|                                                        |  |                              |        |      |   |       
|Income from continuing operations before income taxes   |  |                              | 7,676  |      |   | 14,260
|Provision for income taxes                              |  |                              | 2,442  |      |   | 4,719 
|                                                        |  |                              |        |      |   |       
|Income from continuing operations                       |  |                              | 5,234  |      |   | 9,541 
|Income from discontinued operations before income taxes |  |                              |       |      |   | 2,827 
|Provision for income taxes                              |  |                              |       |      |   | 1,131 
|                                                        |  |                              |        |      |   |       
|Income from discontinued operations                     |  |                              |       |      |   | 1,696 
|                                                        |  |                              |        |      |   |       
|Net income                                              |  | $                            | 5,234  |      | $ | 11,237
|                                                        |  |                              |        |      |   |       
|Earnings per share from continuing operations:          |  |                              |        |      |   |       
|Basic                                                   |  | $                            | 0.12   |      | $ | 0.22  
|                                                        |  |                              |        |      |   |       
|Diluted                                                 |  | $                            | 0.12   |      | $ | 0.21  
|                                                        |  |                              |        |      |   |       
|Earnings per share:                                     |  |                              |        |      |   |       
|Basic                                                   |  | $                            | 0.12   |      | $ | 0.26  
|                                                        |  |                              |        |      |   |       
|Diluted                                                 |  | $                            | 0.12   |      | $ | 0.25  
|                                                        |  |                              |        |      |   |       



See Notes to Consolidated Financial
Statements.



2



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##### Table of Contents

STERLING BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

(UNAUDITED)

(In
thousands)



|                                                                           |  |                            |  |              |    |                |        |                  |   |        |                                                                                                       |   |        |       |   |         |   |  |   |       |   |  |   |         |  
|-------------------------------------------------------------------------- |  | -------------------------- |  | ------------ | -- | -------------- | ------ | ---------------- | - | ------ | ----------------------------------------------------------------------------------------------------- | - | ------ | ----- | - | ------- | - |  | - | ----- | - |  | - | ------- | -
|                                                                           |  | ConvertiblePreferred Stock |  | Common Stock |    | CapitalSurplus |        | RetainedEarnings |   |        | Accumulated OtherComprehensive Income Net Unrealized Gain onAvailable-for-SaleSecurities, Net of Tax |   |        | Total |  
|                                                                           |  | Shares                     |  | Amount       |    | Shares         |        | Amount           |   |        |                                                                                                       |  
|BALANCE AT JANUARY 1, 2003                                                 |  | 59                         |  | $            | 59 |                | 43,983 |                  | $ | 43,983 |                                                                                                       | $ | 44,633 |       | $ | 156,664 |   |  | $ | 3,988 |   |  | $ | 249,327 |  
|Net income                                                                 |  |                            |  |              |    |                |        |                  |   |        |                                                                                                       |   |        |       |   | 11,237  |   |  |   |       |   |  |   | 11,237  |  
|Net change in unrealized gain on available-for-sale securities, net of tax |  |                            |  |              |    |                |        |                  |   |        |                                                                                                       |   |        |       |   |         |   |  |   | (282  | ) |  |   | (282    | )
|                                                                           |  |                            |  |              |    |                |        |                  |   |        |                                                                                                       |   |        |       |   |         |   |  |   |       |   |  |   |         |  
|Total comprehensive income                                                 |  |                            |  |              |    |                |        |                  |   |        |                                                                                                       |   |        |       |   |         |   |  |   |       |   |  |   | 260,282 |  
|                                                                           |  |                            |  |              |    |                |        |                  |   |        |                                                                                                       |   |        |       |   |         |   |  |   |       |   |  |   |         |  
|Issuance of common stock                                                   |  |                            |  |              |    |                | 10     |                  |   | 10     |                                                                                                       |   | 84     |       |   |         |   |  |   |       |   |  |   | 94      |  
|Cash dividends paid                                                        |  |                            |  |              |    |                |        |                  |   |        |                                                                                                       |   |        |       |   | (1,982  | ) |  |   |       |   |  |   | (1,982  | )
|                                                                           |  |                            |  |              |    |                |        |                  |   |        |                                                                                                       |   |        |       |   |         |   |  |   |       |   |  |   |         |  
|BALANCE AT MARCH 31, 2003                                                  |  | 59                         |  | $            | 59 |                | 43,993 |                  | $ | 43,993 |                                                                                                       | $ | 44,717 |       | $ | 165,919 |   |  | $ | 3,706 |   |  | $ | 258,394 |  
|                                                                           |  |                            |  |              |    |                |        |                  |   |        |                                                                                                       |   |        |       |   |         |   |  |   |       |   |  |   |         |  
|BALANCE AT JANUARY 1, 2004                                                 |  | 20                         |  |              | 20 |                | 44,642 |                  |   | 44,642 |                                                                                                       |   | 48,953 |       |   | 197,819 |   |  |   | 1,162 |   |  |   | 292,596 |  
|Net income                                                                 |  |                            |  |              |    |                |        |                  |   |        |                                                                                                       |   |        |       |   | 5,234   |   |  |   |       |   |  |   | 5,234   |  
|Net change in unrealized gain on available-for-sale securities, net of tax |  |                            |  |              |    |                |        |                  |   |        |                                                                                                       |   |        |       |   |         |   |  |   | 3,068 |   |  |   | 3,068   |  
|                                                                           |  |                            |  |              |    |                |        |                  |   |        |                                                                                                       |   |        |       |   |         |   |  |   |       |   |  |   |         |  
|Total comprehensive income                                                 |  |                            |  |              |    |                |        |                  |   |        |                                                                                                       |   |        |       |   |         |   |  |   |       |   |  |   | 300,898 |  
|                                                                           |  |                            |  |              |    |                |        |                  |   |        |                                                                                                       |   |        |       |   |         |   |  |   |       |   |  |   |         |  
|Issuance of common stock                                                   |  |                            |  |              |    |                | 114    |                  |   | 114    |                                                                                                       |   | 1,083  |       |   |         |   |  |   |       |   |  |   | 1,197   |  
|Cash dividends paid                                                        |  |                            |  |              |    |                |        |                  |   |        |                                                                                                       |   |        |       |   | (2,235  | ) |  |   |       |   |  |   | (2,235  | )
|                                                                           |  |                            |  |              |    |                |        |                  |   |        |                                                                                                       |   |        |       |   |         |   |  |   |       |   |  |   |         |  
|BALANCE AT MARCH 31, 2004                                                  |  | 20                         |  | $            | 20 |                | 44,756 |                  | $ | 44,756 |                                                                                                       | $ | 50,036 |       | $ | 200,818 |   |  | $ | 4,230 |   |  | $ | 299,860 |  
|                                                                           |  |                            |  |              |    |                |        |                  |   |        |                                                                                                       |   |        |       |   |         |   |  |   |       |   |  |   |         |  



See Notes to Consolidated Financial
Statements.



3



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##### Table of Contents

STERLING BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)



|                                                                                                         |  |                             |          |   |      |   |          |  
|-------------------------------------------------------------------------------------------------------- |  | --------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                                         |  | Three Months EndedMarch 31, |         
|                                                                                                         |  | 2004                        |          |   | 2003 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                    |  |                             |          |   |      |   |          |  
|Income from continuing operations                                                                        |  | $                           | 5,234    |   |      | $ | 9,541    |  
|Adjustments to reconcile income from continuing operations to net cash provided by operating activities: |  |                             |          |   |      |   |          |  
|Amortization and accretion of premiums and discounts on securities, net                                  |  |                             | 2,433    |   |      |   | 2,371    |  
|Net gain on the sale of assets                                                                           |  |                             | (109     | ) |      |   | (382     | )
|Net gain on the sale of trading assets                                                                   |  |                             | (348     | ) |      |   | (347     | )
|Net gain on the sale of banking office                                                                   |  |                             |         |   |      |   | (3,382   | )
|Provision for credit losses                                                                              |  |                             | 3,500    |   |      |   | 4,450    |  
|Write-downs, less gains on sale, of real estate acquired by foreclosure                                  |  |                             | (2       | ) |      |   | (91      | )
|Depreciation and amortization                                                                            |  |                             | 2,286    |   |      |   | 2,231    |  
|Proceeds from sales of trading assets                                                                    |  |                             | 145,838  |   |      |   | 134,878  |  
|Purchases of trading assets                                                                              |  |                             | (111,116 | ) |      |   | (93,040  | )
|Proceeds from principal paydowns of trading securities                                                   |  |                             | 828      |   |      |   | 1,060    |  
|Net (increase) decrease in loans held for sale                                                           |  |                             | (2,409   | ) |      |   | 219,512  |  
|Net (increase) decrease in accrued interest receivable and other assets                                  |  |                             | (950     | ) |      |   | 59,893   |  
|Net decrease in accrued interest payable and other liabilities                                           |  |                             | (16,633  | ) |      |   | (1,405   | )
|                                                                                                         |  |                             |          |   |      |   |          |  
|Net cash provided by operating activities from continuing operations                                     |  |                             | 28,552   |   |      |   | 335,289  |  
|                                                                                                         |  |                            
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                    |  |                             |          |   |      |   |          |  
|Proceeds from maturities and paydowns of held-to-maturity securities                                     |  |                             | 3,073    |   |      |   | 5,256    |  
|Proceeds from the sale of available-for-sale securities                                                  |  |                             | 11,647   |   |      |   | 16,870   |  
|Proceeds from maturities and paydowns of available-for-sale securities                                   |  |                             | 39,480   |   |      |   | 48,295   |  
|Purchases of available-for-sale securities                                                               |  |                             | (68,342  | ) |      |   | (48,554  | )
|Net increase (decrease) in loans held for investment                                                     |  |                             | 3,685    |   |      |   | (58,565  | )
|Proceeds from sale of real estate acquired by foreclosure                                                |  |                             | 804      |   |      |   | 1,231    |  
|Net decrease (increase) in interest-bearing deposits in financial institutions                           |  |                             | 34       |   |      |   | (111     | )
|Cash and cash equivalents related to sale of banking office                                              |  |                             |         |   |      |   | (71,186  | )
|Proceeds from sale of premises and equipment                                                             |  |                             | 3,551    |   |      |   | 280      |  
|Purchase of premises and equipment                                                                       |  |                             | (5,743   | ) |      |   | (650     | )
|                                                                                                         |  |                             |          |   |      |   |          |  
|Net cash used in investing activities from continuing operations                                         |  |                             | (11,811  | ) |      |   | (107,134 | )
|                                                                                                         |  |                            
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                    |  |                             |          |   |      |   |          |  
|Net increase (decrease) in deposit accounts                                                              |  |                             | 87,983   |   |      |   | (47,667  | )
|Repayment of notes payable                                                                               |  |                             |         |   |      |   | (1,070   | )
|Net decrease in other borrowed funds                                                                     |  |                             | (122,210 | ) |      |   | (208,015 | )
|Proceeds from issuance of common stock and preferred stock                                               |  |                             | 1,197    |   |      |   | 94       |  
|Dividends paid                                                                                           |  |                             | (2,235   | ) |      |   | (1,982   | )
|                                                                                                         |  |                             |          |   |      |   |          |  
|Net cash used in financing activities from continuing operations                                         |  |                             | (35,265  | ) |      |   | (258,640 | )
|                                                                                                         |  |                            
|Net cash provided by discontinued operations                                                             |  |                             |         |   |      |   | 8,437    |  
|                                                                                                         |  |                            
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                                                |  |                             | (18,524  | ) |      |   | (22,048  | )
|CASH AND CASH EQUIVALENTS:                                                                               |  |                             |          |   |      |   |          |  
|Beginning of period                                                                                      |  |                             | 136,764  |   |      |   | 147,000  |  
|                                                                                                         |  |                             |          |   |      |   |          |  
|End of period                                                                                            |  | $                           | 118,240  |   |      | $ | 124,952  |  
|                                                                                                         |  |                             |          |   |      |   |          |  
|Supplemental information:                                                                                |  |                             |          |   |      |   |          |  
|Income taxes paid                                                                                        |  | $                           | 19,842   |   |      | $ | 1,178    |  
|Interest paid                                                                                            |  |                             | 6,911    |   |      |   | 7,649    |  
|Noncash investing and financing activities-                                                              |  |                             |          |   |      |   |          |  
|Acquisitions of real estate through foreclosure of collateral                                            |  |                             | 175      |   |      |   | 2,959    |  



See Notes to Consolidated Financial
Statements.



4



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##### Table of Contents

STERLING BANCSHARES, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



|1. | ACCOUNTING POLICIES
|-- | -------------------



Basis of Presentation



The accompanying Consolidated Financial Statements are unaudited and include the accounts of Sterling Bancshares, Inc. (together with its subsidiaries the
Company). The Companys accounting and financial reporting policies are in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the
instructions to Form 10-Q. The information furnished in these interim statements reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for such periods. Such adjustments are of a normal
recurring nature unless otherwise disclosed in this Form 10-Q. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for the full year. The interim financial information should be read
in conjunction with the Companys 2003 Annual Report on Form 10-K. Certain prior period amounts have been reclassified to conform to current period classifications. These reclassifications had no affect on net income or shareholders
equity.



Recently Adopted Accounting Standards



On January 1, 2004, the Company adopted FIN 46R, Consolidation of Variable Interest
Entities. Upon adoption, the trusts that previously issued the outstanding company-obligated mandatorily redeemable trust preferred securities were deconsolidated from the Companys Consolidated Financial Statements. Instead, the junior
subordinated debentures issued by the Company to these subsidiary trusts are shown as liabilities in the consolidated balance sheets and interest expense associated with the junior subordinated debentures are shown in the consolidated statements of
income. The Consolidated Financial Statements have been restated to reflect the adoption of FIN 46R. Adoption of FIN 46R did not affect previously reported amounts for net income or shareholders equity.



Stock-Based Compensation



The Company accounts for stock-based employee compensation plans using the intrinsic
value-based method of accounting, as permitted, and discloses pro forma information as if accounted for using the fair value-based method as prescribed by accounting principles. Because the exercise price of the Companys employee stock options
equals the market price of the underlying stock on the date of grant, no compensation expense is recognized on options granted. Compensation expense for restricted stock awards is based on the market price of the stock on the date of grant and is
recognized ratably over the vesting period of the award.



5



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##### Table of Contents

If compensation cost for the Companys stock-based compensation plans had been determined based on the fair value
method at the grant dates for awards, there would have been no material impact on the Companys reported net income or earnings per share. Pro forma information regarding net income and earnings per share is required under accounting principles
and has been determined as if the Company accounted for its employee stock option plans under the fair value method. The fair value of options was estimated using a Black-Scholes option pricing model. Because employee stock options have differing
characteristics and changes in the subjective input assumptions can materially affect the fair value estimate, the Black-Scholes valuation model does not necessarily provide a reliable measure of the fair value of employee stock options. The
following table shows information related to stock-based compensation in both the reported and pro forma earnings per share amounts (dollars in thousands except for per share amounts):



|                                                                                                                   |  |                             |       |   |      |   |        |  
|------------------------------------------------------------------------------------------------------------------ |  | --------------------------- | ----- | - | ---- | - | ------ | -
|                                                                                                                   |  | Three months endedMarch 31, |      
|                                                                                                                   |  | 2004                        |       |   | 2003 |  
|Net income, as reported                                                                                            |  | $                           | 5,234 |   |      | $ | 11,237 |  
|                                                                                                                   |  |                            
|Add: Stock-based employee compensation expense included in reported net income, net of related taxes               |  |                             | 160   |   |      |   | 7      |  
|                                                                                                                   |  |                            
|Less: Total stock-based employee compensation expense determined under fair value based method, net of related tax |  |                             | (368  | ) |      |   | (266   | )
|                                                                                                                   |  |                             |       |   |      |   |        |  
|Pro Forma net income                                                                                               |  | $                           | 5,026 |   |      | $ | 10,978 |  
|                                                                                                                   |  |                             |       |   |      |   |        |  
|Earnings per share:                                                                                                |  |                             |       |   |      |   |        |  
|Basic - as reported                                                                                                |  | $                           | 0.12  |   |      | $ | 0.26   |  
|                                                                                                                   |  |                             |       |   |      |   |        |  
|Basic - pro forma                                                                                                  |  | $                           | 0.11  |   |      | $ | 0.25   |  
|                                                                                                                   |  |                             |       |   |      |   |        |  
|Diluted - as reported                                                                                              |  | $                           | 0.12  |   |      | $ | 0.25   |  
|                                                                                                                   |  |                             |       |   |      |   |        |  
|Diluted - pro forma                                                                                                |  | $                           | 0.11  |   |      | $ | 0.25   |  
|                                                                                                                   |  |                             |       |   |      |   |        |  



The Financial Accounting Standards
Board (FASB) has issued a proposed Statement, Share-Based Payment, that addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the
enterprise or (b) liabilities that are based on the fair value of the enterprises equity instruments or that may be settled by the issuance of such equity instruments. The proposed Statement would eliminate the ability to account for
share-based compensation transactions using the intrinsic value-based method of accounting, and generally would require instead that such transactions be accounted for using a fair-value-based method. The proposed statement would permit use of
option pricing models other than the Black-Scholes option pricing model. Management has not determined the impact of the proposed Statement on the Companys Consolidated Financial Statements.



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##### Table of Contents

|2. | EARNINGS PER COMMON SHARE
|-- | -------------------------



Earnings per common share (EPS) were computed based on the following (in thousands, except per share amounts):



|                                               |  |                             |        |      |   |       
|---------------------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                               |  | Three months endedMarch 31,
|                                               |  | 2004                        |        | 2003
|Income from continuing operations              |  | $                           | 5,234  |      | $ | 9,541 
|Income from discontinued operations            |  |                             |       |      |   | 1,696 
|                                               |  |                             |        |      |   |       
|Net income                                     |  | $                           | 5,234  |      | $ | 11,237
|                                               |  |                             |        |      |   |       
|Basic:                                         |  |                             |        |      |   |       
|Weighted average shares outstanding            |  |                             | 44,700 |      |   | 43,987
|Diluted:                                       |  |                             |        |      |   |       
|Add incremental shares for:                    |  |                             |        |      |   |       
|Assumed exercise of outstanding options        |  |                             | 471    |      |   | 651   
|Assumed conversion of preferred stock          |  |                             | 20     |      |   | 89    
|                                               |  |                             |        |      |   |       
|Total                                          |  |                             | 45,191 |      |   | 44,727
|                                               |  |                             |        |      |   |       
|Earnings per share from continuing operations: |  |                             |        |      |   |       
|Basic                                          |  | $                           | 0.12   |      | $ | 0.22  
|                                               |  |                             |        |      |   |       
|Diluted                                        |  | $                           | 0.12   |      | $ | 0.21  
|                                               |  |                             |        |      |   |       
|Earnings per share:                            |  |                             |        |      |   |       
|Basic                                          |  | $                           | 0.12   |      | $ | 0.26  
|                                               |  |                             |        |      |   |       
|Diluted                                        |  | $                           | 0.12   |      | $ | 0.25  
|                                               |  |                             |        |      |   |       



The incremental shares for the assumed
exercise of the outstanding options were determined by application of the treasury stock method. The incremental shares for the conversion of the preferred stock were determined assuming applicable performance goals had been met. The calculation of
the diluted EPS excludes 262,860 and 591,327 options outstanding during the three months ended March 31, 2004 and 2003, respectively that were antidilutive.



7



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|3. | DISCONTINUED OPERATIONS
|-- | -----------------------



The Company sold its mortgage-banking operations on September 30, 2003 to RBC Mortgage Company, an indirect subsidiary of the Royal Bank of Canada. The mortgage-banking
operations were reported previously as the Companys mortgage-banking segment and are now reported as discontinued operations. The results of income from discontinued operations for the three months ended March 31, 2003, are as follows (in
thousands):



|                                                             |  |                                   |        |  
|------------------------------------------------------------ |  | --------------------------------- | ------ | -
|                                                             |  | Three Months Ended March 31, 2003 |       
|Net interest income (loss) after provision for credit losses |  | $                                 | (942   | )
|                                                             | 
|Noninterest income:                                          |  |                                   |        |  
|Gain on sale of mortgage loans                               |  |                                   | 11,571 |  
|Mortgage origination income                                  |  |                                   | 8,173  |  
|Other                                                        |  |                                   | 2,387  |  
|                                                             |  |                                   |        |  
|Total noninterest income                                     |  |                                   | 22,131 |  
|                                                             | 
|Noninterest expense:                                         |  |                                   |        |  
|Salaries and employee benefits                               |  |                                   | 8,037  |  
|Occupancy expense                                            |  |                                   | 2,849  |  
|Mortgage servicing rights amortization and impairment        |  |                                   | 3,904  |  
|Technology                                                   |  |                                   | 293    |  
|Professional fees                                            |  |                                   | 225    |  
|Postage and delivery charges                                 |  |                                   | 409    |  
|Supplies                                                     |  |                                   | 458    |  
|Minority interest expense                                    |  |                                   | 424    |  
|Other                                                        |  |                                   | 1,763  |  
|                                                             |  |                                   |        |  
|Total noninterest expense                                    |  |                                   | 18,362 |  
|                                                             | 
|Income from discontinued operations before income taxes      |  |                                   | 2,827  |  
|Provision for income taxes                                   |  |                                   | 1,131  |  
|                                                             |  |                                   |        |  
|Income from discontinued operations                          |  | $                                 | 1,696  |  
|                                                             |  |                                   |        |  



|4. | DIVESTITURE OF BANKING OFFICE
|-- | -----------------------------



On March 20, 2003, the Company sold one of its banking offices located in a rural area for a pre-tax gain of $3.4 million. At the sale date, this banking office had
approximately $18.7 million in assets, $16.8 million in loans and $95.7 million of deposits that were included in the sale transaction. The net gain was determined based on the Companys recorded investment in this office including allocated
goodwill and intangibles.



This banking office, located in a rural area, was
sold because its location and growth potential did not align with the Companys business banking strategy. This office was acquired originally as part of a previous acquisition.



|5. | GOODWILL AND OTHER INTANGIBLES
|-- | ------------------------------



The changes in the carrying amount of goodwill by reporting unit for the year ended December 31, 2003 and the three months ended March 31, 2004 are as follows (in
thousands):



|                                |  |         |        |            |   |        |        |  |             |       |  |       |        |   |  |   |        |  
|------------------------------- |  | ------- | ------ | ---------- | - | ------ | ------ |  | ----------- | ----- |  | ----- | ------ | - |  | - | ------ | -
|                                |  | Houston |        | SanAntonio |   |        | Dallas |  | South Texas |       |  | Total |       
|Balance, January 1, 2003        |  | $       | 29,613 |            | $ | 15,079 |        |  | $           | 5,662 |  | $     | 5,312  |   |  | $ | 55,666 |  
|Sale of rural banking offices   |  |         |       |            |   |       |        |  |             |      |  |       | (5,312 | ) |  |   | (5,312 | )
|Plaza Bank acquisition          |  |         |        |            |   | 12,579 |        |  |             |       |  |       |        |   |  |   | 12,579 |  
|                                |  |         |        |            |   |        |        |  |             |       |  |       |        |   |  |   |        |  
|Balance, December 31, 2003      |  |         | 29,613 |            |   | 27,658 |        |  |             | 5,662 |  |       |       |   |  |   | 62,933 |  
|Plaza Bank goodwill adjustments |  |         |       |            |   | (453   | )      |  |             |      |  |       |       |   |  |   | (453   | )
|                                |  |         |        |            |   |        |        |  |             |       |  |       |        |   |  |   |        |  
|Balance, March 31, 2004         |  | $       | 29,613 |            | $ | 27,205 |        |  | $           | 5,662 |  | $     |       |   |  | $ | 62,480 |  
|                                |  |         |        |            |   |        |        |  |             |       |  |       |        |   |  |   |        |  



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The changes in the carrying amounts of core deposit intangibles for the year ended December 31, 2003 and three months
ended March 31, 2004 are as follows (in thousands):



|                           |  |                          |       |  
|-------------------------- |  | ------------------------ | ----- | -
|                           |  | Core Deposit Intangibles |      
|Balance, January 1, 2003   |  | $                        | 2,096 |  
|Amortization expense       |  |                          | (465  | )
|Plaza Bank acquisition     |  |                          | 695   |  
|                           |  |                          |       |  
|Balance, December 31, 2003 |  |                          | 2,326 |  
|Amortization expense       |  |                          | (124  | )
|                           |  |                          |       |  
|Balance, March 31, 2004    |  | $                        | 2,202 |  
|                           |  |                          |       |  



6. SUBSEQUENT EVENT



On April 29, 2004, the Company securitized and sold certain interest-only securities held
in its available for sale portfolio. The Company received net proceeds of $67.5 million and recognized an estimated after-tax net securitization gain of $3.5 million for this transaction. The Company did not retain any interests in the securities
and neither the investors in the securitization trust nor the trust have any recourse other than for a breach of customary representations as to ownership and origination, but not for credit loss or default.



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



FORWARD-LOOKING STATEMENTS



This report may contain certain statements relating to the future results of the Company based upon information currently available. These forward-looking
statements (as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act) are typically identified by words such as expects, anticipates, intends,
plans, believes, seeks, estimates, or words of similar meaning, or future or conditional verbs such as will, would, should, could, or may.



Forward-looking statements provide our expectation or predictions of future
conditions, events or results. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. These risks and uncertainties include, but are not limited to, the following:



| |  | general business and economic conditions in the markets we serve may be less favorable than anticipated which could decrease the demand for loan, deposit and other financial
services and increase loan delinquencies and defaults;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | changes in market rates and prices may adversely impact the value of securities, loans, deposits and other financial instruments;
| | - | ---------------------------------------------------------------------------------------------------------------------------------



| |  | our liquidity requirements could be adversely affected by changes in our assets and liabilities;
| | - | ------------------------------------------------------------------------------------------------



| |  | the effect of legislative or regulatory developments including changes in laws concerning taxes, banking, securities, insurance and other aspects of the financial securities
industry;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | competitive factors, including product and pricing pressures among financial services organizations, may increase;
| | - | ------------------------------------------------------------------------------------------------------------------



| |  | the effect of changes in accounting policies and practices, as may be adopted by regulatory agencies, as well as the Financial Accounting Standards Board and other accounting
regulatory agencies; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the effect of fiscal and governmental policies of the United States federal government.
| | - | ---------------------------------------------------------------------------------------



9



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For additional discussion of such risks, uncertainties and assumptions, see the Companys Annual Report on Form 10-K
for the year ended December 31, 2003, filed with the Securities and Exchange Commission.



OVERVIEW



We are a bank holding company
headquartered in Houston, Texas that provides a range of commercial and consumer banking services through our subsidiary, Sterling Bank. We operate 37 banking offices in the greater metropolitan areas of Houston, Dallas and San Antonio. At March 31,
2004, the Company had consolidated total assets of $3.2 billion, deposits of $2.5 billion and shareholders equity of $299.9 million.



The first quarter of 2004 continued a period of transition. This was the first complete quarter of operations following the pay-off of the mortgage warehouse credit
facility previously extended to our mortgage banking segment, thus effectively terminating all remaining business relationships with this segment which was sold on September 30, 2003.



Our net income for the first quarter of 2004 was $5.2 million, compared to $11.2 million for the first quarter of 2003, reflecting, in part,
the effect of our divestiture of our mortgage banking segment while focusing our efforts on our core banking operations. Net income for the first quarter of 2003 included income from discontinued operations after taxes of $1.7 million. In addition,
net income for the first quarter included an after-tax gain on the sale of a rural banking office of $2.2 million.



An area of focus during the first quarter of 2004 was asset quality and improvements were made. Nonperforming loans were $16.4 million at March 31, 2004 as compared to
$33.9 million at December 31, 2003. Included in this reduction was a sale of $10.7 million of nonperforming loans which resulted in an increase in charge-offs of $4.6 million, for which the Company had previously made provisions.



SUBSEQUENT EVENT



On April 29, 2004, we securitized and sold certain interest-only securities held in our available for sale portfolio. We received net
proceeds of $67.5 million and recognized an estimated after-tax net securitization gain of $3.5 million for this transaction. We did not retain any interests in the securities and neither the investors in the securitization trust nor the trust have
any recourse other than for a breach of customary representations as to ownership and origination, but not for credit loss or default.



CRITICAL ACCOUNTING POLICIES



The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make a number
of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses in our Consolidated Financial Statements and accompanying notes. We believe that the judgments, estimates and assumptions used in the
preparation of our Consolidated Financial Statements are appropriate given the factual circumstances as of March 31, 2004.



Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. We
have identified two accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, and the sensitivity of our Consolidated Financial Statements to those judgments, estimates and assumptions, are critical to an
understanding of our Consolidated Financial Statements. These policies relate to the methodology that determines our allowance for credit losses and the assumptions used in determining stock-based compensation.



These policies and the judgments, estimates and assumptions are described in greater detail
in the Companys 2003 Annual Report on Form 10-K in the Critical Accounting Estimates section of Managements Discussion and Analysis and in Note 1 to the Consolidated Financial Statements  Organization and Summary
of Significant Accounting and Reporting Policies. There have been no material changes in these policies since December 31, 2003.



RECENTLY ADOPTED ACCOUNTING STANDARDS



On January 1, 2004, we adopted FIN 46R, Consolidation of Variable Interest Entities. Upon adoption, the trusts that previously issued the outstanding
company-obligated mandatorily redeemable trust preferred securities were deconsolidated from our Consolidated Financial Statements. Instead, the junior subordinated debentures issued by the Company to these subsidiary trusts are shown as liabilities
in the consolidated balance sheets and interest expense associated with the junior subordinated debentures are shown in the consolidated statements of income. The Consolidated Financial Statements have been restated to reflect the adoption of FIN
46R. Adoption of FIN 46R did not affect previously reported amounts for net income or shareholders equity.



RESULTS OF OPERATIONS



Net Income - Net income for the three-month period ended March 31, 2004 was $5.2 million as compared to $11.2 million for the same period in 2003, a decrease of approximately $6.0 million or 53.4%. Net
income for the first quarter of 2003 included income from discontinued operations after taxes of $1.7 million or $0.04 per diluted share and an after-tax gain on the sale of a rural banking office of $2.2 million or $0.05 per diluted share. The
remaining decrease in net income is principally the result of lower net interest income and a lower provision for credit losses partially offset by higher noninterest expenses.



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Net Interest Income - Net interest income was $33.0 million for the three-months ended March 31, 2004, as
compared to $35.5 million for the same period in 2003, a decrease of $2.5 million or 7.1%. The decrease in net interest income was caused by a decline in both average earning assets and the net interest margin.



Certain average balances, together with the total dollar amounts of interest income and
expense and the average interest rates, were as follows (dollars in thousands):



|                                               |  |                              |           |      |          |   |                   |  |                |  |   |           |   |                   |   |        |  |      
|---------------------------------------------- |  | ---------------------------- | --------- | ---- | -------- | - | ----------------- |  | -------------- |  | - | --------- | - | ----------------- | - | ------ |  | -----
|                                               |  | Three Months Ended March 31,
|                                               |  | 2004                         |           | 2003
|                                               |  | AverageBalance               |           |      | Interest |   | AverageYield/Rate |  | AverageBalance |  |   | Interest  |   | AverageYield/Rate
|Interest-earning assets:                       |  |                              |           |      |          |   |                   |  |                |  |   |           |   |                   |   |        |  |      
|Loans held for sale (taxable) (1)              |  | $                            | 9,210     |      |          | $ | 128               |  | 5.59%          |  | $ | 515,814   |   |                   | $ | 7,142  |  | 5.62%
|Loans held for investment (1):                 |  |                              |           |      |          |   |                   |  |                |  |   |           |   |                   |   |        |  |      
|Taxable                                        |  |                              | 2,143,084 |      |          |   | 33,039            |  | 6.20%          |  |   | 1,968,588 |   |                   |   | 32,803 |  | 6.76%
|Tax-exempt                                     |  |                              | 4,188     |      |          |   | 67                |  | 6.43%          |  |   | 4,958     |   |                   |   | 79     |  | 6.46%
|Securities:                                    |  |                              |           |      |          |   |                   |  |                |  |   |           |   |                   |   |        |  |      
|Taxable                                        |  |                              | 528,063   |      |          |   | 5,280             |  | 4.02%          |  |   | 260,308   |   |                   |   | 2,724  |  | 4.24%
|Tax-exempt                                     |  |                              | 41,496    |      |          |   | 455               |  | 4.41%          |  |   | 58,942    |   |                   |   | 649    |  | 4.47%
|Trading assets                                 |  |                              | 163,807   |      |          |   | 1,202             |  | 2.95%          |  |   | 121,181   |   |                   |   | 862    |  | 2.88%
|Federal funds sold                             |  |                              | 10,915    |      |          |   | 20                |  | 0.74%          |  |   | 16,293    |   |                   |   | 47     |  | 1.17%
|Deposits in financial institutions             |  |                              | 1,480     |      |          |   | 15                |  | 4.08%          |  |   | 1,149     |   |                   |   | 19     |  | 6.71%
|                                               |  |                              |           |      |          |   |                   |  |                |  |   |           |   |                   |   |        |  |      
|Total interest-earning assets                  |  |                              | 2,902,243 |      |          |   | 40,206            |  | 5.57%          |  |   | 2,947,233 |   |                   |   | 44,325 |  | 6.10%
|                                               |  |                              |           |      |          |  
|Noninterest-earning assets:                    |  |                              |           |      |          |   |                   |  |                |  |   |           |   |                   |   |        |  |      
|Cash and due from banks                        |  |                              | 104,978   |      |          |   |                   |  |                |  |   | 102,343   |   |                   |   |        |  |      
|Premises and equipment, net                    |  |                              | 48,854    |      |          |   |                   |  |                |  |   | 50,969    |   |                   |   |        |  |      
|Other assets                                   |  |                              | 156,660   |      |          |   |                   |  |                |  |   | 233,869   |   |                   |   |        |  |      
|Allowance for credit losses                    |  |                              | (31,555   | )    |          |   |                   |  |                |  |   | (28,266   | ) |                   |   |        |  |      
|Assests related to discontinued operations     |  |                              |          |      |          |   |                   |  |                |  |   | 52,524    |   |                   |   |        |  |      
|                                               |  |                              |           |      |          |   |                   |  |                |  |   |           |   |                   |   |        |  |      
|Total noninterest-earning assets               |  |                              | 278,937   |      |          |   |                   |  |                |  |   | 411,439   |   |                   |   |        |  |      
|                                               |  |                              |           |      |          |   |                   |  |                |  |   |           |   |                   |   |        |  |      
|Total assets                                   |  | $                            | 3,181,180 |      |          |   |                   |  |                |  | $ | 3,358,672 |   |                   |   |        |  |      
|                                               |  |                              |           |      |          |   |                   |  |                |  |   |           |   |                   |   |        |  |      
|Interest-bearing liabilities:                  |  |                              |           |      |          |   |                   |  |                |  |   |           |   |                   |   |        |  |      
|Deposits:                                      |  |                              |           |      |          |   |                   |  |                |  |   |           |   |                   |   |        |  |      
|Demand and savings                             |  | $                            | 941,006   |      |          | $ | 953               |  | 0.41%          |  | $ | 921,551   |   |                   | $ | 1,461  |  | 0.64%
|Certificates and other time                    |  |                              | 719,620   |      |          |   | 3,365             |  | 1.88%          |  |   | 714,873   |   |                   |   | 4,226  |  | 2.40%
|Other borrowings                               |  |                              | 247,794   |      |          |   | 681               |  | 1.11%          |  |   | 400,184   |   |                   |   | 1,348  |  | 1.37%
|Notes payable                                  |  |                              |          |      |          |   |                  |  |               |  |   | 20,717    |   |                   |   | 165    |  | 3.23%
|Subordinated debt                              |  |                              | 47,112    |      |          |   | 595               |  | 5.08%          |  |   |          |   |                   |   |       |  |     
|Junior subordinated debt                       |  |                              | 82,475    |      |          |   | 1,591             |  | 7.76%          |  |   | 82,475    |   |                   |   | 1,600  |  | 7.87%
|                                               |  |                              |           |      |          |   |                   |  |                |  |   |           |   |                   |   |        |  |      
|Total interest-bearing liabilities             |  |                              | 2,038,007 |      |          |   | 7,185             |  | 1.42%          |  |   | 2,139,800 |   |                   |   | 8,800  |  | 1.67%
|                                               |  |                              |           |      |          |  
|Noninterest-bearing liabilities:               |  |                              |           |      |          |   |                   |  |                |  |   |           |   |                   |   |        |  |      
|Demand deposits                                |  |                              | 808,109   |      |          |   |                   |  |                |  |   | 913,969   |   |                   |   |        |  |      
|Other liabilities                              |  |                              | 38,012    |      |          |   |                   |  |                |  |   | 14,273    |   |                   |   |        |  |      
|Liabilities related to discontinued operations |  |                              |          |      |          |   |                   |  |                |  |   | 34,886    |   |                   |   |        |  |      
|                                               |  |                              |           |      |          |   |                   |  |                |  |   |           |   |                   |   |        |  |      
|Total noninterest-bearing liabilities          |  |                              | 846,121   |      |          |   |                   |  |                |  |   | 963,128   |   |                   |   |        |  |      
|Shareholders equity                           |  |                              | 297,052   |      |          |   |                   |  |                |  |   | 255,744   |   |                   |   |        |  |      
|                                               |  |                              |           |      |          |   |                   |  |                |  |   |           |   |                   |   |        |  |      
|Total liabilities and shareholders equity     |  | $                            | 3,181,180 |      |          |   |                   |  |                |  | $ | 3,358,672 |   |                   |   |        |  |      
|                                               |  |                              |           |      |          |   |                   |  |                |  |   |           |   |                   |   |        |  |      
|Net interest income & margin                   |  |                              |           |      |          | $ | 33,021            |  | 4.58%          |  |   |           |   |                   | $ | 35,525 |  | 4.89%
|                                               |  |                              |           |      |          |   |                   |  |                |  |   |           |   |                   |   |        |  |      

---

|(1) | Loan origination fees are reported together with interest income on loans. These fees aggregated $1.3 million and $1.4 million for the periods ended March 31, 2004 and 2003,
respectively. Related loan origination costs are not separately allocated to loans, but are charged to non-interest expense. For the purpose of calculating loan yields, average loan balances included nonaccrual loans with no related interest income.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



11



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##### Table of Contents

Average interest-earning assets for the period ended March 31, 2004 decreased $45.0 million as compared to the first
quarter of 2003.



On September 30, 2003, we completed the sale of our
mortgage-banking operations. Sterling Bank lost the benefit of the mortgage warehouse it financed for the mortgage-banking operation shortly after completing the sale when the buyer decided to pay off this credit facility. Average interest-earning
assets for the three-month period ended March 31, 2003 included $509.2 million of mortgage loans held for sale.



In the fourth quarter of 2003, we increased the size of the investment portfolio for balance sheet liquidity purposes and to replace a portion of the earning assets of
the mortgage operation. On average, the securities portfolio increased $250.3 million for the period ended March 31, 2004 as compared with the same period of 2003. Overall, the average yield on these securities is less than the average yield
previously earned on the mortgage warehouse credit facility.



Our net interest
margin for the three-month period ended March 31, 2004 was 4.58% compared to 4.89% for the same period in 2003, a decrease of 31 basis points. The net interest margin has dropped as a result of the declines in market interest rates of the past few
years but appears to have stabilized in the first quarter of 2004. Our balance sheet remains positioned to benefit from a gradually rising rate environment over the long-term.



Average interest-bearing liabilities for the three-month period ended March 31, 2004 were $2.0 billion, a decrease of $101.8 million or 4.8%
from the same period in 2003. In the first quarter of 2004, other borrowed funds decreased $152.4 million from $400.2 million at March 31, 2003 to $247.8 million at March 31, 2004. We repaid certain borrowings and notes payable after the sale of our
mortgage-banking operations.



Offsetting a portion of the overall decrease in
average interest-bearing liabilities was $47.1 million of subordinated debt we issued in April 2003. Increases in average interest bearing deposits of $24.2 million or 1.5% also offset a portion of the decrease in average interest-bearing
liabilities.



Noninterest Income - Noninterest income consisted
of the following (in thousands):



|                                       |  |                             |       |      |   |       
|-------------------------------------- |  | --------------------------- | ----- | ---- | - | ------
|                                       |  | Three Months EndedMarch 31,
|                                       |  | 2004                        |       | 2003
|Customer service fees                  |  | $                           | 3,921 |      | $ | 4,314 
|Bank owned life insurance income       |  |                             | 473   |      |   | 505   
|Debit card fees                        |  |                             | 357   |      |   | 373   
|Net gain on the sale of trading assets |  |                             | 348   |      |   | 347   
|Net gain on the sale of securities     |  |                             | 143   |      |   | 374   
|Net gain on the sale of banking office |  |                             |      |      |   | 3,382 
|Other                                  |  |                             | 1,975 |      |   | 1,981 
|                                       |  |                             |       |      |   |       
|                                       |  | $                           | 7,217 |      | $ | 11,276
|                                       |  |                             |       |      |   |       



Total noninterest income for the three
months ended March 31, 2004 was $7.2 million, as compared to $11.3 million for the same period of 2003, a decrease of $4.1 million or 36.0%. The decrease in noninterest income is primarily due to the $3.4 million gain on the sale of a rural banking
office included in noninterest income in the first quarter of 2003. This banking office was sold because its location and growth potential did not align with our business banking strategy. This office was acquired originally as part of a previous
acquisition.



12



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##### Table of Contents

Noninterest Expense-The following table shows the detail of noninterest expense (in thousands):



|                                                                             |  |                             |        |      |   |        |  
|---------------------------------------------------------------------------- |  | --------------------------- | ------ | ---- | - | ------ | -
|                                                                             |  | Three Months EndedMarch 31, |       
|                                                                             |  | 2004                        |        | 2003 |  
|Salaries and employee benefits                                               |  | $                           | 17,687 |      | $ | 17,251 |  
|Occupancy expense                                                            |  |                             | 3,597  |      |   | 3,752  |  
|Technology                                                                   |  |                             | 1,388  |      |   | 1,200  |  
|Professional fees                                                            |  |                             | 1,062  |      |   | 694    |  
|Marketing                                                                    |  |                             | 574    |      |   | 642    |  
|Postage and delivery charges                                                 |  |                             | 535    |      |   | 597    |  
|Supplies                                                                     |  |                             | 340    |      |   | 354    |  
|Core deposit intangible amortization                                         |  |                             | 124    |      |   | 114    |  
|Net losses (gains) and carrying costs of real estate acquired by foreclosure |  |                             | 19     |      |   | (6     | )
|Other                                                                        |  |                             | 3,736  |      |   | 3,493  |  
|                                                                             |  |                             |        |      |   |        |  
|                                                                             |  | $                           | 29,062 |      | $ | 28,091 |  
|                                                                             |  |                             |        |      |   |        |  



Salaries and employee benefits for the
three-month period ended March 31, 2004 were $17.7 million, as compared to $17.3 million for the same period in 2003, an increase of $436 thousand or 2.5%. Annual officer salary increases effective on January 1st and incentive compensation
contributed to the higher salary and benefit costs in the first quarter of 2004. We had 1,044 full-time equivalent employees at March 31, 2004 compared with 1,038 at March 31, 2003.



Professional fees increased $368 thousand primarily as a result of higher legal fees and consulting fees incurred in connection with our
compliance with the Sarbanes-Oxley Act of 2002.



Income Taxes -
The Company provided $2.4 million for federal and state income taxes during the first quarter of 2004 and $5.8 million for the same period of 2003. The effective tax rates for each period were 31.8% and 34.2%, respectively. Our mortgage-banking
segment operated in states with tax rates that increased our effective tax rate. On a continuing operations basis, our effective tax rate for the first quarter of 2003 was 33.1%.



FINANCIAL CONDITION



Loans Held for Investment - The following table summarizes our loan portfolio by type, excluding loans held for sale (dollars in thousands):



|                                  |  |                |           |                   |        |        |   |           |  |       
|--------------------------------- |  | -------------- | --------- | ----------------- | ------ | ------ | - | --------- |  | ------
|                                  |  | March 31, 2004 |           | December 31, 2003
|                                  |  | Amount         |           | %                 |        | Amount |   | %        
|Commercial and industrial         |  | $              | 615,062   |                   | 28.8%  |        | $ | 658,881   |  | 30.9% 
|Real estate:                      |  |                |           |                   |        |        |   |           |  |       
|Commercial                        |  |                | 794,410   |                   | 37.2%  |        |   | 756,163   |  | 35.5% 
|Construction and development      |  |                | 416,575   |                   | 19.5%  |        |   | 401,578   |  | 18.9% 
|Residential mortgage              |  |                | 199,575   |                   | 9.3%   |        |   | 201,279   |  | 9.4%  
|Foreign commercial and industrial |  |                | 9,538     |                   | 0.4%   |        |   | 7,886     |  | 0.4%  
|Consumer and other                |  |                | 102,085   |                   | 4.8%   |        |   | 104,944   |  | 4.9%  
|                                  |  |                |           |                   |        |        |   |           |  |       
|Total loans held for investment   |  | $              | 2,137,245 |                   | 100.0% |        | $ | 2,130,731 |  | 100.0%
|                                  |  |                |           |                   |        |        |   |           |  |       



At March 31, 2004, loans held for
investment were $2.1 billion, an increase of $6.5 million over loans held for investment at December 31, 2003. The commercial real estate and real estate construction loan categories primarily contributed to the increase. These increases were
partially offset by the sale of $10.7 million of nonperforming loans during the first quarter of 2004. At March 31, 2004, loans held for investment were 85.3% of deposits and 67.6% of total assets.



As of March 31, 2004, the Company has no material concentrations of loans or material foreign
loans outstanding.



13



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##### Table of Contents

Loans Held for Sale - Loans held for sale were $10.7 million at March 31, 2004, as compared
with $26.3 million at December 31, 2003. Loans held for sale at March 31, 2004 consisted of the guaranteed portion of SBA loans we originated. Due to the timing of the sales of these loans to investors, the balance of loans in the held for sale
category at any given time may be somewhat volatile.



Securities
- The Companys securities portfolio at March 31, 2004 totaled $581.7 million, as compared to $565.1 million at December 31, 2003, an increase of $16.6 million or 2.9%. At March 31, 2004, the unrealized gain on the available for sale
securities was $6.5 million.



Deposits - The following table
summarizes the Companys deposit portfolio by type as of March 31, 2004 (dollars in thousands):



|                                     |  |                |           |                   |        |        |   |           |  |       
|------------------------------------ |  | -------------- | --------- | ----------------- | ------ | ------ | - | --------- |  | ------
|                                     |  | March 31, 2004 |           | December 31, 2003
|                                     |  | Amount         |           | %                 |        | Amount |   | %        
|Noninterest-bearing demand           |  | $              | 862,729   |                   | 34.4%  |        | $ | 834,313   |  | 34.5% 
|Interest-bearing demand              |  |                | 911,983   |                   | 36.4%  |        |   | 929,577   |  | 38.4% 
|Certificates and other time deposits |  |                |           |                   |        |        |   |           |  |       
|Jumbo                                |  |                | 521,810   |                   | 20.8%  |        |   | 441,680   |  | 18.3% 
|Regular                              |  |                | 209,830   |                   | 8.4%   |        |   | 212,799   |  | 8.8%  
|                                     |  |                |           |                   |        |        |   |           |  |       
|Total deposits                       |  | $              | 2,506,352 |                   | 100.0% |        | $ | 2,418,369 |  | 100.0%
|                                     |  |                |           |                   |        |        |   |           |  |       



Total deposits as of March 31, 2004
were $2.5 billion as compared to $2.4 billion at December 31, 2003, an increase of $88.0 million or 3.6%. The percentage of noninterest bearing deposits to total deposits as of March 31, 2004 was 34.4%.



We use brokered certificates of deposit to fund a portion of our lending activities. Brokered
certificates of deposit were $182.8 million and $54.8 million at March 31, 2004 and December 31, 2003, respectively.



Other Borrowed Funds  As of March 31, 2004, we had $202.0 million in other borrowed funds compared to $324.2 million at December 31,
2003. Like brokered deposits, other borrowed funds are used to fund a portion of our lending activities. We also utilize these borrowings to meet liquidity needs. Generally, these borrowings have maturities of less than 30 days and are replaced at
maturity with either additional borrowings or through increased customer deposits.



ASSET QUALITY



Risk Elements Nonperforming and past-due loans are fully or substantially secured by assets, with any excess of loan balances over collateral values specifically allocated in the allowance for credit losses. Eleven properties make up the $1.5 million of
real estate acquired by foreclosure at March 31, 2004. These properties are carried at the lower of cost or fair market value.



14



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##### Table of Contents

Nonperforming assets and potential problem loans consisted of the following (dollars in thousands):



|                                                                                                           |  |                |        |   |                   |   |        |  
|---------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | - | ----------------- | - | ------ | -
|                                                                                                           |  | March 31, 2004 |        |   | December 31, 2003 |  
|Nonperforming loans - nonaccrual                                                                           |  | $              | 16,369 |   |                   | $ | 33,887 |  
|Real estate acquired by foreclosure                                                                        |  |                | 1,497  |   |                   |   | 2,124  |  
|Other repossessed assets                                                                                   |  |                | 1,189  |   |                   |   | 169    |  
|                                                                                                           |  |                |        |   |                   |   |        |  
|Total nonperforming assets                                                                                 |  | $              | 19,055 |   |                   | $ | 36,180 |  
|                                                                                                           |  |                |        |   |                   |   |        |  
|Potential problem loans                                                                                    |  | $              | 66,055 |   |                   | $ | 66,482 |  
|                                                                                                           |  |                |        |   |                   |   |        |  
|Accruing loans past due 90 days or more                                                                    |  | $              | 21     |   |                   | $ | 35     |  
|                                                                                                           |  |                |        |   |                   |   |        |  
|Period-end allowance for credit losses to nonperforming loans                                              |  |                | 162.56 | % |                   |   | 90.66  | %
|Nonperforming assets to period-end loans, real estate acquired by foreclosure and other repossessed assets |  |                | 0.89   | % |                   |   | 1.68   | %
|Nonperforming loans to period-end loans                                                                    |  |                | 0.76   | % |                   |   | 1.57   | %
|Nonperforming assets to period-end assets                                                                  |  |                | 0.60   | % |                   |   | 1.13   | %



At March 31, 2004, we had $19.1
million in nonperforming assets, a decrease of 47.3% from $36.2 million at December 31, 2003. During the first quarter of 2004, we sold $10.7 million of nonperforming loans which resulted in an increase in charge-offs of $4.6 million. The Company
had provided for the losses on these nonperforming loans during previous periods and decided to sell these loans to minimize its loss exposure.



Separately, we had three large nonperforming relationships at December 31, 2003 that were placed on nonaccrual status during the second half of 2003. These relationships
individually were larger than $3 million. During the first quarter of 2004 one of these nonperforming relationships was returned to performing status. The Company is in the process of liquidating the second of these nonperforming relationships. The
third of these relationships remained on nonperforming status at March 31, 2004.



Allowance for Credit Losses The provision for credit losses for the three months ended March 31, 2004 was $3.5 million, as compared to $4.4 million for the same period in 2003, a decrease of $950 thousand. A provision
for credit losses of $1.0 million was recorded in the first quarter of 2003 for loans acquired pursuant to the acquisition of Eagle National Bank.



Net charge-offs were $7.6 million or 1.42% (annualized) of average loans for the three-month period ended March 31, 2004. As discussed above, the nonperforming loan sale
completed in the first quarter of 2004 resulted in an increase in charge-offs of $4.6 million.



Overall, the allowance for credit losses at March 31, 2004 was $26.6 million and represented 1.24% of total loans. The allowance for credit losses at quarter-end was 162.6% of nonperforming loans, up favorably from
90.7% at December 31, 2003, principally because of the improvements in asset quality discussed above.



15



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##### Table of Contents

The following table presents an analysis of the allowance for credit losses and other related data (dollars in
thousands):



|                                                           |  |                              |        |   |      |   |        |  
|---------------------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------ | -
|                                                           |  | Three Months Ended March 31, |       
|                                                           |  | 2004                         |        |   | 2003 |  
|Allowance for credit losses at beginning of period         |  | $                            | 30,722 |   |      | $ | 27,248 |  
|Charge-offs:                                               |  |                              |        |   |      |   |        |  
|Commercial, financial, and industrial                      |  |                              | 5,574  |   |      |   | 1,896  |  
|Real estate, mortgage and construction                     |  |                              | 2,295  |   |      |   | 866    |  
|Consumer                                                   |  |                              | 499    |   |      |   | 436    |  
|                                                           |  |                              |        |   |      |   |        |  
|Total charge-offs                                          |  |                              | 8,368  |   |      |   | 3,198  |  
|                                                           |  |                              |        |   |      |   |        |  
|Recoveries                                                 |  |                              |        |   |      |   |        |  
|Commercial, financial, and industrial                      |  |                              | 586    |   |      |   | 125    |  
|Real estate, mortgage and construction                     |  |                              | 91     |   |      |   | 89     |  
|Consumer                                                   |  |                              | 78     |   |      |   | 68     |  
|                                                           |  |                              |        |   |      |   |        |  
|Total recoveries                                           |  |                              | 755    |   |      |   | 282    |  
|                                                           |  |                              |        |   |      |   |        |  
|Net charge-offs                                            |  |                              | 7,613  |   |      |   | 2,916  |  
|Allowance sold with divestiture                            |  |                              |       |   |      |   | 353    |  
|Provision for credit losses                                |  |                              | 3,500  |   |      |   | 4,450  |  
|                                                           |  |                              |        |   |      |   |        |  
|Allowance for credit losses at end of period               |  | $                            | 26,609 |   |      | $ | 28,429 |  
|                                                           |  |                              |        |   |      |   |        |  
|Period-end allowance for credit losses to period-end loans |  |                              | 1.24   | % |      |   | 1.16   | %
|Net charge-offs to average loans (annualized)              |  |                              | 1.42   | % |      |   | 0.48   | %



CAPITAL RESOURCES AND LIQUIDITY



Capital Resources - At March 31, 2004, shareholders
equity totaled $299.9 million or 9.48% of total assets, as compared to $292.6 million or 9.1% of total assets at December 31, 2003. Our risk-based capital ratios at March 31, 2004 remain above the levels designated by regulatory agencies for us to
be considered as well capitalized. Our capital ratios at March 31, 2004 were as follows (dollars in thousands):



|                                         |  |        |         |       |                                       |   |        |   |         |  |     |  
|---------------------------------------- |  | ------ | ------- | ----- | ------------------------------------- | - | ------ | - | ------- |  | --- | -
|                                         |  | Actual |         |       | For Minimum Capital Adequacy Purposes |  
|                                         |  | Amount |         | Ratio |                                       |   | Amount |   | Ratio   | 
|Total capital (to risk weighted assets)  |  | $      | 385,745 |       | 15.6                                  | % |        | $ | 199,095 |  | 8.0 | %
|Tier 1 capital (to risk weighted assets) |  |        | 310,817 |       | 12.6                                  | % |        |   | 99,547  |  | 4.0 | %
|Tier 1 capital (to average assets)       |  |        | 310,817 |       | 10.0                                  | % |        |   | 117,883 |  | 4.0 | %



Liquidity  We
manage balance sheet liquidity to fund growth in earning assets and to pay liability maturities, depository withdrawals and shareholders dividends. We strive to manage a liquidity position sufficient to meet operating requirements while
maintaining an appropriate balance between assets and liabilities to meet the expectations of our shareholders. The Companys primary source of funds is its core deposits. Average core deposits funded 62% of total interest-earning assets for
the three months ended March 31, 2004. In addition to core deposits, we have access to funds from correspondent banks and from the Federal Home Loan Bank. Additional funding is derived from interest and principal payments on loans as well as the
sale of securities and loans. The bank also accepts brokered certificates of deposit. Our liquidity position remains adequate for our anticipated needs as of March 31, 2004. For more information regarding liquidity, please refer to our 2003 Annual
Report on Form 10-K.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.



Our profitability, as with most financial institutions, is greatly dependent upon net interest income. There have been no material changes in market risk we face since December 31, 2003. For more information regarding
quantitative and qualitative disclosures about market risk, please refer to our 2003 Annual Report on Form 10-K.



16



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##### Table of Contents

ITEM 4. CONTROLS AND PROCEDURES.



Evaluation of Disclosure Controls and Procedures  Based on their evaluation of the Companys disclosure controls and procedures as of the end of the period covered by this report, the Companys Chief Executive
Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures are effective in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms.



Changes in Internal Control Over Financial Reporting  There were no changes in our internal control over financial
reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



PART II. OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS.



Not applicable.



ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.



Not applicable.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES.



Not
applicable.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.



Not applicable.



ITEM 5. OTHER INFORMATION.



Not applicable.



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



|(a) | Exhibits:
|--- | ---------



|        |  |                                                                                                                                                                   
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|11     |  | Statement Regarding Computation of Earnings Per Share (included as Note (2) to Consolidated Financial Statements on page 7 of this Quarterly Report on Form 10-Q).
|        | 
|*31.1  |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of J. Downey Bridgwater, President and Chief Executive Officer.                           
|        | 
|*31.2  |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Stephen C. Raffaele, Executive Vice President and Chief Financial Officer.             
|        | 
|**32.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                           
|        | 
|**32.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                           

---

|* | As filed herewith.
|- | ------------------

|** | As furnished herewith.
|-- | ----------------------



|(b) | Reports on Form 8-K:
|--- | --------------------



| | (1) | Current Report on Form 8-K furnished January 22, 2004 announcing the release of Sterling Bancshares preliminary earnings report for fourth quarter and year ended December 31,
2003.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



17



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##### Table of Contents

SIGNATURES



Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused the report to be signed on its behalf by the undersigned thereunto duly authorized.



|                   |  |                           |  |                                                     
|------------------ |  | ------------------------- |  | ----------------------------------------------------
|                   |  | STERLING BANCSHARES, INC.
|                   |  |                          
|Date: May 10, 2004 |  | By:                       |  | /s/ J. Downey Bridgwater                            
|                   |  |                           |  | J. Downey Bridgwater                                
|                   |  |                           |  | President and Chief Executive Officer               
|                   |  |                          
|Date: May 10, 2004 |  | By:                       |  | /s/ Stephen C. Raffaele                             
|                   |  |                           |  | Stephen C. Raffaele                                 
|                   |  |                           |  | Executive Vice President and Chief Financial Officer



18



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##### Table of Contents

EXHIBIT INDEX



|        |  |                                                                                                                                                                   
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                       
|11     |  | Statement Regarding Computation of Earnings Per Share (included as Note (2) to Consolidated Financial Statements on page 7 of this Quarterly Report on Form 10-Q).
|        | 
|*31.1  |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of J. Downey Bridgwater, President and Chief Executive Officer.                           
|        | 
|*31.2  |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Stephen C. Raffaele, Executive Vice President and Chief Financial Officer.             
|        | 
|**32.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                           
|        | 
|**32.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                           

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|* | As filed herewith.
|- | ------------------

|** | As furnished herewith.
|-- | ----------------------



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