<PAGE>

================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                   -----------

                                   FORM 10 - Q

                                   -----------

      [X]     Quarterly Report pursuant to Section 13 or 15(d) of the Securities
              Exchange Act of 1934 for the Quarter ended June 30, 2002

      [ ]     Transition Report pursuant to Section 13 or 15(d) of the
              Securities Exchange Act of 1934

                         Commission File Number: 0-20750

                            STERLING BANCSHARES, INC.
             (Exact name of registrant as specified in its charter)

                  TEXAS                                     74-2175590
      (State or other jurisdiction of                     (IRS Employer
      incorporation or organization)                      Identification Number)

                         2550 North Loop West, Suite 600
                              Houston, Texas 77092
              (Address of principal executive office and 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 ___

As of June 30, 2002, there were outstanding  43,884,855  shares of common stock,
par value $1.00 per share, of the registrant.

================================================================================

<PAGE>

PART I.  FINANCIAL INFORMATION

ITEM 1.  INTERIM FINANCIAL STATEMENTS (UNAUDITED)

                   STERLING BANCSHARES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                  JUNE 30,     DECEMBER 31,
                                                                                    2002           2001
                                                                               ------------    ------------
                                                                                       (UNAUDITED)
<S>                                                                            <C>             <C>
ASSETS
Cash and cash equivalents                                                      $    123,241    $    148,295
Interest-bearing deposits in financial institutions                                   1,955           2,114
Securities purchased with an agreement to resell                                      2,799          12,313
Trading assets                                                                      102,299         118,511
Available-for-sale securities, at fair value                                        251,006         264,491
Held-to-maturity securities, at amortized cost                                       68,101          78,408
Loans held for sale                                                                 434,634         261,505

Loans held for investment                                                         1,759,626       1,666,788
Allowance for credit losses                                                         (24,217)        (22,927)
                                                                               ------------    ------------
   Loans, net                                                                     1,735,409       1,643,861
Accrued interest receivable                                                          12,773          11,593
Real estate acquired by foreclosure                                                   2,368           1,837
Premises and equipment, net                                                          55,389          54,175
Goodwill, net                                                                        55,650          54,812
Core deposit intangible                                                               1,845           2,036
Mortgage servicing rights                                                            21,109          19,592
Other assets                                                                         89,858         104,547
                                                                               ------------    ------------
TOTAL ASSETS                                                                   $  2,958,436    $  2,778,090
                                                                               = ==========     ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits:
  Noninterest-bearing                                                          $    877,131    $    797,850
  Interest-bearing                                                                  876,096         879,542
Certificates of deposit and other time deposits                                     569,309         591,588
                                                                               ------------    ------------
  Total deposits                                                                  2,322,536       2,268,980
Securities sold under agreements to repurchase and other borrowed funds             286,969         180,298
Notes payable                                                                        20,879          20,879
Accrued interest payable and other liabilities                                       31,967          28,832
                                                                               ------------    ------------
  Total liabilities                                                               2,662,351       2,498,989

COMPANY-OBLIGATED MANDITORILY REDEEMABLE
  TRUST PREFERRED SECURITIES OF SUBSIDIARY TRUST                                     57,500          57,500

MINORITY INTEREST IN STERLING CAPITAL MORTGAGE COMPANY                                4,813           4,232

Shareholders' equity:
  Convertible preferred stock, $1 par value, 1 million shares authorized                 59              39
  Common stock, $1 par value, 100 million shares authorized                          43,885          43,770
  Capital surplus                                                                    43,906          42,526
  Retained earnings                                                                 141,315         127,144
  Accumulated other comprehensive income--net unrealized gain on
   available-for-sale securities, net of tax                                          4,607           3,890
                                                                               ------------    ------------
    Total shareholders' equity                                                      233,772         217,369
                                                                               ------------    ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                     $  2,958,436    $  2,778,090
                                                                               ============    ============
</TABLE>

See Notes to Interim  Consolidated  Financial  Statements  which are an integral
part of these Interim Consolidated Financial Statements.

                                        2

<PAGE>

                   STERLING BANCSHARES, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                      THREE MONTHS           SIX MONTHS
                                                                      ENDED JUNE 30,        ENDED JUNE 30,
                                                                     2002       2001       2002       2001
                                                                   -------------------   -------------------
                                                                       (UNAUDITED)           (UNAUDITED)
<S>                                                                <C>        <C>        <C>        <C>
Interest income:
  Loans, including fees                                            $ 37,137   $ 38,132   $ 71,951   $ 73,711
  Securities:
    Taxable                                                           3,835      5,045      7,811      8,802
    Tax-exempt                                                          739        837      1,520      1,690
  Federal funds sold and securities purchased under agreements
   to resell                                                            124        782        339      1,770
  Trading assets                                                        943        797      1,993        797
  Deposits in financial institutions                                     30         25         59         35
                                                                   --------   --------   --------   --------
      Total interest income                                          42,808     45,618     83,673     86,805

Interest expense:
  Demand and savings deposits                                         2,332      4,812      4,712      9,595
  Certificates and other time deposits                                4,032      7,309      8,544     14,482
  Other borrowed funds                                                  995      2,047      1,721      4,036
  Note payable                                                          197         33        400         66
                                                                   --------   --------   --------   --------
      Total interest expense                                          7,556     14,201     15,377     28,179
                                                                   --------   --------   --------   --------
      NET INTEREST INCOME                                            35,252     31,417     68,296     58,626

       Provision for credit losses                                    3,088      3,112      5,711      5,472
                                                                   --------   --------   --------   --------
      NET INTEREST INCOME AFTER
       PROVISION FOR CREDIT LOSSES                                   32,164     28,305     62,585     53,154

Noninterest income:
  Customer service fees                                               4,150      3,889      8,252      6,686
  Gain on sale of mortgage loans                                      7,541      7,191     11,670     11,475
  Mortgage origination income                                         5,613      3,771      9,006      6,098
  Other                                                               5,690      4,541     10,256      7,954
                                                                   --------   --------   --------   --------
      Total noninterest income                                       22,994     19,392     39,184     32,213

Noninterest expense:
  Salaries and employee benefits                                     23,244     20,640     42,313     36,446
  Occupancy expense                                                   5,790      4,709     10,972      8,442
  Net loss and carrying costs of real estate acquired by
   foreclosure                                                            5         82         71         97
  FDIC assessment                                                       137        114        189        210
  Technology                                                          1,339      1,491      2,553      2,672
  Postage and delivery charges                                          796        663      1,526      1,171
  Supplies                                                              688        495      1,227        902
  Professional fees                                                   1,337        658      2,046      1,325
  Minority interest expense:
    Company-obligated mandatorily redeemable trust preferred
     securitites of subsidiary trusts                                 1,325      1,313      2,655      2,061
    Sterling Capital Mortgage Company                                   366        527        581        858
  Conversion costs related to acquistions                                 -          -          -      1,030
  Other                                                               6,043      4,669     11,294      8,199
                                                                   --------   --------   --------   --------
      Total noninterest expense                                      41,070     35,361     75,427     63,413

      NET INCOME BEFORE INCOME TAXES                                 14,088     12,336     26,342     21,954
       Provision for income taxes                                     4,705      4,448      8,661      7,425
                                                                   --------   --------   --------   --------
      NET INCOME                                                   $  9,383   $  7,888   $ 17,681   $ 14,529
                                                                   ========   ========   ========   ========

EARNINGS PER SHARE:
  Basic                                                            $   0.21   $   0.19   $   0.40   $   0.35
                                                                   ========   ========   ========   ========
  Diluted                                                          $   0.21   $   0.18   $   0.40   $   0.34
                                                                   ========   ========   ========   ========
</TABLE>

See Notes to Interim  Consolidated  Financial  Statements  which are an integral
part of these Interim Consolidated Financial Statements.

                                        3

<PAGE>

                   STERLING BANCSHARES, INC. AND SUBSIDIARIES
                            STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                    SIX MONTHS ENDED JUNE 30,
                                                                                       2002          2001
                                                                                   ------------   -----------
                                                                                             (UNAUDITED)
<S>                                                                                <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                       $     17,681   $    14,529
  Adjustments to reconcile net income to net cash provided by
   (used in) operating activities:
       Amortization and accretion of premiums and discounts
        on securities, net                                                                   56           147
       Net gain on the sale of assets                                                      (100)         (112)
       Net gain on the sale of trading assets                                              (309)          (95)
       Provision for credit losses                                                        5,711         5,472
       Write-downs, less gains on sale, of real estate acquired by
        foreclosure and repossessed assets                                                   34            (1)
       Depreciation and amortization                                                      5,029         4,394
       Net increase in loans held for sale                                             (173,129)      (67,175)
       Capitalized mortgage servicing rights                                             (3,359)       (7,395)
       Amortization of mortgage servicing rights                                          1,842           187
       Net (increase) decrease in accrued interest receivable and other assets           12,187       (16,266)
       Net increase (decrease) in accrued interest payable and other liabilities          3,716        (3,969)
                                                                                   ------------   -----------
         Net cash used in operating activities                                         (130,641)      (70,284)

CASH FLOWS FROM INVESTING ACTIVITIES:
  Net (increase) decrease in securities purchased under agreements to resell              9,514        (7,326)
  Proceeds from maturity and paydowns of held-to-maturity securities                     10,196         5,989
  Proceeds from the sale of available-for-sale securities                                 6,810        84,182
  Proceeds from maturity and paydowns of available-for-sale securities                   57,294        44,516
  Purchases of available-for-sale securities                                            (49,263)      (97,370)
  Proceeds from the sale of trading assets                                              253,491        30,739
  Purchases of trading assets                                                          (242,737)      (93,627)
  Proceeds from principal paydowns of trading securities                                  5,767             -
  Net increase in loans held for investment                                             (98,714)      (63,899)
  Proceeds from sale of real estate acquired by foreclosure                                 890           875
  Net decrease (increase) in interest-bearing deposits in financial institutions            159          (890)
  Purchase of CaminoReal Bancshares, Inc.                                                     -       (51,813)
  Cash and cash equivalents acquired with CaminoReal Bancshares, Inc.                         -        35,583
  Proceeds from sale of premises and equipment                                            1,307         5,537
  Purchase of premises and equipment                                                     (7,359)      (11,974)
                                                                                   ------------   -----------
         Net cash used in investing activities                                          (52,645)     (119,478)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net increase in deposit accounts                                                       53,556       140,190
  Net (increase) decrease in repurchase agreements/funds purchased                      106,671        19,582
  Proceeds from issuance of common stock and preferred stock                              1,515         2,337
  Issuance of company-obligated manditorily redeemable trust preferred securities             -        28,750
  Dividends paid                                                                         (3,510)       (2,899)
                                                                                   ------------   -----------
         Net cash provided by financing activities                                      158,232       187,960

NET DECREASE IN CASH AND CASH EQUIVALENTS                                               (25,054)       (1,802)

CASH AND CASH EQUIVALENTS:
  Beginning of period                                                                   148,295       122,112
                                                                                   ------------   -----------
  End of period                                                                    $    123,241   $   120,310
                                                                                   ============   ===========

SUPPLEMENTAL INFORMATION:
  Income taxes paid                                                                $      5,800   $     3,390
                                                                                   ============   ===========
  Interest paid                                                                    $     16,546   $    28,266
                                                                                   ============   ===========
  Noncash investing and financing activities:
     Acquisitions of real estate through foreclosure of collateral                 $      1,455   $       878
                                                                                   ============   ===========
</TABLE>

See Notes to Interim  Consolidated  Financial  Statements  which are an integral
part of these Interim Consolidated Financial Statements.

                                        4

<PAGE>

                   STERLING BANCSHARES, INC., AND SUBSIDIARIES
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002

1.   BASIS OF PRESENTATION:

     The accompanying unaudited interim consolidated financial statements have
     been prepared in accordance with accounting principles generally accepted
     in the United States of America for interim financial information and with
     the rules and regulations of the Securities and Exchange Commission.
     Accordingly, they do not include all of the information and footnotes
     required by generally accepted accounting principles for complete financial
     statements. In the opinion of management, all adjustments (consisting of
     normal recurring items) considered necessary for a fair presentation have
     been included. Operating results for the six-month period ended June 30,
     2002, are not necessarily indicative of the results that may be expected
     for the entire year or any interim period. For further information, refer
     to the consolidated financial statements and notes thereto included in the
     Annual Report on Form 10-K of Sterling Bancshares, Inc. (the "Company") for
     the year ended December 31, 2001.

2.   EARNINGS PER COMMON SHARE

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

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED JUNE 30,                      SIX MONTHS ENDED JUNE 30,
                                            2002                     2001                    2002                   2001
                                    ----------------------   -----------------------  ---------------------  ----------------------
                                     AMOUNT     PER SHARE     AMOUNT      PER SHARE    AMOUNT    PER SHARE    AMOUNT     PER SHARE
                                    ---------  -----------   ---------   -----------  --------  -----------  --------   -----------
     <S>                            <C>        <C>           <C>         <C>          <C>       <C>          <C>        <C>
     Net income                     $   9,383                $   7,888                $ 17,681               $ 14,529
                                    =========                =========                ========               ========
     Basic:
       Weighted average shares
        outstanding                    43,849  $      0.21      42,080   $      0.19    43,814  $      0.40    41,945   $      0.35
                                               ===========               ===========            ===========             ===========
     Diluted:
       Add incremental shares for:
        Assumed exercise of
         outstanding options              850                      747                     828                    791
        Assumed conversion of
         preferred stock                   98                       59                      89                     63
                                    ---------                ---------                --------               --------
     Total                             44,797  $      0.21      42,886   $      0.18    44,731  $      0.40    42,799   $      0.34
                                    =========  ===========   =========   ===========  ========  ===========  ========   ===========
</TABLE>

                                        5

<PAGE>

3.   SHAREHOLDERS' EQUITY
     The following table displays the changes in shareholders' equity for the
     three-month and six-month periods ended June 30, 2002 and 2001 (in
     thousands):

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED JUNE 30,
                                                         2002                        2001
                                             ---------------------------   -----------------------
     <S>                                     <C>             <C>           <C>           <C>
     Equity, beginning of period                             $   224,002                 $ 174,956
      Comprehensive income:
       Net income                            $     9,383                   $     7,888
       Net change in net unrealized gains
        on AFS securities                          1,166                          (315)
                                             -----------                   -----------
        Total comprehensive income                                10,549                     7,573
      Issuance of common stock                                       978                     1,195
      Issuance of preferred stock                                      -                        -
      Cash dividends paid                                         (1,757)                   (1,452)
                                                             -----------                 ---------
     Equity, end of period                                   $   233,772                 $ 182,272
                                                             ===========                 =========

<CAPTION>
                                                           SIX MONTHS ENDED JUNE 30,
                                                        2002                    2001
                                             -----------------------------------------------------
     <S>                                     <C>             <C>           <C>           <C>
     Equity, beginning of period                             $   217,369                 $ 166,825
      Comprehensive income:
       Net income                            $    17,681                   $    14,529
       Net change in net unrealized gains
        on AFS securities                            717                         1,480
                                             -----------                   -----------
        Total comprehensive income                                18,398                    16,009
      Issuance of common stock                                     1,273                     2,337
      Issuance of preferred stock                                    242                         -
      Cash dividends paid                                         (3,510)                   (2,899)
                                                             -----------                 -----------
     Equity, end of period                                   $   233,772                 $ 182,272
                                                             ===========                 ===========
</TABLE>

     On March 7, 2002, the Company completed a private placement of 20,000
     shares of the Company's Series I Convertible Preferred Stock (the "Series I
     Preferred Stock"). Shares of the Series I Preferred Stock will convert into
     shares of the Company's common stock based upon performance goals for the
     Dallas banking office for which such shares were issued. The conversion
     ratio ranges from 1.25 shares of common stock if the performance goals are
     met prior to November 7, 2003, to 1.1 shares of common stock if the
     performance goals are met prior to November 7, 2004. After November 7,
     2004, each share of Series I Convertible Preferred Stock will automatically
     convert into one share of common stock.

4.   SEGMENTS

     Sterling Bank (the "Bank") has an 80 percent ownership interest in Sterling
     Capital Mortgage Company ("SCMC") and reports its financial position and
     results of operations on a consolidated basis. The commercial banking and
     mortgage banking segments are managed separately because each business
     requires different marketing strategies and each offers different products
     and services.

     The Company evaluates each segment's performance based on the profit or
     loss from its operations before income taxes, excluding non-recurring
     items. Intersegment financing arrangements are accounted for at current
     market rates as if they were with third parties.

     Summarized financial information by operating segment as of and for the
     six-month periods ended June 30, (in thousands) are as follows:

<TABLE>
<CAPTION>
                                                                2002                                     2001
                                             --------------------------------------  ---------------------------------------
                                              COMMERCIAL    MORTGAGE                  COMMERCIAL    MORTGAGE
                                               BANKING       BANKING       TOTAL        BANKING      BANKING        TOTAL
                                             -----------   ----------   -----------  ------------  ----------   ------------
     <S>                                     <C>           <C>          <C>          <C>           <C>          <C>
     Net interest income                     $    68,296   $        -   $    68,296  $     58,626  $        -   $     58,626
     Noninterest income                           14,124       25,060        39,184        10,936      21,277         32,213
                                             -----------   ----------   -----------  ------------  ----------   ------------
         Total revenue                            82,420       25,060       107,480        69,562      21,277         90,839
     Provision for credit losses                   5,711            -         5,711         5,472           -          5,472
     Noninterest expense                          54,288       21,139        75,427        46,917      15,466         62,383
     Conversion cost related to acquisition            -            -             -         1,030           -          1,030
                                             -----------   ----------   -----------  ------------  ----------   ------------
     Income before income taxes                   22,421        3,921        26,342        16,143       5,811         21,954
     Provision for income taxes                    7,064        1,597         8,661         5,044       2,381          7,425
                                             -----------   ----------   -----------  ------------  ----------   ------------
         Net income                          $    15,357   $    2,324   $    17,681  $     11,099  $    3,430   $     14,529
                                             ===========   ==========   ===========  ============  ==========   ============

     Total assets, June 30,                  $ 2,936,680   $   21,756   $ 2,958,436  $  2,525,858  $    7,076   $  2,532,934
                                             ===========   ==========   ===========  ============  ==========   ============
</TABLE>

                                        6

<PAGE>

     Intersegment interest was paid to Bank by SCMC in the amount of $9.4
     million for the six-month period ended June 30, 2002. Total loans of $383.9
     million in the mortgage warehouse were eliminated in consolidation as of
     June 30, 2002.

5.   ACQUISITIONS AND SIGNIFICANT DEVELOPMENTS

     On July 16, 2002, the Company announced the signing of an agreement to
     divest three offices in South Texas to an investor group headed by the
     current executive officers of the three locations. The three offices,
     Sterling's Carrizo Springs, Crystal City and Pearsall, have combined loans
     of $18 million and combined deposits of $37 million as of June 30, 2002.
     The proposed sale is subject to customary closing conditions, including
     receipt of all requisite regulatory approvals. Subject to receipt of all
     requisite regulatory approvals, the Company anticipates closing the
     transaction during the first quarter of 2003.

     On May 22, 2002, the Company announced that it had entered into a
     definitive agreement to acquire ENB Bankshares, Inc. of Dallas, Texas in a
     cash merger. ENB Bankshares, Inc. is the privately held bank holding
     company of Eagle National Bank, which operates one banking office in North
     Dallas. As of June 30, 2002, Eagle National had assets of $68 million,
     loans of $59 million and $59 million in deposits. The merger is subject to
     the satisfaction or waiver of customary closing conditions including the
     receipt of all requisite regulatory approvals and the approval of the
     shareholders of ENB Bankshares, Inc. Subject to the satisfaction or waiver
     of the closing conditions, the Company anticipates closing the transaction
     during the third quarter of 2002.

     On December 17, 2001, the Company acquired Community Bancshares, Inc.
     ("Community") and its subsidiary bank, Community Bank in a stock and cash
     merger. The shareholders of Community Bancshares, Inc. received $14.6
     million in cash and 1,443,753 shares of the Company's common stock for all
     of the outstanding shares of common stock of Community Bancshares, Inc. The
     stock issuance occurred after the three-for-two stock split effected by the
     Company in September 2001. Community Bank operated two banking offices in
     west Houston. During May 2002, the Company completed the operational
     integration of Community Bank and Sterling Bank. This acquisition was
     accounted for using the purchase method of accounting. Goodwill of $28.7
     million was recorded in connection with this acquisition. In June 2002, the
     Company sold Community Bank's charter to Sabine State Bank & Trust Company.

     On August 23, 2001, the Company acquired Lone Star Bancorporation, Inc. and
     its subsidiary bank, Lone Star Bank in a stock-for-stock merger. The
     shareholders of Lone Star Bancorporation, Inc. received an aggregate of
     1,760,000 shares of the Company's common stock for all of the outstanding
     shares of common stock of Lone Star Bancorporation, Inc. The stock issuance
     occurred prior to the three-for-two stock split effected by the Company in
     September 2001. All previously reported amounts have been restated to
     reflect this transaction which was accounted for using the "pooling of
     interests" method. Lone Star Bank operated four banking offices in the
     Houston metropolitan area. The Company merged Lone Star Bank into Sterling
     Bank in February 2002.

     On July 24, 2001, the Company's Board of Directors declared a three-for-two
     stock split to be effected in the form of a stock dividend on its common
     stock to shareholders of record on September 4, 2001. Cash paid in lieu of
     fractional shares was based on the average of the high and low bids on the
     record date, as adjusted for the split. The payment date for the stock
     dividend was September 18, 2001.

     On March 22, 2001, the Company acquired CaminoReal Bancshares of Texas,
     Inc. ("CaminoReal") and its subsidiary bank, CaminoReal Bank, National
     Association, for an aggregate cash purchase price of $51.8 million.
     CaminoReal Bank had four banking offices in San Antonio, Texas and four

                                        7

<PAGE>

     banking offices in the south Texas cities of Eagle Pass, Carrizo Springs,
     Crystal City and Pearsall. During June 2001, the Company completed the
     operational integration of CaminoReal Bank and Sterling Bank. This
     acquisition was accounted for using the purchase method of accounting.
     Goodwill of $21.2 million was recorded in connection with this acquisition.

     In February 2001, the Company formed Sterling Bancshares Capital Trust II
     ("Trust II") and Sterling Bancshares Capital Trust III, each is a trust
     formed under the laws of the State of Delaware. On March 21, 2001, Trust II
     issued $28,750,000 of 9.20% Trust Preferred Securities and invested the
     proceeds thereof in the 9.20% Junior Subordinated Deferrable Interest
     Debentures (the "9.20% Junior Subordinated Debentures") issued by the
     Company. The 9.20% Junior Subordinated Debentures will mature on March 21,
     2031, which date may be shortened to a date not earlier than March 21, 2006
     if certain conditions are met (including the Company having received prior
     approval of the Federal Reserve and any other required regulatory
     approvals). The 9.20% Trust Preferred Securities will be subject to
     mandatory redemption in a like amount contemporaneously with the optional
     prepayment of the 9.20% Junior Subordinated Debentures by the Company. The
     9.20% Junior Subordinated Debentures may be prepaid upon the occurrence and
     continuation of certain events including a change in the tax statutes or
     regulatory capital treatment of the 9.20% Trust Preferred Securities. In
     each case, redemption will be made at a price equal to 100% of the face
     amount of the 9.20% Trust Preferred Securities, plus the accrued and unpaid
     distributions thereon through the redemption date.

6.   RECENT ACCOUNTING PRONOUNCEMENTS

     In June 2001, FASB issued Statement No. 141, "Business Combinations" ("SFAS
     141") and Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS
     142"). These statements establish new standards for accounting and
     reporting for business combinations and for goodwill and intangible assets
     resulting from business combinations. SFAS 141 applies to all business
     combinations initiated after June 30, 2001, and requires the application of
     the purchase method of accounting to all business combinations. The Company
     implemented SFAS 141 on July 1, 2001. SFAS 142 terminates the amortization
     of the goodwill presently on the Company's books. Such amortization,
     after-tax, was $320 thousand for six months ended June 30, 2001 and $246
     thousand for the three months ended June 30, 2001. Under SFAS 142, the
     Company is required to periodically assess its goodwill and other
     intangible assets for potential impairment, based on the fair value of the
     reporting unit at which the goodwill is recorded. The Company implemented
     SFAS 142 on January 1, 2002. Goodwill currently carried on the balance
     sheet was subject to an initial assessment for impairment. The Company has
     completed its initial assessment review and determined that there is no
     impairment of goodwill as of January 1, 2002. The adoption of this
     statement did not have a material impact on the Company's financial
     position of results of operations with the exception of no longer
     amortizing goodwill.

     In August 2001, the FASB issued Statement No. 143, Accounting for Asset
     Retirement Obligations ("SFAS 143"), and Statement No. 144, Accounting for
     Impairment or Disposal of Long Lived Assets ("SFAS 144"). SFAS 143 requires
     the recording of the fair value of a liability for an asset retirement
     obligation in the period in which it is incurred, and is effective January
     1, 2003. SFAS 144 is effective January 1, 2002, and supersedes existing
     accounting literature dealing with impairment and disposal of long lived
     assets, including discontinued operations. It addresses financial
     accounting and reporting for the impairment of long lived assets and for
     long lived assets to be disposed of, and expands current reporting for
     discontinued operations to include disposals of a "component" of an entity
     that has been disposed of or is classified as held for sale. The Company's
     management does not believe that the implementation of these two standards
     will have a material impact on the Company's consolidated financial
     statements.

                                        8

<PAGE>

     In April 2002, the FASB issued Statement of Financial Accounting Standards
     No. 145 ("SFAS 145"), "Rescission of FASB Statements No. 4, 44, and 64,
     Amendment of FASB Statement No. 13, and Technical Corrections ". The
     provisions of this Statement related to the rescission of Statement 4 shall
     be applied in fiscal years beginning after May 15, 2002. The provisions in
     paragraphs 8 and 9(c) of this Statement related to Statement 13 shall be
     effective for transactions occurring after May 15, 2002. All other
     provisions of this Statement shall be effective for financial statements
     issued on or after May 15, 2002. SFAS 145 amends other existing
     authoritative pronouncements to make various technical corrections, clarify
     meanings, or describe their applicability under changed conditions. The
     Company does not believe that the adoption of SFAS 145 will have a
     significant impact on its financial statements.

     In June 2002, the Financial Accounting Standards Board ("FASB") issued
     Statement of Financial Accounting Standards No. 146 ("SFAS 146"),
     "Accounting for Costs Associated with Exit or Disposal Activities." SFAS
     146 addresses accounting and reporting costs associated with exit or
     disposal activities and nullifies Emerging Issues Task Force (EITF) Issue
     94-3, "Liability Recognition for Certain Employee Termination Benefits and
     Other Costs to Exit an Activity". This statement requires that a liability
     for a cost associated with an exit or disposal activity shall be recognized
     and measured initially at its fair value in the period which the liability
     in incurred. This statement is effective for exit or disposal activities
     that are initiated after December 31, 2002. The Company does not believe
     that the adoption of SFAS 146 will have a significant impact on its
     financial statements.

7.   INTANGIBLE ASSETS

     Under the provisions of SFAS No. 142, goodwill was subjected to an initial
     assessment for impairment. The Company completed its initial assessment and
     determined that there was no impairment of goodwill as of January 1, 2002.
     The Company will review goodwill on an annual basis for impairment or as
     events occur or circumstances change that would more likely than not reduce
     fair value of a reporting unit below its carrying amount. The changes in
     the carrying amount of goodwill by reportable segment for the year ended
     December 31, 2001 and the six months ended June 30, 2002 are as follows (in
     thousands):

<TABLE>
<CAPTION>
         (Unaudited)                           COMMERCIAL BANKING
                                       ------------------------------------   MORTGAGE
                                        HOUSTON    SAN ANTONIO  SOUTH TEXAS    BANKING      TOTAL
                                       ----------  -----------  -----------  ----------   ----------
     <S>                               <C>         <C>          <C>          <C>          <C>
     Balance, January 1, 2001          $    1,110  $         -  $         -  $    4,842   $    5,952
         Amortization                        (185)        (583)        (205)       (279)      (1,252)
         Purchase price adjustment              -            -            -         217          217
         CaminoReal acquisition                 -       15,662        5,517           -       21,179
         Community acquisition             28,716            -            -           -       28,716
                                       -------------------------------------------------------------
     Balance, December 31, 2001            29,641       15,079        5,312       4,780       54,812
         Purchase price adjustment              -            -            -         838          838
                                       ----------  -----------  -----------  ----------   ----------
     Balance, June 30, 2002            $   29,641  $    15,079  $     5,312  $    5,618   $   55,650
                                       ==========  ===========  ===========  ==========   ==========
</TABLE>

                                        9

<PAGE>

     The Company adopted SFAS No. 142, in its entirety, effective January 1,
     2002. The following presents the net income that would have been reported,
     exclusive of goodwill amortization.

<TABLE>
<CAPTION>
          (Dollars in thousands)                           THREE MONTHS ENDED           SIX MONTHS ENDED
          (unaudited)                                           JUNE 30,                    JUNE 30,
                                                        ------------------------    -----------------------
                                                           2002          2001          2002          2001
                                                        ------------------------    -----------------------
          <S>                                           <C>          <C>            <C>          <C>
          Reported net income                           $     9,383  $     7,888    $   17,681   $   14,529
          Add: Goodwill amortization, net of taxes                -          246             -          320
                                                        -----------  -----------    ----------   ----------
          Adjusted net income                           $     9,383  $     8,134    $   17,681   $   14,849
                                                        ===========  ===========    ==========   ==========

          Reported diluted earnings per share           $      0.21  $      0.18    $     0.40   $     0.34
          Add: Goodwill amortization, net of taxes                -            -             -            -
                                                        -----------  -----------    ----------   ----------
          Adjusted diluted earnings per share           $      0.21  $      0.18    $     0.40   $     0.34
                                                        ===========  ===========    ==========   ==========
</TABLE>

     The changes in the carrying amounts of intangible assets other than
     goodwill for the year ended December 31, 2001 and six months ended June 30,
     2002 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                    CORE          MORTGAGE
                   (Unaudited)                     DEPOSIT       SERVICING
                                                  INTANGIBLE       RIGHTS        TOTAL
                                                 ------------   ------------   ----------
               <S>                               <C>            <C>            <C>
               Balance, January 1, 2001          $          -   $        907   $      907
                   Amortization                             -         (1,154)      (1,154)
                   Servicing rights originated              -         19,839       19,839
                   Community acquisition                2,036              -        2,036
                                                 ------------   ------------   ----------
               Balance, Decmember 31, 2001              2,036         19,592       21,628
                   Amortization                          (191)        (1,842)      (2,033)
                   Servicing rights originated              -          3,359        3,359
                                                 ------------   ------------   ----------
                   Balance, June 30, 2002        $      1,845   $     21,109   $   22,954
                                                 ============   ============   ==========
</TABLE>

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

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including Management's Discussion and
Analysis of Financial Condition and Results of Operations, contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements discuss future
expectations, activities or events and by their nature, they are subject to
risks and uncertainties. Forward-looking statements can be identified by the
fact that they do not relate strictly to historical or current facts. They often
include words such as "believe," "expect," "anticipate," "intend," "plan,"
"estimate," or words of similar meaning, or future or conditional verbs such as
"will," "would," "should," "could," or "may." Forward-looking statements speak
only as of the date they are made. The Company will not update these
forward-looking statements to reflect circumstances or events that occur after
the date the forward-looking statements are made.

Many possible factors could affect the Company's future financial performance
and actual results may differ materially from what is expressed in any
forward-looking statement. Important factors that could cause actual results to
differ materially from estimates or projections contained in forward-looking
statements include, but are not limited to, the following: general business and
economic conditions in the markets the Company serves may be less favorable than
anticipated which could

                                       10

<PAGE>

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; the Company's liquidity requirements could be adversely affected by
changes in its assets and liabilities; 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; and changes in fiscal and governmental policies of the United
States federal government could have an adverse effect on the Company's
business. 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, 2001, filed with the Securities and Exchange Commission under the
Securities Exchange Act of 1934.

SIGNIFICANT DEVELOPMENTS

On July 16, 2002, the Company announced that it had entered into a definitive
agreement to sell three offices in south Texas to an investor group headed by
the current executive officers of the three locations. The three offices, the
Bank's Carrizo Springs, Crystal City and Pearsall offices, have combined loans
of $18 million and combined deposits of $37 million as of June 30, 2002. The
proposed sale is subject to customary closing conditions, including receipt of
all requisite regulatory approvals. Subject to receipt of all requisite
regulatory approvals, the Company anticipates closing the transaction during the
first quarter of 2003.

On May 22, 2002, the Company announced that it had entered into a definitive
merger agreement to acquire Dallas based ENB Bankshares, Inc. in a cash merger.
ENB Bankshares, Inc. is the privately held bank holding company of Eagle
National Bank, which operates one banking office in north Dallas, Texas. As of
June 30, 2002, Eagle National Bank had assets of $68 million, loans of $59
million and $59 million in deposits. The proposed merger is subject to customary
closing conditions including receipt of all requisite regulatory approvals and
approval of ENB Bankshares, Inc.'s shareholders. Subject to the satisfaction or
waiver of the closing conditions, the Company anticipates closing the
transaction during the third quarter of 2002.

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SAME PERIOD IN  2001

NET INCOME - Net income for the six-month period ended June 30, 2002 was $17.7
million as compared to $14.5 million for the same period in 2001, an increase of
approximately $3.2 million or 21.7%. This increase is primarily attributable to
continued loan and deposit growth as well as the acquisitions of CaminoReal and
Community.

NET INTEREST INCOME - Net interest income for the six-month period ended June
30, 2002, was $68.3 million, as compared to $58.6 million for the same period in
2001, an increase of $9.7 million or 16.5%. The increase in net interest income
is primarily due to the growth in average earning assets of $386.5 million or
18.9% from the period ended June 30, 2001 to June 30, 2002. The growth in
average earning assets related to the acquisitions of CaminoReal and Community
was 11.1%. While average earning assets for the period ended June 30, 2002
increased over a year ago, the yield decreased 161 basis points from 8.54% for
the six-month period ended June 30, 2001, to 6.93% for the same period in 2002.
During 2001, the Federal Reserve Bank decreased the discount rate 475 basis
points. Consequently, the Bank's yields decreased in 2001 and 2002 as a result
of the Bank lowering its prime rate in relation to the Federal Reserve
decreases. As of June 30, 2002, average interest bearing liabilities were $1.7
billion, an increase of $222.8 million or 15.4% from June 30, 2001. Average
interest bearing deposits at June 30, 2002 were $1.5 billion, an increase of
14.6% from June 30, 2001.

                                       11

<PAGE>

The increase in average interest bearing deposits related to the acquisition of
CaminoReal and Community was 11.8%. The cost of interest bearing liabilities
decreased 208 basis points from 3.94% for the first six months of 2001 to 1.86%
during the same period in 2002. The decrease in the cost of interest bearing
liabilities is primarily the result of the decrease in the Federal Reserve
Bank's discount rate in 2001. The Company's 5.72% tax equivalent net interest
margin for the six months ended June 30, 2002 decreased from the 5.84% net
interest margin recorded during the same period in 2001.

The following schedule gives a comparative analysis of the Company's daily
average interest-earning assets and interest-bearing liabilities for the
six-month periods ended June 30, 2002 and 2001, respectively:

                           CONSOLIDATED YIELD ANALYSIS
                            SIX MONTHS ENDED JUNE 30,
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                        2002                                   2001
                                                      ----------------------------------------   --------------------------------
YIELD ANALYSIS                                           AVERAGE                     AVERAGE       AVERAGE                AVERAGE
                                                         BALANCE      INTEREST        YIELD        BALANCE     INTEREST    YIELD
                                                      -----------    -----------    ----------   -----------   --------   -------
<S>                                                   <C>            <C>                  <C>    <C>           <C>           <C>
INTEREST EARNING ASSETS:
Interest bearing deposits in financial institutions   $     2,266    $        59          5.25%  $     1,115   $     35      6.33%
Federal funds sold                                         30,969            260          1.69%       24,923        556      4.50%
Securites purchased under agreements to resell              4,648             79          3.43%       40,219      1,214      6.09%
Trading assets                                            102,050          1,993          3.94%       19,740        797      8.14%
Investment securities (taxable)                           255,652          7,811          6.16%      265,811      8,802      6.68%
Investment securities (tax-exempt)                         70,215          1,520          4.37%       77,711      1,690      4.39%
Loans held for sale (taxable)                             269,961          9,798          7.32%      162,978      6,173      7.64%
Loans held for investment (taxable)                     1,695,509         61,996          7.37%    1,453,249     67,413      9.35%
Loans (tax-exempt)                                          5,046            157          6.27%        4,109        125      6.13%
                                                      -----------    -----------    ----------   -----------   --------   -------
  Total Interest Earning Assets                         2,436,316         83,673          6.93%    2,049,855     86,805      8.54%

NONINTEREST EARNING ASSETS:
Cash and due from banks                                    97,022                                     82,998
Premises and equipment, net                                54,574                                     51,768
Other assets                                              202,922                                    136,206
Allowance for credit losses                               (24,014)                                   (18,864)
                                                      -----------                                -----------
  Total Noninterest Earning Assets                        330,504                                    252,108
                                                      -----------                                -----------

  TOTAL ASSETS                                        $ 2,766,820                                $ 2,301,963
                                                      ===========                                ===========
INTEREST BEARING LIABILITIES:
Demand and savings deposits                               878,743    $     4,712          1.08%  $   731,972   $  9,595      2.64%
Certificates and other time deposits                      580,393          8,544          2.97%      541,474     14,482      5.39%
Other borrowed funds                                      186,275          1,721          1.86%      168,441      4,036      4.83%
Notes payable                                              20,879            400          3.86%        1,600         66      8.32%
                                                      -----------    -----------    ----------   -----------   --------   -------
  Total Interest Bearing Liabilities                    1,666,290         15,377          1.86%    1,443,487     28,179      3.94%

NONINTEREST BEARING LIABILITIES:
   Demand deposits                                        780,822                                    617,459
   Other liabilities                                       35,002                                     20,003
                                                      -----------                                -----------
    Total Noninterest Bearing Liabilities                 815,824                                    637,462

Trust preferred securities                                 57,500                                     44,793
Shareholders' equity                                      227,206                                    176,221
                                                      -----------                                -----------

  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY          $ 2,766,820                                $ 2,301,963
                                                      ===========                                ===========
NET INTEREST INCOME & MARGIN                                         $    68,296          5.65%                $ 58,626      5.77%
                                                                     ===========    ==========                 ========   =======
NET INTEREST INCOME & MARGIN (TAX EQUIVALENT)                        $    69,121          5.72%                $ 59,413      5.84%
                                                                     ===========    ==========                 ========   =======
</TABLE>

PROVISION FOR CREDIT LOSSES - The provision for credit losses for the six months
ended June 30, 2002 was $5.7 million, as compared to $5.5 million for the same
period in 2001, an increase of $239

                                       12

<PAGE>

thousand or 4.4%. This increase in the provision for credit losses is to support
the loan growth for the six months ended 2002. After net charge-offs of $4.4
million, the Company's allowance for credit losses increased by $1.3 million
from $22.9 million on December 31, 2001, to $24.2 million on June 30, 2002.
Please refer to the subsequent discussion of Allowance for Credit Losses for
additional insight to management's approach and methodology in estimating the
allowance for credit losses.

NONINTEREST INCOME - Total non-interest income for the six months ended June 30,
2002 was $39.2 million, as compared to $32.2 million for the same period in
2001, an increase of $7.0 million or 21.6%.

Noninterest income for the six months ended June 30, 2002 and 2001,
respectively, is summarized as follows:

<TABLE>
<CAPTION>
                                                      2002                                     2001
                                  ------------------------------------------   ---------------------------------------
                                   COMMERCIAL       MORTGAGE                   COMMERCIAL      MORTGAGE
                                    BANKING         BANKING       COMBINED       BANKING        BANKING      COMBINED
                                  ------------    ------------   -----------   -----------   ------------   ----------
<S>                               <C>             <C>            <C>           <C>           <C>            <C>
Customer service fees             $      8,252    $          -   $     8,252   $     6,686   $         -    $    6,686
Gain on sale of mortgage loans               -          11,670        11,670             -         11,475       11,475
Mortgage origination income                  -           9,006         9,006             -          6,098        6,098
Other                                    5,872           4,384        10,256         4,250          3,704        7,954
                                  ------------    ------------   -----------   -----------   ------------   ----------
                                  $     14,124    $     25,060   $    39,184   $    10,936   $     21,277   $   32,213
                                  ============    ============   ===========   ===========   ============   ==========
</TABLE>

COMMERCIAL BANKING SEGMENT - Noninterest income from commercial banking for the
six-month period ended June 30, 2002 was $14.1 million, as compared to $10.9
million for the same period in 2001, an increase of $3.2 million or 29.2%.
Customer service fees increased $1.6 million as a result of the acquisitions of
Community and CaminoReal and the growth in deposit transaction accounts. Other
noninterest income increased $227 thousand from gain on the sale of trading
assets. The trading department was established in the second quarter of 2001. In
2002, the Bank began selling the guaranteed portion of SBA loans. A premium of
$186 thousand was recognized during the first six months of 2002 from the
Company's sale of the guaranteed portion of SBA loans. Additionally, the Company
sold the charter for Community Bank to Sabine State Bank & Trust Company in June
2002 for $150 thousand.

MORTGAGE BANKING SEGMENT - Noninterest income from the mortgage banking segment
increased 17.8% from $21.3 million for the six month period ended June 30, 2001
to $25.1 million for the same period in 2002. The income from the mortgage
banking segment typically consists of origination fees and gains on sale of
mortgage loans. Since June 2001, twenty-three new locations have been opened
with fourteen of the new locations in California. During the first six months of
2002, SCMC had $1.5 billion in loan fundings as compared to $1.2 billion for the
same period in 2001. Additionally, SCMC has a loan servicing portfolio of $1.2
billion as of June 30, 2002. Loan servicing fees totaled $1.5 million for the
first six months of 2002.

                                       13

<PAGE>

NONINTEREST EXPENSE - Noninterest expense increased $12.0 million or 18.9%, to
$75.4 million for the six-months ended June 30, 2002 as compared to $63.4
million for the same period in 2001.

Noninterest expense for the six months ended June 30, 2002 and 2001,
respectively, is summarized as follows:

<TABLE>
<CAPTION>
                                                                  2002                                     2001
                                                 ------------------------------------     -------------------------------------
                                                 COMMERCIAL     MORTGAGE                  COMMERCIAL     MORTGAGE
                                                  BANKING       BANKING      COMBINED      BANKING        BANKING     COMBINED
                                                 ----------     --------     --------     ----------     --------     ---------
<S>                                              <C>            <C>          <C>          <C>            <C>          <C>
Salaries and employee benefits                   $   30,538     $ 11,775     $ 42,313     $   26,261     $ 10,185     $ 36,446
Occupancy expense                                     7,512        3,460       10,972          6,461        1,981        8,442
Net loss and  carrying costs of
 real estate acquired by foreclosure                     71            -           71             97            -           97
FDIC assessment                                         189            -          189            210            -          210
Technology                                            2,432          121        2,553          2,484          188        2,672
Postage and delivery charges                          1,119          407        1,526            904          267        1,171
Supplies                                                648          579        1,227            694          208          902
Professional fees                                     1,864          182        2,046          1,243           82        1,325
Minority interest expense                             2,655          581        3,236          2,061          858        2,919
Conversion costs related to acquisitions                  -            -            -          1,030            -        1,030
Other                                                 7,260        4,034       11,294          6,502        1,697        8,199
                                                 ----------     --------     --------     ----------     --------     ---------
                                                 $   54,288     $ 21,139     $ 75,427     $   47,947     $ 15,466     $ 63,413
                                                 ==========     ========     ========     ==========     ========     =========
</TABLE>

COMMERCIAL BANKING SEGMENT - Noninterest expenses related to commercial banking
for the six month period ended June 30, 2002 were $54.3 million, as compared to
$47.9 million for the same period in 2001, an increase of $6.3 million or 13.2%.
Salaries and employee benefits from commercial banking for the six-month period
ended June 30, 2002 were $30.5 million, as compared to $26.3 million for the
same period in 2001, an increase of $4.3 million or 16.3%. Increased salaries
and employee benefits related to the acquisitions of Community and CaminoReal
for the first six months of 2002 were $2.1 million. Additionally, the Company
established a sales and trading department during the second quarter of 2001.

Occupancy expenses from commercial banking for the six-month period ended June
30, 2002 were $7.5 million, as compared to $6.5 million for the same period in
2001, an increase of $1.1 million or 16.3%. Increased expenses related to the
acquisitions of Community and CaminoReal for the first six months of 2002 were
$806 thousand.

Professional fees relating to commercial banking for the six-month period ended
June 30, 2002 were $1.9 million, as compared to $1.2 million for the same period
in 2001, an increase of $621 thousand or 50.0%. Computer software consulting
fees related to the trustee deposits held by the Bank was $412 thousand in 2002.
Also the Company incurred expenses of $109 thousand in the second quarter of
2002 related to its 401(k) plan conversion.

Conversion costs related to the acquisition of CaminoReal in March 2001 totaled
$1.0 million. The costs include retention and severance expenses as well as data
processing costs related to the conversion of CaminoReal's systems.

Minority interest expense increased $594 thousand or 28.8% from the six months
ended June 30, 2001 as compared to the same period in 2002. The increase is
related to the interest due on the additional trust preferred securities issued
in March 2001. Please refer to the subsequent discussion of Trust Preferred
Securities for additional details of the issuance.

Other expenses from commercial banking for the six-month period ended June 30,
2002 were $7.3 million, as compared to $6.5 million for the same period in 2001,
an increase of $758 thousand or 11.7%. The increase in other expenses related to
the CaminoReal and Community acquisitions was $456 thousand which includes
amortization of the core deposit intangible of $191 thousand.

                                       14

<PAGE>

MORTGAGE BANKING SEGMENT - Noninterest expenses related to mortgage banking for
the six-month period ended June 30, 2002 were $21.1 million, as compared to
$15.5 million for the same period in 2001, an increase of $5.7 million or 36.7%.
The increase in expenses is due to variable expenses related to the increase in
loan fundings and the opening of twenty-three new locations since June 2001.
Employees increased from 519 at June 30, 2001 to 975 at June 30, 2002.
Additionally, the amortization of mortgage servicing rights increased $1.7
million from June 30, 2001 to June 30, 2002. Mortgage servicing rights were $8.1
million at June 30, 2001 as compared $21.1 million at June 30, 2002, an increase
of 160.1%.

Provision for Income Taxes - The provision for income taxes as a percent of net
income before taxes decreased from 33.8% for the six-month period ended June 30,
2001 to 32.9% for the same period in 2002. This decrease is primarily due to the
elimination of goodwill amortization.

THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO SAME PERIOD IN 2001

NET INCOME - Net income for the three-month period ended June 30, 2002 was $9.4
million as compared to $7.9 million for the same period in 2001, an increase of
approximately $1.5 million or 19.0%. This increase is primarily attributable to
continued loan and deposit growth as well as the acquisition of Community in
December 2001.

NET INTEREST INCOME - Net interest income for the three-month period ended June
30, 2002, was $35.3 million, as compared to $31.4 million for the same period in
2001, an increase of $3.8 million or 12.2%. The increase in net interest income
is primarily due to the growth in average earning assets of $277.1 million or
12.5% from the period ended June 30, 2001 to June 30, 2002. The growth in
average earning assets related to the acquisition of Community was 5.5%. While
average earning assets for the period ended June 30, 2002 increased over a year
ago, the yield decreased 138 basis points from 8.28% for the three-month period
ended June 30, 2001, to 6.90% for the same period in 2002. During 2001, the
Federal Reserve Bank decreased the discount rate 475 basis points. Consequently,
the Bank's yields decreased in 2001 and 2002 as a result of the Bank lowering
its prime rate in relation to the Federal Reserve decreases. As of June 30,
2002, average interest bearing liabilities were $1.7 billion, an increase of
$132.9 million or 8.5% from June 30, 2001. Average interest bearing deposits at
June 30, 2002 were $1.5 billion, an increase of 7.1% from June 30, 2001. The
increase in average interest bearing deposits related to the acquisition of
Community was 5.6%. The cost of interest bearing liabilities decreased 186 basis
points from 3.65% for the three months ended June 30, 2001 to 1.79% during the
same period in 2002. The decrease in the cost of interest bearing liabilities is
primarily the result of the decrease in the Federal Reserve Bank's discount rate
in 2001. The Company's 5.75% tax equivalent net interest margin for the three
months ended June 30, 2002 decreased from the 5.77% tax equivalent net interest
margin recorded during the same period in 2001.

                                       15

<PAGE>

The following schedule gives a comparative analysis of the Company's daily
average interest-earning assets and interest-bearing liabilities for the
three-month periods ended June 30, 2002 and 2001, respectively:

                           CONSOLIDATED YIELD ANALYSIS
                           THREE MONTHS ENDED JUNE 30,
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                      2002                                   2001
                                                       ----------------------------------     -----------------------------------
YIELD ANALYSIS                                           AVERAGE                  AVERAGE       AVERAGE                   AVERAGE
                                                         BALANCE       INTEREST    YIELD        BALANCE       INTEREST     YIELD
                                                       -----------     --------   -------     -----------     --------    -------
<S>                                                    <C>             <C>           <C>      <C>             <C>            <C>
INTEREST EARNING ASSETS:
Interest bearing deposits in financial institutions    $     2,276     $     30      5.29%    $     1,460     $     25       6.87%
Federal funds sold                                          26,459          116      1.76%         25,723          217       3.38%
Securites purchased under agreements to resell                 762            8      4.21%         43,778          565       5.18%
Trading assets                                             100,851          943      3.75%         39,263          797       8.14%
Investment securities (taxable)                            251,283        3,835      6.12%        302,374        5,045       6.69%
Investment securities (tax-exempt)                          67,824          739      4.37%         76,842          837       4.37%
Loans held for sale (taxable)                              311,533        5,722      7.37%        180,566        3,405       7.56%
Loans held for investment (taxable)                      1,721,485       31,335      7.30%      1,535,663       34,662       9.05%
Loans (tax-exempt)                                           4,994           80      6.43%          4,689           65       5.56%
                                                       -----------     --------   -------     -----------     --------    -------
  Total Interest Earning Assets                          2,487,467       42,808      6.90%      2,210,358       45,618       8.28%

NONINTEREST EARNING ASSETS:
Cash and due from banks                                     94,437                                 88,127
Premises and equipment, net                                 55,046                                 54,811
Other assets                                               208,437                                157,073
Allowance for credit losses                                (24,267)                               (20,335)
                                                       -----------                            -----------
  Total Noninterest Earning Assets                         333,653                                279,676
                                                       -----------                            -----------

  Total Assets                                         $ 2,821,120                            $ 2,490,034
                                                       ===========                            ===========

INTEREST BEARING LIABILITIES:
Demand and savings deposits                                884,354     $  2,332      1.06%    $   788,577     $  4,812       2.45%
Certificates and other time deposits                       577,033        4,032      2.80%        576,542        7,309       5.08%
Other borrowed funds                                       210,922          995      1.89%        193,569        2,047       4.24%
Notes payable                                               20,879          197      3.78%          1,600           33       8.27%
                                                       -----------     --------   -------     -----------     --------    -------
  Total Interest Bearing Liabilities                     1,693,188        7,556      1.79%      1,560,288       14,201       3.65%

NONINTEREST BEARING LIABILITIES:
    Demand deposits                                        804,519                                667,495
    Other liabilities                                       34,915                                 23,118
                                                       -----------                            -----------
      Total Noninterest Bearing Liabilities                839,434                                690,613

Trust preferred securities                                  57,500                                 57,500
Shareholders' equity                                       230,998                                181,633
                                                       -----------                            -----------

  Total Liabilities and Shareholders' Equity           $ 2,821,120                            $ 2,490,034
                                                       ===========                            ===========

Net Interest Income & Margin                                           $ 35,252      5.68%                    $ 31,417       5.70%
                                                                       ========   =======                     ========    =======

Net Interest Income & Margin (tax equivalent)                          $ 35,657      5.75%                    $ 31,815       5.77%
                                                                       ========   =======                     ========    =======
</TABLE>

PROVISION FOR CREDIT LOSSES - The provision for credit losses for the second
quarters of 2002 and 2001 was $3.1 million. After net charge-offs of $2.7
million, the Company's allowance for credit losses increased by $419 thousand
from $23.8 million on March 31, 2002, to $24.2 million on June 30, 2002. Please
refer to the subsequent discussion of Allowance for Credit Losses for additional
insight to management's approach and methodology in estimating the allowance for
credit losses.

                                       16

<PAGE>

NONINTEREST INCOME - Total non-interest income for the quarter ended June 30,
2002 was $23.0 million, as compared to $19.4 million for the same period in
2001, an increase of $3.6 million or 18.6%.

Noninterest income for the three months ended June 30, 2002 and 2001,
respectively, is summarized as follows:

<TABLE>
<CAPTION>
                                                                  2002                                      2001
                                                  ------------------------------------     ------------------------------------
                                                  COMMERCIAL     MORTGAGE                  COMMERCIAL     MORTGAGE
                                                   BANKING        BANKING     COMBINED      BANKING        BANKING     COMBINED
                                                  ------------------------------------     ------------------------------------
<S>                                               <C>            <C>          <C>          <C>            <C>          <C>
Customer service fees                             $    4,150     $      -     $  4,150     $    3,889     $      -     $  3,889
Gain on sale of mortgage loans                             -        7,541        7,541              -        7,191        7,191
Mortgage origination income                                -        5,613        5,613              -        3,771        3,771
Other                                                  3,214        2,476        5,690          2,107        2,434        4,541
                                                  ----------     --------     --------     ----------     --------     --------
                                                  $    7,364     $ 15,630     $ 22,994     $    5,996     $ 13,396     $ 19,392
                                                  ==========     ========     ========     ==========     ========     ========
</TABLE>

COMMERCIAL BANKING SEGMENT - Noninterest income from commercial banking for the
three-month period ended June 30, 2002 was $7.4 million, as compared to $6.0
million for the same period in 2001, an increase of $1.4 million or 22.8%. Other
noninterest income increased 52.5% from $2.1 million for the three months ended
June 30, 2001 to $3.2 million for the same period in 2002. Included in the
increase is a $105 thousand increase from gains on the sale of trading assets.
The trading department was established in the second quarter of 2001. In 2002,
the Bank began selling the guaranteed portion of SBA loans. A premium of $186
thousand was recognized in the second quarter of 2002 from the Company's sale of
the guaranteed portion of SBA loans. Also the Bank had an increase of $241
thousand due to growth in the debit card and brokerage operations. Additionally,
the Company sold the charter for Community Bank to Sabine State Bank & Trust
Company in June 2002 for $150 thousand.

MORTGAGE BANKING SEGMENT - Noninterest income from the mortgage banking segment
increased 16.7% from $13.4 million for the second quarter of 2001 to $15.6
million for the same period in 2002. The income from the mortgage banking
segment typically consists of origination fees and gains on sale of mortgage
loans. Since June 2001, twenty-three new locations have been opened with
fourteen of the new locations in California. During the second quarter of 2002,
SCMC had $852.0 million in loan fundings as compared to $670.8 million for the
same period in 2001.

NONINTEREST EXPENSE - Noninterest expense increased $5.7 million or 16.1%, to
$41.1 million for the three month period ending June 30, 2002 as compared to
$35.4 million for the same period in 2001.

Noninterest expense for the three months ended June 30, 2002 and 2001,
respectively, is summarized as follows:

<TABLE>
<CAPTION>
                                                                  2002                                      2001
                                                  ------------------------------------     ------------------------------------
                                                  COMMERCIAL     MORTGAGE                  COMMERCIAL     MORTGAGE
                                                   BANKING       BANKING      COMBINED       BANKING       BANKING     COMBINED
                                                  ------------------------------------     ------------------------------------
<S>                                               <C>            <C>          <C>          <C>            <C>          <C>
Salaries and employee benefits                    $   15,562     $  7,682     $ 23,244     $   13,943     $  6,697     $ 20,640
Occupancy expense                                      3,835        1,955        5,790          3,604        1,105        4,709
Net loss and  carrying costs of
 real estate acquired by foreclosure                       5            -            5             82            -           82
FDIC assessment                                          137            -          137            114            -          114
Technology                                             1,275           64        1,339          1,414           77        1,491
Postage and delivery charges                             556          240          796            506          157          663
Supplies                                                 291          397          688            390          105          495
Professional fees                                      1,250           87        1,337            620           38          658
Minority interest expense                              1,325          366        1,691          1,313          527        1,840
Other                                                  3,663        2,380        6,043          3,695          974        4,669
                                                  ----------     --------     --------     ----------     --------     --------
                                                  $   27,899     $ 13,171     $ 41,070     $   25,681     $  9,680     $ 35,361
                                                  ==========     ========     ========     ==========     ========     ========
</TABLE>

                                       17

<PAGE>

COMMERCIAL BANKING SEGMENT - Noninterest expenses related to commercial banking
for the second quarter of 2002 were $27.9 million, as compared to $25.7 million
for the same period in 2001, an increase of $2.2 million or 8.6%. Salaries and
employee benefits from commercial banking for the three-month period ended June
30, 2002 were $15.6 million, as compared to $13.9 million for the same period in
2001, an increase of $1.6 million or 11.6%. Increased salaries and employee
benefits expenses related to the acquisition of Community in December 2001 were
$460 thousand. Additionally, the Company established a sales and trading
department during the second quarter of 2001.

Professional fees from commercial banking for the three-month period ended June
30, 2002 were $1.3 million, as compared to $620 thousand for the same period in
2001, an increase of $630 thousand or 101.6%. Computer software consulting
related to the trustee deposits held by the Bank was $412 thousand in the second
quarter of 2002. Also the Company incurred expenses of $109 thousand in the
second quarter of 2002 related to its 401(k) plan conversion.

MORTGAGE BANKING SEGMENT - Noninterest expenses related to mortgage banking for
the three-month period ended June 30, 2002 were $13.2 million, as compared to
$9.7 million for the same period in 2001, an increase of $3.5 million or 36.1%.
The increase in expenses is due to variable expenses related to the increase in
loan fundings and the opening of twenty-three new locations since June 2001.
Employees increased from 519 at June 30, 2001 to 975 at June 30, 2002.
Additionally, the amortization of mortgage servicing rights increased $915
thousand from the three months ended June 30, 2001 to the same period in 2002.
Mortgage servicing rights were $8.1 million at June 30, 2001 as compared $21.1
million at June 30, 2002, an increase of 160.1%.

PROVISION FOR INCOME TAXES - The provision for income taxes as a percent of net
income before taxes decreased from 36.1% for the second quarter of 2001 to 33.4%
for the same period in 2002. This decrease is primarily due to the elimination
of goodwill amortization.

FINANCIAL CONDITION

TOTAL ASSETS - The total consolidated assets of the Company increased $180.3
million from $2.78 billion at December 31, 2001 to $2.96 billion at June 30,
2002.

CASH AND CASH EQUIVALENTS - The Company had cash and cash equivalents of $123.2
million at June 30, 2002. Comparatively, the Company had $148.3 million in cash
and cash equivalents on December 31, 2001, a decrease of $25.1 million.

SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL - As of June 30, 2002,
securities purchased under agreements to resell totaled $2.8 million as compared
to $12.3 million as of December 31, 2001. The securities purchased are SBA or
USDA guaranteed loan certificates. These repurchase agreements generally have a
term of nine months or less.

TRADING ASSETS - Trading assets as of June 30, 2002 were $102.3 million. During
the second quarter of 2001, the Company began trading government guaranteed
loans and pools. These assets are held up to 120 days. In addition, a portion of
the loans are being retained as originator fees which are a by-product of the
pool formation process. The trading assets are carried at fair market value. The
realized and unrealized gains and losses are included in income.

SECURITIES - The Company's securities portfolio as of June 30, 2002, totaled
$319.1 million, as compared to $342.9 million on December 31, 2001, a decrease
of $23.8 million or 6.9%. On June 30, 2002, the unrealized gain on the available
for sale securities was $7.1 million.

                                       18

<PAGE>

LOANS HELD FOR SALE - Total loans held for sale increased from $261.5 million at
December 31, 2001 to $434.6 million at June 30, 2002, an increase of $173.1
million, or 66.2%. These loans represent loans funded by the Bank through a
mortgage warehouse line to SCMC.

LOANS HELD FOR INVESTMENT - As of June 30, 2002, loans held for investment were
$1.76 billion which was a $92.8 million, or 5.6%, increase from the balance of
$1.67 billion on December 31, 2001. At June 30, 2002, loans held for investment
as a percentage of assets and deposits were 59.5% and 75.8%, respectively.

The following table summarizes the Company's held for investment loan portfolio
by type of loan as of June 30, 2002 (in thousands):

<TABLE>
<CAPTION>
                                                                                 PERCENT OF
                                                                 AMOUNT             TOTAL
                                                            ----------------    ------------
              <S>                                                <C>                  <C>
              Commercial, financial and industrial               $   541,107           24.66%
              Real estate - commercial                               583,284           26.58%
              Real estate - residential mortgage                     159,480            7.27%
              Real estate - construction                             319,093           14.54%
              Foreign commercial and industrial                        5,789            0.26%
              Consumer and other                                     150,895            6.88%
              Unearned discounts                                         (22)           0.00%
                                                            ----------------    ------------
                   Total loans  held for investment                1,759,626           80.19%
                   Loans held for sale                               434,634           19.81%
                                                            ----------------    ------------
                   Total loans                                   $ 2,194,260          100.00%
                                                            ================    ============
</TABLE>

ALLOWANCE FOR CREDIT LOSSES - The following is a summary of the changes in the
allowance for credit losses for the six months ended June 30, 2002 and June 30,
2001, respectively, (in thousands):

<TABLE>
<CAPTION>
                                                                       2002                  2001
                                                                   -----------          ------------
      <S>                                                          <C>                  <C>
      Allowance for credit losses, January 1,                      $    22,927          $     16,862
      Charge-offs                                                       (5,372)               (4,709)
      Recoveries                                                           951                   773
      Acquisition of CaminoReal Bancshares, Inc.                             -                 1,895
      Provision for credit losses                                        5,711                 5,472
                                                                   -----------          ------------
      Allowance for credit losses, June 30,                        $    24,217          $     20,293
                                                                   ===========          ============
      Net charge-offs as a percentage of average
       loans (annualized)                                                 0.45%                 0.49%
                                                                   ===========          ============
      Provision for credit losses as a percentage of
       average loans (annualized)                                         0.58%                 0.68%
                                                                   ===========          ============
</TABLE>

The following is a summary of the relationship of the allowance for credit
losses to loans held for investment at June 30, 2002, and December 31, 2001 (in
thousands):

<TABLE>
<CAPTION>
                                                                     JUNE 30,           DECEMBER 31,
                                                                      2002                  2001
                                                                   -----------          ------------
      <S>                                                          <C>                  <C>
      Loans held for investment at period-end                      $ 1,759,626          $  1,666,788
      Allowance for credit losses                                  $    24,217          $     22,927
      Allowance as a percent of period-end loans held
       for investment                                                     1.38%                 1.38%
</TABLE>

                                       19

<PAGE>

In order to determine the adequacy of the allowance for credit losses,
management considers the risk classification and delinquency status of loans and
other factors. Management also establishes specific allowances for credits which
management believes require allowances greater than those allocated according to
their risk classification. An unallocated allowance is also established based on
the Company's historical charge-off experience. The Company will continue to
monitor the adequacy of the allowance for credit losses to determine the
appropriate accrual for the Company's provision for credit losses.

RISK ELEMENTS - Nonperforming, past-due, and restructured 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.
Sixteen properties make up the $2.4 million of other real estate owned ("ORE")
at June 30, 2002. All properties are carried at the lower of cost or fair market
value.

The Company defines potential problem loans as those loans for which information
known by management indicates serious doubt that the borrower will be able to
comply with the present payment terms. Management identifies these loans through
its continuous loan review process and defines potential problem loans as those
loans classified as "substandard", "doubtful", or "loss". As of June 30, 2002,
the Company has no material foreign loans outstanding or loan concentrations.
The following table summarizes total nonperforming assets and potential problem
loans at December 31, 2001 and at June 30, 2002:

<TABLE>
<CAPTION>
                                                           JUNE 30,    DECEMBER 31,
                                                             2002          2001
                                                           --------    ------------
                                                                 (IN THOUSANDS)
      <S>                                                  <C>         <C>
      Nonaccrual loans                                     $ 14,936    $     14,179
      Restructured loans                                          -              16
                                                           --------    ------------
          Total nonperforming loans                          14,936          14,195
      Other real estate ("ORE") and other
       foreclosed assets                                      2,456           1,964
                                                           --------    ------------
          Total nonperforming assets                       $ 17,392    $     16,159
                                                           ========    ============

      Total nonperforming assets as a % of loans,
       ORE and other foreclosed assets                         0.79%           0.84%

      Allowance for credit losses as a percentage of
       nonperforming assets                                  139.24%         141.88%

      Accruing loans past due 90 days or more                 1,062           1,360

      Potential problem loans, other than those shown
          above as nonperforming                           $ 51,326    $     51,456
</TABLE>

PREMISES AND EQUIPMENT - The Company's premises and equipment, net of
depreciation, as of June 30, 2002, was $55.4 million, as compared to $54.2
million as of December 31, 2001, an increase of $1.2 million.

DEPOSITS - Total deposits as of June 30, 2002, were $2.32 billion, as compared
to $2.27 billion on December 31, 2001, an increase of $53.6 million.
Non-interest bearing demand deposits at June 30, 2002, were $877.1 million, as
compared to $797.9 million at December 31, 2001, an increase of $79 million. The
percentage of noninterest bearing deposits to total deposits as of June 30, 2002
was 37.8%.

                                       20

<PAGE>

TRUST PREFERRED SECURITIES - In February 2001, the Company formed Sterling
Bancshares Capital Trust II ("Trust II") and Sterling Bancshares Capital Trust
III. On March 21, 2001, Trust II issued 1,150,000 9.20% Trust Preferred
Securities (the "Trust Preferred Securities") with an aggregate liquidation
value of $28,750,000. Concurrent with the issuance of the Trust Preferred
Securities, Trust II issued trust common securities to the Company in the
aggregate liquidation value of $889,175. The proceeds of the issuance of the
Trust Preferred Securities and trust common securities were invested in the
Company's 9.20% Junior Subordinated Deferrable Interest Debentures (the "Junior
Subordinated Debentures"). The proceeds of the issuance of the Junior
Subordinated Debentures were used by the Company to fund a portion of the cash
purchase price for the Company's acquisition of CaminoReal Bancshares of Texas,
Inc. The Junior Subordinated Debentures will mature on March 21, 2031, which
date may be shortened to a date not earlier than March 21, 2006, if certain
conditions are met (including the Company have received prior approval of the
Federal Reserve and any other required regulatory approvals). Trust II must
redeem the Trust Preferred Securities when the Junior Subordinated Debentures
are paid at maturity or upon any earlier prepayment of the Junior Subordinated
Debentures. The Junior Subordinated Debentures may be prepaid if certain events
occur, including a change in the tax status or regulatory capital treatment of
the Trust Preferred Securities or a change in existing laws that requires Trust
II to register as an investment company.

CAPITAL RESOURCES AND LIQUIDITY

SHAREHOLDERS' EQUITY - At June 30, 2002, the shareholders' equity totaled $233.8
million, as compared to $217.4 million at December 31, 2001. The Company's
risk-based capital ratios remain above the levels designated by regulatory
agencies for the Company to be considered as "well capitalized" on June 30,
2002, with Tier-I capital, total risk-based capital, and leverage capital ratios
of 9.10%, 10.05%, and 8.40%, respectively.

LIQUIDITY - Effective management of balance sheet liquidity is necessary to fund
growth in earning assets and to pay liability maturities, depository withdrawals
and shareholders' dividends. The Company has instituted asset/liability
management policies, including but not limited to a computer simulation model,
to improve liquidity controls and to enhance its management of interest rate
risk and financial condition. The Company has numerous sources of liquidity
including a significant portfolio of short-term assets, marketable investment
securities (excluding those presently classified as "held-to-maturity"), loans
available-for-sale, and access to borrowing arrangements. Available borrowing
arrangements maintained by the Company include federal funds lines with other
commercial banks, available Federal Home Loan Bank ("FHLB") advances, as well as
a $20 million revolving credit facility with Wells Fargo Bank Minnesota, N. A.
The Company currently has $20 million outstanding under the terms of the credit
facility with Wells Fargo Bank Minnesota, N. A.

In accordance with the provisions of 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, J. Downey Bridgwater,
President and Chief Executive Officer, and Eugene S. Putnam, Jr., Chief
Financial Officer, respectively, of the Company have each executed a
certificate, copies of which are attached as Exhibits 99.1 and 99.2 to this
Quarterly Report on Form 10-Q of the Company.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There have been no material changes since December 31, 2001. For more
information regarding quantitative and qualitative disclosures about market
risk, please refer to the Company's Annual Report on Form 10-K as of and for the
year ended December 31, 2001, and in particular, Item 7 "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Interest Rate
Sensitivity and Liquidity".

                                       21

<PAGE>

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

Not applicable.

ITEM 2.  CHANGES IN SECURITIES

(c)  On March 7, 2002, the Company completed a private placement of 20,000
     shares of the Company's Series I Convertible Preferred Stock (the "Series I
     Preferred Stock"). The sales price was $12.08 per share for an aggregate
     sales price of $241,600. No commissions were paid by the Company in
     connection with the private placement. It is expected that the proceeds of
     the private placement will be used for general corporate purposes.

     The Series I Preferred Stock is convertible into shares of the Company's
     common stock based upon performance goals for the Dallas banking office for
     which such shares were issued. The conversion ratio ranges from 1.25 shares
     of common stock if the performance goals are met prior to November 7, 2003,
     to 1.1 shares of common stock if the performance goals are met prior to
     November 7, 2004. After November 7, 2004, each share of Series I
     Convertible Preferred Stock will automatically convert into one share of
     common stock.

     The private placement was limited to accredited investors as defined in
     Rule 501 of Regulation D and the thirteen purchasers in the private
     placement consisted solely of accredited investors. The private placement
     was not registered under the Securities Act of 1933, as amended (the
     "Securities Act"), and was made in reliance on Section 4(2) of the
     Securities Act.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

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

The Company's Annual Meeting of Stockholders was held on April 29, 2002, to
consider and vote on the following proposals:

Proposal 1:   The Election of Directors

The following individuals were nominated and elected as Class I directors to
hold office until the 2005 annual meeting of the stockholders of the Company or
until their successors have been duly elected and qualified.

                                               For               Withheld

              George Beatty, Jr.            36,685,485           241,872
              Anat Bird                     36,812,142           115,215
              Paul Michael Mann, M.D.       36,813,889           113,468
              Thomas A. Reiser              36,774,397           152,960
              Gregory A. Stirman            36,839,446            87,911
              Howard T. Tellepsen, Jr.      36,865,819            61,538

                                       22

<PAGE>

Christian A. Rasch was nominated and elected as a Class II directors to hold
office until the 2003 annual meeting of the stockholders of the Company or until
his successor has been duly elected and qualified.

                                           For               Withheld
              Christian A. Rasch        36,848,246            79,111

The following directors continued in office after the annual meeting:
              J. Downey Bridgwater                   James J. Kearney
              John H. Buck                           George Martinez
              James D. Callaway                      David B. Moulton
              James M. Clepper                       G. Edward Powell
              Bruce J. Harper                        Steven F. Retzloff
              David L. Hatcher                       Ramundo Riojas E.
              Glenn H. Johnson

Proposal 2: Approval of an amendment to the Company's Articles of Incorporation
(as amended and restated) to increase the number of authorized shares of the
Company's common stock , $1.00 par value per share, from 50,000,000 to
100,000,000.

     For          35,213,706     Against    1,600,056       Abstain    113,594
                 ------------             -------------              -----------

Proposal 3: Ratification of the appointment of Deloitte & Touche LLP as the
Company's independent public accountants for its fiscal year ending December 31,
2002.

     For          36,518,190      Against     396,294        Abstain    12,872
                 --------------            -------------              ---------

ITEM 5.  OTHER INFORMATION.

Not applicable.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits:
                  *2.1  -- Agreement and Plan of Merger Among Sterling
                           Bancshares, Inc., Sterling Bancorporation, Inc. and
                           ENB Bankshares Inc. dated as of May 22, 2002
                  *2.2  -- Purchase and Assumption Agreement dated July 12,
                           2002 between Sterling Bank and James Wilson as
                           amended by First Amendment to Purchase and Assumption
                           Agreement dated as of August 2, 2002.
                   3.1  -- Restated and Amended Articles of Incorporation of
                           Sterling Bancshares, Inc. (filed as Exhibit 3.1 to
                           Registration Statement on Form S-3 (File Nos.
                           333-55724, 333-55724-01 and 333-55724-02) and
                           incorporated herein by reference).
                  *3.2  -- Articles of Amendment to the Restated and Amended
                           Articles of Incorporation of Sterling Bancshares,
                           Inc.
                  *3.3  -- Amended and Restated Bylaws of Sterling
                           Bancshares, Inc.
                   11   -- Statement Regarding Computation of Earnings Per
                           Share (included as Note (2) to Interim Consolidated
                           Financial Statements on page 5 of this Quarterly
                           Report on Form 10-Q).
                  *99.1 -- Certification pursuant to 18 U.S.C. Section 1350, as
                           adopted pursuant to Section 906 of the Sarbanes-Oxley
                           Act of 2002.
                  *99.2 -- 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.

                                       23

<PAGE>

(b)      Reports on Form 8-K:

                  (1)      Current Report on Form 8-K filed April 18, 2002
                           announcing the release of Sterling Bancshares'
                           preliminary earnings report for the three months
                           ended March 31, 2002.

                  (2)      Current Report on Form 8-K filed May 22, 2002
                           announcing the execution of an Agreement and Plan of
                           Merger by ENB Bancshares, Inc. and Sterling
                           Bancshares Inc. providing for the merger of ENB
                           Bancshares, Inc. with Sterling Bancshares.

                                       24

<PAGE>

                                   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.
                                        (Registrant)

Date:   August 13, 2002            By: /s/ J. Downey Bridgwater
                                       ----------------------------------
                                       J. Downey Bridgwater
                                       President and
                                       Chief Executive Officer

Date:   August 13, 2002            By: /s/ Eugene S. Putnam, Jr.
                                       ----------------------------------
                                       Eugene S. Putnam, Jr.
                                       Executive Vice President
                                       and Chief Financial Officer

                                       25

<PAGE>

                                  EXHIBIT INDEX

EXHIBIT   DESCRIPTION
-------   -----------

*2.1      Agreement and Plan of Merger dated as of May 22, 2002, by and between
          Sterling Bancshares, Inc. and ENB Bankshares, Inc.

*2.2      Purchase and Assumption Agreement dated July 12, 2002 between Sterling
          Bank and James Wilson as amended by First Amendment to Purchase and
          Assumption Agreement dated as of August 2, 2002.
 3.1      Restated and Amended Articles of Incorporation of Sterling Bancshares,
          Inc. (filed as Exhibit 3.1 to Registration Statement on Form S-3 (File
          Nos. 333-55724, 333-55724-01 and 333-55724-02) and incorporated herein
          by reference).

*3.2      Articles of Amendment to the Restated and Amended Articles of
          Incorporation of Sterling Bancshares, Inc.

*3.3      Amended and Restated Bylaws of Sterling Bancshares, Inc.

 11       Statement Regarding Computation of Earnings Per Share (included as
          Note (2) to Interim Consolidated Financial Statements on page 6 of
          this Current Report on Form 10-Q).

*99.1     Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
          to Section 906 of the Sarbanes-Oxley Act of 2002.

*99.2     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.

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