<PAGE>   1
                                 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, 1997

  [ ]    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 of Incorporation)                 (IRS Employer ID Number)

                       15000 Northwest Freeway, Suite 200
                              Houston, Texas 77040
                    (Address of principal executive office)

                                  713-466-8300
                        (Registrant's telephone number)


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 [ ]


The number of shares outstanding of each class of the registrant's capital
stock as of June 30, 1997:


       Class of Stock                                      Shares Outstanding
-----------------------------                              ------------------
Common Stock, Par Value $1.00                                 12,040,942



<PAGE>   2


PART I.  FINANCIAL INFORMATION

ITEM I.  CONDENSED FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                                                June 30,                 December 31,
                                                                           1997         1996         1996         1995
                                                                         ---------    ---------    ---------    ---------
                                                                                             (Unaudited)
<S>                                                                      <C>          <C>          <C>          <C>      
ASSETS
Cash and due from banks                                                  $  89,113    $  55,652    $  78,442    $  60,075
Federal funds sold                                                            --         10,000       30,000        5,000
Interest bearing deposits in financial institutions                             42        1,240           22        1,135
Investment securities:
     Available-for-sale                                                      4,327        4,552        4,170        3,931
     Held-to-maturity                                                      211,381      148,657      148,083      163,581
                                                                         ---------    ---------    ---------    ---------
         Total investment securities                                       215,708      153,209      152,253      167,512
Equity in unconsolidated subsidiary                                          2,296         --          2,316         --
Loans:
     Loans held for sale                                                    46,377       34,419       40,731        7,868
     Loans held for investment                                             536,430      414,015      456,698      384,777
                                                                         ---------    ---------    ---------    ---------
         Total loans                                                       582,807      448,434      497,429      392,645
         Allowance for credit losses                                        (6,960)      (6,334)      (6,578)      (5,907)
                                                                         ---------    ---------    ---------    ---------
         Total loans, net                                                  575,847      442,100      490,851      386,738
Real estate acquired by foreclosure and certain other real estate            1,733        2,028        2,035        1,716
Premises and equipment, net                                                 26,158       17,481       23,100       14,823
Goodwill                                                                     1,677        2,003        1,839        2,166
Accrued interest receivable and other assets                                11,655        7,164        9,215        8,184
                                                                         =========    =========    =========    =========
         Total assets                                                    $ 924,229    $ 690,877    $ 790,073    $ 647,349
                                                                         =========    =========    =========    =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits:
     Noninterest-bearing                                                 $ 268,407    $ 203,908    $ 245,571    $ 190,333
     Interest-bearing                                                      336,712      262,785      301,244      237,778
Certificates of deposit and other time deposits                            187,661      158,538      170,598      146,613
                                                                         ---------    ---------    ---------    ---------
         Total deposits                                                    792,780      625,231      717,413      574,724
Federal funds purchased and securities sold under
   agreements to repurchase                                                 33,790        3,689        3,751       12,083
Accrued interest payable and other liabilities                               3,537        3,070        5,502        5,051
Notes payable and senior debentures                                           --          4,800        4,000        5,800
                                                                         ---------    ---------    ---------    ---------
         Total liabilities                                                 830,107      636,790      730,666      597,658

Company-obligated manditorily redeemable trust preferred securites
   of subsidiary trust                                                      28,750         --           --           --

Shareholders' equity:
Preferred stock, $1 par value, 1 million shares authorized                     177           49           88           49
Common stock, $1 par value, 30 million shares authorized                    12,039       11,928       11,949       11,790
Capital surplus                                                             17,719       15,436       16,058       14,985
Retained earnings                                                           35,549       26,843       31,443       23,074
Net unrealized losses on held-to-maturity
   securities transferred from available-for-sale, net of tax                 (112)        (169)        (131)        (207)
                                                                         ---------    ---------    ---------    ---------
         Total shareholders' equity                                         65,372       54,087       59,407       49,691
                                                                         =========    =========    =========    =========
         Total liabilities and shareholders' equity                      $ 924,229    $ 690,877    $ 790,073    $ 647,349
                                                                         =========    =========    =========    =========
</TABLE>


            See Notes to Interim Consolidated Financial Statements.




                                       2
<PAGE>   3


                  STERLING BANCSHARES, INC., AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF EARNINGS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                            Three Months           Six Months         
                                                                           Ended June 30,          Ended June 30,     
                                                                         1997        1996        1997       1996      
                                                                       --------    --------    --------   --------    
                                                                                        (Unaudited)
<S>                                                                    <C>         <C>         <C>        <C>         
Interest income:
    Loans, including fees:                                             $ 13,304    $ 10,250    $ 25,277   $ 20,070    
    Federal funds sold                                                      374         206         663        310    
    Deposits in financial institutions                                      371         130         497        150    
    Investment securities:
      Taxable                                                             2,430       2,057       4,764      4,266    
      Tax-exempt                                                            271         284         554        566    
                                                                       --------    --------    --------   --------    
         Total interest income                                           16,750      12,927      31,755     25,362    

Interest expense:
    Demand and savings deposits                                           2,683       2,005       5,066      3,873    
    Certificates and other time deposits                                  2,338       1,899       4,454      3,740    
    Federal funds purchased and repurchase agreements                       107          96         168        225    
    Senior debentures and notes payable                                      54          91         147        221    
                                                                       --------    --------    --------   --------    
         Total interest expense                                           5,182       4,091       9,835      8,059    
         NET INTEREST INCOME                                             11,568       8,836      21,920     17,303    

            Provision for credit losses                                     598         520       1,210      1,033    
                                                                       --------    --------    --------   --------    
         NET INTEREST INCOME AFTER PROVISION                             10,970       8,316      20,710     16,270    

Noninterest income:
    Customer service fees                                                 1,450       1,217       2,782      2,526    
    Earnings of unconsolidated subsidiary                                    55        --            55       --      
    Other                                                                   693         624       1,320      1,240    
                                                                       --------    --------    --------   --------    
         Total noninterest income                                         2,198       1,841       4,157      3,766    

Noninterest expenses:
    Salaries and employee benefits                                        5,027       4,067       9,737      8,023    
    Net occupancy expense                                                   689         558       1,379      1,097    
    Equipment expense                                                       407         360         879        681    
    Losses (gains) on sale of premises and equipment                        (34)         (8)        117        (13)   
    Losses and carrying costs of real estate acquired by foreclosure         46          56          48        102    
    Data processing                                                         430         208         849        456    
    Telephone                                                               234         186         398        332    
    Supplies                                                                135         136         268        252    
    Legal and professional fees                                             143         132         243        235    
    Minority interest expense                                               178        --           178       --
    Other                                                                 1,520         848       2,640      1,701    
                                                                       --------    --------    --------   --------    
         Total noninterest expenses                                       8,775       6,543      16,736     12,866    

         EARNINGS BEFORE INCOME TAXES                                     4,393       3,614       8,131      7,170    
            Provision for income taxes                                    1,451       1,083       2,684      2,236    
                                                                       ========    ========    ========   ========    
         NET EARNINGS                                                  $  2,942    $  2,531    $  5,447   $  4,934    
                                                                       ========    ========    ========   ========    
</TABLE>



            See Notes to Interim Consolidated Financial Statements.


                                       3
<PAGE>   4

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

<TABLE>
<CAPTION>
                                                                                                  Six Months
                                                                                                 Ended June 30,
                                                                                               1997         1996
                                                                                             ---------    ---------
                                                                                                   (Unaudited)
<S>                                                                                          <C>          <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net earnings                                                                            $   5,447    $   4,934
     Adjustments to reconcile net earnings to net cash provided by operating activities
        Amortization and accretion of premiums and discounts on investment securities, net          64          125
        Equity in undistributed earnings of unconsolidated subsidiary                              (30)        --
        Provision for credit losses                                                              1,210        1,033
        Loss (gain) on sale of premises and equipment                                              115           (6)
        Writedown of real estate acquired by foreclosure                                             5           34
        Loss on sale of real estate acquired by foreclosure and repossessed assets                 (37)          (3)
        Depreciation and amortization                                                            1,585        1,192
        Mortgage loans originated for sale                                                    (207,636)        --
        Proceeds from sale of mortgage loans originated for sale                               201,990
        (Decrease) increase in accrued interest receivable and other assets                     (2,449)       1,000
        Decrease in accrued interest payable and other liabilities                              (1,965)      (1,981)
                                                                                             ---------    ---------
           Total adjustments                                                                    (7,148)       1,394
                                                                                             ---------    ---------
           Net cash (used in ) provided by operating activities                                 (1,701)       6,328

CASH FLOWS FROM INVESTING ACTIVITIES:
     Proceeds from maturity and paydowns of held-to-maturity investment securities              12,081       14,857
     Purchases of held-to-maturity investment securities                                       (75,415)        --
     Purchases of available-for-sale investment securities                                        (157)        (621)
     Redemption of preferred stock of unconsolidated subsidiary                                     50         --
     Net increase in loans                                                                     (80,631)     (56,462)
     Proceeds from sale of real estate acquired by foreclosure                                     405          418
     Capital additions to real estate acquired by foreclosure                                     --            (23)
     Net increase in interest-bearing deposits in financial institutions                           (20)        (105)
     Proceeds from sale of premises and equipment                                                  195           20
     Purchase of premises and equipment                                                         (4,791)      (4,372)
                                                                                             ---------    ---------
           Net cash used in investing activities                                              (148,283)     (46,288)

CASH FLOWS FROM FINANCING ACTIVITIES:
     Net increase in deposit accounts                                                           75,367       50,507
     Net increase (decrease) in repurchase agreements/funds purchased                           30,039       (8,394)
     Repayments of notes payable                                                                (4,000)        (800)
     Proceeds from issuance of common stock                                                        597          532
     Proceeds from issuance of preferred stock                                                   1,226         --
     Dividends paid                                                                             (1,324)      (1,108)
     Proceeds on sale of trust preferred securities                                             28,750         --
     Repayment of senior debentures                                                               --           (200)
                                                                                             ---------    ---------
           Net cash provided by financing activities                                           130,655       40,537

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                           (19,329)         577

CASH AND CASH EQUIVALENTS:
     Beginning of period                                                                     $ 108,442    $  65,075
                                                                                             ---------    ---------
     End of period                                                                           $  89,113    $  65,652
                                                                                             =========    =========
</TABLE>





            See Notes to Interim Consolidated Financial Statements.


                                       4
<PAGE>   5


                  STERLING BANCSHARES, INC., AND SUBSIDIARIES
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 1997

(1)  Basis of Presentation:

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles 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, 1997,
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the annual report on
Form 10-K of Sterling Bancshares, Inc. (the "Company"), for the year ended
December 31, 1996.

(2)  Earnings Per Common Share

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

<TABLE>
<CAPTION>
                                   Three Months  Six Months   Six Months
                                      Ended        Ended         Ended
                                     June 30,     June 30,      June 30,
                                       1997         1997         1996
                                    ----------   ----------   ----------
<S>                                 <C>          <C>          <C>       
         Common shares                  12,021       12,002       11,748
         Common share equivalents          498          510          227
                                    ----------   ----------   ----------
                                        12,519       12,512       11,975
                                    ==========   ==========   ==========

         Net earnings               $    2,942   $    5,447   $    4,934
         Earnings per share         $     0.24   $     0.44   $     0.41
</TABLE>

         Note: Common shares, common share equivalents, and earnings per share
         for 1996 have been adjusted to reflect a three-for-two stock split
         effective February 24, 1997. See note (3) below for additional
         information regarding the stock split.

(3)  Capital Stock

Common Stock

On January 27, 1997, the Company's directors declared a three-for-two stock
split to shareholders of record February 10, 1997, with shares distributed
February 24, 1997. Concurrently, the Company paid first quarter cash dividends
of $0.055 per share. The second quarter dividend, also $0.055 per share, was
declared April 22, 1997, and paid on May 12, 1997, to shareholders of record on
May 1, 1997.

As of June 30, 1997, an additional 791,242 shares of common stock were issuable
(without regard to vesting restrictions) upon exercise of the Company's
outstanding employee stock options under the 1994 Stock Incentive Plan and the
1984 Stock Option Plan, and pursuant to outstanding subscriptions under the
Company's 1994 Employee Stock Purchase Plan.

The Company's Non-Employee Director Compensation Plan provides that payment of
outside directors will be effected by issuance of shares of the Company's stock
in lieu of cash fees. Accordingly, in April 1997 the Company issued 20,582
shares as payment in full of outside director fees for director and committee
service during the period April 1997 through March 1998, inclusive. The Company
expects to continue to pay stock compensation to outside directors during
future periods.




                                       5
<PAGE>   6


Preferred Stock

The Company's Board of Directors has designated four series of Convertible
Preferred Stock. Each of the four series has been issued in conjunction with
the opening of four new bank offices (see "Significant Developments" below on
this Form 10-Q). The conversion ratio of the Convertible Preferred Stock to
Common Stock will depend upon the performance of the new office in reaching
certain defined deposit goals. In conjunction with the opening of the
Fountainview and Cypress Station offices, the Series C and D shares were
offered and sold to qualified investors pursuant to Confidential Private
Placement Memoranda.

(4)  Issuance of Trust Preferred Securities

In June 1997, the Company formed Sterling Bancshares Capital Trust I, a trust
formed under the laws of the State of Delaware, (the "Trust"). The Company is
the owner of all of the beneficial interest represented by common securities of
the Trust, and Bankers Trust Company is the Property Trustee. The Trust exists
for the exclusive purposes of issuing the Trust Preferred Securities (the
"Trust Securities") and investing the proceeds thereof in the 9.28% Junior
Subordinated Deferrable Interest Debentures (the "Junior Subordinated
Debentures"), issued by the Company, and certain other limited activities. The
Junior Subordinated Debentures are scheduled to mature on June 6, 2027, which
date may be shortened to a date not earlier than June 6, 2002, if certain
conditions are met. The Trust Securities were offered to the public on June 6,
1997, under a prospectus dated June 4, 1997, and are traded on the Nasdaq under
the symbol SBIBP.

(5)  Recent Accounting Standards

In February 1997, SFAS No. 128, "Earnings per Share" was issued. This statement
established standards for computing and presenting EPS. It replaces the
presentation of primary EPS with basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for entities with
complex capital structures and requires a reconciliation of the basic EPS
computation to the diluted EPS computation. This statement is effective for
financial statements issued for the periods ending after December 15, 1997,
including interim periods; earlier application is not permitted and all prior
period EPS data must be restated. The implementation of SFAS No. 128 should
have no material effect on the Company's reported EPS.

In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was issued. This
statement requires that all components of comprehensive income and total
comprehensive income be reported on one of the following (1) the statement of
operations, (2) the statement of stockholders' equity or (3) a new separate
statement of comprehensive income. Comprehensive income is comprised of net
income and all changes to stockholders' equity, except those due to investments
by owners (changes in paid in capital) and distributions to owners (dividends).
This statement is effective for fiscal years beginning after December 15, 1997.
Earlier application is permitted. This statement does not change the current
accounting treatment for components of comprehensive income and thus the
implementation of SFAS No. 130 will have no material impact on the Company's
Consolidated Financial Statements.

In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information" was issued. This statement requires public companies to
report certain information about their operating segments in their annual
financial statements and quarterly reports issued to shareholders. It also
requires public companies to report certain information about their products
and service, the geographic areas in which they operate, and their major
customers. This statement is effective for fiscal years beginning after
December 15, 1997. Earlier application is encouraged. Implementation of SFAS
No. 131 should have no material effect on the Company's Consolidated Financial
Statements.





                                       6
<PAGE>   7


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

SIGNIFICANT DEVELOPMENTS

Expansion

During 1996, the Company opened two new community banking offices, the first in
the Upper Kirby district of central Houston, and the second in the Galleria
area of Houston. The Company opened its fourteenth banking office in the
Cypress Station area, north of the city, in January 1997.

On March 18, 1997, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") to acquire First Houston Bancshares, Inc. ("First
Houston") and its subsidiary, Houston National Bank, in a stock-for-stock
merger. At June 30, 1997, First Houston had total assets of approximately $137
million and total deposits of approximately $126 million. The Merger Agreement,
which is subject to approval of First Houston's shareholders and various
banking regulatory authorities, provides that the Company will issue
approximately 1.72 million shares of the Company's common stock to the
shareholders of First Houston in exchange for all of the issued and outstanding
shares of stock of First Houston. The final purchase price is subject to
certain closing adjustments. The transaction is expected to be accounted for as
a pooling of interests and is expected to close by September 1997.


FINANCIAL CONDITION

Investments in Subsidiaries

Sterling Bank, which currently operates 14 community banking offices in the
greater Houston area, is the Company's only banking subsidiary. In September
1996, the Company purchased a 40% equity and 44 % voting interest in Sterling
Capital Mortgage Company ("SCMC"), an originator and servicer of single family
residential mortgage loans headquartered in Houston, Texas. As discussed
previously, the Company owns a 100% beneficial interest in Sterling Bancshares
Capital Trust I.

Total Assets

The total consolidated assets of the Company as of June 30, 1997, were $924.2
million, as compared to $690.9 million on the same date in 1996, an increase of
$233.3 million or 33.8%.

Federal Funds Sold and Federal Funds Purchased

The Bank had short-term borrowings of $23.0 million at June 30, 1997,
consisting of $13.0 million in federal funds purchased and $10.0 million in
short-term fixed rate borrowings with the Federal Home Loan Bank (the "FHLB").
Comparatively, the Bank had $10.0 million in federal funds sold on the same
date in 1996.

Loans Held for Investment

As of June 30, 1997, loans held for investment were $536.4 million, as compared
to $414.0 million on the same date in 1996, an increase of $122.4 million or
29.6% due primarily to continued strong loan demand. When compared to total
loans of $456.7 million on December 31, 1996, the June 30, 1997, loan balance
represents a year-to-date $79.7 million increase in internal loan production,
net of payoffs, or an annualized percentage increase of 35.2%. At June 30,
1997, loans as a percentage of assets and deposits were 58.0% and 67.7%,
respectively.




                                       7
<PAGE>   8

The following table summarizes the Bank's loan portfolio by type of loan as of
June 30, 1997 (in thousands):

<TABLE>
<CAPTION>
                                                     June 30, 1997  Percent
                                                       Balance      of Total
                                                      ---------    ---------
<S>                                                   <C>              <C>   
               Commercial, financial and industrial   $ 223,492        41.66%
               Real estate - commercial                 134,076        24.99%
               Real estate - residential mortgage        55,640        10.37%
               Real estate - construction                46,750         8.72%
               Installment and other                     78,502        14.63%
                    Less unearned discount               (2,030)       (0.38)%
                                                      ---------    --------- 
                        Total loans                   $ 536,430       100.00%
                                                      =========    =========
</TABLE>

Investment Securities

The Bank's investment portfolio as of June 30, 1997, totaled $215.7 million, as
compared to $153.2 million on the same date in 1996. The increase of $62.5
million or 40.8% is a result of the Bank's reinvestment of excess liquidity in
U.S. Agency and mortgage-backed securities. The Bank has designated its total
securities portfolio into (a) Held-to-maturity ("HTM") and (b)
Available-for-sale ("AFS"). As of June 30, 1997, the HTM portfolio totaled
$211.4 million and included substantially all of the investment securities
maintained by the Bank for investment purposes. The AFS portfolio totaled $4.3
million and consisted of the Bank's portfolio of investment assets which were
held for reasons other than solely for investment, such as the Bank's stock in
the regional FHLB. Due to the nature of the securities classified as AFS, there
was no net unrealized gain or loss in the AFS portfolio as of June 30, 1997.
The Bank tracks but does not record market changes on its HTM portfolio. At
June 30, 1997, the market value of the HTM portfolio was $211.1 million.

The Company analyzes its interest rate risk position by use of a simulation
model. As of June 30, 1997, the simulation model indicates that, in the event
of a 200 basis point increase in underlying market interest rates, the
Company's net interest income would increase 1.97%. Correspondingly, in the
event of a 200 basis point decrease in market interest rates, the Company's net
interest income would decrease by 3.18%. The results of this "rate stress
test," which assumes a parallel shift in the yield curve, indicate that the
present mix of earning assets and interest-bearing liabilities should provide
reasonable protection from changes in interest rates. The simulation model also
provides a detailed GAP analysis, which the Company uses as a secondary source
in analyzing its Asset/Liability mix. The GAP measurement of Rate Sensitive
Assets (RSA) to Rate Sensitive Liabilities (RSL) indicates a positive GAP of
 .9064 through the first year and a positive .9379 through three years
cumulative.

Allowance for Credit Losses

Following is a summary of the changes in the allowance for credit losses for
the six months ended June 30, 1997, and the relationship of the allowance to
total loans at June 30, 1997, and December 31, 1996 (in thousands):


<TABLE>
<S>                                                           <C>    
          Allowance for credit losses, December 31, 1996      $ 6,578
          Chargeoffs                                             (956)
          Recoveries                                              128
          Provision for credit losses                           1,210
                                                              -------
          Allowance for credit losses, March 31, 1997         $ 6,960
                                                              =======
</TABLE>


<TABLE>
<CAPTION>
                                                       June 30,   December 31,
                                                         1997        1996
                                                       --------    --------
<S>                                                    <C>         <C>     
          Loans held for investment at period-end      $536,430    $456,698
          Allowance for credit losses                  $  6,960    $  6,578
          Allowance as a percent of period-end loans       1.30%       1.44%
</TABLE>





                                       8
<PAGE>   9


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 Bank's historical charge-off experience over the last
ten years. The Bank may reduce the provision for credit losses where
appropriate. The Bank will continue to monitor the adequacy of the allowance
for credit losses to determine the appropriate accrual for the Bank's bad debt
expense.

Risk Elements

Non-performing, 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. Twelve properties
make up the $1,733,000 of other real estate owned ("ORE") at June 30, 1997, the
largest of which is carried at $647,000 and consists of one commercial property
in north Houston. This property is included in ORE although it was not acquired
by foreclosure, but is a tract of unimproved land previously acquired by the
Bank for future expansion. No loss is anticipated. The Bank carries all
properties at the lower of the book value of the loan at foreclosure or the
current fair market value, less estimated closing costs.

The Bank defines potential problem loans as those loans not classified as
non-performing, but where 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, excluding all non-performing loans. As of June 30, 1997, the
Bank has no material foreign loans outstanding or loan concentrations. The
Bank, however, continues to monitor the potential risk of foreign borrowers and
concentrations of credit.

The following schedule summarizes consolidated non-performing loans,
non-performing assets and potential problem loans at year-end 1996 and at June
30, 1997.

<TABLE>
<CAPTION>
                                                              June 30, December 31,
                                                                1997      1996
                                                              -------    -------
                                                               (In thousands)
<S>                                                           <C>        <C>    
          Nonaccrual loans                                    $ 2,487    $ 2,438
          Restructured loans                                       44         45
          Accruing loans past due 90 days or more                 431        229
                                                              -------    -------
              Total nonperforming loans                         2,962      2,712
          ORE and other foreclosed assets                       2,051      2,377
                                                              -------    -------
              Total nonperforming assets                      $ 5,013    $ 5,089
                                                              =======    =======

          Total nonperforming loans as a % of gross loans        0.55%      0.59%
          Total nonperforming assets as a % of total assets      0.54%      0.64%

          Potential problem loans                             $13,014    $12,738
                                                              =======    =======
</TABLE>

Premises and Equipment

The Bank's premises and equipment, net of depreciation, as of June 30, 1997,
were $26.2 million, as compared to $17.5 million on the same date in 1996, an
increase of $8.7 million or 49.7%. This increase is due primarily to the
opening of three banking offices since August of 1996. The Bank also completed
the relocation of the Champions office in March 1997, and has purchased a
parcel of land for the relocation of the Highway 6 office upon expiration of
its current lease. In addition, the Bank completed the installation of its new
core processing system and has continued to upgrade its technology and
telecommunications equipment to keep pace with the Bank's volume growth and to
position itself for future growth. Additional purchases are expected during
1997, including the installation of new teller technology.




                                       9
<PAGE>   10

Deposits

Total deposits as of June 30, 1997, were $792.8 million, as compared to $625.2
million on the same date in 1996, an increase of $167.6 million or 26.8%,
resulting from growth in same location deposits, combined with the additional
deposits of the new banking offices. When compared to total deposits of $717.4
million on December 31, 1996, the amount at June 30, 1997, represents a
year-to-date increase of $75.4 million, as the strong deposit growth experienced
in 1996 continued through the first and second quarters of 1997.

Non-interest bearing demand deposits at June 30, 1997, were $268.4 million, as
compared to $203.9 million at June 30, 1996, an increase of $64.5 million or
31.6%. When compared to non-interest bearing demand deposits of $245.6 million
on December 31, 1996, the June 30, 1997, amount represents a year-to-date
decrease of $22.8 million. The percentage of non-interest bearing deposits to
total deposits as of June 30, 1997, continued strong at 33.9%.

Notes Payable

In June of 1997, the Bank repaid the remaining note payable of $3.6 million
with proceeds from the sale of its Trust Preferred Stock. During the first six
months of 1997, the note accrued interest at a LIBOR-based rate of 7.6875%.


CAPITAL RESOURCES AND LIQUIDITY

Shareholders' Equity

The following table displays the changes in shareholders' equity from December
31, 1996, to June 30,1997: (in thousands)

<TABLE>
<S>                                                                 <C>       
          Equity, December 31, 1996                                 $   59,407
            Net earnings                                                 5,447
            Sale of preferred stock                                      1,226
            Sale of common stock                                           597
            Cash dividends paid                                         (1,324)
            Net change in net unrealized losses on HTM securities
                transferred from AFS                                        19
                                                                    ----------
          Equity, March 31, 1997                                    $   65,372
                                                                    ==========
</TABLE>

The Company's risk based capital ratios remain above the levels designated as
"Well Capitalized" on June 30, 1997, with Tier-1 Capital, Total Risk-Based
Capital, and Leverage Capital Ratios of 14.26%, 15.33%, and 10.79%,
respectively.

Liquidity

Effective management of balance sheet liquidity is necessary to fund growth in
earning assets and to pay liability maturities, depository customers'
withdrawal requirements 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 shorter term assets,
marketable investment securities (excluding those presently classified as
"Held-to-maturity"), increases in customers' deposits, and access to borrowing
arrangements. Available borrowing arrangements maintained by the Bank include
informal federal funds lines with other commercial banks, an advancement
arrangement with the FHLB, and reverse repurchase lines with other commercial
banks and the FHLB.






                                      10
<PAGE>   11


RESULTS OF OPERATIONS

Net Income

Net income for the six month period ended June 30, 1997, was $5.4 million as
compared to $4.9 million for the same period in 1996, an increase of
approximately $500,000 or 10.2%. For the six months ended June 30, 1997, net
income was impacted by a $130,000 loss recognized on the sale of a motor bank
facility and approximately $690,000 in additional expenses incurred as a result
of the opening of the three new banking offices since August 1996.

Net Interest Income

Net interest income for the six month period ended June 30, 1997, was $21.7
million, as compared to $17.3 million for the same period in 1996, an increase
of $4.4 million or 25.4%. The growth in net interest income is attributable
primarily to increases in average earning assets, enhanced by the maintenance
of a strong net interest margin. Average earning assets for June 30, 1997, were
$729.8 million, up $139.3 million, or 23.6% from $590.5 million for the same
period in 1996. The yield on average earning assets for the six month period
ended June 30, 1997, was 8.77%, as compared to 8.64% for the same period in
1996, an increase of 13 basis points. This increase is due primarily to an
increase in the yield on investment securities as the Bank reinvested its
excess liquidity in higher yielding U.S. Agency and mortgage-backed securities.
In addition, the Bank increased its yield on loans by 11 basis points, while
also increasing the average balance by $102.6 million. At June 30, 1997, total
loans represented 70.6% of total interest earning assets, compared to 69.9% for
the same period in 1996. The cost of interest bearing liabilities rose 5 basis
points from 3.82% to 3.87% for the same period. The Company's 6.09% net
interest margin for the first six months of 1997 represents a increase of 10
basis points from the 5.99% net interest margin registered during the same
period in 1996.

The data used in the analysis of the changes in net interest income is derived
from the daily average levels of earning assets and interest-bearing
liabilities as well as from the rates earned and paid on such amounts. The
rates earned and paid on each major type of asset and liability are shown
beside the average balance in the account for the period. The average yields on
all interest-earning assets and the average cost of all interest-bearing
liabilities also are summarized.



                                      11
<PAGE>   12


The following schedule gives a comparative analysis of the Company's daily
average interest-earning accounts and interest-bearing accounts for the
three-month periods ended June 30, 1997 and 1996:


                  CONSOLIDATED AVERAGE BALANCE SHEET SCHEDULE
                  NET INTEREST INCOME AND NET INTEREST MARGIN


<TABLE>
<CAPTION>
                                                                                  SIX MONTHS ENDED JUNE 30,
                                                                                  (DOLLARS IN THOUSANDS)
                                                                      1997                                    1996

                                                         AVERAGE                    AVERAGE       AVERAGE                 AVERAGE
                                                         BALANCE      INTEREST     YIELD/RATE     BALANCE     INTEREST   YIELD/RATE
                                                        ---------    ---------     ---------    ---------    ---------   ---------
INTEREST EARNING ASSETS:                             
<S>                                                     <C>          <C>                <C>     <C>          <C>              <C>  
Interest bearing deposits in financial institutions     $  18,719    $     497          5.35%   $   5,941    $     150        5.08%
Federal funds sold                                         24,867          663          5.38%      11,500          310        5.42%
Investment securities (taxable)                           148,735        4,764          6.46%     137,935        4,266        6.22%
Investment securities (tax-exempt)                         22,027          554          5.07%      22,341          566        5.09%
Loans, net of unearned discount (taxable)                 514,547       25,243          9.89%     412,807       20,070        9.78%
Loans, net of unearned discount (tax-exempt)                  902           34          7.60%        --           --
                                                        ---------    ---------     ---------    ---------    ---------   ---------
  Total Interest Earning Assets                         $ 729,797    $  31,755          8.77%   $ 590,524    $  25,362        8.64%

Noninterest Earning Assets:
Cash and due from banks                                 $  64,290                               $  51,214
Premises and equipment, net                                24,860                                  17,168
Other assets                                               15,452                                  10,384
Allowance for credit losses                                (6,841)                                 (6,124)
                                                        ---------                               ---------
  Total Noninterest Earning Assets                      $  97,761                               $  72,642

  TOTAL ASSETS                                          $ 827,558                               $ 663,166
                                                        =========                               =========
                                                                                                             

INTEREST BEARING LIABILITIES:
Demand and savings deposits                             $ 329,056    $   5,066          3.10%   $ 256,325    $   3,873        3.04%
Certificates and other time deposits                      177,921        4,454          5.05%     153,106        3,740        4.91%
Other borrowings                                            7,490          168          4.52%       9,851          225        4.59%
Debentures and notes payable                                7,901          325          8.29%       5,306          221        8.38%
                                                        ---------    ---------     ---------    ---------    ---------   ---------
  Total Interest Bearing Liabilities                    $ 522,368    $  10,013          3.87%   $ 424,588    $   8,059        3.82%

Noninterest Bearing Liabilities:
Demand deposits                                         $ 238,357                               $ 183,331
Other liabilities                                           4,365                                   3,137
Shareholders' equity                                       62,468                                  52,110
                                                        ---------                               ---------    
  Total Noninterest Bearing Liabilities                 $ 305,190                               $ 238,578

  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY            $ 827,558                               $ 663,166
                                                        =========                               =========
                                                                                                            

NET INTEREST INCOME & MARGIN                                         $  21,742          6.01%                $  17,303        5.89%
                                                                     =========     =========                 =========   =========

NET INTEREST INCOME & MARGIN (TAX EQUIVALENT)                        $  22,049          6.09%                $  17,599        5.99%
                                                                     =========     =========                 =========   =========
</TABLE>




                                      12
<PAGE>   13


Provision for Credit Losses

The provision for credit losses for the first six months of 1997 was $1.2
million, as compared to $1.0 million for the same period in 1996, an increase
of $200,000 or 20.0%. After net charge-offs of $828,000 and provisions for the
first six months of 1997, the Bank's allowance for credit losses increased by
$382,000 from $6,578,000 on December 31, 1996, to $6,960,000 on June 30, 1997.
Please refer to the earlier discussion of Allowances for Credit Losses and
Non-performing Loans for additional insight to management's approach and
methodology in estimating the allowance for credit losses.

Non-interest Income

Total non-interest income increased slightly for the six month period ended
June 30, 1997, at $4.2 million, as compared to $3.8 million for the same period
in 1996, an increase of $400,000 or 10.5%. The increase is due primarily to
growth in the Bank's deposit base, resulting in increased fee income.

Non-interest Expense

Non-interest expenses increased $3.7 million, or 28.7%, to $16.6 million for
the first six months of 1997 as compared to $12.9 million for the same period
in 1996. The increase is due to the additional expenses incurred by the startup
of three new banking offices in the last year, and additional expenditures on
technology and marketing. The following schedule summarizes the expenses,
including salaries, associated with these new initiatives (in thousands):

<TABLE>
<CAPTION>
                                                               June 30, 1997
                                                                  Expense
                                                               -------------
<S>                                                               <C>    
          New initiatives:
              Three new banking offices                           $ 1,711
              Technology                                              458
              Marketing                                               188
                                                                  -------
                   Total expenses for new initiatives             $ 2,337
                                                                  =======
</TABLE>

Salaries and employee benefits for the six month period ended June 30, 1997,
were $9.7 million, as compared to $8.0 million for the same period in 1996, an
increase of $1.7 million or 21.3%. The increase is due to an increase in the
number of employees, caused primarily by additional staffing of the central
operations areas as well as the new Upper Kirby, Fountainview, and Cypress
Station offices. At June 30, 1997, the Company employed 400 full time
equivalent employees, as compared to 339 at June 30, 1996. The remaining
increase in personnel costs may be attributed to normal merit and
cost-of-living pay increases, which averaged less than 3%. The Company's ratio
of total assets per full-time equivalent employee as of June 30, 1997,
increased to $2,311,000 from $2,038,000 on the same date in 1996.

For the six months ended June 30, 1997, net occupancy expense and equipment
expense, including net gain or loss on sale of premises and equipment,
increased by a combined $610,000 over the prior period amounts. These increases
are attributed to the opening of the three new offices and the renovation of
the Mangum office. In conjunction with this renovation, the office sold its
former remote motor bank facility, which resulted in a loss of $130,000. Going
forward, this loss will be offset by the efficiencies resulting from combining
a new motor bank facility with the existing lobby facility.

Technology expense for the six month period ended June 30, 1997, was $849,000,
as compared to $456,000 for the same period in 1996, an increase of $393,000 or
86.2%. The increase is due to the installation of the Bank's local and
wide-area network during the third quarter of 1996 and the new core processing
system in the second quarter of 1997. The Bank expects ongoing increases in its
technology expenses for the remainder of the year as it continues to implement
its long-term technology strategy.






                                      13
<PAGE>   14
Other non-interest expense was $2.6 million for the six month period ended June
30, 1997, as compared to $1.7 million for the same period in 1996, an increase
of $900,000 or 52.9%. The increase in other expenses is due primarily to the
increases in franchise taxes, Federal Reserve Bank check processing charges,
and marketing expenses associated with the implementation of a new marketing
initiative.


PART II. OTHER INFORMATION


ITEM 2.  CHANGES IN SECURITIES

At the regularly scheduled annual meeting of shareholders held on April 21,
1997, an amendment to the Company's articles of incorporation was approved by
the requisite vote authorizing an increase in the number of authorized shares
of Common Stock, $1.00 par value per shares from 20 million to 30 million
shares.

On April 15, 1997, in conjunction with the opening of the Fountainview office,
38,500 of the Series C shares were issued to qualified investors pursuant to
Confidential Private Placement Memoranda. On May 5, 1997, 50,233 of the Series
D shares were issued to qualified investors pursuant to Confidential Private
Placement Memoranda in conjunction with the opening of the Cypress Station 
office. The Series C and D shares were sold at a price of $13.23 and $14.26 
per share, respectively.

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

There were no matters submitted to a vote of security holders during the period
ending June 30, 1997.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

a)    Exhibits:

      Exhibit 11.  Computation of Earnings Per Share

       Included as Note (2) to Interim Consolidated Financial Statements on
       page 6 of this Form 10-Q

      Exhibit 27.  Financial Data Schedule

       The required Financial Data Schedule has been included as Exhibit 27 of
       the Form 10-Q filed electronically with the Securities and Exchange
       Commission.

b)    Reports of Form 8-K
       Relating to the proposed acquisition of First Houston Bancshares, Inc. a
       Form 8-K was filed on April 3, 1997, as amended by the Form 8-K/A filed
       on April 7, 1997, and Form 8-K/A filed on July 28, 1997.


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)



                           By: /s/ George Martinez
                               -------------------------------------- 
                               George Martinez
                               (Chief Executive Officer and Principal 
                               Financial Officer)




                                      14