| New Jersey                                                          | 20-4647587                               |
|---------------------------------------------------------------------|------------------------------------------|
| (State      or other jurisdiction of incorporation or organization) | (IRS      Employer IdentificationNumber) |

| Large      accelerated filer | o | Accelerated      filer         | o |
|------------------------------|---|--------------------------------|---|
| Non-accelerated      filer   | o | Smaller      reporting company | x |

----

| Part      I   | FINANCIAL      INFORMATION                                             | Page          |
|---------------|------------------------------------------------------------------------|---------------|
|          |                                                                   |          |
| Item      1.  | Consolidated      Financial Statements                                 |          |
|          |   Balance      Sheets                                        |   3 |
|          |   Statements      of Operations                              |   5 |
|          |   Statements      of Shareholders’ Equity              |   6 |
|          |   Statements      of Cash Flows                              |   7 |
|          |   Notes      to Financial Statements                         |   8 |
| Item      2.  | Management’s      Discussion and Analysis of Financial Condition |          |
|          |   and      Results of Operations                             | 15            |
| Item      3.  | Quantitative      and Qualitative Disclosures About Market Risk        | 21            |
| Item      4T. | Controls      and Procedures                                           | 22            |
|          |                                                                   |          |
| Part II       | OTHER      INFORMATION                                                 |          |
|          |                                                                   |          |
| Item      1.  | Legal      Proceedings                                                 | 22            |
| Item      1A. | Risk      Factors                                                      | 22            |
| Item      2.  | Unregistered      Sales of Equity Securities and Use of Proceeds       | 22            |
| Item      3.  | Defaults      Upon Senior Securities                                   | 22            |
| Item      4.  | Submission      of Matters to a Vote of Security Holders               | 22            |
| Item      5.  | Other      Information                                                 | 22            |
| Item      6.  | Exhibits                                                               | 22            |
|          |                                                                   |          |
| SIGNATURES    | 23                                                                     |
|          |                                                                   |          |
| EXHIBITS      |                                                                   |

| Exhibit      31.1 | Certification of Chief Executive Officer pursuant to      §302 of the Sarbanes-Oxley Act of 2002.                                                                              |
|-------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Exhibit      31.2 | Certification of Chief Financial Officer pursuant to      §302 of the Sarbanes-Oxley Act of 2002.                                                                              |
| Exhibit      32.1 | Certification of Chief Executive Officer and Chief      Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906      of the Sarbanes-Oxley Act of2002. |

----

|                                                                                                                                                                        |   | September      30,2008(unaudited) |            |   | December      31,2007 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|-----------------|--------|-----------------------|--------|
| ASSETS                                                                                                                                                                      |   |                              |            |   |                  |   |
| Cash      and cash due from banks                                                                                                                                           |   | $                                 | 10,516,000      |   |                  | $      | 11,554,000 |   |
| Federal      funds sold                                                                                                                                                     |   |                              | 5,333,000       |   |                  |   | 234,000 |   |
|           Cash      and cash equivalents                                                                                  |   |                              | 15,849,000      |   |                  |   | 11,788,000 |   |
|                                                                                                                                                                        |   |                              |            |   |                  |   |   |   |
| Investment      securities held-to-maturity, at cost (fair value of      $20,451,000    at      September 30, 2008 and $6,797,000 at December 31, 2007) |   |                              | 20,615,000      |   |                  |   |  6,854,000 |   |
| Investment      securities available-for-sale, at fair value                                                                                                                |   |                              | 18,574,000      |   |                  |   |  48,095,000 |   |
|           Total      investment securities                                                                                |   |                              | 39,189,000      |   |                  |   | 54,949,000 |   |
|                                                                                                                                                                        |   |                              |            |   |                  |   |   |   |
| Restricted      stock, at cost                                                                                                                                              |   |                              | 2,448,000       |   |                  |   | 2,229,000 |   |
|                                                                                                                                                                        |   |                              |            |   |                  |   |   |   |
| Loans      held for sale                                                                                                                                                    |   |                              | 12,000          |   |                  |   | 38,000 |   |
|                                                                                                                                                                        |   |                              |            |   |                  |   |   |   |
| Loans                                                                                                                                                                       |   |                              | 301,996,000     |   |                  |   | 312,210,000 |   |
| Less:      allowance for loan losses                                                                                                                                        |   |                              | (3,015,000      | )      |                  |   |  (2,891,000 | ) |
|           Total      net loans                                                                                            |   |                              | 298,981,000     |   |                  |   | 309,319,000 |   |
|                                                                                                                                                                        |   |                              |            |   |                  |   |   |   |
| Goodwill      and core deposit intangible asset, net                                                                                                                        |   |                              | 14,688,000      |   |                  |   | 14,924,000 |   |
| Bank      premises and equipment, net                                                                                                                                       |   |                              | 9,293,000       |   |                  |   | 9,751,000 |   |
| Accrued      interest receivable and other assets                                                                                                                           |   |                              |  7,407,000 |   |                  |   |  7,487,000 |   |
|                                                                                                                                                                        |   |                              |            |   |                  |   |   |   |
|           Total      assets                                                                                               |   | $                                 | 387,867,000     |   |                  | $      | 410,485,000 |   |

----

STERLING 

|                                                                                                                                                                                                                              |   | September      30,2008(unaudited) |              |   | December      31,2007 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|-------------------|--------|-----------------------|--------|
| LIABILITIES Deposits                                                                                                                                                                                                         |   |                              |              |   |                  |   |
|      Noninterest-bearing                                                                                                                                                                                 |   | $                                 | 38,799,000        |   |                  | $      | 37,246,000 |   |
|      Interest-bearing                                                                                                                                                                                    |   |                              | 282,684,000       |   |                  |   | 311,712,000 |   |
|           Total      deposits                                                                                                                                                   |   |                              | 321,483,000       |   |                  |   | 348,958,000 |   |
|                                                                                                                                                                                                                              |   |                              |              |   |                  |   |   |   |
| Federal      Home Loan Bank advances                                                                                                                                                                                              |   |                              | 16,000,000        |   |                  |   | 10,500,000 |   |
| Subordinated      debentures                                                                                                                                                                                                      |   |                              | 6,186,000         |   |                  |   | 6,186,000 |   |
| Accrued      interest payable and other accrued liabilities                                                                                                                                                                       |   |                              | 1,335,000         |   |                  |   | 1,533,000 |   |
|                                                                                                                                                                                                                              |   |                              |              |   |                  |   |   |   |
|           Total      liabilities                                                                                                                                                |   |                              | 345,004,000       |   |                  |   | 367,177,000 |   |
|                                                                                                                                                                                                                              |   |                              |              |   |                  |   |   |   |
| COMMITMENTS      AND CONTINGENCIES (Note 2)                                                                                                                                                                                       |   |                              |              |   |                  |   |   |   |
|                                                                                                                                                                                                                              |   |                              |              |   |                  |   |   |   |
| SHAREHOLDERS'      EQUITY                                                                                                                                                                                                         |   |                              |              |   |                  |   |   |   |
|   Preferred      stock, no par value, 10,000,000 shares authorized, noneissued        or      outstanding                                                                       |   |                              | -                 |   |                  |   | - |   |
|   Common      stock,   $2      par value, 15,000,000 shares authorized; 5,843,362 issued and        outstanding      at September 30, 2008 and December 31, 2007 |   |                              |   11,687,000 |   |                  |   |   11,687,000 |   |
|   Additional      paid-in capital                                                                                                                                                                                       |   |                              | 29,748,000        |   |                  |   | 29,708,000 |   |
|   Retained      earnings                                                                                                                                                                                                |   |                              | 1,544,000         |   |                  |   | 1,949,000 |   |
|   Accumulated      other comprehensive loss                                                                                                                                                                             |   |                              |  (116,000    | )      |                  |   |  (36,000 | ) |
|           Total      shareholders' equity                                                                                                                                       |   |                              | 42,863,000        |   |                  |   | 43,308,000 |   |
|           Total liabilities and      shareholders' equity                                                                                                                       |   | $                                 | 387,867,000       |   |                  | $      | 410,485,000 |   |

----

STERLING 

|                                                                                                                    |   | For      the three months ended September 30,      2008 |          |   | For      the three months ended September 30,      2007 |   |          | For      the nine months ended September 30,      2008 |   |   | For      the nine months ended September 30,      2007 |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------|---------------|--------|---------------------------------------------------------|--------|---------------|--------------------------------------------------------|--------|--------|--------------------------------------------------------|--------|
| INTEREST      INCOME                                                                                                    |   |                                                    |          |   |                                                    |   |          |                                                   |   |   |                                                   |   |
|   Interest      and fees on loans                                                                             |   | $                                                       | 5,125,000     |   |                                                    | $      | 6,032,000     |                                                   |   | $      | 15,839,000                                             |   |   | $ | 16,984,000 |   |
|   Interest      and dividends on securities                                                                   |   |                                                    | 318,000       |   |                                                    |   | 570,000       |                                                   |   |   | 1,093,000                                              |   |   |   | 1,778,000 |   |
|   Interest      on due from banks                                                                             |   |                                                    | -             |   |                                                    |   | 28,000        |                                                   |   |   | 2,000                                                  |   |   |   | 168,000 |   |
|   Interest      on federal funds sold                                                                         |   |                                                    | 21,000        |   |                                                    |   | 144,000       |                                                   |   |   | 159,000                                                |   |   |   | 428,000 |   |
|           Total      interest and dividend income                     |   |                                                    | 5,464,000     |   |                                                    |   | 6,774,000     |                                                   |   |   | 17,093,000                                             |   |   |   | 19,358,000 |   |
|                                                                                                                    |   |                                                    |          |   |                                                    |   |          |                                                   |   |   |                                                   |   |   |   |   |   |
| INTEREST      EXPENSE                                                                                                   |   |                                                    |          |   |                                                    |   |          |                                                   |   |   |                                                   |   |   |   |   |   |
|   Interest      on deposits                                                                                   |   |                                                    | 1,985,000     |   |                                                    |   | 3,423,000     |                                                   |   |   | 6,994,000                                              |   |   |   | 9,665,000 |   |
|   Interest      on Federal Home Loan Bank advances and     overnight      borrowings |   |                                                    | 31,000        |   |                                                    |   | 9,000         |                                                   |   |   | 110,000                                                |   |   |   | 79,000 |   |
|   Interest      on subordinated debentures                                                                    |   |                                                    | 105,000       |   |                                                    |   | 105,000       |                                                   |   |   | 313,000                                                |   |   |   | 174,000 |   |
|           Total      interest expense                                 |   |                                                    | 2,121,000     |   |                                                    |   | 3,537,000     |                                                   |   |   | 7,417,000                                              |   |   |   | 9,918,000 |   |
|                                                                                                                    |   |                                                    |          |   |                                                    |   |          |                                                   |   |   |                                                   |   |   |   |   |   |
|           Net      interest income                                    |   |                                                    | 3,343,000     |   |                                                    |   | 3,237,000     |                                                   |   |   | 9,676,000                                              |   |   |   | 9,440,000 |   |
|                                                                                                                    |   |                                                    |          |   |                                                    |   |          |                                                   |   |   |                                                   |   |   |   |   |   |
| PROVISION      FOR LOAN LOSSES                                                                                          |   |                                                    |  105,000 |   |                                                    |   |  -       |                                                   |   |   |  505,000                                          |   |   |   |  101,000 |   |
|                                                                                                                    |   |                                                    |          |   |                                                    |   |          |                                                   |   |   |                                                   |   |   |   |   |   |
|   Net      interest income after provision for loan losses                                                    |   |                                                    | 3,238,000     |   |                                                    |   | 3,237,000     |                                                   |   |   | 9,171,000                                              |   |   |   | 9,339,000 |   |
|                                                                                                                    |   |                                                    |          |   |                                                    |   |          |                                                   |   |   |                                                   |   |   |   |   |   |
| NONINTEREST      INCOME                                                                                                 |   |                                                    |          |   |                                                    |   |          |                                                   |   |   |                                                   |   |   |   |   |   |
|   Service      charges                                                                                        |   |                                                    | 65,000        |   |                                                    |   | 71,000        |                                                   |   |   | 188,000                                                |   |   |   | 214,000 |   |
|   Gains      on sales of available-for-sale securities                                                        |   |                                                    | -             |   |                                                    |   | -             |                                                   |   |   | 95,000                                                 |   |   |   | 5,000 |   |
|   Miscellaneous      fees and other                                                                           |   |                                                    | 218,000       |   |                                                    |   | 152,000       |                                                   |   |   | 512,000                                                |   |   |   | 407,000 |   |
|           Total      noninterest income                               |   |                                                    | 283,000       |   |                                                    |   | 223,000       |                                                   |   |   | 795,000                                                |   |   |   | 626,000 |   |
|                                                                                                                    |   |                                                    |          |   |                                                    |   |          |                                                   |   |   |                                                   |   |   |   |   |   |
| NONINTEREST      EXPENSES                                                                                               |   |                                                    |          |   |                                                    |   |          |                                                   |   |   |                                                   |   |   |   |   |   |
|   Compensation      and benefits                                                                              |   |                                                    | 1,719,000     |   |                                                    |   | 1,876,000     |                                                   |   |   | 5,516,000                                              |   |   |   | 5,345,000 |   |
|   Occupancy,      equipment and data processing                                                               |   |                                                    | 923,000       |   |                                                    |   | 924,000       |                                                   |   |   | 2,751,000                                              |   |   |   | 2,555,000 |   |
|   Professional      services                                                                                  |   |                                                    | 246,000       |   |                                                    |   | 150,000       |                                                   |   |   | 681,000                                                |   |   |   | 535,000 |   |
|   Marketing      and business development                                                                     |   |                                                    | 124,000       |   |                                                    |   | 219,000       |                                                   |   |   | 419,000                                                |   |   |   | 572,000 |   |
|   Amortization      of core deposit intangible asset                                                          |   |                                                    | 86,000        |   |                                                    |   | 87,000        |                                                   |   |   | 261,000                                                |   |   |   | 188,000 |   |
|   Other      operating expenses                                                                               |   |                                                    | 284,000       |   |                                                    |   | 346,000       |                                                   |   |   | 960,000                                                |   |   |   | 965,000 |   |
|           Total      noninterest expenses                             |   |                                                    | 3,382,000     |   |                                                    |   | 3,602,000     |                                                   |   |   | 10,588,000                                             |   |   |   | 10,160,000 |   |
|                                                                                                                    |   |                                                    |          |   |                                                    |   |          |                                                   |   |   |                                                   |   |   |   |   |   |
| INCOME      (LOSS) BEFORE INCOME TAX  EXPENSE      (BENEFIT)                                                  |   |                                                    | 139,000       |   |                                                    |   | (142,000      | )                                                      |   |   | (622,000                                               | )      |   |   | (195,000 | ) |
|                                                                                                                    |   |                                                    |          |   |                                                    |   |          |                                                   |   |   |                                                   |   |   |   |   |   |
| INCOME      TAX EXPENSE (BENEFIT)                                                                                       |   |                                                    |  60,000  |   |                                                    |   |  (48,000 | )                                                      |   |   |  (217,000                                         | )      |   |   |  (54,000 | ) |
|                                                                                                                    |   |                                                    |          |   |                                                    |   |          |                                                   |   |   |                                                   |   |   |   |   |   |
| NET      INCOME (LOSS)                                                                                                  |   | $                                                       | 79,000        |   |                                                    | $      | (94,000       | )                                                      |   | $      | (405,000                                               | )      |   | $ | (141,000 | ) |
|                                                                                                                    |   |                                                    |          |   |                                                    |   |          |                                                   |   |   |                                                   |   |   |   |   |   |
| NET      INCOME (LOSS) PER COMMON SHARE                                                                                 |   |                                                    |          |   |                                                    |   |          |                                                   |   |   |                                                   |   |   |   |   |   |
|       Basic      and Diluted                                                              |   | $                                                       | 0.01          |   |                                                    | $      | (0.02         | )                                                      |   | $      | (0.07                                                  | )      |   | $ | (0.03 | ) |
|                                                                                                                    |   |                                                    |          |   |                                                    |   |          |                                                   |   |   |                                                   |   |   |   |   |   |
| WEIGHTED      AVERAGE SHARES OUTSTANDING                                                                                |   |                                                    |          |   |                                                    |   |          |                                                   |   |   |                                                   |   |   |   |   |   |
|       Basic                                                                               |   |                                                    | 5,843,362     |   |                                                    |   | 5,843,362     |                                                   |   |   | 5,843,362                                              |   |   |   | 5,619,967 |   |
|       Diluted                                                                             |   |                                                    | 5,849,335     |   |                                                    |   | 5,843,362     |                                                   |   |   | 5,843,362                                              |   |   |   | 5,619,967 |   |
|                                                                                                                    |   |                                                    |          |   |                                                    |   |          |                                                   |   |   |                                                   |   |   |   |   |   |
| CASH      DIVIDENDS PER COMMON SHARE                                                                                    |   | $                                                       | 0.00          |   |                                                    | $      | 0.03          |                                                   |   | $      | 0.00                                                   |   |   | $ | 0.09 |   |

----

STERLING 

|                                                                                                  |   |              |      |   |       |   |       |     |   |   | Accumulated   |   |   |               |      |
|-------------------------------------------------------------------------------------------------------|--------|-------------------|-----------|--------|------------|--------|------------|----------|--------|--------|---------------|--------|--------|--------------------|-----------|
|                                                                                                  |   |              |      |   | Additional |   |       |     |   |   | Other         |   |   | Total              |      |
|                                                                                                  |   | Common      Stock |      |   | Paid-In    |   |       | Retained |   |   | Comprehensive |   |   | Shareholders'      |      |
|                                                                                                  |   | Shares            |      |   | Amount     |   |       | Capital  |   |   | Earnings      |   |   | Income      (Loss) |      |   | Equity |   |
| December      31, 2006                                                                                |   |              | 4,783,568 |   |       | $      | 9,567,000  |     |   | $      | 22,930,000    |   |   | $                  | 2,931,000 |   |   | $ | (660,000 | ) |   | $ | 34,768,000 |   |
|                                                                                                  |   |              |      |   |       |   |       |     |   |   |          |   |   |               |      |   |   |   |   |   |   |   |   |   |
| Comprehensive      losses:                                                                            |   |              |      |   |       |   |       |     |   |   |          |   |   |               |      |   |   |   |   |   |   |   |   |   |
|    Net      loss – 2007                                                          |   |              | -         |   |       |   | -          |     |   |   | -             |   |   |               | (141,000  | ) |   |   | - |   |   |   | (141,000 | ) |
|    Change      in net unrealized loss on                                               |   |              |      |   |       |   |       |     |   |   |          |   |   |               |      |   |   |   |   |   |   |   |   |   |
|        securities      available-for-sale, net                     |   |              |      |   |       |   |       |     |   |   |          |   |   |               |      |   |   |   |   |   |   |   |   |   |
|        of      reclassification adjustment                         |   |              |      |   |       |   |       |     |   |   |          |   |   |               |      |   |   |   |   |   |   |   |   |   |
|        and      tax effects                                        |   |              | -         |   |       |   | -          |     |   |   | -             |   |   |               | -         |   |   |   | 336,000 |   |   |   | 336,000 |   |
|       Total      comprehensive income                                   |   |              |      |   |       |   |       |     |   |   |          |   |   |               |      |   |   |   |   |   |   |   | 195,000 |   |
| Cash      dividends paid ($0.09 per      share)                         |   |              | -         |   |       |   | -          |     |   |   | -             |   |   |               | (477,000  | ) |   |   | - |   |   |   | (477,000 | ) |
| Stock      compensation                                                                               |   |              | -         |   |       |   | -          |     |   |   | 19,000        |   |   |               | -         |   |   |   | - |   |   |   | 19,000 |   |
| Acquisition      of Farnsworth Bancorp,     Inc.                             |   |              | 768,438   |   |       |   | 1,537,000  |     |   |   | 7,246,000     |   |   |               | -         |   |   |   | - |   |   |   | 8,783,000 |   |
| Net      proceeds from issuance of                                                                    |   |              |      |   |       |   |       |     |   |   |          |   |   |               |      |   |   |   |   |   |   |   |   |   |
|   common      stock                                                                         |   |              | 13,493    |   |       |   | 27,000     |     |   |   | 64,000        |   |   |               | -         |   |   |   | - |   |   |   | 91,000 |   |
| Common      stock split effected in the  form      of a 5% common stock  dividend |   |              | 277,863   |   |       |   | 556,000    |     |   |   | (558,000      | )      |   |               | -         |   |   |   | - |   |   |   | (2,000 | ) |
|                                                                                                  |   |              |      |   |       |   |       |     |   |   |          |   |   |               |      |   |   |   |   |   |   |   |   |   |
| September      30, 2007                                                                               |   |              | 5,843,362 |   |       | $      | 11,687,000 |     |   | $      | 29,701,000    |   |   | $                  | 2,313,000 |   |   | $ | (324,000 | ) |   | $ | 43,377,000 |   |
|                                                                                                  |   |              |      |   |       |   |       |     |   |   |          |   |   |               |      |   |   |   |   |   |   |   |   |   |
|                                                                                                  |   |              |      |   |       |   |       |     |   |   |          |   |   |               |      |   |   |   |   |   |   |   |   |   |
| December      31, 2007                                                                                |   |              | 5,843,362 |   |       | $      | 11,687,000 |     |   | $      | 29,708,000    |   |   | $                  | 1,949,000 |   |   | $ | (36,000 | ) |   | $ | 43,308,000 |   |
|                                                                                                  |   |              |      |   |       |   |       |     |   |   |          |   |   |               |      |   |   |   |   |   |   |   |   |   |
| Comprehensive      losses:                                                                            |   |              |      |   |       |   |       |     |   |   |          |   |   |               |      |   |   |   |   |   |   |   |   |   |
|    Net      loss – 2008                                                          |   |              | -         |   |       |   | -          |     |   |   | -             |   |   |               | (405,000  | ) |   |   | - |   |   |   | (405,000 | ) |
|    Change      in net unrealized loss on                                               |   |              |      |   |       |   |       |     |   |   |          |   |   |               |      |   |   |   |   |   |   |   |   |   |
|        securities      available-for-sale, net                     |   |              |      |   |       |   |       |     |   |   |          |   |   |               |      |   |   |   |   |   |   |   |   |   |
|        of      reclassification adjustment                         |   |              |      |   |       |   |       |     |   |   |          |   |   |               |      |   |   |   |   |   |   |   |   |   |
|        and      tax effects                                        |   |              | -         |   |       |   | -          |     |   |   | -             |   |   |               | -         |   |   |   | (80,000 | ) |   |   | (80,000 | ) |
|       Total      comprehensive loss                                     |   |              |      |   |       |   |       |     |   |   |          |   |   |               |      |   |   |   |   |   |   |   | (485,000 | ) |
| Stock      compensation                                                                               |   |              | -         |   |       |   | -          |     |   |   | 40,000        |   |   |               | -         |   |   |   | - |   |   |   | 40,000 |   |
|                                                                                                  |   |              |      |   |       |   |       |     |   |   |          |   |   |               |      |   |   |   |   |   |   |   |   |   |
| September      30, 2008                                                                               |   |              | 5,843,362 |   |       | $      | 11,687,000 |     |   | $      | 29,748,000    |   |   | $                  | 1,544,000 |   |   | $ | (116,000 | ) |   | $ | 42,863,000 |   |
|                                                                                                  |   |              |      |   |       |   |       |     |   |   |          |   |   |               |      |   |   |   |   |   |   |   |   |   |
|                                                                                                  |   |              |      |   |       |   |       |     |   |   |          |   |   |               |      |   |   |   |   |   |   |   |   |   |
|                                                                                                  |   |              |      |   |       |   |       |     |   |   |          |   |   |               |      |   |   |   |   |   |   |   |   |   |

----

STERLING 

|                                                                                                                              |   | 2008   |             |   | 2007   |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------------|--------|--------|--------|
| CASH      FLOWS FROM OPERATING ACTIVITIES                                                                                         |   |   |             |   |   |   |
| Net      loss                                                                                                                     |   | $      | (405,000         | )      |   | $      | (141,000 | ) |
| Adjustments      to reconcile net loss to net cash provided by (used in) operating      activities:                               |   |   |             |   |   |   |   |   |
|       Depreciation      and amortization of premises and equipment                                  |   |   | 809,000          |   |   |   | 755,000 |   |
|       Provision      for loan losses                                                                |   |   | 505,000          |   |   |   | 101,000 |   |
|       Net      amortization of purchase premiums and discounts on    securities                     |   |   | 27,000           |   |   |   | 39,000 |   |
|       Amortization      of core deposit intangible                                                  |   |   | 261,000          |   |   |   | 188,000 |   |
|       Stock      compensation                                                                       |   |   | 40,000           |   |   |   | 19,000 |   |
|       Realized      gain on sales or retirement of equipment                                        |   |   | (5,000           | )      |   |   | (9,000 | ) |
|       Realized      gain on sales of securities available-for-sale                                  |   |   | (95,000          | )      |   |   | (5,000 | ) |
|       Realized      gain on sales of loans held for sale                                            |   |   | (12,000          | )      |   |   | - |   |
|       Proceeds      from sale of loans held for sale                                                |   |   | 1,058,000        |   |   |   | 5,148,000 |   |
|       Originations      of loans held for sale                                                      |   |   | (1,020,000       | )      |   |   | (3,761,000 | ) |
| Changes      in operating assets and liabilities:                                                                                 |   |   |             |   |   |   |   |   |
|    (Increase)      Decrease in accrued interest receivable and other assets                                        |   |   | 135,000          |   |   |   | (622,000 | ) |
|    Decrease      in accrued interest payable and other accrued liabilities                                         |   |   | (198,000         | )      |   |   | (2,186,000 | ) |
|       Net      cash provided by (used in) operating activities                                      |   |   | 1,100,000        |   |   |   | (474,000 | ) |
|                                                                                                                              |   |   |             |   |   |   |   |   |
| CASH      FLOWS FROM INVESTING ACTIVITIES                                                                                         |   |   |             |   |   |   |   |   |
|    Purchase      of securities available-for-sale                                                                  |   |   | (3,995,000       | )      |   |   | (4,883,000 | ) |
|    Purchases      of securities held-to-maturity                                                                   |   |   | (15,322,000      | )      |   |   | (75,000 | ) |
|    Proceeds      from sales of securities available-for-sale                                                       |   |   | 5,470,000        |   |   |   | 20,503,000 |   |
|    Proceeds      from maturities of securities available-for-sale                                                  |   |   | 25,900,000       |   |   |   | 3,000,000 |   |
|    Proceeds      from maturities of securities held-to-maturity                                                    |   |   | -                |   |   |   | 875,000 |   |
|    Proceeds      from principal payments on mortgage-backed securities      available-for-sale                     |   |   | 2,090,000        |   |   |   | 1,980,000 |   |
|    Proceeds      from principal payments on mortgage-backed securities      held-to-maturity                       |   |   | 1,550,000        |   |   |   | 1,285,000 |   |
|    Purchases      of restricted stock                                                                              |   |   | (2,465,000       | )      |   |   | (400,000 | ) |
|    Proceeds      from sale of restricted stock                                                                     |   |   | 2,246,000        |   |   |   | 241,000 |   |
|    Net      decrease in loans                                                                                      |   |   | 9,833,000        |   |   |   | 6,360,000 |   |
|    Proceeds      from sales of equipment                                                                           |   |   | 46,000           |   |   |   | 28,000 |   |
|    Purchases      of premises and equipment                                                                        |   |   | (392,000         | )      |   |   | (1,657,000 | ) |
|    Cash      acquired in (paid for) acquisition                                                                    |   |   | (25,000          | )      |   |   | 3,096,000 |   |
|       Net      cash provided by investing activities                                                |   |   | 24,936,000       |   |   |   | 30,353,000 |   |
| CASH      FLOWS FROM FINANCING ACTIVITIES                                                                                         |   |   |             |   |   |   |   |   |
|    Net      proceeds from issuance of common stock                                                                 |   |   | -                |   |   |   | 91,000 |   |
|    Dividends      paid                                                                                             |   |   | -                |   |   |   | (477,000 | ) |
|    Net      increase in noninterest-bearing deposits                                                               |   |   | 1,553,000        |   |   |   | 3,627,000 |   |
|    Net      decrease in interest-bearing deposits                                                                  |   |   | (29,028,000      | )      |   |   | (40,395,000 | ) |
|    Proceeds      from issuance of trust preferred securities                                                       |   |   | -                |   |   |   | 6,000,000 |   |
|    Proceeds      from (repayments of) Federal Home Loan Advances                                                   |   |   | 5,500,000        |   |   |   | (5,243,000 | ) |
|       Net      cash used in financing activities                                                    |   |   | (21,975,000      | )      |   |   | (36,397,000 | ) |
|                                                                                                                              |   |   |             |   |   |   |   |   |
| INCREASE      (DECREASE) IN CASH AND CASH EQUIVALENTS                                                                             |   |   | 4,061,000        |   |   |   | (6,518,000 | ) |
|                                                                                                                              |   |   |             |   |   |   |   |   |
| CASH      AND CASH EQUIVALENTS, JANUARY 1,                                                                                        |   |   |  11,788,000 |   |   |   |  22,942,000 |   |
|                                                                                                                              |   |   |             |   |   |   |   |   |
| CASH      AND CASH EQUIVALENTS, SEPTEMBER 30,                                                                                     |   | $      | 15,849,000       |   |   | $      | 16,424,000 |   |
|                                                                                                                              |   |   |             |   |   |   |   |   |
| SUPPLEMENTAL      DISCLOSURE OF CASH FLOW INFORMATION                                                                             |   |   |             |   |   |   |   |   |
|    Cash      paid during the period for:     Interest      on deposits and borrowed funds |   | $      | 7,604,000        |   |   | $      | 9,985,000 |   |
|      Income      taxes                                                                                   |   | $      | 1,000            |   |   | $      | 140,000 |   |

----

STERLING 

----

----

----

----

|                                          |   |   |   |   |                   |   |   | For      Capital |   |             | To      Be Well |
|-----------------------------------------------|--------|--------|--------|--------|------------------------|--------|--------|------------------|--------|------------------|-----------------|
|                                          |   | Actual |   |   | Adequacy      Purposes |   |   | Capitalized      |
|                                          |   | Amount |   |   | Ratio                  |   |   | Amount           |   |             | Ratio           |   |   | Amount |   | Ratio |
| As      of September 30, 2008:                |   |   |   |   |                   |   |   |             |   |             |            |   |   |   |   |   |
|                                          |   |   |   |   |                   |   |   |             |   |             |            |   |   |   |   |   |
| Total      Capital (to Risk-Weighted Assets)  |   | $      | 36,185 |   |                   |   | 11.76  | %                |   | $                | ≥24,610   |   |   |   | ≥8.0 | % |   | $ | ≥30,762 |   |   |   | ≥10.0 | % |
| Tier      I Capital (to Risk-Weighted Assets) |   | $      | 33,102 |   |                   |   | 10.76  | %                |   | $                | ≥12,305   |   |   |   | ≥4.0 | % |   | $ | ≥18,457 |   |   |   | ≥    6.0 | % |
| Tier      I Capital (to Average Assets)       |   | $      | 33,102 |   |                   |   | 9.11   | %                |   | $                | ≥14,527   |   |   |   | ≥4.0 | % |   | $ | ≥18,159 |   |   |   | ≥ 5.0 | % |
|                                          |   |   |   |   |                   |   |   |             |   |             |            |   |   |   |   |   |   |   |   |
|                                          |   |   |   |   |                   |   |   |             |   | For      Capital |            |   | To      Be Well |   |
|                                          |   | Actual |   |   | Adequacy      Purposes |   |   | Capitalized      |   |
|                                          |   | Amount |   |   | Ratio                  |   |   | Amount           |   |             | Ratio           |   |   | Amount |   |   | Ratio |   |
| As      of December 31, 2007:                 |   |   |   |   |                   |   |   |             |   |             |            |   |   |   |   |   |   |   |   |   |
|                                          |   |   |   |   |                   |   |   |             |   |             |            |   |   |   |   |   |   |   |   |   |
| Total      Capital (to Risk-Weighted Assets)  |   | $      | 35,923 |   |                   |   | 11.13  | %                |   | $                | ≥25,824   |   |   |   | ≥8.0 | % |   | $ | ≥32,280 |   |   |   | ≥10.0 | % |
| Tier      I Capital (to Risk-Weighted Assets) |   | $      | 32,957 |   |                   |   | 10.21  | %                |   | $                | ≥12,912   |   |   |   | ≥4.0 | % |   | $ | ≥19,368 |   |   |   | ≥ 6.0 | % |
| Tier      I Capital (to Average Assets)       |   | $      | 32,957 |   |                   |   | 8.28   | %                |   | $                | ≥15,926   |   |   |   | ≥4.0 | % |   | $ | ≥19,907 |   |   |   | ≥      5.0 | % |

----

| ·   | Unadjusted      quoted prices in active markets that are accessible at the measurement      date for identical, unrestricted assets or  liabilities. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Generally,      this includes debt and equity securities and derivative contracts that are      traded in an active exchange market (i.e. New York Stock Exchange), as      well as certain US Treasury and US Government and agency mortgage-backed      securities that are highly liquid and are actively traded in      over-the-counter markets. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Quoted      prices for similar assets or liabilities in active  markets.                                                                                                                                                                                                          |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Quoted      prices for identical or similar assets or liabilities in markets that are      not active.                                                                                                                                                                            |
| ·   | Inputs      other than quoted prices that are observable, either directly or      indirectly, for the term of the asset or liability (e.g., interest rates,      yield curves, credit risks, prepayment speeds or volatilities) or “market      corroborated inputs.” |
| ·   | Generally,      this includes US Government and agency mortgage-backed securities,      corporate debt securities, derivative contracts and loans held for      sale.                                                                                                             |

| ·   | Prices      or valuation techniques that require inputs that are both unobservable      (i.e. supported by little or no market activity) and that are significant      to the fair value of the assets orliabilities. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | These      assets and liabilities include financial instruments whose value is      determined using pricing models, discounted cash flow methodologies, or      similar techniques, as well as instruments for which the determination of      fair value requires significant management judgment or      estimation. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                          |   | Level      1 |   |   | Level      2 |   |       | Level      3 |   |   | Total  |   |
|-----------------------------------------------|--------|--------------|--------|--------|--------------|--------|------------|--------------|--------|--------|--------|--------|
| Financial      Assets                         |   |         |   |   |         |   |       |         |   |   |   |   |
| Investment      securities available-for-sale |   |         | -      |   |         |   | 18,574,000 |         |   |   | -      |   |   |   | 18,574,000 |   |

----

|                     |   | Level      1 |   |   | Level      2 |   |   | Level      3 |   |   | Total      |   |
|--------------------------|--------|--------------|--------|--------|--------------|--------|--------|--------------|--------|--------|------------|--------|
| Financial      Assets    |   |         |   |   |         |   |   |         |   |   |       |   |
| Loans      held for sale |   | $            | -      |   |         | $      | 12,000 |         |   | $      | -          |   |   | $ | 12,000 |   |
| Impaired      loans      |   | $            | -      |   |         | $      | -      |         |   | $      | 10,720,000 |   |   | $ | 10,720,000 |   |

----

ITEM 

----

----

----

----

|                                                                                                                        |   | Three Months Ended |        |
|-----------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-------------|
|                                                                                                                        |   | September 30, 2008 |        |   | September 30, 2007 |   |
|                                                                                                                        |   | AverageBalance     |        |   | InterestIncome/Expense |   |   | Annual      Yield |   |   | Average      Balance |   |   | InterestIncome/Expense |   |   | Annual      Yield |   |
| Assets                                                                                                                      |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans,      net (1)                                                                                                         |   | $                  | 298,773,000 |   |   | $ | 5,125,000 |   |   |   | 6.90 | % |   | $ | 310,504,000 |   |   | $ | 6,032,000 |   |   |   | 7.71 | % |
| Investment      securities (2)                                                                                              |   |               | 28,955,000  |   |   |   | 318,000 |   |   |   | 4.41 |   |   |   | 55,320,000 |   |   |   | 570,000 |   |   |   | 4.09 |   |
| Due      from banks                                                                                                         |   |               | 144,000     |   |   |   | - |   |   |   | 1.48 |   |   |   | 2,047,000 |   |   |   | 28,000 |   |   |   | 5.49 |   |
| Federal      funds sold                                                                                                     |   |               | 4,708,000   |   |   |   | 21,000 |   |   |   | 1.81 |   |   |   | 11,124,000 |   |   |   | 144,000 |   |   |   | 5.15 |   |
| Total      interest-earning assets                                                                                          |   |               | 332,580,000 |   |   |   | 5,464,000 |   |   |   | 6.61 |   |   |   | 378,995,000 |   |   |   | 6,774,000 |   |   |   | 7.09 |   |
|                                                                                                                        |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance      for loan losses                                                                                              |   |               | (3,006,000  | ) |   |   |   |   |   |   |   |   |   |   | (2,854,000 | ) |   |   |   |   |   |   |   |   |
| Other      assets                                                                                                           |   |               | 48,636,000  |   |   |   |   |   |   |   |   |   |   |   | 49,374,000 |   |   |   |   |   |   |   |   |   |
| Total      assets                                                                                                           |   | $                  | 378,210,000 |   |   |   |   |   |   |   |   |   |   | $ | 425,515,000 |   |   |   |   |   |   |   |   |   |
|                                                                                                                        |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities      and shareholders’  equity                                                                  |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Time      deposits                                                                                                          |   | $                  | 181,059,000 |   |   |   | 1,636,000 |   |   |   | 3.59 | % |   | $ | 230,914,000 |   |   |   | 2,829,000 |   |   |   | 4.84 | % |
| NOW/MMDA/savings      accounts                                                                                              |   |               | 105,213,000 |   |   |   | 349,000 |   |   |   | 1.32 |   |   |   | 102,402,000 |   |   |   | 595,000 |   |   |   | 2.36 |   |
| Borrowed      funds                                                                                                         |   |               | 9,821,000   |   |   |   | 136,000 |   |   |   | 5.48 |   |   |   | 7,236,000 |   |   |   | 113,000 |   |   |   | 6.20 |   |
| Total      interest-bearing liabilities                                                                                     |   |               | 296,093,000 |   |   |   | 2,121,000 |   |   |   | 2.85 |   |   |   | 340,552,000 |   |   |   | 3,537,000 |   |   |   | 4.12 |   |
|                                                                                                                        |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing      demand   deposits                                                                   |   |               | 37,971,000  |   |   |   |   |   |   |   |   |   |   |   | 41,778,000 |   |   |   |   |   |   |   |   |   |
| Other      liabilities                                                                                                      |   |               | 1,430,000   |   |   |   |   |   |   |   |   |   |   |   | 6,000 |   |   |   |   |   |   |   |   |   |
| Shareholders’      equity                                                                                             |   |               | 42,716,000  |   |   |   |   |   |   |   |   |   |   |   | 43,179,000 |   |   |   |   |   |   |   |   |   |
|     Total      liabilities and       shareholders’      equity |   | $                  | 378,210,000 |   |   |   |   |   |   |   |   |   |   | $ | 425,515,000 |   |   |   |   |   |   |   |   |   |
|                                                                                                                        |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest income                                                                                                    |   |               |        |   |   | $ | 3,343,000 |   |   |   |   |   |   |   |   |   |   | $ | 3,237,000 |   |   |   |   |   |
|                                                                                                                        |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      rate spread (3)                                                                                               |   |               |        |   |   |   |   |   |   |   | 3.76 | % |   |   |   |   |   |   |   |   |   |   | 2.97 | % |
|                                                                                                                        |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest margin (4)                                                                                                |   |               |        |   |   |   |   |   |   |   | 4.00 | % |   |   |   |   |   |   |   |   |   |   | 3.39 | % |

----

|                                                                                                                        |   | Nine Months Ended  |        |
|-----------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-------------|
|                                                                                                                        |   | September 30, 2008 |        |   | September 30, 2007 |   |
|                                                                                                                        |   | AverageBalance     |        |   | InterestIncome/Expense |   |   | Annual      Yield |   |   | Average      Balance |   |   | InterestIncome/Expense |   |   | Annual      Yield |   |
| Assets                                                                                                                      |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans,      net (1)                                                                                                         |   | $                  | 301,245,000 |   |   | $ | 15,839,000 |   |   |   | 7.02 | % |   | $ | 295,497,000 |   |   | $ | 16,984,000 |   |   |   | 7.68 | % |
| Investment      securities (2)                                                                                              |   |               | 34,412,000  |   |   |   | 1,093,000 |   |   |   | 4.24 |   |   |   | 57,390,000 |   |   |   | 1,778,000 |   |   |   | 4.14 |   |
| Due      from banks                                                                                                         |   |               | 113,000     |   |   |   | 2,000 |   |   |   | 2.38 |   |   |   | 4,444,000 |   |   |   | 168,000 |   |   |   | 5.07 |   |
| Federal      funds sold                                                                                                     |   |               | 9,366,000   |   |   |   | 159,000 |   |   |   | 2.27 |   |   |   | 10,974,000 |   |   |   | 428,000 |   |   |   | 5.22 |   |
| Total      interest-earning assets                                                                                          |   |               | 345,136,000 |   |   |   | 17,093,000 |   |   |   | 6.62 |   |   |   | 368,305,000 |   |   |   | 19,358,000 |   |   |   | 7.03 |   |
|                                                                                                                        |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance      for loan losses                                                                                              |   |               | (2,866,000  | ) |   |   |   |   |   |   |   |   |   |   | (2,567,000 | ) |   |   |   |   |   |   |   |   |
| Other      assets                                                                                                           |   |               | 48,393,000  |   |   |   |   |   |   |   |   |   |   |   | 40,285,000 |   |   |   |   |   |   |   |   |   |
| Total      assets                                                                                                           |   | $                  | 390,663,000 |   |   |   |   |   |   |   |   |   |   | $ | 406,023,000 |   |   |   |   |   |   |   |   |   |
|                                                                                                                        |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities      and shareholders’  equity                                                                  |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Time      deposits                                                                                                          |   | $                  | 194,283,000 |   |   |   | 5,926,000 |   |   |   | 4.07 | % |   | $ | 220,669,000 |   |   |   | 7,944,000 |   |   |   | 4.81 | % |
| NOW/MMDA/savings      accounts                                                                                              |   |               | 103,211,000 |   |   |   | 1,068,000 |   |   |   | 1.38 |   |   |   | 97,798,000 |   |   |   | 1,721,000 |   |   |   | 2.35 |   |
| Borrowed      funds                                                                                                         |   |               | 9,882,000   |   |   |   | 423,000 |   |   |   | 5.72 |   |   |   | 5,851,000 |   |   |   | 253,000 |   |   |   | 5.78 |   |
| Total      interest-bearing liabilities                                                                                     |   |               | 307,376,000 |   |   |   | 7,417,000 |   |   |   | 3.22 |   |   |   | 324,318,000 |   |   |   | 9,918,000 |   |   |   | 4.09 |   |
|                                                                                                                        |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing      demand   deposits                                                                   |   |               | 38,422,000  |   |   |   |   |   |   |   |   |   |   |   | 40,554,000 |   |   |   |   |   |   |   |   |   |
| Other      liabilities                                                                                                      |   |               | 1,856,000   |   |   |   |   |   |   |   |   |   |   |   | 558,000 |   |   |   |   |   |   |   |   |   |
| Shareholders’      equity                                                                                             |   |               | 43,009,000  |   |   |   |   |   |   |   |   |   |   |   | 40,593,000 |   |   |   |   |   |   |   |   |   |
|     Total      liabilities and       shareholders’      equity |   | $                  | 390,663,000 |   |   |   |   |   |   |   |   |   |   | $ | 406,023,000 |   |   |   |   |   |   |   |   |   |
|                                                                                                                        |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest income                                                                                                    |   |               |        |   |   | $ | 9,676,000 |   |   |   |   |   |   |   |   |   |   | $ | 9,440,000 |   |   |   |   |   |
|                                                                                                                        |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      rate spread (3)                                                                                               |   |               |        |   |   |   |   |   |   |   | 3.40 | % |   |   |   |   |   |   |   |   |   |   | 2.94 | % |
|                                                                                                                        |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest margin (4)                                                                                                |   |               |        |   |   |   |   |   |   |   | 3.74 | % |   |   |   |   |   |   |   |   |   |   | 3.43 | % |

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| 31.1   | Certification of Chief Executive Officer pursuant to      §302 of the Sarbanes-Oxley Act of2002. |
|------------------|-------------------------------------------------------------------------------------------------------|

| 31.2   | Certification of Chief Financial Officer pursuant to      §302 of the Sarbanes-Oxley Act of 2002.                                                                                    |
|------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 32.1        | Certification of Chief Executive Officer and Chief      Financial Officer pursuant to 18      U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of      2002. |

|   | 22 |
|--------|----|

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|   | SIGNATURES |
|--------|------------|

|                         | STERLING      BANKS, INC.                  |
|------------------------------|--------------------------------------------|
|                         |                                       |
|                         |                                       |
| Date:      November 14, 2008 | By:      /s/ Robert H.      King           |
|                         | Robert      H. King                        |
|                         | President      and Chief Executive Officer |

| Date:      November 14, 2008 | By:      /s/ R. Scott      Horner       |
|------------------------------|-----------------------------------------|
|                         | R.      Scott Horner                    |
|                         | Executive      Vice President and Chief |
|                         | Financial      Officer                  |

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