**UNITED      STATES SECURITIES AND      EXCHANGE COMMISSION **

**Form      10-QSB**

**STERLING  BANKS,      INC.**

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

**3100      Route 38, Mount Laurel, New Jersey 08054**

**856-273-5900**

**N/A**

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**STERLING      BANKS, INC.**

**FORM      10-QSB**

**FOR      THE QUARTER ENDED SEPTEMBER 30, 2007**

**INDEX**

| **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                  | 15       |
| Item                  3.     | Controls                  and Procedures                                     | 20       |
|                         |                                                                         |     |
| **Part                  II** | **OTHER                  INFORMATION**                                       |     |
|                         |                                                                         |     |
| Item                  1.     | Legal                  Proceedings                                           | 21       |
| Item                  2.     | Unregistered                  Sales of Equity Securities and Use of Proceeds | 21       |
| Item                  3.     | Defaults                  upon Senior Securities                             | 21       |
| Item                  4.     | Submission                  of Matters to a Vote of Security Holders         | 21       |
| Item                  5.     | Other                  Information                                           | 21       |
| Item                  6.     | Exhibits                                                                     | 21       |
|                         |                                                                         |     |
| **SIGNATURES**               |                                                                         | 22       |

**EXHIBITS**

| Exhibit                3.1  | Amended                and Restated Bylaws of Sterling Banks, Inc. (incorporated by reference                to                Exhibit 3.1 of the Company’s Current Report on Form 8-K dated                September  25, 2007). |
|-----------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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 of                2002.            |

----

**Part      I.  Financial Information**

**Item      1.    Financial Statements**

**STERLING      BANKS, INC. AND SUBSIDIARIES**

**CONSOLIDATED      BALANCE SHEETS**

**SEPTEMBER      30, 2007 AND DECEMBER 31, 2006**

|                                                                                                                                                                                                     |   | September                30,2007(unaudited) |        |   | December                31,2006 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|-------------|--------|---------------------------------|--------|
| **ASSETS**                                                                                                                                                                                               |   |                                        |        |   |                            |   |
| Cash                and cash due from banks                                                                                                                                                              |   | $                                           | 15,088,000  |   |                            | $      | 16,064,000 |   |
| Federal                funds sold                                                                                                                                                                        |   |                                        | 1,336,000   |   |                            |   | 6,878,000 |   |
|           Cash                and cash equivalents                                                                                                     |   |                                        | 16,424,000  |   |                            |   | 22,942,000 |   |
|                                                                                                                                                                                                     |   |                                        |        |   |                            |   |   |   |
| Investment                securities held-to-maturity, at cost (fair value of                $7,066,000    at                September 30, 2007 and $9,087,000 at December 31, 2006) |   |                                        | 7,194,000   |   |                            |   | 9,292,000 |   |
| Investment                securities available-for-sale, at fair value                                                                                                                                   |   |                                        | 48,049,000  |   |                            |   | 47,526,000 |   |
|           Total                investment securities                                                                                                   |   |                                        | 55,243,000  |   |                            |   | 56,818,000 |   |
|                                                                                                                                                                                                     |   |                                        |        |   |                            |   |   |   |
| Restricted                stock, at cost                                                                                                                                                                 |   |                                        | 1,796,000   |   |                            |   | 1,436,000 |   |
|                                                                                                                                                                                                     |   |                                        |        |   |                            |   |   |   |
| Loans                held for sale                                                                                                                                                                       |   |                                        | 231,000     |   |                            |   | 1,618,000 |   |
|                                                                                                                                                                                                     |   |                                        |        |   |                            |   |   |   |
| Loans                                                                                                                                                                                                    |   |                                        | 312,593,000 |   |                            |   | 243,283,000 |   |
| Less:                allowance for loan losses                                                                                                                                                           |   |                                        | (2,829,000  | )      |                            |   | (1,760,000 | ) |
|           Total                net loans                                                                                                               |   |                                        | 309,764,000 |   |                            |   | 241,523,000 |   |
|                                                                                                                                                                                                     |   |                                        |        |   |                            |   |   |   |
| Goodwill                and other intangible assets                                                                                                                                                      |   |                                        | 15,011,000  |   |                            |   | - |   |
| Bank                premises and equipment, net                                                                                                                                                          |   |                                        | 9,977,000   |   |                            |   | 6,922,000 |   |
| Accrued                interest receivable and other assets                                                                                                                                              |   |                                        | 7,832,000   |   |                            |   | 5,989,000 |   |
|                                                                                                                                                                                                     |   |                                        |        |   |                            |   |   |   |
| **          Total                assets**                                                                                                              |   | $                                           | 416,278,000 |   |                            | $      | 337,248,000 |   |

*See      Notes to Consolidated Financial Statements*

----

**STERLING      BANKS, INC. AND SUBSIDIARIES**

**CONSOLIDATED      BALANCE SHEETS**

**SEPTEMBER      30, 2007 AND DECEMBER 31, 2006**

|                                                                                                                                                                                                                                                                                                 |   | September                30,2007(unaudited) |             |   | December                31,2006 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|------------------|--------|---------------------------------|--------|
| **LIABILITIES** Deposits                                                                                                                                                                                                                                                                        |   |                                        |             |   |                            |   |
|      Noninterest-bearing                                                                                                                                                                                                                                                    |   | $                                           | 42,648,000       |   |                            | $      | 39,021,000 |   |
|      Interest-bearing                                                                                                                                                                                                                                                       |   |                                        | 321,596,000      |   |                            |   | 256,269,000 |   |
|           Total                deposits                                                                                                                                                                                                            |   |                                        | 364,244,000      |   |                            |   | 295,290,000 |   |
|                                                                                                                                                                                                                                                                                                 |   |                                        |             |   |                            |   |   |   |
| Federal                Home Loan Bank advances and other borrowings                                                                                                                                                                                                                                  |   |                                        | 7,050,000        |   |                            |   | 5,885,000 |   |
| Accrued                interest payable and other accrued liabilities                                                                                                                                                                                                                                |   |                                        | 1,607,000        |   |                            |   | 1,305,000 |   |
|                                                                                                                                                                                                                                                                                                 |   |                                        |             |   |                            |   |   |   |
|           Total                liabilities                                                                                                                                                                                                         |   |                                        | 372,901,000      |   |                            |   | 302,480,000 |   |
|                                                                                                                                                                                                                                                                                                 |   |                                        |             |   |                            |   |   |   |
| **COMMITMENTS                AND CONTINGENCIES (Note 2)**                                                                                                                                                                                                                                            |   |                                        |             |   |                            |   |   |   |
|                                                                                                                                                                                                                                                                                                 |   |                                        |             |   |                            |   |   |   |
| **SHAREHOLDERS'                EQUITY**                                                                                                                                                                                                                                                              |   |                                        |             |   |                            |   |   |   |
|   Common                stock,   $2                par value, 15,000,000 shares authorized; 5,843,774 and   4,783,568                shares issued and outstanding at September 30, 2007   and                December 31, 2006, respectively |   |                                        |  11,688,000 |   |                            |   |  9,567,000 |   |
|    Preferred                stock, 10,000,000 shares authorized; no shares issued   and                outstanding                                                                                                                                                     |   |                                        | -                |   |                            |   | - |   |
|   Additional                paid-in capital                                                                                                                                                                                                                                                |   |                                        | 29,700,000       |   |                            |   | 22,930,000 |   |
|   Retained                earnings                                                                                                                                                                                                                                                         |   |                                        | 2,313,000        |   |                            |   | 2,931,000 |   |
|   Accumulated                other comprehensive loss                                                                                                                                                                                                                                      |   |                                        | (324,000         | )      |                            |   | (660,000 | ) |
|           Total                shareholders' equity                                                                                                                                                                                                |   |                                        | 43,377,000       |   |                            |   | 34,768,000 |   |
|           **Total                liabilities and shareholders' equity**                                                                                                                                                                            |   | $                                           | 416,278,000      |   |                            | $      | 337,248,000 |   |

*See      Notes to Consolidated Financial Statements*

----

**STERLING      BANKS, INC. AND SUBSIDIARIES**

**CONSOLIDATED      STATEMENTS OF OPERATIONS**

**NINE      MONTHS ENDED SEPTEMBER 30, 2007 AND 2006**

**(Unaudited)**

|                                                                                                                                    |   | For                the three months                ended September                30, 2007 |      |   | For                the three months                ended September                30, 2006 |   |      | For                the nine months                ended September                30, 2007 |   |   | For                the nine months                ended September                30, 2006 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------|-----------|--------|-------------------------------------------------------------------------------------------------|--------|-----------|------------------------------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------------------|--------|
| INTEREST                INCOME                                                                                                          |   |                                                                                            |      |   |                                                                                            |   |      |                                                                                           |   |   |                                                                                           |   |
|   Interest                and fees on loans                                                                                   |   | $                                                                                               | 6,031,000 |   |                                                                                            | $      | 4,800,000 |                                                                                           |   | $      | 16,984,000                                                                                     |   |   | $ | 14,621,000 |   |
|   Interest                and dividends on securities                                                                         |   |                                                                                            | 598,000   |   |                                                                                            |   | 729,000   |                                                                                           |   |   | 1,946,000                                                                                      |   |   |   | 1,988,000 |   |
|   Interest                on federal funds sold                                                                               |   |                                                                                            | 145,000   |   |                                                                                            |   | 77,000    |                                                                                           |   |   | 428,000                                                                                        |   |   |   | 296,000 |   |
|           Total                interest and dividend income                           |   |                                                                                            | 6,774,000 |   |                                                                                            |   | 5,606,000 |                                                                                           |   |   | 19,358,000                                                                                     |   |   |   | 16,905,000 |   |
|                                                                                                                                    |   |                                                                                            |      |   |                                                                                            |   |      |                                                                                           |   |   |                                                                                           |   |   |   |   |   |
| INTEREST                EXPENSE                                                                                                         |   |                                                                                            |      |   |                                                                                            |   |      |                                                                                           |   |   |                                                                                           |   |   |   |   |   |
|   Interest                on deposits                                                                                         |   |                                                                                            | 3,423,000 |   |                                                                                            |   | 2,548,000 |                                                                                           |   |   | 9,665,000                                                                                      |   |   |   | 7,275,000 |   |
|   Interest                on Federal Home Loan Bank advances and     other                borrowings |   |                                                                                            | 110,000   |   |                                                                                            |   | 87,000    |                                                                                           |   |   | 247,000                                                                                        |   |   |   | 342,000 |   |
|           Total                interest expense                                       |   |                                                                                            | 3,533,000 |   |                                                                                            |   | 2,635,000 |                                                                                           |   |   | 9,912,000                                                                                      |   |   |   | 7,617,000 |   |
|                                                                                                                                    |   |                                                                                            |      |   |                                                                                            |   |      |                                                                                           |   |   |                                                                                           |   |   |   |   |   |
|           Net                interest income                                          |   |                                                                                            | 3,241,000 |   |                                                                                            |   | 2,971,000 |                                                                                           |   |   | 9,446,000                                                                                      |   |   |   | 9,288,000 |   |
|                                                                                                                                    |   |                                                                                            |      |   |                                                                                            |   |      |                                                                                           |   |   |                                                                                           |   |   |   |   |   |
| PROVISION                FOR LOAN LOSSES                                                                                                |   |                                                                                            | -         |   |                                                                                            |   | 45,000    |                                                                                           |   |   | 101,000                                                                                        |   |   |   | 135,000 |   |
|                                                                                                                                    |   |                                                                                            |      |   |                                                                                            |   |      |                                                                                           |   |   |                                                                                           |   |   |   |   |   |
|   Net                interest income after provision for loan losses                                                          |   |                                                                                            | 3,241,000 |   |                                                                                            |   | 2,926,000 |                                                                                           |   |   | 9,345,000                                                                                      |   |   |   | 9,153,000 |   |
|                                                                                                                                    |   |                                                                                            |      |   |                                                                                            |   |      |                                                                                           |   |   |                                                                                           |   |   |   |   |   |
| NONINTEREST                INCOME                                                                                                       |   |                                                                                            |      |   |                                                                                            |   |      |                                                                                           |   |   |                                                                                           |   |   |   |   |   |
|   Service                charges                                                                                              |   |                                                                                            | 71,000    |   |                                                                                            |   | 60,000    |                                                                                           |   |   | 214,000                                                                                        |   |   |   | 192,000 |   |
|   Miscellaneous                fees and other                                                                                 |   |                                                                                            | 148,000   |   |                                                                                            |   | 115,000   |                                                                                           |   |   | 406,000                                                                                        |   |   |   | 326,000 |   |
|           Total                noninterest income                                     |   |                                                                                            | 219,000   |   |                                                                                            |   | 175,000   |                                                                                           |   |   | 620,000                                                                                        |   |   |   | 518,000 |   |
|                                                                                                                                    |   |                                                                                            |      |   |                                                                                            |   |      |                                                                                           |   |   |                                                                                           |   |   |   |   |   |
| NONINTEREST                EXPENSES                                                                                                     |   |                                                                                            |      |   |                                                                                            |   |      |                                                                                           |   |   |                                                                                           |   |   |   |   |   |
|   Compensation                and benefits                                                                                    |   |                                                                                            | 1,876,000 |   |                                                                                            |   | 1,517,000 |                                                                                           |   |   | 5,345,000                                                                                      |   |   |   | 4,558,000 |   |
|   Occupancy,                equipment and data processing                                                                     |   |                                                                                            | 924,000   |   |                                                                                            |   | 734,000   |                                                                                           |   |   | 2,555,000                                                                                      |   |   |   | 2,133,000 |   |
|   Marketing                and business development                                                                           |   |                                                                                            | 219,000   |   |                                                                                            |   | 149,000   |                                                                                           |   |   | 572,000                                                                                        |   |   |   | 461,000 |   |
|   Professional                services                                                                                        |   |                                                                                            | 150,000   |   |                                                                                            |   | 37,000    |                                                                                           |   |   | 535,000                                                                                        |   |   |   | 317,000 |   |
|   Other                operating expenses                                                                                     |   |                                                                                            | 433,000   |   |                                                                                            |   | 182,000   |                                                                                           |   |   | 1,153,000                                                                                      |   |   |   | 630,000 |   |
|           Total                noninterest expenses                                   |   |                                                                                            | 3,602,000 |   |                                                                                            |   | 2,619,000 |                                                                                           |   |   | 10,160,000                                                                                     |   |   |   | 8,099,000 |   |
|                                                                                                                                    |   |                                                                                            |      |   |                                                                                            |   |      |                                                                                           |   |   |                                                                                           |   |   |   |   |   |
| INCOME                (LOSS) BEFORE INCOME TAX  EXPENSE                (BENEFIT)                                              |   |                                                                                            | (142,000  | )      |                                                                                            |   | 482,000   |                                                                                           |   |   | (195,000                                                                                       | )      |   |   | 1,572,000 |   |
|                                                                                                                                    |   |                                                                                            |      |   |                                                                                            |   |      |                                                                                           |   |   |                                                                                           |   |   |   |   |   |
| INCOME                TAX EXPENSE (BENEFIT)                                                                                             |   |                                                                                            | (48,000   | )      |                                                                                            |   | 183,000   |                                                                                           |   |   | (54,000                                                                                        | )      |   |   | 597,000 |   |
|                                                                                                                                    |   |                                                                                            |      |   |                                                                                            |   |      |                                                                                           |   |   |                                                                                           |   |   |   |   |   |
| NET                INCOME (LOSS)                                                                                                        |   | $                                                                                               | (94,000   | )      |                                                                                            | $      | 299,000   |                                                                                           |   | $      | (141,000                                                                                       | )      |   | $ | 975,000 |   |
|                                                                                                                                    |   |                                                                                            |      |   |                                                                                            |   |      |                                                                                           |   |   |                                                                                           |   |   |   |   |   |
| NET                INCOME (LOSS) PER COMMON SHARE                                                                                       |   |                                                                                            |      |   |                                                                                            |   |      |                                                                                           |   |   |                                                                                           |   |   |   |   |   |
|       Basic                and Diluted                                                                    |   | $                                                                                               | (0.02     | )      |                                                                                            | $      | 0.06      |                                                                                           |   | $      | (0.03                                                                                          | )      |   | $ | 0.19 |   |
|                                                                                                                                    |   |                                                                                            |      |   |                                                                                            |   |      |                                                                                           |   |   |                                                                                           |   |   |   |   |   |
| WEIGHTED                AVERAGE SHARES OUTSTANDING                                                                                      |   |                                                                                            |      |   |                                                                                            |   |      |                                                                                           |   |   |                                                                                           |   |   |   |   |   |
|       Basic                                                                                               |   |                                                                                            | 5,843,774 |   |                                                                                            |   | 5,014,601 |                                                                                           |   |   | 5,620,187                                                                                      |   |   |   | 5,009,429 |   |
|       Diluted                                                                                             |   |                                                                                            | 5,843,774 |   |                                                                                            |   | 5,103,315 |                                                                                           |   |   | 5,620,187                                                                                      |   |   |   | 5,107,225 |   |
|                                                                                                                                    |   |                                                                                            |      |   |                                                                                            |   |      |                                                                                           |   |   |                                                                                           |   |   |   |   |   |
| CASH                DIVIDENDS PER COMMON SHARE                                                                                          |   | $                                                                                               | 0.03      |   |                                                                                            | $      | 0.03      |                                                                                           |   | $      | 0.09                                                                                           |   |   | $ | 0.09 |   |

*See      Notes to Consolidated Financial Statements*

----

**STERLING      BANKS, INC. AND SUBSIDIARIES**

**CONSOLIDATED      STATEMENTS OF SHAREHOLDERS’ EQUITY**

**NINE      MONTHS ENDED SEPTEMBER 30, 2007 AND 2006**

**(Unaudited)**

|                                                                                          |   |                        |      |   |    |   |       |       |   |   |          |   |   | Accumulated                  |      |   |   |   |
|-----------------------------------------------------------------------------------------------|--------|-----------------------------|-----------|--------|---------|--------|------------|------------|--------|--------|---------------|--------|--------|------------------------------|-----------|--------|--------|--------|
|                                                                                          |   |                        |      |   |    |   |       | Additional |   |   |          |   |   | Other                        |      |   | Total  |   |
|                                                                                          |   | Common                Stock |      |   | Paid-In |   |       | Retained   |   |   | Comprehensive |   |   | Shareholders'                |      |
|                                                                                          |   | Shares                      |      |   | Amount  |   |       | Capital    |   |   | Earnings      |   |   | Income                (Loss) |      |   | Equity |   |
| December                31, 2005                                                              |   |                        | 4,536,452 |   |    | $      | 9,073,000  |       |   | $      | 23,263,000    |   |   | $                            | 2,746,000 |   |   | $      | (834,000 | ) |   | $ | 34,248,000 |   |
|                                                                                          |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
| Comprehensive                income:                                                          |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
|    Net                income – 2006                                      |   |                        | -         |   |    |   | -          |       |   |   | -             |   |   |                         | 975,000   |   |   |   | - |   |   |   | 975,000 |   |
|    Change                in net unrealized loss on                             |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
|        securities                available-for-sale, net   |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
|        of                reclassification adjustment       |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
|        and                tax effects                      |   |                        | -         |   |    |   | -          |       |   |   | -             |   |   |                         | -         |   |   |   | 94,000 |   |   |   | 94,000 |   |
|       Total                comprehensive income                 |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   | 1,069,000 |   |
| Cash                dividends paid ($0.09 per       share) |   |                        | -         |   |    |   | -          |       |   |   | -             |   |   |                         | (410,000  | )      |   |   | - |   |   |   | (410,000 | ) |
| Stock                compensation                                                             |   |                        | -         |   |    |   | -          |       |   |   | 7,000         |   |   |                         | -         |   |   |   | - |   |   |   | 7,000 |   |
| Net                proceeds from issuance of                                                  |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
|    common                stock                                                 |   |                        | 12,177    |   |    |   | 24,000     |       |   |   | 79,000        |   |   |                         | -         |   |   |   | - |   |   |   | 103,000 |   |
| 5%                Common stock dividend                                                       |   |                        | 227,181   |   |    |   | 455,000    |       |   |   | (457,000      | )      |   |                         |      |   |   |   |   |   |   |   | (2,000 | ) |
|                                                                                          |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
| September                30, 2006                                                             |   |                        | 4,775,810 |   |    | $      | 9,552,000  |       |   | $      | 22,892,000    |   |   | $                            | 3,311,000 |   |   | $      | (740,000 | ) |   | $ | 35,015,000 |   |
|                                                                                          |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
|                                                                                          |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
| December                31, 2006                                                              |   |                        | 4,783,568 |   |    | $      | 9,567,000  |       |   | $      | 22,930,000    |   |   | $                            | 2,931,000 |   |   | $      | (660,000 | ) |   | $ | 34,768,000 |   |
|                                                                                          |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
| Comprehensive                income:                                                          |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
|    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 |   |
| 21                for 20 Common stock split                                                   |   |                        | 278,275   |   |    |   | 557,000    |       |   |   | (559,000      | )      |   |                         | -         |   |   |   | - |   |   |   | (2,000 | ) |
|                                                                                          |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
| September                30, 2007                                                             |   |                        | 5,843,774 |   |    | $      | 11,688,000 |       |   | $      | 29,700,000    |   |   | $                            | 2,313,000 |   |   | $      | (324,000 | ) |   | $ | 43,377,000 |   |
|                                                                                          |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
|                                                                                          |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
|                                                                                          |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |

*See      Notes to Consolidated Financial Statements*

----

**STERLING      BANKS, INC. AND SUBSIDIARIES**

**CONSOLIDATED      STATEMENTS OF CASH FLOWS**

**NINE      MONTHS ENDED SEPTEMBER 30, 2007 AND 2006**

**(Unaudited)**

|                                                                                                                                                  |   | 2007   |        |   | 2006   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
| CASH                FLOWS FROM OPERATING ACTIVITIES                                                                                                   |   |   |        |   |   |   |
| Net                income (loss)                                                                                                                      |   | $      | (141,000    | )      |   | $      | 975,000 |   |
| Adjustments                to reconcile net income (loss) to net cash provided by (used in)                operating                activities:       |   |   |        |   |   |   |   |   |
|       Depreciation                and amortization of premises and equipment                                            |   |   | 755,000     |   |   |   | 690,000 |   |
|       Provision                for loan losses                                                                          |   |   | 101,000     |   |   |   | 135,000 |   |
|       Net                amortization of purchase premiums and discounts on                securities                   |   |   | 39,000      |   |   |   | 69,000 |   |
|       Net                amortization of core deposit intangible                                                        |   |   | 188,000     |   |   |   | - |   |
|       Stock                compensation                                                                                 |   |   | 19,000      |   |   |   | 7,000 |   |
|       Realized                gain on sales of equipment                                                                |   |   | (9,000      | )      |   |   | (8,000 | ) |
|       Realized                gain on sales of securities available-for-sale                                            |   |   | (5,000      | )      |   |   | - |   |
|       Proceeds                from sale of loans held for sale                                                          |   |   | 5,148,000   |   |   |   | 195,657,000 |   |
|       Originations                of loans held for sale                                                                |   |   | (3,761,000  | )      |   |   | (159,182,000 | ) |
| Changes                in operating assets and liabilities:                                                                                           |   |   |        |   |   |   |   |   |
|    Increase                in accrued interest receivable and other assets                                                             |   |   | (622,000    | )      |   |   | (708,000 | ) |
|    (Decrease)                Increase in accrued interest payable and other accrued                liabilities                         |   |   | (2,186,000  | )      |   |   | 193,000 |   |
|       Net                cash provided by (used in) operating activities                                                |   |   | (474,000    | )      |   |   | 37,828,000 |   |
|                                                                                                                                                  |   |   |        |   |   |   |   |   |
| CASH                FLOWS FROM INVESTING ACTIVITIES                                                                                                   |   |   |        |   |   |   |   |   |
|    Purchases                of securities available-for-sale                                                                           |   |   | (4,883,000  | )      |   |   | (7,886,000 | ) |
|    Purchases                of securities held-to-maturity                                                                             |   |   | (75,000     | )      |   |   | (875,000 | ) |
|    Proceeds                from sales of securities available-for- sale                                                                |   |   | 20,503,000  |   |   |   | - |   |
|    Proceeds                from maturities of securities available-for-sale                                                            |   |   | 3,000,000   |   |   |   | - |   |
|    Proceeds                from maturities of securities held-to-maturity                                                              |   |   | 875,000     |   |   |   | - |   |
|    Proceeds                from principal payments on mortgage-backed securities                available-for-sale                     |   |   | 1,980,000   |   |   |   | 2,380,000 |   |
|    Proceeds                from principal payments on mortgage-backed securities                held-to-maturity                       |   |   | 1,285,000   |   |   |   | 1,868,000 |   |
|    Purchases                of restricted stock                                                                                        |   |   | (400,000    | )      |   |   | - |   |
|    Net                proceeds from sale of restricted stock                                                                           |   |   | 241,000     |   |   |   | 221,000 |   |
|    Net                decrease (increase) in loans                                                                                     |   |   | 6,360,000   |   |   |   | (18,246,000 | ) |
|    Proceeds                from sales of equipment                                                                                     |   |   | 28,000      |   |   |   | 62,000 |   |
|    Purchases                of premises and equipment                                                                                  |   |   | (1,657,000  | )      |   |   | (1,419,000 | ) |
|    Cash                acquired in acquisition, net of cash paid                                                                       |   |   | 3,096,000   |   |   |   | - |   |
|       Net                cash provided by (used in) investing activities                                                |   |   | 30,353,000  |   |   |   | (23,895,000 | ) |
| CASH                FLOWS FROM FINANCING ACTIVITIES                                                                                                   |   |   |        |   |   |   |   |   |
|    Net                proceeds from issuance of common stock                                                                           |   |   | 91,000      |   |   |   | 103,000 |   |
|    Dividends                paid                                                                                                       |   |   | (477,000    | )      |   |   | (412,000 | ) |
|    Net                increase (decrease) in noninterest-bearing deposits                                                              |   |   | 3,627,000   |   |   |   | (831,000 | ) |
|    Net                decrease in interest-bearing deposits                                                                            |   |   | (40,395,000 | )      |   |   | (11,877,000 | ) |
|    Proceeds                from issuance of trust preferred securities                                                                 |   |   | 6,000,000   |   |   |   | - |   |
|    Repayments                of Federal Home Loan Advances                                                                             |   |   | (5,243,000  | )      |   |   | (4,906,000 | ) |
|       Net                cash used in financing activities                                                              |   |   | (36,397,000 | )      |   |   | (17,923,000 | ) |
|                                                                                                                                                  |   |   |        |   |   |   |   |   |
| DECREASE                IN CASH AND CASH EQUIVALENTS                                                                                                  |   |   | (6,518,000  | )      |   |   | (3,990,000 | ) |
|                                                                                                                                                  |   |   |        |   |   |   |   |   |
| CASH                AND CASH EQUIVALENTS, JANUARY 1,                                                                                                  |   |   | 22,942,000  |   |   |   | 18,168,000 |   |
|                                                                                                                                                  |   |   |        |   |   |   |   |   |
| CASH                AND CASH EQUIVALENTS, SEPTEMBER 30,                                                                                               |   | $      | 16,424,000  |   |   | $      | 14,178,000 |   |
|                                                                                                                                                  |   |   |        |   |   |   |   |   |
| SUPPLEMENTAL                DISCLOSURE OF CASH FLOW INFORMATION                                                                                       |   |   |        |   |   |   |   |   |
|    Cash                paid during the period for:     Interest                on deposits and borrowed funds |   | $      | 9,985,000   |   |   | $      | 7,564,000 |   |
|      Income                taxes                                                                                             |   | $      | 140,000     |   |   | $      | 610,000 |   |

*See      Notes to Consolidated Financial Statements*

----

**STERLING      BANKS, INC. AND SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**NOTE      1.  DESCRIPTION OF BUSINESS**

**NOTE      2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

*Financial      Statements and Basis of Presentation*

*Use      of Estimates*

----

**STERLING      BANKS, INC. AND SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**NOTE      2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
*(continued)*

*Commitments*

*Contingencies*

*Investments*

*Business      Combinations*

----

**STERLING      BANKS, INC. AND SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**NOTE      2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
*(continued)*

*Goodwill      and Other Intangibles Assets*

*Impairment      of Long-Lived Assets*

*Income      Taxes*

*Recent      Accounting Pronouncements*

----

**STERLING      BANKS, INC. AND SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**NOTE      2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
*(continued)*

*Recent      Accounting Pronouncements (continued)*

**NOTE      3.  BUSINESS COMBINATION**

| Loans,                net                                                                              |   | $      | 74,702,000   |   |
|--------------------------------------------------------------------------------------------------------|--------|--------|--------------|--------|
| Investments                                                                                            |   |   | 20,785,000   |   |
| Intangible                asset (core deposit intangible)                                              |   |   | 3,471,000    |   |
| Deposits                                                                                               |   |   | (105,722,000 | )      |
| Other,                net (including acquired cash and cash equivalents of                $12,598,000) |   |   | 13,320,000   |   |
| Net                fair value of assets acquired                                                       |   |   | 6,556,000    |   |
| Purchase                price, including acquisition costs                                             |   |   | 18,284,000   |   |
| Goodwill                                                                                               |   | $      | 11,728,000   |   |

|                             |   | 2007   |       |   | 2006   |   |
|----------------------------------|--------|--------|------------|--------|--------|--------|
| Interest                income   |   | $      | 20,474,000 |   |   | $      | 21,212,000 |   |
| Interest                expense  |   |   | 10,623,000 |   |   |   | 9,641,000 |   |
| Net                income (loss) |   |   | (878,000   | )      |   |   | 403,000 |   |
| Basic                EPS         |   |   | (.16       | )      |   |   | .07 |   |
| Diluted                EPS       |   |   | (.16       | )      |   |   | .07 |   |

----

**STERLING      BANKS, INC. AND SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**NOTE      3.  BUSINESS COMBINATION **
*(continued)*

**NOTE      4.  EARNINGS PER SHARE**

**NOTE      5.  STOCK-BASED EMPLOYEE COMPENSATION**

*Share-Based Payment*

*Accounting for      Stock Issued to Employees*
*Accounting for Stock-Based      Compensation*

----

**STERLING      BANKS, INC. AND SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**NOTE      5.  STOCK-BASED EMPLOYEE COMPENSATION**
*(continued)*

**NOTE      6.  COMMON STOCK**

**NOTE      7.  CAPITAL RATIOS**

----

**STERLING      BANKS, INC. AND SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**NOTE      7.  CAPITAL RATIOS **
*(continued)*

|                                                    |    |                             | For                Capital | To                Be Well |
|---------------------------------------------------------|---------|----------------------------------|----------------------------|---------------------------|
|                                                    | Actual  | Adequacy                Purposes | Capitalized                |
|                                                    | Amount  | Ratio                            | Amount                     | Ratio                     | Amount | Ratio |
| As                of September 30, 2007:                |    |                             |                       |                      |   |   |
|                                                    |    |                             |                       |                      |   |   |
| Total                Capital (to Risk-Weighted Assets)  | $35,859 | 11.05%                           | >$25,968                | >8.0%                  | >$32,460 | >10.0% |
| Tier                I Capital (to Risk-Weighted Assets) | $32,958 | 10.15%                           | >$12,984                | >4.0%                  | >$19,476 | >  6.0% |
| Tier                I Capital (to Average Assets)       | $32,958 | 8.06%                            | >$16,362                | >4.0%                  | >$20,452 | >  5.0% |
|                                                    |    |                             |                       |                      |   |   |
|                                                    |    |                             | For                Capital | To                Be Well |   |
|                                                    | Actual  | Adequacy                Purposes | Capitalized                |                      |
|                                                    | Amount  | Ratio                            | Amount                     | Ratio                     | Amount | Ratio |   |
| As                of December 31, 2006:                 |    |                             |                       |                      |   |   |   |
|                                                    |    |                             |                       |                      |   |   |   |
| Total                Capital (to Risk-Weighted Assets)  | $37,263 | 13.77%                           | >$21,649                | >8.0%                  | >$27,062 | >10.0% |   |
| Tier                I Capital (to Risk-Weighted Assets) | $35,428 | 13.09%                           | >$10,825                | >4.0%                  | >$16,237 | >  6.0% |   |
| Tier                I Capital (to Average Assets)       | $35,428 | 10.39%                           | >$13,634                | >4.0%                  | >$17,043 | >  5.0% |   |

**NOTE      8.  INCOME TAXES**

**NOTE      9.  SUBORDINATED DEBENTURES**

----

**ITEM      2.    MANAGEMENT’S DISCUSSION AND      ANALYSIS OR PLAN OF OPERATION**

**Forward-Looking      Statements**

**Readers      should carefully review the risk factors described in other reports the Company      files from time to time with the Securities and Exchange Commission, including      the Company’s Form 10-KSB for the year ended December 31, 2006, and its      subsequent quarterly reports on Form 10-QSB and current reports on Form      8-K.**

**General**

----

**Consolidated      Results of Operations**

**Three      Months Ended September 30, 2007 Compared to Three Months Ended September 30,      2006**

**(Unaudited)**

*Net      Income.*

*Net      Interest Income.*

*Provision      for Loan Losses.   *

*Noninterest      Income*

*Noninterest      Expenses*

----

*Income      Taxes*

**Consolidated      Results of Operations**

**Nine      Months Ended September 30, 2007 and September 30, 2006**

**(Unaudited)**

*Net      Income.*

*Net      Interest Income.*

*Provision      for Loan Losses. *

*Noninterest      Income*

*Noninterest      Expenses*

*Income      Taxes*

----

**Consolidated      Financial Condition**

**At      September 30, 2007 and December 31, 2006**

**(Unaudited)**

*Total      Assets.*

*Loans.*

*Allowance      for Loan      Lo*

*Deposits.  *

*Federal      Home Loan Bank Advances and      Other Borrowings. *

*Shareholders’      Equity.  *

----

***Comparative      Average Balances, Interest and Yields:***

|                                                                                    |   | **Nine                Months Ended**  |        |
|-----------------------------------------------------------------------------------------|--------|---------------------------------------|-------------|
|                                                                                    |   | **September                30, 2007** |        |   | **September                30, 2006** |   |
|                                                                                    |   | **Average****Balance**                |        |   | **Interest****Income/Expense** |   |   | **Annual                Yield** |   |   | **Average                Balance** |   |   | **Interest****Income/Expense** |   |   | **Annual                Yield** |   |
| **Assets**                                                                              |   |                                  |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans,                net (1)                                                           |   | $                                     | 295,497,000 |   |   | $ | 16,984,000 |   |   |   | 7.68 | % |   | $ | 257,390,000 |   |   | $ | 14,621,000 |   |   |   | 7.60 | % |
| Investment                securities (2)                                                |   |                                  | 57,391,000  |   |   |   | 1,778,000 |   |   |   | 4.14 |   |   |   | 59,932,000 |   |   |   | 1,772,000 |   |   |   | 3.95 |   |
| Due                from banks                                                           |   |                                  | 4,444,000   |   |   |   | 168,000 |   |   |   | 5.07 |   |   |   | 7,924,000 |   |   |   | 296,000 |   |   |   | 5.00 |   |
| Federal                funds sold                                                       |   |                                  | 10,974,000  |   |   |   | 428,000 |   |   |   | 5.22 |   |   |   | 5,710,000 |   |   |   | 216,000 |   |   |   | 5.06 |   |
| Total                interest-earning assets                                            |   |                                  | 368,306,000 |   |   |   | 19,358,000 |   |   |   | 7.03 |   |   |   | 330,956,000 |   |   |   | 16,905,000 |   |   |   | 6.83 |   |
|                                                                                    |   |                                  |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance                for loan losses                                                |   |                                  | (2,567,000  | ) |   |   |   |   |   |   |   |   |   |   | (1,222,000 | ) |   |   |   |   |   |   |   |   |
| Other                assets                                                             |   |                                  | 40,200,000  |   |   |   |   |   |   |   |   |   |   |   | 19,713,000 |   |   |   |   |   |   |   |   |   |
| Total                assets                                                             |   | $                                     | 405,939,000 |   |   |   |   |   |   |   |   |   |   | $ | 349,447,000 |   |   |   |   |   |   |   |   |   |
|                                                                                    |   |                                  |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Liabilities                and shareholders’ equity**                           |   |                                  |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Time                deposits                                                            |   | $                                     | 220,669,000 |   |   | $ | 7,944,000 |   |   |   | 4.81 | % |   | $ | 186,243,000 |   |   | $ | 5,848,000 |   |   |   | 4.20 | % |
| NOW/MMDA/savings                accounts                                                |   |                                  | 97,798,000  |   |   |   | 1,721,000 |   |   |   | 2.35 |   |   |   | 80,785,000 |   |   |   | 1,427,000 |   |   |   | 2.36 |   |
| Borrowed                funds                                                           |   |                                  | 5,767,000   |   |   |   | 247,000 |   |   |   | 5.73 |   |   |   | 13,303,000 |   |   |   | 342,000 |   |   |   | 3.44 |   |
| Total                interest-bearing liabilities                                       |   |                                  | 324,234,000 |   |   |   | 9,912,000 |   |   |   | 4.09 |   |   |   | 280,330,000 |   |   |   | 7,617,000 |   |   |   | 3.63 |   |
|                                                                                    |   |                                  |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing                demand deposits                                      |   |                                  | 40,554,000  |   |   |   |   |   |   |   |   |   |   |   | 33,764,000 |   |   |   |   |   |   |   |   |   |
| Other                liabilities                                                        |   |                                  | 558,000     |   |   |   |   |   |   |   |   |   |   |   | 1,022,000 |   |   |   |   |   |   |   |   |   |
| Shareholders’                equity                                               |   |                                  | 40,593,000  |   |   |   |   |   |   |   |   |   |   |   | 34,331,000 |   |   |   |   |   |   |   |   |   |
|     Total                liabilities and shareholders’ equity |   | $                                     | 405,939,000 |   |   |   |   |   |   |   |   |   |   | $ | 349,447,000 |   |   |   |   |   |   |   |   |   |
|                                                                                    |   |                                  |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                interest income                                                      |   |                                  |        |   |   | $ | 9,446,000 |   |   |   |   |   |   |   |   |   |   | $ | 9,288,000 |   |   |   |   |   |
|                                                                                    |   |                                  |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                rate spread (3)                                                 |   |                                  |        |   |   |   |   |   |   |   | 2.94 | % |   |   |   |   |   |   |   |   |   |   | 3.20 | % |
|                                                                                    |   |                                  |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                interest margin (4)                                                  |   |                                  |        |   |   |   |   |   |   |   | 3.43 | % |   |   |   |   |   |   |   |   |   |   | 3.75 | % |

**Liquidity**

----

**Capital      Resources**

**Off-Balance      Sheet Arrangements**

**ITEM      3.  CONTROLS AND PROCEDURES**

**Disclosure      Controls and Procedures**

----

**Internal      Control over Financial Reporting**

**PART      II.  OTHER INFORMATION**

**ITEM      1.   Legal Proceedings.**

**ITEM      2.   Unregistered Sales of Equity Securities and Use of      Proceeds.**

**ITEM3.  Defaults      upon Senior      Securities.**

**ITEM      4.   Submission of Matters to a Vote of Security      Holders.**

**ITEM      5.   Other      Information.**

**ITEM      6.   **
**Exhibits.**

| Exhibit                  3.1  | Amended                  and Restated Bylaws of Sterling Banks, Inc. (incorporated by reference                  to                  Exhibit 3.1 of the Company’s Current Report on Form 8-K dated                  September  25, 2007). |
|-------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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 of                  2002.            |

----

**SIGNATURES**

|                                   | **STERLING                BANKS, INC.**              |
|----------------------------------------|------------------------------------------------------|
|                                   |                                                 |   |
| Date:                November 14, 2007 | By:                                                  | /s/                Robert H. King |
|                                   | Robert                H. King                        |
|                                   | President                and Chief Executive Officer |
|                                   |                                                 |   |
|                                   |                                                 |   |
|                                   |                                                 |   |
|                                   |                                                 |   |
| Date:                November 14, 2007 | By:                                                  | /s/                R. Scott Horner |
|                                   | R.                Scott Horner                       |
|                                   | Executive                Vice President and Chief    |
|                                   | Financial                Officer                     |

----