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

| 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                                                    | 4      |
|       | Statements of Operations                                          | 6      |
|       | Statements of Shareholders’ Equity                          | 7      |
|       | Statements of Cash Flows                                          | 8      |
|       | Notes to Consolidated Financial Statements                        | 9      |
| Item 2.    | Management’s Discussion and Analysis of Financial Condition |   |
|       | and Results of Operations                                         | 29     |
| Item 3.    | Quantitative and Qualitative Disclosures About Market Risk        | 36     |
| Item 4T.   | Controls and Procedures                                           | 37     |
|       |                                                              |   |
| Part II    | OTHER INFORMATION                                                 |   |
|       |                                                              |   |
| Item 1.    | Legal Proceedings                                                 | 37     |
| Item 1A.   | Risk Factors                                                      | 37     |
| Item 2.    | Unregistered Sales of Equity Securities and Use of Proceeds       | 37     |
| Item 3.    | Defaults Upon Senior Securities                                   | 37     |
| Item 4.    | Submission of Matters to a Vote of Security Holders               | 37     |
| Item 5.    | Other Information                                                 | 38     |
| Item 6.    | Exhibits                                                          | 38     |
|       |                                                              |   |
| SIGNATURES | 39                                                                |

| 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 

|                                                                                                                                                     |   | June 30,2009(unaudited) |             |   | December 31,2008 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------------|--------|------------------|--------|
| ASSETS                                                                                                                                                   |   |                    |             |   |             |   |
| Cash and cash due from banks                                                                                                                             |   | $                       | 9,372,000        |   |             | $      | 13,054,000 |   |
| Federal funds sold                                                                                                                                       |   |                    | 15,629,000       |   |             |   | 472,000 |   |
|           Cash and cash equivalents                                                                    |   |                    | 25,001,000       |   |             |   | 13,526,000 |   |
|                                                                                                                                                     |   |                    |             |   |             |   |   |   |
| Investment securities held-to-maturity, at cost (fair value of $14,478,000    at June 30, 2009 and $19,992,000 at December 31, 2008) |   |                    | 14,224,000       |   |             |   |  19,884,000 |   |
| Investment securities available-for-sale, at fair value                                                                                                  |   |                    | 34,466,000       |   |             |   |  24,097,000 |   |
|           Total investment securities                                                                  |   |                    | 48,690,000       |   |             |   | 43,981,000 |   |
|                                                                                                                                                     |   |                    |             |   |             |   |   |   |
| Restricted stock, at cost                                                                                                                                |   |                    | 2,087,000        |   |             |   | 2,448,000 |   |
|                                                                                                                                                     |   |                    |             |   |             |   |   |   |
| Loans held for sale                                                                                                                                      |   |                    | -                |   |             |   | 2,000 |   |
|                                                                                                                                                     |   |                    |             |   |             |   |   |   |
| Loans                                                                                                                                                    |   |                    | 301,029,000      |   |             |   | 305,626,000 |   |
| Less: Allowance for loan losses                                                                                                                          |   |                    | (7,041,000       | )      |             |   |  (8,531,000 | ) |
|           Total net loans                                                                              |   |                    | 293,988,000      |   |             |   | 297,095,000 |   |
|                                                                                                                                                     |   |                    |             |   |             |   |   |   |
| Core deposit intangible asset, net                                                                                                                       |   |                    | 2,176,000        |   |             |   | 2,374,000 |   |
| Bank premises and equipment, net                                                                                                                         |   |                    | 8,357,000        |   |             |   | 8,526,000 |   |
| Branch Property Held for Sale                                                                                                                            |   |                    | 505,000          |   |             |   | 596,000 |   |
| Accrued interest receivable and other assets                                                                                                             |   |                    |  11,794,000 |   |             |   |  10,557,000 |   |
|                                                                                                                                                     |   |                    |             |   |             |   |   |   |
|           Total assets                                                                                 |   | $                       | 392,598,000      |   |             | $      | 379,105,000 |   |

----

|                                                                                                                                                                                                          |   | June 30,2009(unaudited) |              |   | December 31,2008 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|-------------------|--------|------------------|--------|
| LIABILITIES Deposits                                                                                                                                                                                     |   |                    |              |   |             |   |
|      Noninterest-bearing                                                                                                                                                             |   | $                       | 33,604,000        |   |             | $      | 35,873,000 |   |
|      Interest-bearing                                                                                                                                                                |   |                    | 309,345,000       |   |             |   | 292,721,000 |   |
|           Total deposits                                                                                                                                    |   |                    | 342,949,000       |   |             |   | 328,594,000 |   |
|                                                                                                                                                                                                          |   |                    |              |   |             |   |   |   |
| Federal Home Loan Bank advances                                                                                                                                                                               |   |                    | 16,000,000        |   |             |   | 16,000,000 |   |
| Subordinated debentures                                                                                                                                                                                       |   |                    | 6,186,000         |   |             |   | 6,186,000 |   |
| Accrued interest payable and other accrued liabilities                                                                                                                                                        |   |                    | 1,647,000         |   |             |   | 1,204,000 |   |
|                                                                                                                                                                                                          |   |                    |              |   |             |   |   |   |
|           Total liabilities                                                                                                                                 |   |                    | 366,782,000       |   |             |   | 351,984,000 |   |
|                                                                                                                                                                                                          |   |                    |              |   |             |   |   |   |
| COMMITMENTS AND CONTINGENCIES (Note 2)                                                                                                                                                                        |   |                    |              |   |             |   |   |   |
|                                                                                                                                                                                                          |   |                    |              |   |             |   |   |   |
| SHAREHOLDERS' EQUITY                                                                                                                                                                                          |   |                    |              |   |             |   |   |   |
|   Preferred stock, no par value, 10,000,000 shares authorized, none issued        or outstanding                                                            |   |                    | -                 |   |             |   | - |   |
|   Common stock,   $2 par value, 15,000,000 shares authorized; 5,843,362 issued and        outstanding at June 30, 2009 and December 31, 2008 |   |                    |   11,687,000 |   |             |   |   11,687,000 |   |
|   Additional paid-in capital                                                                                                                                                                        |   |                    | 29,804,000        |   |             |   | 29,767,000 |   |
|   Accumulated deficit                                                                                                                                                                               |   |                    | (15,674,000       | )      |             |   | (14,279,000 | ) |
|   Accumulated other comprehensive loss                                                                                                                                                              |   |                    |  (1,000      | )      |             |   |  (54,000 | ) |
|           Total shareholders' equity                                                                                                                        |   |                    | 25,816,000        |   |             |   | 27,121,000 |   |
|           Total liabilities and shareholders' equity                                                                                                        |   | $                       | 392,598,000       |   |             | $      | 379,105,000 |   |

----

STERLING 

|                                                                                                          |   | For the three months ended June 30, 2009 |            |   | For the three months ended June 30, 2008 |   |           | For the six months ended June 30, 2009 |   |   | For the six months ended June 30, 2008 |   |
|---------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|-----------------|--------|------------------------------------------|--------|----------------|----------------------------------------|--------|--------|----------------------------------------|--------|
| INTEREST INCOME                                                                                               |   |                                     |            |   |                                     |   |           |                                   |   |   |                                   |   |
|   Interest and fees on loans                                                                        |   | $                                        | 4,294,000       |   |                                     | $      | 5,204,000      |                                   |   | $      | 8,505,000                              |   |   | $ | 10,714,000 |   |
|   Interest and dividends on securities                                                              |   |                                     | 491,000         |   |                                     |   | 314,000        |                                   |   |   | 985,000                                |   |   |   | 775,000 |   |
|   Interest on due from banks and federal funds sold                                                 |   |                                     | 6,000           |   |                                     |   | 76,000         |                                   |   |   | 12,000                                 |   |   |   | 140,000 |   |
|           Total interest and dividend income                |   |                                     | 4,791,000       |   |                                     |   | 5,594,000      |                                   |   |   |  9,502,000                        |   |   |   | 11,629,000 |   |
|                                                                                                          |   |                                     |            |   |                                     |   |           |                                   |   |   |                                   |   |   |   |   |   |
| INTEREST EXPENSE                                                                                              |   |                                     |            |   |                                     |   |           |                                   |   |   |                                   |   |   |   |   |   |
|   Interest on deposits                                                                              |   |                                     | 1,858,000       |   |                                     |   | 2,267,000      |                                   |   |   | 3,810,000                              |   |   |   | 5,009,000 |   |
|   Interest on Federal Home Loan Bank advances and     overnight borrowings |   |                                     | 161,000         |   |                                     |   | 10,000         |                                   |   |   | 321,000                                |   |   |   | 79,000 |   |
|   Interest on subordinated debentures                                                               |   |                                     | 105,000         |   |                                     |   | 104,000        |                                   |   |   | 209,000                                |   |   |   | 208,000 |   |
|           Total interest expense                            |   |                                     | 2,124,000       |   |                                     |   | 2,381,000      |                                   |   |   | 4,340,000                              |   |   |   | 5,296,000 |   |
|                                                                                                          |   |                                     |            |   |                                     |   |           |                                   |   |   |                                   |   |   |   |   |   |
|           Net interest income                               |   |                                     | 2,667,000       |   |                                     |   | 3,213,000      |                                   |   |   | 5,162,000                              |   |   |   | 6,333,000 |   |
|                                                                                                          |   |                                     |            |   |                                     |   |           |                                   |   |   |                                   |   |   |   |   |   |
| PROVISION FOR LOAN LOSSES                                                                                     |   |                                     |  390,000   |   |                                     |   |  400,000  |                                   |   |   |  390,000                          |   |   |   |  400,000 |   |
|                                                                                                          |   |                                     |            |   |                                     |   |           |                                   |   |   |                                   |   |   |   |   |   |
|   Net interest income after provision for loan losses                                               |   |                                     | 2,277,000       |   |                                     |   | 2,813,000      |                                   |   |   | 4,772,000                              |   |   |   | 5,933,000 |   |
|                                                                                                          |   |                                     |            |   |                                     |   |           |                                   |   |   |                                   |   |   |   |   |   |
| NONINTEREST INCOME                                                                                            |   |                                     |            |   |                                     |   |           |                                   |   |   |                                   |   |   |   |   |   |
|   Service charges                                                                                   |   |                                     | 64,000          |   |                                     |   | 63,000         |                                   |   |   | 130,000                                |   |   |   | 123,000 |   |
|   Gains on sales of available-for-sale securities                                                   |   |                                     | 5,000           |   |                                     |   | 2,000          |                                   |   |   | 5,000                                  |   |   |   | 95,000 |   |
|   Gains on sales of fixed assets                                                                    |   |                                     | -               |   |                                     |   | 6,000          |                                   |   |   | -                                      |   |   |   | 4,000 |   |
|   Miscellaneous fees and other                                                                      |   |                                     | 105,000         |   |                                     |   | 137,000        |                                   |   |   | 270,000                                |   |   |   | 290,000 |   |
|           Total noninterest income                          |   |                                     | 174,000         |   |                                     |   | 208,000        |                                   |   |   | 405,000                                |   |   |   | 512,000 |   |
|                                                                                                          |   |                                     |            |   |                                     |   |           |                                   |   |   |                                   |   |   |   |   |   |
| NONINTEREST EXPENSES                                                                                          |   |                                     |            |   |                                     |   |           |                                   |   |   |                                   |   |   |   |   |   |
|   Compensation and benefits                                                                         |   |                                     | 1,554,000       |   |                                     |   | 1,906,000      |                                   |   |   | 3,200,000                              |   |   |   | 3,797,000 |   |
|   Occupancy, equipment and data processing                                                          |   |                                     | 881,000         |   |                                     |   | 905,000        |                                   |   |   | 1,827,000                              |   |   |   | 1,828,000 |   |
|   Marketing and business development                                                                |   |                                     | 138,000         |   |                                     |   | 148,000        |                                   |   |   | 268,000                                |   |   |   | 295,000 |   |
|   Professional services                                                                             |   |                                     | 385,000         |   |                                     |   | 270,000        |                                   |   |   | 624,000                                |   |   |   | 435,000 |   |
|   FDIC Insurance                                                                                    |   |                                     | 403,000         |   |                                     |   | 123,000        |                                   |   |   | 499,000                                |   |   |   | 213,000 |   |
|   Amortization of core deposit intangible asset                                                     |   |                                     | 99,000          |   |                                     |   | 87,000         |                                   |   |   | 198,000                                |   |   |   | 174,000 |   |
|   Impairment or disposal of fixed assets                                                            |   |                                     | 84,000          |   |                                     |   | -              |                                   |   |   | 84,000                                 |   |   |   | - |   |
|   Losses on sales and impairment of repossessed      property         |   |                                     | 65,000          |   |                                     |   | -              |                                   |   |   | 77,000                                 |   |   |   | - |   |
|   Other operating expenses                                                                          |   |                                     | 357,000         |   |                                     |   | 340,000        |                                   |   |   | 628,000                                |   |   |   | 464,000 |   |
|           Total noninterest expenses                        |   |                                     |  3,966,000 |   |                                     |   | 3,656,000      |                                   |   |   | 7,405,000                              |   |   |   | 7,206,000 |   |
|                                                                                                          |   |                                     |            |   |                                     |   |           |                                   |   |   |                                   |   |   |   |   |   |
| LOSS BEFORE INCOME TAX BENEFIT                                                                                |   |                                     | (1,515,000      | )      |                                     |   | (635,000       | )                                      |   |   | (2,228,000                             | )      |   |   | (761,000 | ) |
|                                                                                                          |   |                                     |            |   |                                     |   |           |                                   |   |   |                                   |   |   |   |   |   |
| INCOME TAX BENEFIT                                                                                            |   |                                     |  (569,000  | )      |                                     |   |  (235,000 | )                                      |   |   |  (833,000                         | )      |   |   |  (277,000 | ) |
|                                                                                                          |   |                                     |            |   |                                     |   |           |                                   |   |   |                                   |   |   |   |   |   |
| NET LOSS                                                                                                      |   | $                                        | (946,000        | )      |                                     | $      | (400,000       | )                                      |   | $      | (1,395,000                             | )      |   | $ | (484,000 | ) |
|                                                                                                          |   |                                     |            |   |                                     |   |           |                                   |   |   |                                   |   |   |   |   |   |
| NET LOSS PER COMMON SHARE                                                                                     |   |                                     |            |   |                                     |   |           |                                   |   |   |                                   |   |   |   |   |   |
|       Basic and Diluted                                                         |   | $                                        | (0.16           | )      |                                     | $      | (0.07          | )                                      |   | $      | (0.24                                  | )      |   | $ | (0.08 | ) |
|                                                                                                          |   |                                     |            |   |                                     |   |           |                                   |   |   |                                   |   |   |   |   |   |
| WEIGHTED AVERAGE SHARES OUTSTANDING                                                                           |   |                                     |            |   |                                     |   |           |                                   |   |   |                                   |   |   |   |   |   |
|       Basic and Diluted                                                         |   |                                     | 5,843,362       |   |                                     |   | 5,843,362      |                                   |   |   | 5,843,362                              |   |   |   | 5,843,362 |   |
|                                                                                                          |   |                                     |            |   |                                     |   |           |                                   |   |   |                                   |   |   |   |   |   |

----

STERLING 

|                                                                         |   |         |      |   |    |   |       |         |   |   | Retained      |   |   | Accumulated   |        |   |   |   |
|------------------------------------------------------------------------------|--------|--------------|-----------|--------|---------|--------|------------|--------------|--------|--------|---------------|--------|--------|---------------|-------------|--------|--------|--------|
|                                                                         |   |         |      |   |    |   |       | Additional   |   |   | Earnings      |   |   | Other         |        |   | Total  |   |
|                                                                         |   | Common Stock |      |   | Paid-In |   |       | (Accumulated |   |   | Comprehensive |   |   | Shareholders' |        |
|                                                                         |   | Shares       |      |   | Amount  |   |       | Capital      |   |   | Deficit)      |   |   | Loss          |        |   | Equity |   |
| December 31, 2007                                                            |   |         | 5,843,362 |   |    | $      | 11,687,000 |         |   | $      | 29,708,000    |   |   | $             | 1,949,000   |   |   | $      | (36,000 | ) |   | $ | 43,308,000 |   |
| Comprehensive loss:                                                          |   |         |      |   |    |   |       |         |   |   |          |   |   |          |        |   |   |   |   |   |   |   |   |   |
|    Net loss – 2008                                      |   |         | -         |   |    |   | -          |         |   |   | -             |   |   |          | (484,000    | )      |   |   | - |   |   |   | (484,000 | ) |
|    Change in net unrealized loss on                           |   |         |      |   |    |   |       |         |   |   |          |   |   |          |        |   |   |   |   |   |   |   |   |   |
|        securities available-for-sale, net |   |         |      |   |    |   |       |         |   |   |          |   |   |          |        |   |   |   |   |   |   |   |   |   |
|        of reclassification adjustment     |   |         |      |   |    |   |       |         |   |   |          |   |   |          |        |   |   |   |   |   |   |   |   |   |
|        and tax effects                    |   |         | -         |   |    |   | -          |         |   |   | -             |   |   |          | -           |   |   |   | (29,000 | ) |   |   | (29,000 | ) |
|       Total comprehensive loss                 |   |         |      |   |    |   |       |         |   |   |          |   |   |          |        |   |   |   |   |   |   |   | (513,000 | ) |
| Stock compensation                                                           |   |         | -         |   |    |   | -          |         |   |   | 23,000        |   |   |          | -           |   |   |   | - |   |   |   | 23,000 |   |
|                                                                         |   |         |      |   |    |   |       |         |   |   |          |   |   |          |        |   |   |   |   |   |   |   |   |   |
| June 30, 2008                                                                |   |         | 5,843,362 |   |    | $      | 11,687,000 |         |   | $      | 29,731,000    |   |   | $             | 1,465,000   |   |   | $      | (65,000 | ) |   | $ | 42,818,000 |   |
|                                                                         |   |         |      |   |    |   |       |         |   |   |          |   |   |          |        |   |   |   |   |   |   |   |   |   |
|                                                                         |   |         |      |   |    |   |       |         |   |   |          |   |   |          |        |   |   |   |   |   |   |   |   |   |
| December 31, 2008                                                            |   |         | 5,843,362 |   |    | $      | 11,687,000 |         |   | $      | 29,767,000    |   |   | $             | (14,279,000 | )      |   | $      | (54,000 | ) |   | $ | 27,121,000 |   |
| Comprehensive loss:                                                          |   |         |      |   |    |   |       |         |   |   |          |   |   |          |        |   |   |   |   |   |   |   |   |   |
|    Net loss – 2009                                      |   |         | -         |   |    |   | -          |         |   |   | -             |   |   |          | (1,395,000  | )      |   |   | - |   |   |   | (1,395,000 | ) |
|    Change in net unrealized gain on                           |   |         |      |   |    |   |       |         |   |   |          |   |   |          |        |   |   |   |   |   |   |   |   |   |
|        securities available-for-sale, net |   |         |      |   |    |   |       |         |   |   |          |   |   |          |        |   |   |   |   |   |   |   |   |   |
|        of reclassification adjustment     |   |         |      |   |    |   |       |         |   |   |          |   |   |          |        |   |   |   |   |   |   |   |   |   |
|        and tax effects                    |   |         | -         |   |    |   | -          |         |   |   | -             |   |   |          | -           |   |   |   | 53,000 |   |   |   | 53,000 |   |
|       Total comprehensive loss                 |   |         |      |   |    |   |       |         |   |   |          |   |   |          |        |   |   |   |   |   |   |   | (1,342,000 | ) |
| Stock compensation                                                           |   |         | -         |   |    |   | -          |         |   |   | 37,000        |   |   |          | -           |   |   |   | - |   |   |   | 37,000 |   |
|                                                                         |   |         |      |   |    |   |       |         |   |   |          |   |   |          |        |   |   |   |   |   |   |   |   |   |
| June 30, 2009                                                                |   |         | 5,843,362 |   |    | $      | 11,687,000 |         |   | $      | 29,804,000    |   |   | $             | (15,674,000 | )      |   | $      | (1,000 | ) |   | $ | 25,816,000 |   |
|                                                                         |   |         |      |   |    |   |       |         |   |   |          |   |   |          |        |   |   |   |   |   |   |   |   |   |
|                                                                         |   |         |      |   |    |   |       |         |   |   |          |   |   |          |        |   |   |   |   |   |   |   |   |   |
|                                                                         |   |         |      |   |    |   |       |         |   |   |          |   |   |          |        |   |   |   |   |   |   |   |   |   |

----

STERLING 

|                                                                                                                   |   | 2009   |        |   | 2008   |   |
|------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
| CASH FLOWS FROM OPERATING ACTIVITIES                                                                                   |   |   |        |   |   |   |
| Net loss                                                                                                               |   | $      | (1,395,000  | )      |   | $      | (484,000 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                              |   |   |        |   |   |   |   |   |
|       Depreciation and amortization of premises and equipment                            |   |   | 536,000     |   |   |   | 535,000 |   |
|       Provision for loan losses                                                          |   |   | 390,000     |   |   |   | 400,000 |   |
|       Net amortization of purchase premium on securities                                 |   |   | 189,000     |   |   |   | 19,000 |   |
|       Net amortization of core deposit intangible                                        |   |   | 198,000     |   |   |   | 174,000 |   |
|       Stock compensation                                                                 |   |   | 37,000      |   |   |   | 23,000 |   |
|       Realized loss (gain) on sales, write down or retirement of buildings and equipment |   |   | 84,000      |   |   |   | (4,000 | ) |
|       Realized loss on sales or write down of repossessed property                       |   |   | 77,000      |   |   |   | - |   |
|       Realized gain on sales of securities available-for-sale                            |   |   | (5,000      | )      |   |   | (95,000 | ) |
|       Realized gain on sales of loans held for sale                                      |   |   | -           |   |   |   | (8,000 | ) |
|       Proceeds from sale of loans held for sale                                          |   |   | 2,000       |   |   |   | 1,009,000 |   |
|       Originations of loans held for sale                                                |   |   | -           |   |   |   | (983,000 | ) |
| Changes in operating assets and liabilities:                                                                           |   |   |        |   |   |   |   |   |
|    (Increase) Decrease in accrued interest receivable and other assets                                  |   |   | (1,784,000  | )      |   |   | 154,000 |   |
|    Increase (Decrease) in accrued interest payable and other accrued liabilities                        |   |   | 443,000     |   |   |   | (56,000 | ) |
|       Net cash (used in) provided by operating activities                                |   |   | (1,228,000  | )      |   |   | 684,000 |   |
|                                                                                                                   |   |   |        |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                                                   |   |   |        |   |   |   |   |   |
|    Purchases of securities available-for-sale                                                           |   |   | (17,779,000 | )      |   |   | (3,995,000 | ) |
|    Proceeds from sales of securities available-for- sale                                                |   |   | -           |   |   |   | 5,470,000 |   |
|    Proceeds from maturities of securities available-for-sale                                            |   |   | 4,005,000   |   |   |   | 22,900,000 |   |
|    Proceeds from maturities of securities held-to-maturity                                              |   |   | 169,000     |   |   |   | - |   |
|    Proceeds from principal payments on mortgage-backed securities available-for-sale                    |   |   | 3,431,000   |   |   |   | 1,535,000 |   |
|    Proceeds from principal payments on mortgage-backed securities held-to-maturity                      |   |   | 5,369,000   |   |   |   | 990,000 |   |
|    Purchases of restricted stock                                                                        |   |   | (219,000    | )      |   |   | (1,131,000 | ) |
|    Proceeds from sale of restricted stock                                                               |   |   | 580,000     |   |   |   | 1,586,000 |   |
|    Net decrease in loans                                                                                |   |   | 2,717,000   |   |   |   | 2,591,000 |   |
|    Proceeds from sales of other real estate owned                                                       |   |   | 435,000     |   |   |   | - |   |
|    Proceeds from sales of equipment                                                                     |   |   | -           |   |   |   | 41,000 |   |
|    Purchases of premises and equipment                                                                  |   |   | (360,000    | )      |   |   | (312,000 | ) |
|    Cash paid for acquisition                                                                            |   |   | -           |   |   |   | (25,000 | ) |
|       Net cash (used in) provided by investing activities                                |   |   | (1,652,000  | )      |   |   | 29,650,000 |   |
|                                                                                                                   |   |   |        |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                                                   |   |   |        |   |   |   |   |   |
|    Net (decrease) increase in noninterest-bearing deposits                                              |   |   | (2,269,000  | )      |   |   | 1,059,000 |   |
|    Net increase (decrease) in interest-bearing deposits                                                 |   |   | 16,624,000  |   |   |   | (18,032,000 | ) |
|    Repayments of Federal Home Loan Advances                                                             |   |   | -           |   |   |   | (9,500,000 | ) |
|       Net cash provided by (used in) financing activities                                |   |   | 14,355,000  |   |   |   | (26,473,000 | ) |
|                                                                                                                   |   |   |        |   |   |   |   |   |
| INCREASE IN CASH AND CASH EQUIVALENTS                                                                                  |   |   | 11,475,000  |   |   |   | 3,861,000 |   |
|                                                                                                                   |   |   |        |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS, JANUARY 1,                                                                                  |   |   | 13,526,000  |   |   |   |  11,788,000 |   |
|                                                                                                                   |   |   |        |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS, JUNE 30,                                                                                    |   | $      | 25,001,000  |   |   | $      | 15,649,000 |   |
|                                                                                                                   |   |   |        |   |   |   |   |   |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                                                       |   |   |        |   |   |   |   |   |
|    Cash:                                                                                                |   |   |        |   |   |   |   |   |
|      Interest on deposits and borrowed funds                                                  |   | $      | 4,257,000   |   |   | $      | 5,471,000 |   |
|      Income taxes                                                                             |   | $      | -           |   |   | $      | - |   |
|    Noncash investing activities:                                                                        |   |   |        |   |   |   |   |   |
|      Transfer of loans to other real estate owned                                             |   | $      | 646,000     |   |   | $      | - |   |

----

STERLING 

----

----

----

----

| ·   | FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments |
|--------------------|-----------------------------------------------------------------------------------------------|

| ·   | FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments |
|--------------------|-------------------------------------------------------------------------------------------|

----

----

|                                      |   |      |       |   |       |   |    |       |   |   |      |   |
|-------------------------------------------|--------|-----------|------------|--------|------------|--------|---------|------------|--------|--------|-----------|--------|
|                                      |   |      |       |   | Gross      |   |    | Gross      |   |   | Estimated |   |
|                                      |   | Amortized |       |   | Unrealized |   |    | Unrealized |   |   | Fair      |   |
|                                      |   | Cost      |       |   | Gains      |   |    | Losses     |   |   | Value     |   |
| Available-for-sale                        |   |      |       |   |       |   |    |       |   |   |      |   |
| U.S. Government agencies and corporations |   | $         | 8,096,000  |   |       | $      | 48,000  |       |   | $      | (53,000   | )      |   | $ | 8,091,000 |   |
| Residential mortgage-backed securities    |   |      | 21,430,000 |   |       |   | 282,000 |       |   |   | (163,000  | )      |   |   | 21,549,000 |   |
| Municipal securities                      |   |      | 4,941,000  |   |       |   | 3,000   |       |   |   | (118,000  | )      |   |   | 4,826,000 |   |
| Total securities available-for-sale       |   | $         | 34,467,000 |   |       | $      | 333,000 |       |   | $      | (334,000  | )      |   | $ | 34,466,000 |   |
| Held-to-maturity                          |   |      |       |   |       |   |    |       |   |   |      |   |   |   |   |   |
| U.S. Government agencies and corporations |   | $         | 100,000    |   |       | $      | -       |       |   | $      | -         |   |   | $ | 100,000 |   |
| Residential mortgage-backed securities    |   |      | 14,124,000 |   |       |   | 254,000 |       |   |   | -         |   |   |   | 14,378,000 |   |
| Total securities held-to-maturity         |   | $         | 14,224,000 |   |       | $      | 254,000 |       |   | $      | -         |   |   | $ | 14,478,000 |   |

----

|                                      |   |      |       |   |       |   |    |       |   |   |      |   |
|-------------------------------------------|--------|-----------|------------|--------|------------|--------|---------|------------|--------|--------|-----------|--------|
|                                      |   |      |       |   | Gross      |   |    | Gross      |   |   | Estimated |   |
|                                      |   | Amortized |       |   | Unrealized |   |    | Unrealized |   |   | Fair      |   |
|                                      |   | Cost      |       |   | Gains      |   |    | Losses     |   |   | Value     |   |
| Available-for-sale                        |   |      |       |   |       |   |    |       |   |   |      |   |
| U.S. Government agencies and corporations |   | $         | 3,995,000  |   |       | $      | 33,000  |       |   | $      | -         |   |   | $ | 4,028,000 |   |
| Residential mortgage-backed securities    |   |      | 15,250,000 |   |       |   | 76,000  |       |   |   | (29,000   | )      |   |   | 15,297,000 |   |
| Municipal securities                      |   |      | 4,941,000  |   |       |   | -       |       |   |   | (169,000  | )      |   |   | 4,772,000 |   |
| Total securities available-for-sale       |   | $         | 24,186,000 |   |       | $      | 109,000 |       |   | $      | (198,000  | )      |   | $ | 24,097,000 |   |
| Held-to-maturity                          |   |      |       |   |       |   |    |       |   |   |      |   |   |   |   |   |
| U.S. Government agencies and corporations |   | $         | 100,000    |   |       | $      | -       |       |   | $      | -         |   |   | $ | 100,000 |   |
| Residential mortgage-backed securities    |   |      | 19,784,000 |   |       |   | 129,000 |       |   |   | (21,000   | )      |   |   | 19,892,000 |   |
| Total securities held-to-maturity         |   | $         | 19,884,000 |   |       | $      | 129,000 |       |   | $      | (21,000   | )      |   | $ | 19,992,000 |   |

|                                            |   | June 30, 2008      |       |
|-------------------------------------------------|--------|--------------------|------------|
|                                            |   | Available-for-sale |       |   | Held-to-maturity |   |
|                                            |   | Amortized          |       |   | Estimated |   |   | Amortized |   |   | Estimated |   |
|                                            |   | Cost               |       |   | Fair Value |   |   | Cost |   |   | Fair Value |   |
| Maturing within one year                        |   | $                  | -          |   |   | $ | - |   |   | $ | 100,000 |   |   | $ | 100,000 |   |
| Maturing after one year, but within five years  |   |               | -          |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Maturing after five years, but within ten years |   |               | 10,128,000 |   |   |   | 10,103,000 |   |   |   | - |   |   |   | - |   |
| Maturing after ten years                        |   |               | 2,909,000  |   |   |   | 2,814,000 |   |   |   | - |   |   |   | - |   |
| Residential mortgage-backed securities          |   |               | 21,430,000 |   |   |   | 21,549,000 |   |   |   | 14,124,000 |   |   |   | 14,378,000 |   |
| Total securities                                |   | $                  | 34,467,000 |   |   | $ | 34,466,000 |   |   | $ | 14,224,000 |   |   | $ | 14,478,000 |   |

----

|                                      |   | Continuous Unrealized Losses     |       |   | Continuous Unrealized Losses   |   |
|-------------------------------------------|--------|----------------------------------|------------|--------|--------------------------------|--------|
|                                      |   | Existing for Less Than 12 Months |       |   | Existing for 12 Months or More |   |
|                                      |   |                             |       |   | Unrealized                     |   |   |   |   |   | Unrealized |   |
|                                      |   | Fair Value                       |       |   | Losses                         |   |   | Fair Value |   |   | Losses |   |
| Available-for-sale:                       |   |                             |       |   |                           |   |   |   |   |   |   |   |
| U.S. Government agencies and corporations |   | $                                | 4,043,000  |   |                           | $      | (53,000 | ) |   | $ | - |   |   | $ | - |   |
| Residential mortgage-backed securities    |   |                             | 5,538,000  |   |                           |   | (163,000 | ) |   |   | - |   |   |   | - |   |
| Municipal securities                      |   |                             | 3,482,000  |   |                           |   | (77,000 | ) |   |   | 704,000 |   |   |   | (41,000 | ) |
|                                      |   |                             | 13,063,000 |   |                           |   | (293,000 | ) |   |   | - |   |   |   | (41,000 | ) |
| Held-to-maturity:                         |   |                             |       |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Residential mortgage-backed securities    |   |                             | -          |   |                           |   | - |   |   |   | - |   |   |   | - |   |
| Total temporarily impaired securities     |   | $                                | 13,063,000 |   |                           | $      | (293,000 | ) |   | $ | 704,000 |   |   | $ | (41,000 | ) |

----

----

|                                     |   |   |   |              |   |        |   | For Capital |   | To Be Well  |
|------------------------------------------|--------|--------|--------|-------------------|--------|-------------|--------|-------------|--------|-------------|
|                                     |   | Actual |   | Adequacy Purposes |   | Capitalized |
|                                     |   | Amount |   |              | Ratio  |        | Amount |        |   | Ratio       |   | Amount |   |   | Ratio |
| As of June 30, 2009:                     |   |   |   |              |   |        |   |        |   |        |   |   |   |   |   |   |   |   |
|                                     |   |   |   |              |   |        |   |        |   |        |   |   |   |   |   |   |   |   |
| Total Capital (to Risk-Weighted Assets)  |   | $      | 30,240 |              |   |        | 10.15  | %           |   | $           | >23,826 |   |   |   | >8.0 | % |   | $ | >29,782 |   |   |   | >10.0 | % |
| Tier I Capital (to Risk-Weighted Assets) |   | $      | 26,476 |              |   |        | 8.89   | %           |   | $           | >11,913 |   |   |   | >4.0 | % |   | $ | >17,869 |   |   |   | >6.0 | % |
| Tier I Capital (to Average Assets)       |   | $      | 26,476 |              |   |        | 6.79   | %           |   | $           | >15,603 |   |   |   | >4.0 | % |   | $ | >19,504 |   |   |   |  >5.0 | % |
|                                     |   |   |   |              |   |        |   |        |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                     |   |   |   |              |   |        |   |        |   | For Capital |   | To Be Well |
|                                     |   | Actual |   | Adequacy Purposes |   | Capitalized |
|                                     |   | Amount |   |              | Ratio  |        | Amount |        |   | Ratio       |   | Amount |   |   | Ratio |
| As of December 31, 2008:                 |   |   |   |              |   |        |   |        |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                     |   |   |   |              |   |        |   |        |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Capital (to Risk-Weighted Assets)  |   | $      | 32,134 |              |   |        | 10.52  | %           |   | $           | >24,428 |   |   |   | >8.0 | % |   | $ | >30,535 |   |   |   | >10.0 | % |
| Tier I Capital (to Risk-Weighted Assets) |   | $      | 28,258 |              |   |        | 9.25   | %           |   | $           | >12,214 |   |   |   | >4.0 | % |   | $ | >18,321 |   |   |   | >6.0 | % |
| Tier I Capital (to Average Assets)       |   | $      | 28,258 |              |   |        | 7.21   | %           |   | $           | >15,675 |   |   |   | >4.0 | % |   | $ | >19,594 |   |   |   | >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 or liabilities. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| June 30, 2009                                                                                                    |   | Level 1 |   |   | Level 2 |   |       | Level 3 |   |   | Total  |   |
|------------------------------------------------------------------------------------------------------------------|--------|---------|--------|--------|---------|--------|------------|---------|--------|--------|--------|--------|
| Financial Assets                                                                                                 |   |    |   |   |    |   |       |    |   |   |   |   |
| Investment securities available-for-sale                                                                         |   |    |   |   |    |   |       |    |   |   |   |   |
|     U.S. Government agencies and        corporations |   | $       | -      |   |    | $      | 8,091,000  |    |   | $      | -      |   |   | $ | 8,091,000 |   |
|     Mortgage-backed securities                                                               |   | $       | -      |   |    | $      | 21,549,000 |    |   | $      | -      |   |   | $ | 21,549,000 |   |
|     Municipal securities                                                                     |   | $       | -      |   |    | $      | 4,826,000  |    |   | $      | -      |   |   | $ | 4,826,000 |   |

| December 31, 2008                                                                                                |   | Level 1 |   |   | Level 2 |   |       | Level 3 |   |   | Total  |   |
|------------------------------------------------------------------------------------------------------------------|--------|---------|--------|--------|---------|--------|------------|---------|--------|--------|--------|--------|
| Financial Assets                                                                                                 |   |    |   |   |    |   |       |    |   |   |   |   |
| Investment securities available-for-sale                                                                         |   |    |   |   |    |   |       |    |   |   |   |   |
|     U.S. Government agencies and        Corporations |   | $       | -      |   |    | $      | 4,028,000  |    |   | $      | -      |   |   | $ | 4,028,000 |   |
|     Mortgage-backed securities                                                               |   | $       | -      |   |    | $      | 15,297,000 |    |   | $      | -      |   |   | $ | 15,297,000 |   |
|     Municipal securities                                                                     |   | $       | -      |   |    | $      | 4,772,000  |    |   | $      | -      |   |   | $ | 4,772,000 |   |

----

| June 30, 2009    |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |   | Total      |   |
|------------------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|------------|--------|
| Financial Assets |   |    |   |   |    |   |   |    |   |   |       |   |
| Impaired loans   |   | $       | -      |   |    | $      | -      |    |   | $      | 23,504,000 |   |   | $ | 23,504,000 |   |

| December 31, 2008 |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |   | Total      |   |
|-------------------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|------------|--------|
| Financial Assets  |   |    |   |   |    |   |   |    |   |   |       |   |
| Impaired loans    |   | $       | -      |   |    | $      | -      |    |   | $      | 14,892,000 |   |   | $ | 14,892,000 |   |

| June 30, 2009           |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |   | Total     |   |
|-------------------------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|-----------|--------|
| Non-Financial Assets    |   |    |   |   |    |   |   |    |   |   |      |   |
| Other real estate owned |   | $       | -      |   |    | $      | -      |    |   | $      | 1,633,000 |   |   | $ | 1,633,000 |   |

----

----

|                                      |   | Carrying Value |        |   | Fair Value |   |
|-------------------------------------------|--------|----------------|-------------|--------|------------|--------|
| Financial Assets:                         |   |           |        |   |       |   |
| Cash and due from banks                   |   | $              | 9,372,000   |   |       | $      | 9,372,000 |   |
| Federal funds sold                        |   | $              | 15,629,000  |   |       | $      | 15,629,000 |   |
| Investment securities, held-to-maturity   |   | $              | 14,224,000  |   |       | $      | 14,478,000 |   |
| Investment securities, available-for-sale |   | $              | 34,466,000  |   |       | $      | 34,466,000 |   |
| Restricted stock                          |   | $              | 2,087,000   |   |       | $      | 2,087,000 |   |
| Loans, net of allowance for loan losses   |   | $              | 293,988,000 |   |       | $      | 295,232,000 |   |
| Accrued interest receivable               |   | $              | 1,328,000   |   |       | $      | 1,328,000 |   |
| Financial Liabilities:                    |   |           |        |   |       |   |   |   |
| Noninterest-bearing demand deposits       |   | $              | 33,604,000  |   |       | $      | 33,604,000 |   |
| Interest-bearing deposits                 |   | $              | 309,345,000 |   |       | $      | 302,438,000 |   |
| Borrowed funds                            |   | $              | 22,186,000  |   |       | $      | 19,277,000 |   |
| Accrued interest payable                  |   | $              | 509,000     |   |       | $      | 509,000 |   |

|                                      |   | Carrying Value |        |   | Fair Value |   |
|-------------------------------------------|--------|----------------|-------------|--------|------------|--------|
| Financial Assets:                         |   |           |        |   |       |   |
| Cash and due from banks                   |   | $              | 13,054,000  |   |       | $      | 13,054,000 |   |
| Federal funds sold                        |   | $              | 472,000     |   |       | $      | 472,000 |   |
| Investment securities, held-to-maturity   |   | $              | 19,884,000  |   |       | $      | 19,992,000 |   |
| Investment securities, available-for-sale |   | $              | 24,097,000  |   |       | $      | 24,097,000 |   |
| Restricted stock                          |   | $              | 2,448,000   |   |       | $      | 2,448,000 |   |
| Loans held for sale                       |   | $              | 2,000       |   |       | $      | 2,000 |   |
| Loans, net of allowance for loan losses   |   | $              | 297,095,000 |   |       | $      | 299,648,000 |   |
| Accrued interest receivable               |   | $              | 1,740,000   |   |       | $      | 1,740,000 |   |
| Financial Liabilities:                    |   |           |        |   |       |   |   |   |
| Noninterest-bearing demand deposits       |   | $              | 35,873,000  |   |       | $      | 35,873,000 |   |
| Interest-bearing deposits                 |   | $              | 292,721,000 |   |       | $      | 288,303,000 |   |
| Borrowed funds                            |   | $              | 22,186,000  |   |       | $      | 19,340,000 |   |
| Accrued interest payable                  |   | $              | 427,000     |   |       | $      | 427,000 |   |

----

|                                       |   | June 30, 2009 |        |   | December 31, 2008 |   |
|--------------------------------------------|--------|---------------|-------------|--------|-------------------|--------|
| Commercial, Financial and Agricultural     |   | $             | 30,897,000  |   |              | $      | 32,115,000 |   |
| Real Estate - Construction                 |   |          | 56,805,000  |   |              |   | 68,278,000 |   |
| Real Estate – Mortgage               |   |          | 158,171,000 |   |              |   | 147,435,000 |   |
| Installment loans to individuals           |   |          | 50,473,000  |   |              |   | 53,827,000 |   |
| Lease Financing                            |   |          | 5,320,000   |   |              |   | 4,636,000 |   |
| Unrealized Loan Fees                       |   |          | (637,000    | )      |              |   | (665,000 | ) |
| Total loans                                |   |          | 301,029,000 |   |              |   | 305,626,000 |   |
| Less:  Allowance for loan losses |   |          | (7,041,000  | )      |              |   | (8,531,000 | ) |
| Net loans                                  |   | $             | 293,988,000 |   |              | $      | 297,095,000 |   |

|                                                        |   | June 30, 2009 |       |   | December 31, 2008 |   |
|-------------------------------------------------------------|--------|---------------|------------|--------|-------------------|--------|
| Impaired loans without a valuation allowance                |   | $             | 15,286,000 |   |              | $      | 5,813,000 |   |
| Impaired loans with a valuation allowance                   |   |          | 8,217,000  |   |              |   | 11,881,000 |   |
| Total impaired loans including troubled debt restructurings |   |          | 23,503,000 |   |              |   | 17,694,000 |   |
| Valuation allowance related to impaired loans               |   |          | 1,639,000  |   |              |   | 2,802,000 |   |
| Average investment in impaired loans                        |   |          | 20,540,000 |   |              |   | 10,348,000 |   |
| Total non-accrual loans (included in impaired loans)        |   |          | 15,703,000 |   |              |   | 9,898,000 |   |

----

|                                                    |   | For the three months ended June 30, |        |
|---------------------------------------------------------|--------|-------------------------------------|-------------|
|                                                    |   | 2009                                |        |   | 2008 |   |
| Balance at beginning of period                          |   | $                                   | 8,380,000   |   |   | $ | 2,671,000 |   |
| Charge-offs:                                            |   |                                |        |   |   |   |   |   |
| Commercial, Financial, Agricultural                     |   |                                | (170,000    | ) |   |   | (32,000 | ) |
| Real Estate – Construction                        |   |                                | (1,351,000  | ) |   |   | - |   |
| Real Estate – Mortgage                            |   |                                | (150,000    | ) |   |   | (1,000 | ) |
| Consumer Installment loans                              |   |                                | (59,000     | ) |   |   | (76,000 | ) |
| Lease Financing                                         |   |                                | -           |   |   |   | - |   |
|                                                    |   |                                | (1,730,000  | ) |   |   | (109,000 | ) |
| Recoveries:                                             |   |                                |        |   |   |   |   |   |
| Commercial, Financial, Agricultural                     |   |                                | 1,000       |   |   |   | 1,000 |   |
| Real Estate – Construction                        |   |                                | -           |   |   |   | - |   |
| Real Estate – Mortgage                            |   |                                | -           |   |   |   | 3,000 |   |
| Consumer Installment loans                              |   |                                | -           |   |   |   | 8,000 |   |
| Lease Financing                                         |   |                                | -           |   |   |   | - |   |
|                                                    |   |                                | 1,000       |   |   |   | 12,000 |   |
| Net recoveries (charge-offs)                            |   |                                | (1,729,000  | ) |   |   | (97,000 | ) |
| Provision for loan loss                                 |   |                                | 390,000     |   |   |   | 400,000 |   |
| Balance at end of period                                |   | $                                   | 7,041,000   |   |   | $ | 2,974,000 |   |
|                                                    |   |                                |        |   |   |   |   |   |
| Average loans outstanding (1)                           |   | $                                   | 302,381,000 |   |   | $ | 307,829,000 |   |
|                                                    |   |                                |        |   |   |   |   |   |
| Net charge-offs as a percentage of average loans        |   |                                | 0.57        | % |   |   | 0.03 | % |
|                                                    |   |                                |        |   |   |   |   |   |
| (1) Includes loans held for sale and non-accruing loans |   |                                |        |   |   |   |   |   |

----

|                                                    |   | For the six months ended June 30, |        |
|---------------------------------------------------------|--------|-----------------------------------|-------------|
|                                                    |   | 2009                              |        |   | 2008 |   |
| Balance at beginning of period                          |   | $                                 | 8,531,000   |   |   | $ | 2,891,000 |   |
| Charge-offs:                                            |   |                              |        |   |   |   |   |   |
| Commercial, Financial, Agricultural                     |   |                              | (238,000    | ) |   |   | (32,000 | ) |
| Real Estate – Construction                        |   |                              | (1,434,000  | ) |   |   | - |   |
| Real Estate – Mortgage                            |   |                              | (150,000    | ) |   |   | (221,000 | ) |
| Consumer Installment loans                              |   |                              | (62,000     | ) |   |   | (76,000 | ) |
| Lease Financing                                         |   |                              | -           |   |   |   | - |   |
|                                                    |   |                              | (1,884,000  | ) |   |   | (329,000 | ) |
| Recoveries:                                             |   |                              |        |   |   |   |   |   |
| Commercial, Financial, Agricultural                     |   |                              | 1,000       |   |   |   | 1,000 |   |
| Real Estate – Construction                        |   |                              | -           |   |   |   | - |   |
| Real Estate – Mortgage                            |   |                              | 1,000       |   |   |   | 3,000 |   |
| Consumer Installment loans                              |   |                              | 2,000       |   |   |   | 8,000 |   |
| Lease Financing                                         |   |                              | -           |   |   |   | - |   |
|                                                    |   |                              | 4,000       |   |   |   | 12,000 |   |
| Net charge-offs                                         |   |                              | (1,880,000  | ) |   |   | (317,000 | ) |
| Provision for loan loss                                 |   |                              | 390,000     |   |   |   | 400,000 |   |
| Balance at end of period                                |   | $                                 | 7,041,000   |   |   | $ | 2,974,000 |   |
|                                                    |   |                              |        |   |   |   |   |   |
| Average loans outstanding (1)                           |   | $                                 | 303,378,000 |   |   | $ | 309,503,000 |   |
|                                                    |   |                              |        |   |   |   |   |   |
| Net charge-offs as a percentage of average loans        |   |                              | 0.62        | % |   |   | 0.10 | % |
|                                                    |   |                              |        |   |   |   |   |   |
| (1) Includes loans held for sale and non-accruing loans |   |                              |        |   |   |   |   |   |

----

|                                                                                |   | For the three months ended June 30, 2009 |      |   | For the three months ended June 30, 2008 |   |      | For the six months ended June 30, 2009 |   |   | For the six months ended June 30, 2008 |   |
|-------------------------------------------------------------------------------------|--------|------------------------------------------|-----------|--------|------------------------------------------|--------|-----------|----------------------------------------|--------|--------|----------------------------------------|--------|
| Unrealized holding gains (losses) on   available-for-sale securities |   |                                     | $(365,000 | )      |                                     |   | $(276,000 | )                                      |   |   | $93,000                                |   |   |   | $47,000 |   |
| Reclassification adjustment for   gains realized in income           |   |                                     | (5,000    | )      |                                     |   | (2,000    | )                                      |   |   | (5,000                                 | )      |   |   | (95,000 | ) |
| Net unrealized gains (losses)                                                       |   |                                     | (370,000  | )      |                                     |   | (278,000  | )                                      |   |   | 88,000                                 |   |   |   | (48,000 | ) |
| Tax effect                                                                          |   |                                     | 148,000   |   |                                     |   | 111,000   |                                   |   |   | (35,000                                | )      |   |   | 19,000 |   |
| Net-of-tax amount                                                                   |   |                                     | $(222,000 | )      |                                     |   | $(167,000 | )                                      |   |   | $53,000                                |   |   |   | $(29,000 | ) |

----

----

ITEM 

----

----

----

|                                                 |   | June 30, 2009 |       |   | December 31, 2008 |   |
|------------------------------------------------------|--------|---------------|------------|--------|-------------------|--------|
| Restructured loans:                                  |   |          |       |   |              |   |
|   Real Estate – Construction         |   | $             | 3,409,000  |   |              | $      | 642,000 |   |
|   Real Estate – Mortgage             |   |          | 915,000    |   |              |   | - |   |
| Total restructured loans                             |   |          | 4,324,000  |   |              |   | 642,000 |   |
| Loans accruing, but past due 90 days or more:        |   |          |       |   |              |   |   |   |
|   Commercial, Financial and Agricultural   |   |          | 75,000     |   |              |   | 92,000 |   |
|   Real Estate – Construction         |   |          | 1,003,000  |   |              |   | 2,360,000 |   |
|   Real Estate – Mortgage             |   |          | 634,000    |   |              |   | 178,000 |   |
|   Consumer Installment loans               |   |          | 56,000     |   |              |   | 77,000 |   |
| Total loans accruing, but past due 90 days or more   |   |          | 1,768,000  |   |              |   | 2,707,000 |   |
| Nonaccrual Loans:                                    |   |          |       |   |              |   |   |   |
|   Commercial, Financial and Agricultural   |   |          | 3,000      |   |              |   | - |   |
|   Real Estate – Construction         |   |          | 14,425,000 |   |              |   | 9,840,000 |   |
|   Real Estate – Mortgage             |   |          | 1,275,000  |   |              |   | 55,000 |   |
| Total nonaccrual loans                               |   |          | 15,703,000 |   |              |   | 9,895,000 |   |
| Total nonperforming loans                            |   |          | 21,795,000 |   |              |   | 13,244,000 |   |
| Other Real Estate Owned                              |   |          | 1,569,000  |   |              |   | 923,000 |   |
| Total nonperforming assets                           |   | $             | 23,364,000 |   |              | $      | 14,167,000 |   |
| Non-performing loans/Total loans (1)                 |   |          | 7.24       | %      |              |   | 4.33 | % |
| Non-performing assets/Total assets                   |   |          | 5.95       | %      |              |   | 3.74 | % |
| Allowance for loan losses/Total non-performing loans |   |          | 32.31      | %      |              |   | 64.41 | % |

----

|  Real Estate:       |   | Loan Balance |      |   | Direct charge-off |   |      | Adjusted Loan Balance |   |   | % Charged-off |   |
|--------------------------|--------|--------------|-----------|--------|-------------------|--------|-----------|-----------------------|--------|--------|---------------|--------|
|   Construction |   | $            | 9,242,000 |   |              | $      | 1,434,000 |                  |   | $      | 7,808,000     |   |   |   | 15.52 | % |
|   Mortgage     |   |         | 150,000   |   |              |   | 150,000   |                  |   |   | -             |   |   |   | 100.00 |   |
|                     |   | $            | 9,392,000 |   |              | $      | 1,584,000 |                  |   | $      | 7,810,000     |   |   |   | 16.87 | % |

----

|                                                                     |   | Three Months Ended |        |
|--------------------------------------------------------------------------|--------|--------------------|-------------|
|                                                                     |   | June 30, 2009      |        |   | June 30, 2008 |   |
|                                                                     |   | AverageBalance     |        |   | InterestIncome/Expense |   |   | Annual Yield |   |   | Average Balance |   |   | InterestIncome/Expense |   |   | Annual Yield |   |
| Assets                                                                   |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans, net (1)                                                           |   | $                  | 285,857,000 |   |   | $ | 4,294,000 |   |   |   | 6.02 | % |   | $ | 300,820,000 |   |   | $ | 5,204,000 |   |   |   | 6.96 | % |
| Investment securities (2)                                                |   |               | 51,465,000  |   |   |   | 491,000 |   |   |   | 3.83 |   |   |   | 29,384,000 |   |   |   | 314,000 |   |   |   | 4.31 |   |
| Due from banks and Federal funds sold                                    |   |               | 18,348,000  |   |   |   | 6,000 |   |   |   | 0.14 |   |   |   | 14,252,000 |   |   |   | 76,000 |   |   |   | 2.14 |   |
| Total interest-earning assets                                            |   |               | 355,670,000 |   |   |   | 4,791,000 |   |   |   | 5.40 |   |   |   | 344,456,000 |   |   |   | 5,594,000 |   |   |   | 6.53 |   |
|                                                                     |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses                                                |   |               | (8,370,000  | ) |   |   |   |   |   |   |   |   |   |   | (2,702,000 | ) |   |   |   |   |   |   |   |   |
| Other assets                                                             |   |               | 47,870,000  |   |   |   |   |   |   |   |   |   |   |   | 48,226,000 |   |   |   |   |   |   |   |   |   |
| Total assets                                                             |   | $                  | 395,170,000 |   |   |   |   |   |   |   |   |   |   | $ | 389,980,000 |   |   |   |   |   |   |   |   |   |
|                                                                     |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities and shareholders’ equity                               |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Time deposits                                                            |   | $                  | 204,176,000 |   |   | $ | 1,641,000 |   |   |   | 3.22 | % |   | $ | 195,922,000 |   |   | $ | 1,955,000 |   |   |   | 4.01 | % |
| NOW/MMDA/savings accounts                                                |   |               | 108,018,000 |   |   |   | 217,000 |   |   |   | 0.80 |   |   |   | 104,046,000 |   |   |   | 312,000 |   |   |   | 1.20 |   |
| Borrowed funds                                                           |   |               | 22,186,000  |   |   |   | 266,000 |   |   |   | 4.81 |   |   |   | 7,186,000 |   |   |   | 114,000 |   |   |   | 6.40 |   |
| Total interest-bearing liabilities                                       |   |               | 334,380,000 |   |   |   | 2,124,000 |   |   |   | 2.55 |   |   |   | 307,154,000 |   |   |   | 2,381,000 |   |   |   | 3.12 |   |
|                                                                     |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing demand deposits                                      |   |               | 33,175,000  |   |   |   |   |   |   |   |   |   |   |   | 38,718,000 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                                        |   |               | 1,127,000   |   |   |   |   |   |   |   |   |   |   |   | 1,020,000 |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                                               |   |               | 26,488,000  |   |   |   |   |   |   |   |   |   |   |   | 43,088,000 |   |   |   |   |   |   |   |   |   |
|     Total liabilities and shareholders’ equity |   | $                  | 395,170,000 |   |   |   |   |   |   |   |   |   |   | $ | 389,980,000 |   |   |   |   |   |   |   |   |   |
|                                                                     |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                                      |   |               |        |   |   | $ | 2,667,000 |   |   |   |   |   |   |   |   |   |   | $ | 3,213,000 |   |   |   |   |   |
|                                                                     |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate spread (3)                                                 |   |               |        |   |   |   |   |   |   |   | 2.85 | % |   |   |   |   |   |   |   |   |   |   | 3.41 | % |
|                                                                     |   |               |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest margin (4)                                                  |   |               |        |   |   |   |   |   |   |   | 3.01 | % |   |   |   |   |   |   |   |   |   |   | 3.75 | % |

----

|                                                                     |   | Six Months Ended |        |
|--------------------------------------------------------------------------|--------|------------------|-------------|
|                                                                     |   | June 30, 2009    |        |   | June 30, 2008 |   |
|                                                                     |   | AverageBalance   |        |   | InterestIncome/Expense |   |   | Annual Yield |   |   | Average Balance |   |   | InterestIncome/Expense |   |   | Annual Yield |   |
| Assets                                                                   |   |             |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans, net (1)                                                           |   | $                | 289,389,000 |   |   | $ | 8,505,000 |   |   |   | 5.93 | % |   | $ | 302,495,000 |   |   | $ | 10,714,000 |   |   |   | 7.12 | % |
| Investment securities (2)                                                |   |             | 48,692,000  |   |   |   | 985,000 |   |   |   | 4.08 |   |   |   | 37,168,000 |   |   |   | 775,000 |   |   |   | 4.19 |   |
| Due from banks and Federal funds sold                                    |   |             | 16,471,000  |   |   |   | 12,000 |   |   |   | 0.14 |   |   |   | 11,819,000 |   |   |   | 140,000 |   |   |   | 2.38 |   |
| Total interest-earning assets                                            |   |             | 354,552,000 |   |   |   | 9,502,000 |   |   |   | 5.40 |   |   |   | 351,482,000 |   |   |   | 11,629,000 |   |   |   | 6.65 |   |
|                                                                     |   |             |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses                                                |   |             | (8,416,000  | ) |   |   |   |   |   |   |   |   |   |   | (2,889,000 | ) |   |   |   |   |   |   |   |   |
| Other assets                                                             |   |             | 46,293,000  |   |   |   |   |   |   |   |   |   |   |   | 55,563,000 |   |   |   |   |   |   |   |   |   |
| Total assets                                                             |   | $                | 392,429,000 |   |   |   |   |   |   |   |   |   |   | $ | 404,156,000 |   |   |   |   |   |   |   |   |   |
|                                                                     |   |             |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities and shareholders’ equity                               |   |             |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Time deposits                                                            |   | $                | 201,745,000 |   |   | $ | 3,336,000 |   |   |   | 3.33 | % |   | $ | 205,849,000 |   |   | $ | 4,290,000 |   |   |   | 4.29 | % |
| NOW/MMDA/savings accounts                                                |   |             | 106,896,000 |   |   |   | 474,000 |   |   |   | 0.89 |   |   |   | 103,089,000 |   |   |   | 719,000 |   |   |   | 1.40 |   |
| Borrowed funds                                                           |   |             | 22,264,000  |   |   |   | 530,000 |   |   |   | 4.80 |   |   |   | 12,639,000 |   |   |   | 287,000 |   |   |   | 5.83 |   |
| Total interest-bearing liabilities                                       |   |             | 330,905,000 |   |   |   | 4,340,000 |   |   |   | 2.64 |   |   |   | 321,577,000 |   |   |   | 5,296,000 |   |   |   | 3.39 |   |
|                                                                     |   |             |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing demand deposits                                      |   |             | 33,529,000  |   |   |   |   |   |   |   |   |   |   |   | 38,582,000 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                                        |   |             | 1,284,000   |   |   |   |   |   |   |   |   |   |   |   | 769,000 |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                                               |   |             | 26,711,000  |   |   |   |   |   |   |   |   |   |   |   | 43,228,000 |   |   |   |   |   |   |   |   |   |
|     Total liabilities and shareholders’ equity |   | $                | 392,429,000 |   |   |   |   |   |   |   |   |   |   | $ | 404,156,000 |   |   |   |   |   |   |   |   |   |
|                                                                     |   |             |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                                      |   |             |        |   |   | $ | 5,162,000 |   |   |   |   |   |   |   |   |   |   | $ | 6,333,000 |   |   |   |   |   |
|                                                                     |   |             |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate spread (3)                                                 |   |             |        |   |   |   |   |   |   |   | 2.76 | % |   |   |   |   |   |   |   |   |   |   | 3.26 | % |
|                                                                     |   |             |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest margin (4)                                                  |   |             |        |   |   |   |   |   |   |   | 2.94 | % |   |   |   |   |   |   |   |   |   |   | 3.62 | % |

----

ITEM 

----

ITEM 

ITEM 

ITEM 

ITEM 

ITEM 

|   | None. |
|--------|-------|

ITEM 

----

| ·   | To elect twelve (12) persons to the Board of Directors of the Company to hold office for a one-year term and until their successors are duly elected and qualified; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                      | For       | Against  | Abstentions |
|---------------------------|-----------|----------|-------------|
| S. David Brandt, Esq.     | 3,839,080 | 0        | 173,399     |
| Jeffrey Dubrow            | 3,852,566 |   0 | 159,913     |
| A. Theodore Eckenhoff     | 3,707,637 | 0        | 304,842     |
| R. Scott Horner           | 3,712,918 | 0        | 299,561     |
| James L. Kaltenbach, M.D. | 3,834,758 | 0        | 177,721     |
| Robert H. King            | 3,710,939 | 0        | 301,540     |
| G. Edward Koenig, Jr.     | 3,709,126 | 0        | 303,353     |
| John J. Maley, Jr.        | 3,704,442 | 0        | 308,037     |
| Luis G. Rogers            | 3,855,132 | 0        | 157,347     |
| Ronald P. Sandmeyer       | 3,840,573 | 0        | 171,906     |
| Jeffrey P. Taylor         | 3,854,534 | 0        | 157,945     |
| James W. Yoh, Ph.D.       | 3,620,529 | 0        | 391,950     |

ITEM 

|   | None. |
|--------|-------|

ITEM 

|   | The following are filed as exhibits to this report: |
|--------|-----------------------------------------------------|

31.1  Certification of Chief Executive Officer pursuant to §302 of the Sarbanes-Oxley Act of 2002.

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.

----

SIGNATURES

|                  | STERLING BANKS, INC. |
|-----------------------|----------------------|
|                  |                 |   |
|                  |                 |   |
|                  |                 |   |
| Date: August 19, 2009 | By:                  | /s/ Robert H. King |
|                  |                 | Robert H. King |
|                  |                 | President and Chief Executive Officer |
|                  |                 |   |
|                  |                 |   |
| Date: August 19, 2009 | By:                  | /s/ R. Scott Horner |
|                  |                 | R. Scott Horner |
|                  |                 | Executive Vice President and Chief Financial Officer |
|                  |                 |   |

----