**UNITED      STATES SECURITIES AND EXCHANGE COMMISSION**

** **

**Form      10-QSB**

**STERLING      BANKS, INC.**

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

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

**856-273-5900**

**N/A**

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**STERLING      BANKS, INC.**

**FORM      10-QSB**

**FOR      THE QUARTER ENDED MARCH 31, 2007**

**INDEX**

|                                                                                                                                                                          |     |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
| **Part                I    ****FINANCIAL                INFORMATION**                                                                                     | **Page** |
|                                                                                                                                                                          |     |
| Item                1.     Consolidated                Financial Statements                                                                          |     |
|             Balance                Sheets                                                                         | 3        |
|             Statements                of Operations                                                               | 5        |
|             Statements                of Shareholders’ Equity                                               | 6        |
|             Statements                of Cash Flows                                                               | 7        |
|             Notes                to Financial Statements                                                          | 8        |
| Item                2.     Management’s                Discussion and Analysis of Financial Condition                and Results of Operations | 14       |
| Item                3.     Controls                and Procedures                                                                                         | 19       |
|                                                                                                                                                                          |     |
| **Part                II ****    OTHER                INFORMATION**                                                                                  |     |
|                                                                                                                                                                          |     |
| Item                1.     Legal                Proceedings                                                                                          | 19       |
| Item                2.     Unregistered                Sales of Equity Securities and Use of                Proceeds                                 | 19       |
| Item                3.     Defaults                upon Senior Securities                                                                            | 19       |
| Item                4.     Submission                of Matters to a Vote of Security                Holders                                         | 19       |
| Item                5.     Other                Information                                                                                          | 19       |
| Item                6.     Exhibits                                                                                                                  | 19       |
|                                                                                                                                                                          |     |
| **SIGNATURES**                                                                                                                                                                | 20       |
|                                                                                                                                                                          |     |
| **EXHIBITS**                                                                                                                                                                  |     |

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

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**Part      I.**
**Financial      Information**

**Item      1.**
**Financial      Statements**

**STERLING      BANKS, INC. AND SUBSIDIARY **

**CONSOLIDATED      BALANCE SHEETS**

**MARCH      31, 2007 AND DECEMBER 31, 2006**

|                                                                                                                                                                                                  |   | March                31,2007(unaudited) |        | December                31,2006 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|-------------|---------------------------------|--------|
| **ASSETS**                                                                                                                                                                                            |   |                                    |        |                            |   |
| Cash                and cash due from banks                                                                                                                                                           |   | $                                       | 20,696,000  |                            | $      | 16,064,000 |   |
| Federal                funds sold                                                                                                                                                                     |   |                                    | 2,272,000   |                            |   | 6,878,000 |   |
|     Cash                and cash equivalents                                                                                                                                      |   |                                    | 22,968,000  |                            |   | 22,942,000 |   |
|                                                                                                                                                                                                  |   |                                    |        |                            |   |   |   |
| Investment                securities held-to-maturity, at cost (fair value of                $7,882,000                    at March 31, 2007 and $9,087,000 at December 31, 2006) |   |                                    | 8,045,000   |                            |   | 9,292,000 |   |
| Investment                securities available-for-sale, at fair value                                                                                                                                |   |                                    | 47,325,000  |                            |   | 47,526,000 |   |
|     Total                investment securities                                                                                                                                    |   |                                    | 55,370,000  |                            |   | 56,818,000 |   |
|                                                                                                                                                                                                  |   |                                    |        |                            |   |   |   |
| Restricted                stock, at cost                                                                                                                                                              |   |                                    | 1,407,000   |                            |   | 1,436,000 |   |
|                                                                                                                                                                                                  |   |                                    |        |                            |   |   |   |
| Loans                held for sale                                                                                                                                                                    |   |                                    | 443,000     |                            |   | 1,618,000 |   |
|                                                                                                                                                                                                  |   |                                    |        |                            |   |   |   |
| Loans                                                                                                                                                                                                 |   |                                    | 326,982,000 |                            |   | 243,283,000 |   |
| Less:                allowance for loan losses                                                                                                                                                        |   |                                    | (2,833,000  | )                               |   | (1,760,000 | ) |
|     Total                net loans                                                                                                                                                |   |                                    | 324,149,000 |                            |   | 241,523,000 |   |
|                                                                                                                                                                                                  |   |                                    |             |                            |   |  |   |
| Goodwill                and other intangible assets (Note 3)                                                                                                                                          |   |                                    | 15,190,000  |                            |   | - |   |
| Bank                premises and equipment, net                                                                                                                                                       |   |                                    | 9,519,000   |                            |   | 6,922,000 |   |
| Accrued                interest receivable and other assets                                                                                                                                           |   |                                    | 7,538,000   |                            |   | 5,989,000 |   |
|                                                                                                                                                                                                  |   |                                    |        |                            |   |   |   |
| **    Total                assets**                                                                                                                                               |   | $                                       | 436,584,000 |                            | $      | 337,248,000 |   |

*See      Notes to Consolidated Financial Statements*

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**STERLING      BANKS, INC. AND SUBSIDIARY **

**CONSOLIDATED      BALANCE SHEETS**

**MARCH      31, 2007 AND DECEMBER 31, 2006**

|                                                                                                                                                                                                                                                                                                                                                        |   | March                31,2007(unaudited) |        | December                31,2006 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|-------------|---------------------------------|--------|
| **LIABILITIES** Deposits                                                                                                                                                                                                                                                                                                                               |   |                                    |        |                            |   |
|                      Noninterest-bearing                                                                                                                                                                                                                                                                                           |   | $                                       | 44,825,000  |                            | $      | 39,021,000 |   |
|                      Interest-bearing                                                                                                                                                                                                                                                                                              |   |                                    | 344,221,000 |                            |   | 256,269,000 |   |
|     Total                deposits                                                                                                                                                                                                                                                                                                       |   |                                    | 389,046,000 |                            |   | 295,290,000 |   |
|                                                                                                                                                                                                                                                                                                                                                        |   |                                    |        |                            |   |   |   |
| Federal                Home Loan Bank advances and overnight borrowings                                                                                                                                                                                                                                                                                     |   |                                    | 1,050,000   |                            |   | 5,885,000 |   |
| Accrued                interest payable and other accrued liabilities                                                                                                                                                                                                                                                                                       |   |                                    | 2,964,000   |                            |   | 1,305,000 |   |
|                                                                                                                                                                                                                                                                                                                                                        |   |                                    |        |                            |   |   |   |
|     Total                liabilities                                                                                                                                                                                                                                                                                                    |   |                                    | 393,060,000 |                            |   | 302,480,000 |   |
|                                                                                                                                                                                                                                                                                                                                                        |   |                                    |        |                            |   |   |   |
| **COMMITMENTS                AND CONTINGENCIES (Note 2)**                                                                                                                                                                                                                                                                                                   |   |                                    |        |                            |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                        |   |                                    |        |                            |   |   |   |
| **SHAREHOLDERS'                EQUITY**                                                                                                                                                                                                                                                                                                                     |   |                                    |        |                            |   |   |   |
|                      Common stock,                      $2 par value, 15,000,000 shares authorized; 5,555,886 and                     4,783,568 shares issued and outstanding at March 31, 2007                     and December 31, 2006, respectively |   |                                    | 11,112,000  |                            |   | 9,567,000 |   |
|                      Preferred stock, 10,000,000 shares authorized; no shares                issued                     and outstanding                                                                                                                                                                   |   |                                    | -           |                            |   | - |   |
|                      Additional paid-in capital                                                                                                                                                                                                                                                                                    |   |                                    | 30,200,000  |                            |   | 22,930,000 |   |
|                      Retained earnings                                                                                                                                                                                                                                                                                             |   |                                    | 2,738,000   |                            |   | 2,931,000 |   |
|                      Accumulated other comprehensive loss                                                                                                                                                                                                                                                                          |   |                                    | (526,000    | )                               |   | (660,000 | ) |
|     Total                shareholders' equity                                                                                                                                                                                                                                                                                           |   |                                    | 43,524,000  |                            |   | 34,768,000 |   |
|      **Total                liabilities and shareholders' equity**                                                                                                                                                                                                                                                                 |   | $                                       | 436,584,000 |                            | $      | 337,248,000 |   |

*See      Notes to Consolidated Financial Statements*

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**STERLING      BANKS, INC. AND SUBSIDIARY**

**CONSOLIDATED      STATEMENTS OF OPERATIONS**

**THREE      MONTHS ENDED MARCH 31, 2007 AND 2006**

**(Unaudited)**

|                                                                                                                        |   | 2007   |      | 2006   |   |
|-----------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|
| INTEREST                INCOME                                                                                              |   |   |      |   |   |
|                     Interest and fees on loans                                                          |   | $      | 4,939,000 |   | $      | 4,997,000 |   |
|                     Interest and dividends on securities                                                |   |   | 666,000   |   |   | 610,000 |   |
|                     Interest on federal funds sold                                                      |   |   | 36,000    |   |   | 26,000 |   |
|     Total                interest and dividend income                                                   |   |   | 5,641,000 |   |   | 5,633,000 |   |
|                                                                                                                        |   |   |      |   |   |   |   |
| INTEREST                EXPENSE                                                                                             |   |   |      |   |   |   |   |
|                     Interest on deposits                                                                |   |   | 2,676,000 |   |   | 2,307,000 |   |
|                     Interest on Federal Home Loan Bank advances and overnight                borrowings |   |   | 57,000    |   |   | 134,000 |   |
|     Total                interest expense                                                               |   |   | 2,733,000 |   |   | 2,441,000 |   |
|                                                                                                                        |   |   |      |   |   |   |   |
|     Net                interest income                                                                  |   |   | 2,908,000 |   |   | 3,192,000 |   |
|                                                                                                                        |   |   |      |   |   |   |   |
| PROVISION                FOR LOAN LOSSES                                                                                    |   |   | 56,000    |   |   | 45,000 |   |
|                                                                                                                        |   |   |      |   |   |   |   |
|                     Net interest income after provision for loan losses                                 |   |   | 2,852,000 |   |   | 3,147,000 |   |
|                                                                                                                        |   |   |      |   |   |   |   |
| NONINTEREST                INCOME                                                                                           |   |   |      |   |   |   |   |
|                     Service charges                                                                     |   |   | 65,000    |   |   | 64,000 |   |
|                     Miscellaneous fees and other                                                        |   |   | 104,000   |   |   | 90,000 |   |
|     Total                noninterest income                                                             |   |   | 169,000   |   |   | 154,000 |   |
|                                                                                                                        |   |   |      |   |   |   |   |
| NONINTEREST                EXPENSES                                                                                         |   |   |      |   |   |   |   |
|                     Compensation and benefits                                                           |   |   | 1,596,000 |   |   | 1,516,000 |   |
|                     Occupancy, equipment and data processing                                            |   |   | 760,000   |   |   | 692,000 |   |
|                     Marketing and business development                                                  |   |   | 124,000   |   |   | 157,000 |   |
|                     Professional services                                                               |   |   | 237,000   |   |   | 127,000 |   |
|                     Other operating expenses                                                            |   |   | 367,000   |   |   | 193,000 |   |
|     Total                noninterest expenses                                                           |   |   | 3,084,000 |   |   | 2,685,000 |   |
|                                                                                                                        |   |   |      |   |   |   |   |
| INCOME                (LOSS) BEFORE INCOME TAX EXPENSE                                                                      |   |   | (63,000   | )      |   | 616,000 |   |
|                                                                                                                        |   |   |      |   |   |   |   |
| INCOME                TAX EXPENSE (BENEFIT)                                                                                 |   |   | (14,000   | )      |   | 234,000 |   |
|                                                                                                                        |   |   |      |   |   |   |   |
| NET                INCOME (LOSS)                                                                                            |   | $      | (49,000   | )      | $      | 382,000 |   |
|                                                                                                                        |   |   |      |   |   |   |   |
| NET                INCOME (LOSS) PER COMMON SHARE                                                                           |   |   |      |   |   |   |   |
|     Basic                and Diluted                                                                    |   | $      | (0.01     | )      | $      | 0.08 |   |
|                                                                                                                        |   |   |      |   |   |   |   |
| WEIGHTED                AVERAGE SHARES OUTSTANDING                                                                          |   |   |      |   |   |   |   |
|     Basic                                                                                               |   |   | 4,924,000 |   |   | 4,766,000 |   |
|     Diluted                                                                                             |   |   | 4,924,000 |   |   | 4,874,000 |   |
|                                                                                                                        |   |   |      |   |   |   |   |
| CASH                DIVIDENDS PER COMMON SHARE                                                                              |   | $      | 0.03      |   | $      | 0.03 |   |

*See      Notes to Consolidated Financial Statements*

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**STERLING      BANKS, INC. AND SUBSIDIARY**

**CONSOLIDATED      STATEMENTS OF SHAREHOLDERS’ EQUITY**

**THREE      MONTHS ENDED MARCH 31, 2007 AND 2006**

**(Unaudited)**

|                                                                                  |   |                        |      |       |   |       |   | Accumulated   |       |                         |   |
|---------------------------------------------------------------------------------------|--------|-----------------------------|-----------|------------|--------|------------|--------|---------------|------------|------------------------------|--------|
|                                                                                  |   |                        |      | Additional |   |       |   | Other         |       | Total                        |   |
|                                                                                  |   | Common                Stock |      | Paid-In    |   | Retained   |   | Comprehensive |       | Shareholders'                |   |
|                                                                                  |   | Shares                      |      | Amount     |   | Capital    |   | Earnings      |       | Income                (Loss) |   | Equity |   |
| December                31, 2005                                                      |   |                        | 4,536,452 |       | $      | 9,073,000  |   | $             | 23,263,000 |                         | $      | 2,746,000 |   | $ | (834,000 | ) | $ | 34,248,000 |   |
|                                                                                  |   |                        |      |       |   |            |   |          |            |                         |   |  |   |   |  |   |   |  |   |
| Comprehensive                income:                                                  |   |                        |      |       |   |       |   |          |       |                         |   |   |   |   |   |   |   |   |   |
|                    Net income - 2006                                   |   |                        | -         |       |   | -          |   |          | -          |                         |   | 382,000 |   |   | - |   |   | 382,000 |   |
|                    Change in net unrealized loss on                    |   |                        |      |       |   |       |   |          |       |                         |   |   |   |   |   |   |   |   |   |
|     securities                available-for-sale, net             |   |                        |      |       |   |       |   |          |       |                         |   |   |   |   |   |   |   |   |   |
|     of                reclassification adjustment                 |   |                        |      |       |   |       |   |          |       |                         |   |   |   |   |   |   |   |   |   |
|     and                tax                effects                 |   |                        | -         |       |   | -          |   |          | -          |                         |   | - |   |   | (208,000 | ) |   | (208,000 | ) |
|     Total                comprehensive income                     |   |                        |      |       |   |       |   |          |       |                         |   |   |   |   |   |   |   | 174,000 |   |
| Cash                dividends paid ($0.03 per    share)           |   |                        | -         |       |   | -          |   |          | -          |                         |   | (136,000 | ) |   | - |   |   | (136,000 | ) |
| Stock                compensation                                                     |   |                        | -         |       |   | -          |   |          | 1,000      |                         |   | - |   |   | - |   |   | 1,000 |   |
| Net                proceeds from issuance of                                          |   |                        |      |       |   |       |   |          |       |                         |   |   |   |   |   |   |   |   |   |
|                    common stock                                        |   |                        | 2,738     |       |   | 5,000      |   |          | 17,000     |                         |   | - |   |   | - |   |   | 22,000 |   |
|                                                                                  |   |                        |      |       |   |       |   |          |       |                         |   |   |   |   |   |   |   |   |   |
| March                31, 2006                                                         |   |                        | 4,539,190 |       | $      | 9,078,000  |   | $             | 23,281,000 |                         | $      | 2,992,000 |   | $ | (1,042,000 | ) | $ | 34,309,000 |   |
|                                                                                  |   |                        |      |       |   |       |   |          |       |                         |   |   |   |   |   |   |   |   |   |
|                                                                                  |   |                        |      |       |   |       |   |          |       |                         |   |   |   |   |   |   |   |   |   |
| December                31, 2006                                                      |   |                        | 4,783,568 |       | $      | 9,567,000  |   | $             | 22,930,000 |                         | $      | 2,931,000 |   | $ | (660,000 | ) | $ | 34,768,000 |   |
|                                                                                  |   |                        |      |       |   |       |   |          |       |                         |   |   |   |   |   |   |   |   |   |
| Comprehensive                income:                                                  |   |                        |      |       |   |       |   |          |       |                         |   |   |   |   |   |   |   |   |   |
|                    Net loss - 2007                                     |   |                        | -         |       |   | -          |   |          | -          |                         |   | (49,000 | ) |   | - |   |   | (49,000 | ) |
|                    Change in net unrealized loss on                    |   |                        |      |       |   |       |   |          |       |                         |   |   |   |   |   |   |   |   |   |
|     securities                available-for-sale, net             |   |                        |      |       |   |       |   |          |       |                         |   |   |   |   |   |   |   |   |   |
|     of                reclassification adjustment                 |   |                        |      |       |   |       |   |          |       |                         |   |   |   |   |   |   |   |   |   |
|     and                tax                effects                 |   |                        | -         |       |   | -          |   |          | -          |                         |   | - |   |   | 134,000 |   |   | 134,000 |   |
|     Total                comprehensive income                     |   |                        |      |       |   |       |   |          |       |                         |   |   |   |   |   |   |   | 85,000 |   |
| Cash                dividends paid ($0.03 per                   share) |   |                        | -         |       |   | -          |   |          | -          |                         |   | (144,000 | ) |   | - |   |   | (144,000 | ) |
| Stock                compensation                                                     |   |                        | -         |       |   | -          |   |          | 6,000      |                         |   | - |   |   | - |   |   | 6,000 |   |
| Acquisition                of Farnsworth Bancorp, Inc.                                |   |                        | 768,438   |       |   | 1,537,000  |   |          | 7,246,000  |                         |   | - |   |   | - |   |   | 8,783,000 |   |
| Net                proceeds from issuance of                                          |   |                        |      |       |   |       |   |          |       |                         |   |   |   |   |   |   |   |   |   |
|                    common stock                                        |   |                        | 3,880     |       |   | 8,000      |   |          | 18,000     |                         |   | - |   |   | - |   |   | 26,000 |   |
|                                                                                  |   |                        |           |       |   |            |   |          |            |                         |   |  |   |   |  |   |   |  |   |
| March                31, 2007                                                         |   |                        | 5,555,886 |       | $      | 11,112,000 |   | $             | 30,200,000 |                         | $      | 2,738,000 |   | $ | (526,000 | ) | $ | 43,524,000 |   |
|                                                                                  |   |                        |      |       |   |       |   |          |       |                         |   |   |   |   |   |   |   |   |   |

*See      Notes to Consolidated Financial Statements*

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**STERLING      BANKS, INC. AND SUBSIDIARY **

**CONSOLIDATED      STATEMENTS OF CASH FLOWS**

**THREE      MONTHS ENDED MARCH 31, 2007 AND 2006**

**(Unaudited)**

|                                                                                                                                                                              |   |  2007 |       |  2006 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|------------|------------|--------|
| CASH                FLOWS FROM OPERATING ACTIVITIES                                                                                                                               |   |       |       |       |   |
| Net                income (loss)                                                                                                                                                  |   | $          | (49,000    | )          | $      | 382,000 |   |
| Adjustments                to reconcile net income (loss) to net cash provided by operating                activities:                                                            |   |       |       |       |   |   |   |
|     Depreciation                and amortization of premises and equipment                                                                                    |   |       | 217,000    |       |   | 218,000 |   |
|     Provision                for                loan losses                                                                                                   |   |       | 56,000     |       |   | 45,000 |   |
|     Net                amortization of purchase premiums and discounts on                securities                                                           |   |       | 13,000     |       |   | 25,000 |   |
|     Stock                compensation                                                                                                                         |   |       | 6,000      |       |   | 1,000 |   |
|     Realized                gain                on sales of equipment                                                                                         |   |       | (8,000     | )          |   | - |   |
|     Proceeds                from                sale of loans held for sale                                                                                   |   |       | 3,603,000  |       |   | 115,636,000 |   |
|     Originations                of                loans held for sale                                                                                         |   |       | (2,428,000 | )          |   | (105,843,000 | ) |
| Changes                in operating assets and liabilities:                                                                                                                       |   |       |       |       |   |   |   |
|     Increase                in                accrued interest receivable and other assets                                                                    |   |       | (9,000     | )          |   | (101,000 | ) |
|     Increase                in                accrued interest payable and other accrued liabilities                                                          |   |       | 1,062,000  |       |   | 109,000 |   |
|         Net                cash provided by operating activities                                                                          |   |       | 2,463,000  |       |   | 10,472,000 |   |
| CASH                FLOWS FROM INVESTING ACTIVITIES                                                                                                                               |   |       |       |       |   |   |   |
|     Purchases                of                securities held-to-maturity                                                                                    |   |       | -          |       |   | (875,000 | ) |
|     Proceeds                from                maturities of securities held-to-maturity                                                                     |   |       | 875,000    |       |   | - |   |
|     Proceeds                from                principal payments on mortgage-backed securities                available-for-sale                            |   |       | 619,000    |       |   | 721,000 |   |
|     Proceeds                from                principal payments on mortgage-backed securities                held-to-maturity                              |   |       | 369,000    |       |   | 574,000 |   |
|     Purchases                of                restricted stock                                                                                               |   |       | (1,221,000 | )          |   | - |   |
|     Proceeds                from                sale of restricted stock                                                                                      |   |       | 1,451,000  |       |   | 41,000 |   |
|     Net                increase in loans                                                                                                                      |   |       | (7,925,000 | )          |   | (11,690,000 | ) |
|     Proceeds                from                sales of equipment                                                                                            |   |       | 8,000      |       |   | 12,000 |   |
|     Purchases                of                premises and equipment                                                                                         |   |       | (642,000   | )          |   | (455,000 | ) |
|     Cash                paid for acquisition, net of cash and cash equivalents                acquired                                                        |   |       | (878,000   | )          |   | - |   |
|         Net                cash used in investing activities                                                                              |   |       | (7,344,000 | )          |   | (11,672,000 | ) |
| CASH                FLOWS FROM FINANCING ACTIVITIES                                                                                                                               |   |       |       |       |   |   |   |
|     Net                proceeds from issuance of common stock                                                                                                 |   |       | 26,000     |       |   | 22,000 |   |
|     Dividends                paid                                                                                                                             |   |       | (144,000   | )          |   | (136,000 | ) |
|     Net                (decrease) increase in noninterest-bearing deposits                                                                                    |   |       | (1,054,000 | )          |   | 641,000 |   |
|     Net                decrease in interest-bearing deposits                                                                                                  |   |       | 10,914,000 |       |   | (2,714,000 | ) |
|     Proceeds                from                Federal Home Loan Advances                                                                                    |   |       | -          |       |   | 8,500,000 |   |
|     Repayments                of                Federal Home Loan Advances                                                                                    |   |       | (4,835,000 | )          |   | (4,406,000 | ) |
|         Net                cash provided by financing activities                                                                          |   |       | 4,907,000  |       |   | 1,907,000 |   |
|                                                                                                                                                                              |   |       |       |       |   |   |   |
| INCREASE                IN CASH AND CASH EQUIVALENTS                                                                                                                              |   |       | 26,000     |       |   | 707,000 |   |
|                                                                                                                                                                              |   |       |       |       |   |   |   |
| CASH                AND CASH EQUIVALENTS, JANUARY 1,                                                                                                                              |   |       | 22,942,000 |       |   | 18,168,000 |   |
|                                                                                                                                                                              |   |       |       |       |   |   |   |
| CASH                AND CASH EQUIVALENTS, MARCH 31,                                                                                                                               |   | $          | 22,968,000 |       | $      | 18,875,000 |   |
|                                                                                                                                                                              |   |       |       |       |   |   |   |
| SUPPLEMENTAL                DISCLOSURE OF CASH FLOW INFORMATION                                                                                                                   |   |       |       |       |   |   |   |
|                       Cash paid during the period for:    Interest                on                deposits and borrowed funds |   | $          | 2,795,000  |       | $      | 2,333,000 |   |
|     Income                taxes                                                                                                                               |   | $          | 70,000     |       | $      | 220,000 |   |

*See      Notes to Consolidated Financial Statements*

----

**STERLING      BANKS, INC. AND SUBSIDIARY**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**NOTE      1. DESCRIPTION OF BUSINESS**

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

*Financial      Statements and Basis of Presentation*

*Use      of Estimates*

----

**STERLING      BANKS, INC. AND SUBSIDIARY**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

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

*Commitments*

*Contingencies*

*Investments*

*Business      Combinations*

----

**STERLING      BANKS, INC. AND SUBSIDIARY**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

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

*Goodwill      and Other Intangibles Assets*

*Impairment      of Long-Lived Assets*

*Income      Taxes*

*Recent      Accounting Pronouncements*

----

**STERLING      BANKS, INC. AND SUBSIDIARY**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

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

*Recent      Accounting Pronouncements (continued)*

**NOTE      3. BUSINESS COMBINATION**

| Loans,                net                                                                              |   | $      | 75,740,000   |   |
|--------------------------------------------------------------------------------------------------------|--------|--------|--------------|--------|
| Investments                                                                                            |   |   | 20,933,000   |   |
| Intangible                asset (core deposit intangible)                                              |   |   | 3,471,000    |   |
| Deposits                                                                                               |   |   | (105,722,000 | )      |
| Other,                net (including acquired cash and cash equivalents of                $12,598,000) |   |   | 13,374,000   |   |
| Net                fair value of assets acquired                                                       |   |   | 7,796,000    |   |
| Purchase                price, including registration costs                                            |   |   | 19,530,000   |   |
| Goodwill                                                                                               |   | $      | 11,734,000   |   |

|                             |   | 2007   |        | 2006    |   |
|----------------------------------|--------|--------|-------------|---------|--------|
| Interest                income   |   | $      | 7,816,000   |    | $      | 7,056,000 |   |
| Interest                expense  |   |   | 3,895,000   |    |   | 3,047,000 |   |
| Net                income (loss) |   |   | (508,000    | )  |   | 286,000 |   |
| Basic                EPS         |   |   | (0.10       | )  |   | 0.05 |   |
| Diluted                EPS       |   |   |  (0.10 | )  |   | 0.05 |   |

----

**STERLING      BANKS, INC. AND SUBSIDIARY**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

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

**NOTE      4. EARNINGS PER SHARE**

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

*Share-Based      Payment*

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

----

**STERLING      BANKS, INC. AND SUBSIDIARY**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**NOTE      6. COMMON STOCK**

**NOTE      7. CAPITAL RATIOS**

|                                                    |   |   |   |                             |   | For                Capital |   | To                Be Well |        |
|---------------------------------------------------------|--------|--------|--------|----------------------------------|--------|----------------------------|--------|---------------------------|-------------|
|                                                    |   | Actual |   | Adequacy                Purposes |   | Capitalized                |   |
|                                                    |   | Amount |   | Ratio                            |   | Amount                     |   | Ratio                     |        | Amount |   | Ratio |   |
| As                of March 31, 2007:                    |   |   |   |                             |   |                       |   |                      |        |   |   |   |   |
|                                                    |   |   |   |                             |   |                       |   |                      |        |   |   |   |   |
| Total                Capital (to Risk-Weighted Assets)  |   | $      | 30,023 |                             |   | 8.78                       | %      |                      | >$27,369 |   |   | >8.0 | % |   | >$34,211 |   |   | >10.0 | % |
| Tier                I Capital (to Risk-Weighted Assets) |   | $      | 27,124 |                             |   | 7.93                       | %      |                      | >$13,684 |   |   | >4.0 | % |   | >$20,526 |   |   | >6.0 | % |
| Tier                I Capital (to Average Assets)       |   | $      | 27,124 |                             |   | 8.15                       | %      |                      | >$13,317 |   |   | >4.0 | % |   | >$17,146 |   |   | >5.0 | % |

|                                                      |   |   |   |                               |   |                         |   |                        |        |   |   |
|-----------------------------------------------------------|--------|--------|--------|------------------------------------|--------|------------------------------|--------|-----------------------------|-------------|--------|--------|
|                                                      |   |   |   |                               |   | For                  Capital |   | To                  Be Well |        |
|                                                      |   | Actual |   | Adequacy                  Purposes |   | Capitalized                  |   |
|                                                      |   | Amount |   | Ratio                              |   | Amount                       |   | Ratio                       |        | Amount |   | Ratio |   |
| As                  of December 31, 2006:                 |   |   |   |                               |   |                         |   |                        |        |   |   |   |   |
|                                                      |   |   |   |                               |   |                         |   |                        |        |   |   |   |   |
| Total                  Capital (to Risk-Weighted Assets)  |   | $      | 37,263 |                               |   | 13.77                        | %      |                        | >$21,649 |   |   | >8.0 | % |   | >$27,062 |   |   | >10.0 | % |
| Tier                  I Capital (to Risk-Weighted Assets) |   | $      | 35,428 |                               |   | 13.09                        | %      |                        | >$10,825 |   |   | >4.0 | % |   | >$16,237 |   |   | >6.0 | % |
| Tier                  I Capital (to Average Assets)       |   | $      | 35,428 |                               |   | 10.39                        | %      |                        | >$13,634 |   |   | >4.0 | % |   | >$17,043 |   |   | >5.0 | % |

----

**STERLING      BANKS, INC. AND SUBSIDIARY**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**NOTE      8. INCOME TAXES**

**NOTE      9. SUBSEQUENT      EVENT**

**ITEM      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION      AND RESULTS OF OPERATION**

**Forward-Looking      Statements**

----

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

**General**

**Consolidated      Results of Operations**

**Three      Months Ended March 31, 2007 and March 31, 2006**

**(Unaudited)**

*Net      Income.*

*Net      Interest Income.*

----

*Provision      for Loan Losses. *

*Noninterest      Income*

*Noninterest      Expenses*

*Income      Taxes*

**Consolidated      Financial Condition**

**At      March 31, 2007 and December 31, 2006**

**(Unaudited)**

*Total      Assets.*

*Loans.      *

*Allowance      for Loan Lo*

----

*Deposits.      *

*Federal      Home Loan Bank Advances and Other Overnight Borrowings. *

*Shareholders’      Equity. *

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

|                                                                                    |   | **Three                Months Ended**** **** ** |        |
|-----------------------------------------------------------------------------------------|--------|-----------------------------------------------------------|-------------|
|                                                                                    |   | **March                31, 2007**                         |        | **March                31, 2006** |   |
|                                                                                    |   | **Average****Balance**                                    |        | **Interest****Income/Expense** |   | **Annual****Yield** |   | **Average****Balance** |   | **Interest****Income/Expense** |   | **Annual****Yield** |   |
| **Assets**                                                                              |   |                                                      |        |   |   |   |   |   |   |   |   |   |   |
| Loans,                net (1)                                                           |   | $                                                         | 257,128,000 |   | $ | 4,939,000 |   |   | 7.79 | %     | $ | 273,861,000 |   | $ | 4,997,000 |   |   | 7.40 | % |
| Investment                securities (2)                                                |   |                                                      | 59,710,000  |   |   | 616,000 |   |   | 4.18 |   |   | 58,391,000 |   |   | 565,000 |   |   | 3.92 |   |
| Due                from banks                                                           |   |                                                      | 4,357,000   |   |   | 50,000 |   |   | 4.65 |   |   | 3,992,000 |   |   | 45,000 |   |   | 4.58 |   |
| Federal                funds sold                                                       |   |                                                      | 2,812,000   |   |   | 36,000 |   |   | 5.25 |   |   | 2,303,000 |   |   | 26,000 |   |   | 4.51 |   |
| Total                interest-earning assets                                            |   |                                                      | 324,007,000 |   | $ | 5,641,000 |   |   | 7.06 |   |   | 338,547,000 |   | $ | 5,633,000 |   |   | 6.75 |   |
|                                                                                    |   |                                                      |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance                for loan losses                                                |   |                                                      | (1,975,000  | ) |   |   |   |   |   |   |   | (1,176,000 | ) |   |   |   |   |   |   |
| Other                assets                                                             |   |                                                      | 25,795,000  |   |   |   |   |   |   |   |   | 19,545,000 |   |   |   |   |   |   |   |
| Total                assets                                                             |   | $                                                         | 347,827,000 |   |   |   |   |   |   |   | $ | 356,916,000 |   |   |   |   |   |   |   |
|                                                                                    |   |                                                      |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Liabilities                and shareholders’ equity**                           |   |                                                      |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Time                deposits                                                            |   | $                                                         | 186,713,000 |   | $ | 2,198,000 |   |   | 4.77 | % | $ | 189,135,000 |   | $ | 1,843,000 |   |   | 3.95 | % |
| NOW/MMDA/savings                accounts                                                |   |                                                      | 80,872,000  |   |   | 478,000 |   |   | 2.40 |   |   | 83,400,000 |   |   | 464,000 |   |   | 2.26 |   |
| Borrowed                funds                                                           |   |                                                      | 5,003,000   |   |   | 57,000 |   |   | 4.66 |   |   | 15,592,000 |   |   | 134,000 |   |   | 3.49 |   |
| Total                interest-bearing liabilities                                       |   |                                                      | 272,588,000 |   | $ | 2,733,000 |   |   | 4.07 |   |   | 288,127,000 |   | $ | 2,441,000 |   |   | 3.44 |   |
|                                                                                    |   |                                                      |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing                demand deposits                                      |   |                                                      | 36,812,000  |   |   |   |   |   |   |   |   | 33,514,000 |   |   |   |   |   |   |   |
| Other                liabilities                                                        |   |                                                      | 3,313,000   |   |   |   |   |   |   |   |   | 1,098,000 |   |   |   |   |   |   |   |
| Shareholders’                equity                                               |   |                                                      | 35,114,000  |   |   |   |   |   |   |   |   | 34,177,000 |   |   |   |   |   |   |   |
|     Total                liabilities and shareholders’ equity |   | $                                                         | 347,827,000 |   |   |   |   |   |   |   | $ | 356,916,000 |   |   |   |   |   |   |   |
|                                                                                    |   |                                                      |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                interest income                                                      |   |                                                      |        |   | $ | 2,908,000 |   |   |   |   |   |   |   | $ | 3,192,000 |   |   |   |   |
|                                                                                    |   |                                                      |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                rate spread (3)                                                 |   |                                                      |        |   |   |   |   |   | 2.99 | % |   |   |   |   |   |   |   | 3.31 | % |
|                                                                                    |   |                                                      |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                interest margin (4)                                                  |   |                                                      |        |   |   |   |   |   | 3.64 | % |   |   |   |   |   |   |   | 3.82 | % |

----

**Liquidity      **

**Capital      Resources**

**Off-Balance      Sheet Arrangements**

----

**ITEM3.      CONTROLS AND      PROCEDURES **

**Disclosure      Controls and Procedures**

**Internal      Control over Financial Reporting**

**PART      II. OTHER INFORMATION**

**ITEM      1.**
**Legal      Proceedings.**

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

**ITEM      3.**
**Defaults      upon Senior Securities.**

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

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

**ITEM      5.**
**Other      Information.**

| **ITEM                6.  ****Exhibits.** |
|-----------------------------------------------------|
|                                                |   |
|                                                | 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:                May 15, 2007 | By:                /s/ Robert H. King           |
|                              | Robert H.              King                     |
|                              | President                and Chief Executive Officer |
|                              |                                                 |
|                              |                                                 |
|                              |                                                 |
|                              |                                                 |
| Date:                May 15, 2007 | By:                /s/ R. Scott Horner          |
|                              | R.              Scott Horner                    |
|                              | Executive                Vice President and Chief    |
|                              | Financial                Officer                     |
|                              |                                                 |
|                              |                                                 |

----