**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 JUNE 30, 2007**

**INDEX**

| **Part                I**  | **FINANCIAL                INFORMATION**                                                  | **Page** |
|----------------------------|-------------------------------------------------------------------------------------------|----------|
|                       |                                                                                      |     |
| Item                1.     | Consolidated                Financial Statements                                          |     |
|                       |   Balance                Sheets                                                 | 3        |
|                       |   Statements                of Operations                                       | 5        |
|                       |   Statements                of Shareholders’ Equity                       | 6        |
|                       | **  **Statements                of Cash Flows                                   | 7        |
|                       |   Notes                to Financial Statements                                  | 8        |
| Item                2.     | Management’s                Discussion and Analysis                                 | 15       |
| Item                3.     | Controls                and Procedures                                                    | 20       |
|                       |                                                                                      |     |
| **Part                II** | **OTHER                INFORMATION**                                                      |     |
|                       |                                                                                      |     |
| Item                1.     | Legal                Proceedings                                                          | 21       |
| Item                2.     | Unregistered                Sales of Equity Securities and Use of                Proceeds | 21       |
| Item                3.     | Defaults                upon Senior Securities                                            | 21       |
| Item                4.     | Submission                of Matters to a Vote of Security                Holders         | 21       |
| Item                5.     | Other                Information                                                          | 21       |
| Item                6.     | Exhibits                                                                                  | 22       |
|                       |                                                                                      |     |
| **SIGNATURES**             |                                                                                      | 22       |
|                       |                                                                                      |     |
| **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 SUBSIDIARIES**

**CONSOLIDATED      BALANCE SHEETS**

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

|                                                                                                                                                                                                |   | June                30,2007(unaudited) |        |   | December                31,2006 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|-------------|--------|---------------------------------|--------|
| **ASSETS**                                                                                                                                                                                          |   |                                   |        |   |                            |   |
| Cash                and cash due from banks                                                                                                                                                         |   | $                                      | 16,616,000  |   |                            | $      | 16,064,000 |   |
| Federal                funds sold                                                                                                                                                                   |   |                                   | 15,161,000  |   |                            |   | 6,878,000 |   |
|           Cash                and cash equivalents                                                                                                |   |                                   | 31,777,000  |   |                            |   | 22,942,000 |   |
|                                                                                                                                                                                                |   |                                   |        |   |                            |   |   |   |
| Investment                securities held-to-maturity, at cost (fair value of                $7,485,000    at                June 30, 2007 and $9,087,000 at December 31, 2006) |   |                                   | 7,667,000   |   |                            |   | 9,292,000 |   |
| Investment                securities available-for-sale, at fair value                                                                                                                              |   |                                   | 46,289,000  |   |                            |   | 47,526,000 |   |
|           Total                investment securities                                                                                              |   |                                   | 53,956,000  |   |                            |   | 56,818,000 |   |
|                                                                                                                                                                                                |   |                                   |        |   |                            |   |   |   |
| Restricted                stock, at cost                                                                                                                                                            |   |                                   | 1,412,000   |   |                            |   | 1,436,000 |   |
|                                                                                                                                                                                                |   |                                   |        |   |                            |   |   |   |
| Loans                held for sale                                                                                                                                                                  |   |                                   | 336,000     |   |                            |   | 1,618,000 |   |
|                                                                                                                                                                                                |   |                                   |        |   |                            |   |   |   |
| Loans                                                                                                                                                                                               |   |                                   | 321,050,000 |   |                            |   | 243,283,000 |   |
| Less:                allowance for loan losses                                                                                                                                                      |   |                                   | (2,886,000  | )      |                            |   | (1,760,000 | ) |
|           Total                net loans                                                                                                          |   |                                   | 318,164,000 |   |                            |   | 241,523,000 |   |
|                                                                                                                                                                                                |   |                                   |        |   |                            |   |   |   |
| Goodwill                and other intangible assets (Note 3)                                                                                                                                        |   |                                   | 14,998,000  |   |                            |   | - |   |
| Bank                premises and equipment, net                                                                                                                                                     |   |                                   | 10,038,000  |   |                            |   | 6,922,000 |   |
| Accrued                interest receivable and other assets                                                                                                                                         |   |                                   | 7,577,000   |   |                            |   | 5,989,000 |   |
|                                                                                                                                                                                                |   |                                   |        |   |                            |   |   |   |
| **          Total                assets**                                                                                                         |   | $                                      | 438,258,000 |   |                            | $      | 337,248,000 |   |

*See      Notes to Consolidated Financial Statements*

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**STERLING      BANKS, INC. AND SUBSIDIARIES**

**CONSOLIDATED      BALANCE SHEETS**

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

|                                                                                                                                                                                                                                                                                            |   | June                30,2007(unaudited) |             |   | December                31,2006 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|------------------|--------|---------------------------------|--------|
| **LIABILITIES** Deposits                                                                                                                                                                                                                                                                   |   |                                   |             |   |                            |   |
|      Noninterest-bearing                                                                                                                                                                                                                                               |   | $                                      | 41,335,000       |   |                            | $      | 39,021,000 |   |
|      Interest-bearing                                                                                                                                                                                                                                                  |   |                                   | 345,115,000      |   |                            |   | 256,269,000 |   |
|           Total                deposits                                                                                                                                                                                                       |   |                                   | 386,450,000      |   |                            |   | 295,290,000 |   |
|                                                                                                                                                                                                                                                                                            |   |                                   |             |   |                            |   |   |   |
| Federal                Home Loan Bank advances and other borrowings                                                                                                                                                                                                                             |   |                                   | 7,050,000        |   |                            |   | 5,885,000 |   |
| Accrued                interest payable and other accrued liabilities                                                                                                                                                                                                                           |   |                                   | 1,481,000        |   |                            |   | 1,305,000 |   |
|                                                                                                                                                                                                                                                                                            |   |                                   |             |   |                            |   |   |   |
|           Total                liabilities                                                                                                                                                                                                    |   |                                   | 394,981,000      |   |                            |   | 302,480,000 |   |
|                                                                                                                                                                                                                                                                                            |   |                                   |             |   |                            |   |   |   |
| **COMMITMENTS                AND CONTINGENCIES (Note 2)**                                                                                                                                                                                                                                       |   |                                   |             |   |                            |   |   |   |
|                                                                                                                                                                                                                                                                                            |   |                                   |             |   |                            |   |   |   |
| **SHAREHOLDERS'                EQUITY**                                                                                                                                                                                                                                                         |   |                                   |             |   |                            |   |   |   |
|   Common                stock,   $2                par value, 15,000,000 shares authorized; 5,843,774 and   4,783,568                shares issued and outstanding at June 30, 2007   and                December 31, 2006, respectively |   |                                   |  11,688,000 |   |                            |   |  9,567,000 |   |
|    Preferred                stock, 10,000,000 shares authorized; no shares issued   and                outstanding                                                                                                                                                |   |                                   | -                |   |                            |   | - |   |
|   Additional                paid-in capital                                                                                                                                                                                                                                           |   |                                   | 29,696,000       |   |                            |   | 22,930,000 |   |
|   Retained                earnings                                                                                                                                                                                                                                                    |   |                                   | 2,574,000        |   |                            |   | 2,931,000 |   |
|   Accumulated                other comprehensive loss                                                                                                                                                                                                                                 |   |                                   | (681,000         | )      |                            |   | (660,000 | ) |
|           Total                shareholders' equity                                                                                                                                                                                           |   |                                   | 43,277,000       |   |                            |   | 34,768,000 |   |
|           **Total                liabilities and shareholders' equity**                                                                                                                                                                       |   | $                                      | 438,258,000      |   |                            | $      | 337,248,000 |   |

*See      Notes to Consolidated Financial Statements*

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**STERLING      BANKS, INC. AND SUBSIDIARIES**

**CONSOLIDATED      STATEMENTS OF OPERATIONS**

**SIX      MONTHS ENDED JUNE 30, 2007 AND 2006**

**(Unaudited)**

|                                                                                                                                    |   | For                the three months ended June 30, 2007 |      |   | For                the three months ended June 30, 2006 |   |      | For                the six months                ended June 30, 2007 |   |   | For                the six months                ended June 30, 2006 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------|-----------|--------|---------------------------------------------------------|--------|-----------|----------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------|--------|
| INTEREST                INCOME                                                                                                          |   |                                                    |      |   |                                                    |   |      |                                                                 |   |   |                                                                 |   |
|   Interest                and fees on loans                                                                                   |   | $                                                       | 6,013,000 |   |                                                    | $      | 4,824,000 |                                                                 |   | $      | 10,952,000                                                           |   |   | $ | 9,821,000 |   |
|   Interest                and dividends on securities                                                                         |   |                                                    | 682,000   |   |                                                    |   | 649,000   |                                                                 |   |   | 1,348,000                                                            |   |   |   | 1,259,000 |   |
|   Interest                on federal funds sold                                                                               |   |                                                    | 248,000   |   |                                                    |   | 194,000   |                                                                 |   |   | 284,000                                                              |   |   |   | 219,000 |   |
|           Total                interest and dividend income                           |   |                                                    | 6,943,000 |   |                                                    |   | 5,667,000 |                                                                 |   |   | 12,584,000                                                           |   |   |   | 11,299,000 |   |
|                                                                                                                                    |   |                                                    |      |   |                                                    |   |      |                                                                 |   |   |                                                                 |   |   |   |   |   |
| INTEREST                EXPENSE                                                                                                         |   |                                                    |      |   |                                                    |   |      |                                                                 |   |   |                                                                 |   |   |   |   |   |
|   Interest                on deposits                                                                                         |   |                                                    | 3,566,000 |   |                                                    |   | 2,420,000 |                                                                 |   |   | 6,242,000                                                            |   |   |   | 4,727,000 |   |
|   Interest                on Federal Home Loan Bank advances and     other                borrowings |   |                                                    | 80,000    |   |                                                    |   | 121,000   |                                                                 |   |   | 137,000                                                              |   |   |   | 255,000 |   |
|           Total                interest expense                                       |   |                                                    | 3,646,000 |   |                                                    |   | 2,541,000 |                                                                 |   |   | 6,379,000                                                            |   |   |   | 4,982,000 |   |
|                                                                                                                                    |   |                                                    |      |   |                                                    |   |      |                                                                 |   |   |                                                                 |   |   |   |   |   |
|           Net                interest income                                          |   |                                                    | 3,297,000 |   |                                                    |   | 3,126,000 |                                                                 |   |   | 6,205,000                                                            |   |   |   | 6,317,000 |   |
|                                                                                                                                    |   |                                                    |      |   |                                                    |   |      |                                                                 |   |   |                                                                 |   |   |   |   |   |
| PROVISION                FOR LOAN LOSSES                                                                                                |   |                                                    | 45,000    |   |                                                    |   | 45,000    |                                                                 |   |   | 101,000                                                              |   |   |   | 90,000 |   |
|                                                                                                                                    |   |                                                    |      |   |                                                    |   |      |                                                                 |   |   |                                                                 |   |   |   |   |   |
|   Net                interest income after provision for loan losses                                                          |   |                                                    | 3,252,000 |   |                                                    |   | 3,081,000 |                                                                 |   |   | 6,104,000                                                            |   |   |   | 6,227,000 |   |
|                                                                                                                                    |   |                                                    |      |   |                                                    |   |      |                                                                 |   |   |                                                                 |   |   |   |   |   |
| NONINTEREST                INCOME                                                                                                       |   |                                                    |      |   |                                                    |   |      |                                                                 |   |   |                                                                 |   |   |   |   |   |
|   Service                charges                                                                                              |   |                                                    | 78,000    |   |                                                    |   | 68,000    |                                                                 |   |   | 143,000                                                              |   |   |   | 132,000 |   |
|   Miscellaneous                fees and other                                                                                 |   |                                                    | 154,000   |   |                                                    |   | 120,000   |                                                                 |   |   | 258,000                                                              |   |   |   | 211,000 |   |
|           Total                noninterest income                                     |   |                                                    | 232,000   |   |                                                    |   | 188,000   |                                                                 |   |   | 401,000                                                              |   |   |   | 343,000 |   |
|                                                                                                                                    |   |                                                    |      |   |                                                    |   |      |                                                                 |   |   |                                                                 |   |   |   |   |   |
| NONINTEREST                EXPENSES                                                                                                     |   |                                                    |      |   |                                                    |   |      |                                                                 |   |   |                                                                 |   |   |   |   |   |
|   Compensation                and benefits                                                                                    |   |                                                    | 1,873,000 |   |                                                    |   | 1,525,000 |                                                                 |   |   | 3,469,000                                                            |   |   |   | 3,041,000 |   |
|   Occupancy,                equipment and data processing                                                                     |   |                                                    | 871,000   |   |                                                    |   | 707,000   |                                                                 |   |   | 1,631,000                                                            |   |   |   | 1,398,000 |   |
|   Marketing                and business development                                                                           |   |                                                    | 229,000   |   |                                                    |   | 154,000   |                                                                 |   |   | 353,000                                                              |   |   |   | 312,000 |   |
|   Professional                services                                                                                        |   |                                                    | 148,000   |   |                                                    |   | 154,000   |                                                                 |   |   | 385,000                                                              |   |   |   | 281,000 |   |
|   Other                operating expenses                                                                                     |   |                                                    | 353,000   |   |                                                    |   | 255,000   |                                                                 |   |   | 720,000                                                              |   |   |   | 448,000 |   |
|           Total                noninterest expenses                                   |   |                                                    | 3,474,000 |   |                                                    |   | 2,795,000 |                                                                 |   |   | 6,558,000                                                            |   |   |   | 5,480,000 |   |
|                                                                                                                                    |   |                                                    |      |   |                                                    |   |      |                                                                 |   |   |                                                                 |   |   |   |   |   |
| INCOME                (LOSS) BEFORE INCOME TAX  EXPENSE                (BENEFIT)                                              |   |                                                    | 10,000    |   |                                                    |   | 474,000   |                                                                 |   |   | (53,000                                                              | )      |   |   | 1,090,000 |   |
|                                                                                                                                    |   |                                                    |      |   |                                                    |   |      |                                                                 |   |   |                                                                 |   |   |   |   |   |
| INCOME                TAX EXPENSE (BENEFIT)                                                                                             |   |                                                    | 8,000     |   |                                                    |   | 180,000   |                                                                 |   |   | (6,000                                                               | )      |   |   | 414,000 |   |
|                                                                                                                                    |   |                                                    |      |   |                                                    |   |      |                                                                 |   |   |                                                                 |   |   |   |   |   |
| NET                INCOME (LOSS)                                                                                                        |   | $                                                       | 2,000     |   |                                                    | $      | 294,000   |                                                                 |   | $      | (47,000                                                              | )      |   | $ | 676,000 |   |
|                                                                                                                                    |   |                                                    |      |   |                                                    |   |      |                                                                 |   |   |                                                                 |   |   |   |   |   |
| NET                INCOME (LOSS) PER COMMON SHARE                                                                                       |   |                                                    |      |   |                                                    |   |      |                                                                 |   |   |                                                                 |   |   |   |   |   |
|       Basic                and Diluted                                                                    |   | $                                                       | 0.00      |   |                                                    | $      | 0.06      |                                                                 |   | $      | (0.01                                                                | )      |   | $ | 0.13 |   |
|                                                                                                                                    |   |                                                    |      |   |                                                    |   |      |                                                                 |   |   |                                                                 |   |   |   |   |   |
| WEIGHTED                AVERAGE SHARES OUTSTANDING                                                                                      |   |                                                    |      |   |                                                    |   |      |                                                                 |   |   |                                                                 |   |   |   |   |   |
|       Basic                                                                                               |   |                                                    | 5,839,670 |   |                                                    |   | 5,009,358 |                                                                 |   |   | 5,506,541                                                            |   |   |   | 5,006,814 |   |
|       Diluted                                                                                             |   |                                                    | 5,863,452 |   |                                                    |   | 5,111,455 |                                                                 |   |   | 5,506,541                                                            |   |   |   | 5,111,772 |   |
|                                                                                                                                    |   |                                                    |      |   |                                                    |   |      |                                                                 |   |   |                                                                 |   |   |   |   |   |
| CASH                DIVIDENDS PER COMMON SHARE                                                                                          |   | $                                                       | 0.03      |   |                                                    | $      | 0.03      |                                                                 |   | $      | 0.06                                                                 |   |   | $ | 0.06 |   |

----

**STERLING      BANKS, INC. AND SUBSIDIARIES**

**CONSOLIDATED      STATEMENTS OF SHAREHOLDERS’ EQUITY**

**SIX      MONTHS ENDED JUNE 30, 2007 AND 2006**

**(Unaudited)**

|                                                                                          |   |                        |      |   |    |   |       |       |   |   |          |   |   | Accumulated                  |      |   |   |   |
|-----------------------------------------------------------------------------------------------|--------|-----------------------------|-----------|--------|---------|--------|------------|------------|--------|--------|---------------|--------|--------|------------------------------|-----------|--------|--------|--------|
|                                                                                          |   |                        |      |   |    |   |       | Additional |   |   |          |   |   | Other                        |      |   | Total  |   |
|                                                                                          |   | Common                Stock |      |   | Paid-In |   |       | Retained   |   |   | Comprehensive |   |   | Shareholders'                |      |
|                                                                                          |   | Shares                      |      |   | Amount  |   |       | Capital    |   |   | Earnings      |   |   | Income                (Loss) |      |   | Equity |   |
| December                31, 2005                                                              |   |                        | 4,536,452 |   |    | $      | 9,073,000  |       |   | $      | 23,263,000    |   |   | $                            | 2,746,000 |   |   | $      | (834,000 | ) |   | $ | 34,248,000 |   |
|                                                                                          |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
| Comprehensive                income:                                                          |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
|    Net                income – 2006                                      |   |                        | -         |   |    |   | -          |       |   |   | -             |   |   |                         | 676,000   |   |   |   | - |   |   |   | 676,000 |   |
|    Change                in net unrealized loss on                             |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
|        securities                available-for-sale, net   |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
|        of                reclassification adjustment       |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
|        and                tax effects                      |   |                        | -         |   |    |   | -          |       |   |   | -             |   |   |                         | -         |   |   |   | (403,000 | ) |   |   | (403,000 | ) |
|       Total                comprehensive income                 |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   | 273,000 |   |
| Cash                dividends paid ($0.06 per       share) |   |                        | -         |   |    |   | -          |       |   |   | -             |   |   |                         | (273,000  | )      |   |   | - |   |   |   | (273,000 | ) |
| Stock                compensation                                                             |   |                        | -         |   |    |   | -          |       |   |   | 4,000         |   |   |                         | -         |   |   |   | - |   |   |   | 4,000 |   |
| Net                proceeds from issuance of                                                  |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
|    common                stock                                                 |   |                        | 12,177    |   |    |   | 24,000     |       |   |   | 80,000        |   |   |                         | -         |   |   |   | - |   |   |   | 104,000 |   |
| 5%                Common stock dividend                                                       |   |                        | 227,431   |   |    |   | 455,000    |       |   |   | (455,000      | )      |   |                         |      |   |   |   |   |   |   |   | - |   |
|                                                                                          |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
| June                30, 2006                                                                  |   |                        | 4,776,060 |   |    | $      | 9,552,000  |       |   | $      | 22,892,000    |   |   | $                            | 3,149,000 |   |   | $      | (1,237,000 | ) |   | $ | 34,356,000 |   |
|                                                                                          |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
|                                                                                          |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
| 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                                        |   |                        | -         |   |    |   | -          |       |   |   | -             |   |   |                         | (47,000   | )      |   |   | - |   |   |   | (47,000 | ) |
|    Change                in net unrealized loss on                             |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
|        securities                available-for-sale, net   |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
|        of                reclassification adjustment       |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
|        and                tax effects                      |   |                        | -         |   |    |   | -          |       |   |   | -             |   |   |                         | -         |   |   |   | (21,000 | ) |   |   | (21,000 | ) |
|       Total                comprehensive loss                   |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   | (68,000 | ) |
| Cash                dividends paid ($0.06 per      share)       |   |                        | -         |   |    |   | -          |       |   |   | -             |   |   |                         | (310,000  | )      |   |   | - |   |   |   | (310,000 | ) |
| Stock                compensation                                                             |   |                        | -         |   |    |   | -          |       |   |   | 13,000        |   |   |                         | -         |   |   |   | - |   |   |   | 13,000 |   |
| Acquisition                of Farnsworth Bancorp,     Inc.           |   |                        | 768,438   |   |    |   | 1,537,000  |       |   |   | 7,246,000     |   |   |                         | -         |   |   |   | - |   |   |   | 8,783,000 |   |
| Net                proceeds from issuance of                                                  |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
|   common                stock                                                       |   |                        | 13,493    |   |    |   | 27,000     |       |   |   | 64,000        |   |   |                         | -         |   |   |   | - |   |   |   | 91,000 |   |
| 5%                Common stock split                                                          |   |                        | 278,275   |   |    |   | 557,000    |       |   |   | (557,000      | )      |   |                         | -         |   |   |   | - |   |   |   | - |   |
|                                                                                          |   |                        |      |   |    |   |       |       |   |   |          |   |   |                         |      |   |   |   |   |   |   |   |   |   |
| June                30, 2007                                                                  |   |                        | 5,843,774 |   |    | $      | 11,688,000 |       |   | $      | 29,696,000    |   |   | $                            | 2,574,000 |   |   | $      | (681,000 | ) |   | $ | 43,277,000 |   |

*See      Notes to Consolidated Financial Statements*

----

**STERLING      BANKS, INC. AND SUBSIDIARIES**

**CONSOLIDATED      STATEMENTS OF CASH FLOWS**

**SIX      MONTHS ENDED JUNE 30, 2007 AND 2006**

**(Unaudited)**

|                                                                                                                                                  |   | 2007   |        |   | 2006   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
| CASH                FLOWS FROM OPERATING ACTIVITIES                                                                                                   |   |   |        |   |   |   |
| Net                income (loss)                                                                                                                      |   | $      | (47,000     | )      |   | $      | 676,000 |   |
| Adjustments                to reconcile net income (loss) to net cash provided by operating                activities:                                |   |   |        |   |   |   |   |   |
|       Depreciation                and amortization of premises and equipment                                            |   |   | 479,000     |   |   |   | 458,000 |   |
|       Provision                for loan losses                                                                          |   |   | 101,000     |   |   |   | 90,000 |   |
|       Net                amortization of purchase premiums and discounts on                securities                   |   |   | 26,000      |   |   |   | 47,000 |   |
|       Net                amortization of core deposit premium                                                           |   |   | 101,000     |   |   |   | - |   |
|       Stock                compensation                                                                                 |   |   | 13,000      |   |   |   | 4,000 |   |
|       Realized                gain on sales of equipment                                                                |   |   | (9,000      | )      |   |   | (3,000 | ) |
|       Realized                gain on sales of securities available-for sale                                            |   |   | (5,000      | )      |   |   | - |   |
|       Proceeds                from sale of loans held for sale                                                          |   |   | 4,602,000   |   |   |   | 174,905,000 |   |
|       Originations                of loans held for sale                                                                |   |   | (3,320,000  | )      |   |   | (144,298,000 | ) |
| Changes                in operating assets and liabilities:                                                                                           |   |   |        |   |   |   |   |   |
|    Increase                in accrued interest receivable and other assets                                                             |   |   | (128,000    | )      |   |   | (252,000 | ) |
|    Decrease                in accrued interest payable and other accrued liabilities                                                   |   |   | (2,212,000  | )      |   |   | (70,000 | ) |
|       Net                cash provided by (used in) operating activities                                                |   |   | (399,000    | )      |   |   | 31,557,000 |   |
|                                                                                                                                                  |   |   |        |   |   |   |   |   |
| CASH                FLOWS FROM INVESTING ACTIVITIES                                                                                                   |   |   |        |   |   |   |   |   |
|    Purchases                of securities available-for-sale                                                                           |   |   | (60,000     | )      |   |   | (5,886,000 | ) |
|    Purchases                of securities held-to-maturity                                                                             |   |   | (75,000     | )      |   |   | (875,000 | ) |
|    Proceeds                from sales of securities available-for- sale                                                                |   |   | 20,503,000  |   |   |   | - |   |
|    Proceeds                from maturities of securities held-to-maturity                                                              |   |   | 875,000     |   |   |   | - |   |
|    Proceeds                from principal payments on mortgage-backed securities                available-for-sale                     |   |   | 1,331,000   |   |   |   | 1,581,000 |   |
|    Proceeds                from principal payments on mortgage-backed securities                held-to-maturity                       |   |   | 817,000     |   |   |   | 1,210,000 |   |
|    Net                proceeds from sale of restricted stock                                                                           |   |   | 225,000     |   |   |   | 222,000 |   |
|    Net                increase in loans                                                                                                |   |   | (2,040,000  | )      |   |   | (10,310,000 | ) |
|    Proceeds                from sales of equipment                                                                                     |   |   | 28,000      |   |   |   | 28,000 |   |
|    Purchases                of premises and equipment                                                                                  |   |   | (1,442,000  | )      |   |   | (1,017,000 | ) |
|    Cash                acquired in acquisition, net of cash paid                                                                       |   |   | 3,096,000   |   |   |   | - |   |
|       Net                cash provided by (used in) investing activities                                                |   |   | 23,258,000  |   |   |   | (15,047,000 | ) |
|                                                                                                                                                  |   |   |        |   |   |   |   |   |
| CASH                FLOWS FROM FINANCING ACTIVITIES                                                                                                   |   |   |        |   |   |   |   |   |
|    Net                proceeds from issuance of common stock                                                                           |   |   | 91,000      |   |   |   | 104,000 |   |
|    Dividends                paid                                                                                                       |   |   | (310,000    | )      |   |   | (273,000 | ) |
|    Net                increase in noninterest-bearing deposits                                                                         |   |   | 2,314,000   |   |   |   | 960,000 |   |
|    Net                decrease in interest-bearing deposits                                                                            |   |   | (16,876,000 | )      |   |   | (5,350,000 | ) |
|    Proceeds                from issuance of trust preferred securities                                                                 |   |   | 6,000,000   |   |   |   | - |   |
|    Repayments                of Federal Home Loan Advances                                                                             |   |   | (5,243,000  | )      |   |   | (4,906,000 | ) |
|       Net                cash used in financing activities                                                              |   |   | (14,024,000 | )      |   |   | (9,465,000 | ) |
|                                                                                                                                                  |   |   |        |   |   |   |   |   |
| INCREASE                IN CASH AND CASH EQUIVALENTS                                                                                                  |   |   | 8,835,000   |   |   |   | 7,045,000 |   |
|                                                                                                                                                  |   |   |        |   |   |   |   |   |
| CASH                AND CASH EQUIVALENTS, JANUARY 1,                                                                                                  |   |   | 22,942,000  |   |   |   | 18,168,000 |   |
|                                                                                                                                                  |   |   |        |   |   |   |   |   |
| CASH                AND CASH EQUIVALENTS, JUNE 30,                                                                                                    |   | $      | 31,777,000  |   |   | $      | 25,213,000 |   |
|                                                                                                                                                  |   |   |        |   |   |   |   |   |
| SUPPLEMENTAL                DISCLOSURE OF CASH FLOW INFORMATION                                                                                       |   |   |        |   |   |   |   |   |
|    Cash                paid during the period for:     Interest                on deposits and borrowed funds |   | $      | 6,423,000   |   |   | $      | 4,989,000 |   |
|      Income                taxes                                                                                             |   | $      | 105,000     |   |   | $      | 400,000 |   |

*See      Notes to Consolidated Financial Statements*

----

**STERLING      BANKS, INC. AND SUBSIDIARIES**

**NOTESTO      CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**NOTE      1.  DESCRIPTION OF BUSINESS**

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

*Financial      Statements and Basis of Presentation*

*Use      of Estimates*

----

**STERLING      BANKS, INC. AND SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

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

*Commitments*

*Contingencies*

*Investments*

*Business      Combinations*

----

**STERLING      BANKS, INC. AND SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

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

*Goodwill      and Other Intangibles Assets*

*Impairment      of Long-Lived Assets*

*Income      Taxes*

*Recent      Accounting Pronouncements*

----

**STERLING      BANKS, INC. AND SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

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

*Recent      Accounting Pronouncements (continued)*

**NOTE      3.  BUSINESS COMBINATION**

| Loans,                net                                                                              |   | $      | 74,702,000   |   |
|--------------------------------------------------------------------------------------------------------|--------|--------|--------------|--------|
| Investments                                                                                            |   |   | 20,785,000   |   |
| Intangible                asset (core deposit intangible)                                              |   |   | 3,471,000    |   |
| Deposits                                                                                               |   |   | (105,722,000 | )      |
| Other,                net (including acquired cash and cash equivalents of                $12,598,000) |   |   | 13,420,000   |   |
| Net                fair value of assets acquired                                                       |   |   | 6,656,000    |   |
| Purchase                price, including acquisition costs                                             |   |   | 18,284,000   |   |
| Goodwill                                                                                               |   | $      | 11,628,000   |   |

|                             |   | 2007   |       |   | 2006   |   |
|----------------------------------|--------|--------|------------|--------|--------|--------|
| Interest                income   |   | $      | 13,857,000 |   |   | $      | 14,189,000 |   |
| Interest                expense  |   |   | 7,090,000  |   |   |   | 6,250,000 |   |
| Net                income (loss) |   |   | (574,000   | )      |   |   | 459,000 |   |
| Basic                EPS         |   |   | (.10       | )      |   |   | .07 |   |
| Diluted                EPS       |   |   | (.10       | )      |   |   | .06 |   |

----

**STERLING      BANKS, INC. AND SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

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

**NOTE      4.  EARNINGS PER SHARE**

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

*Share-Based Payment*

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

----

**STERLING      BANKS, INC. AND SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

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

**NOTE      6.  COMMON STOCK**

**NOTE      7.  CAPITAL RATIOS**

----

**STERLING      BANKS, INC. AND SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

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

|                                                    |    |                             | For                Capital | To                Be Well |
|---------------------------------------------------------|---------|----------------------------------|----------------------------|---------------------------|
|                                                    | Actual  | Adequacy                Purposes | Capitalized                |
|                                                    | Amount  | Ratio                            | Amount                     | Ratio                     | Amount | Ratio |
| As                of June 30, 2007:                     |    |                             |                       |                      |   |   |
|                                                    |    |                             |                       |                      |   |   |
| Total                Capital (to Risk-Weighted Assets)  | $35,932 | 10.65%                           | 3$26,993              | 38.0%                | 3$33,741 | 310.0% |
| Tier                I Capital (to Risk-Weighted Assets) | $32,977 | 9.77%                            | 3$13,496              | 34.0%                | 3$20,245 | 3  6.0% |
| Tier                I Capital (to Average Assets)       | $32,977 | 7.71%                            | 3$17,113              | 34.0%                | 3$21,392 | 3  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%                           | 3$21,649              | 38.0%                | 3$27,062 | 310.0% |   |
| Tier                I Capital (to Risk-Weighted Assets) | $35,428 | 13.09%                           | 3$10,825              | 34.0%                | 3$16,237 | 3  6.0% |   |
| Tier                I Capital (to Average Assets)       | $35,428 | 10.39%                           | 3$13,634              | 34.0%                | 3$17,043 | 3  5.0% |   |

**NOTE      8.  INCOME TAXES**

**NOTE      9.  SUBORDINATED DEBENTURES**

----

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

**Forward-Looking      Statements**

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

**General**

----

**Results      of Operations**

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

**(Unaudited)**

*Net      Income.*

*Net      Interest Income.*

*Provision      for Loan Losses.   *

*Noninterest      Income*

*Noninterest      Expenses*

*Income      Taxes*

----

**Consolidated      Results of Operations**

**Six      Months Ended June 30, 2007 and June 30, 2006**

**(Unaudited)**

*Net      Income.*

*Net      Interest Income.*

*Provision      for Loan Losses. *

*Noninterest      Income*

*Noninterest      Expenses*

*Income      Taxes*

----

**Consolidated      Financial Condition**

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

**(Unaudited)**

*Total      Assets.*

*Loans.*

*Allowance      for Loan      Lo*

*Deposits.  *

*Federal      Home Loan Bank Advances and      Other Borrowings. *

*Shareholders’      Equity.  *

----

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

|                                                                                    | **Six                Months Ended     ** |
|-----------------------------------------------------------------------------------------|-------------------------------------------------------------------|
|                                                                                    | **June                30, 2007**                                  | **June                30, 2006** |
|                                                                                    | **Average****Balance**                                            | **Interest****Income/Expense** | **Annual****Yield** | **Average****Balance** | **Interest****Income/Expense** | **Annual****Yield** |
| **Assets**                                                                              |                                                              |   |   |   |   |   |
| Loans,                net (1)                                                           | $287,870,000                                                      | $10,952,000 |      7.67% | $263,137,000 | $9,821,000 |    7.53% |
| Investment                securities (2)                                                | 58,443,000                                                        | 1,208,000 |    4.17 | 58,270,000 | 1,126,000 |    3.90 |
| Due                from banks                                                           |    5,662,000                                       |         140,000 |    4.99 |   9,011,000 |    219,000 |    4.91 |
| Federal                funds sold                                                       |    10,898,000                                      |      284,000 |    5.26 |      5,487,000 |      133,000 |    4.88 |
| Total                interest-earning assets                                            | 362,873,000                                                       | 12,584,000 |    6.99 | 335,905,000 | 11,299,000 |    6.78 |
|                                                                                    |                                                              |   |   |   |   |   |
| Allowance                for loan losses                                                | (2,421,000)                                                       |   |   | (1,199,000) |   |   |
| Other                assets                                                             |     35,631,000                                |   |   |     19,504,000 |   |   |
| Total                assets                                                             | $396,083,000                                                      |   |   | $354,210,000 |   |   |
|                                                                                    |                                                              |   |   |   |   |   |
| **Liabilities                and shareholders’ equity**                           |                                                              |   |   |   |   |   |
| Time                deposits                                                            | $215,461,000                                                      | $5,115,000 |    4.79% | $187,261,000 | $3,763,000 |   4.05% |
| NOW/MMDA/savings                accounts                                                | 95,555,000                                                        |      1,127,000 | 2.38 | 83,482,000 |    964,000 | 2.33 |
| Borrowed                funds                                                           |     5,115,000                                 |      137,000 |    5.40 |    14,608,000 |      255,000 |    3.52 |
| Total                interest-bearing liabilities                                       | 316,131,000                                                       |   6,379,000 |    4.07 | 285,351,000 |   4,982,000 |    3.52 |
|                                                                                    |                                                              |   |   |   |   |   |
| Noninterest-bearing                demand deposits                                      | 39,932,000                                                        |   |   | 33,556,000 |   |   |
| Other                liabilities                                                        | 741,000                                                           |   |   | 1,106,000 |   |   |
| Shareholders’                equity                                               |     39,279,000                                |   |   |     34,197,000 |   |   |
|     Total                liabilities and shareholders’ equity | $396,083,000                                                      |   |   | $354,210,000 |   |   |
|                                                                                    |                                                              |   |   |   |   |   |
| Net                interest income                                                      |                                                              | $6,205,000 |   |   | $6,317,000 |   |
|                                                                                    |                                                              |   |   |   |   |   |
| Interest                rate spread (3)                                                 |                                                              |   | 2.92% |   |   | 3.26% |
|                                                                                    |                                                              |   |   |   |   |   |
| Net                interest margin (4)                                                  |                                                              |   | 3.45% |   |   | 3.79% |

**Liquidity**

----

**Capital      Resources**

**Off-Balance      Sheet Arrangements**

**ITEM      3.  CONTROLS AND PROCEDURES**

**Disclosure      Controls and Procedures**

----

**Internal      Control over Financial Reporting**

**PART      II.  OTHER INFORMATION**

**ITEM      1.                 Legal      Proceedings.**

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

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

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

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

| ·   | To                elect fourteen (14) persons to the Board of Directors of the Bank                to hold                office for a one-year term and until their successors are duly elected                and                qualified; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                |   | For    |      |   | Withhold |   |
|------------------------------------------|--------|--------|-----------|--------|----------|--------|
| S.                David Brandt, Esq.     |   |   | 4,748,047 |   |     |   | 215,743 |   |
| Jeffrey                Dubrow            |   |   | 4,787,835 |   |     |   | 175,955 |   |
| A.                Theodore Eckenhoff     |   |   | 4,787,750 |   |     |   | 176,040 |   |
| Benjamin                D. Goldman       |   |   | 4,787,843 |   |     |   | 175,947 |   |
| R.                Scott Horner           |   |   | 4,787,087 |   |     |   | 176,703 |   |
| James                L. Kaltenbach, M.D. |   |   | 4,770,112 |   |     |   | 193,678 |   |
| Robert                H. King            |   |   | 4,716,093 |   |     |   | 247,697 |   |
| G.                Edward Koenig, Jr.     |   |   | 4,747,894 |   |     |   | 215,896 |   |
| John                J. Maley, Jr.        |   |   | 4,747,604 |   |     |   | 216,186 |   |
| Howard                E. Needleman       |   |   | 4,787,835 |   |     |   | 175,955 |   |
| Luis                G. Rogers            |   |   | 4,787,673 |   |     |   | 176,117 |   |
| Ronald                P. Sandmeyer       |   |   | 4,764,912 |   |     |   | 198,878 |   |
| Jeffrey                P. Taylor         |   |   | 4,787,463 |   |     |   | 176,327 |   |
| James                W. Yoh, Ph.D.       |   |   | 4,571,698 |   |     |   | 392,092 |   |

----

| ·   | To                transact such other business as may properly come before the Annual                Meeting or any adjournments                thereof. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

**ITEM      5.                 Other      Information.**

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

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

----