STERLING BANCSHARES INC

The consolidated financial statements are unaudited and include the accounts of Sterling Bancshares, Inc. and its subsidiaries (the “Company”). The Company’s accounting and financial reporting policies are in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q. The information furnished in these interim statements reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for such periods. Such adjustments are of a normal recurring nature unless otherwise disclosed in this Form 10-Q. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for the full year. The interim financial information should be read in conjunction with the Company’s 2010 Annual Report on Form 10-K.

On April 8, 2011, the same purported shareholder filed a second shareholder derivative lawsuit on behalf of the Company in the 295th District Court of Harris County, Texas which named the same defendants and repeated the allegations and claims made in the first derivative lawsuit. On April 15, 2011, a special committee of the Board began reviewing the allegations in the second derivative lawsuit. On April 28, 2011, Sterling asked the Court for a mandatory 60-day stay of proceedings, as required by Texas law, to allow the Committee to complete its review. On May 2, 2011, the plaintiff shareholder asked the Court to enter a temporary restraining order to delay the scheduled May 5, 2011 shareholder vote on the Merger, which the Court denied.

Net deferred tax assets totaled $32.7 million at March 31, 2011, and $32.2 million at December 31, 2010. No valuation allowance was recorded against deferred tax assets at March 31, 2011, as management believes that it is more likely than not that all of the deferred tax assets will be realized because they were supported by recoverable taxes paid in prior years and forecasts of taxable income in future periods. The provision for income taxes during the three month period ended March 31, 2010, was calculated by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pre-tax income or loss excluding significant unusual or infrequently occurring items) for the reporting period. For the three month period ended March 31, 2011, the Company has computed the provision for income taxes based on the actual effective tax rate for the year-to-date by applying the discrete method. The Company has determined that small changes in estimated “ordinary” income, combined with the impact of permanent non-taxable items result in significant changes in the estimated annual effective tax rate. As such, the effective rate method would not provide a reliable estimate for the three month period ended March 31, 2011. The actual effective rate for the reporting period ended March 31, 2011 is impacted by the level of permanent differences, including tax-advantaged investment income and death distributions from bank owned life insurance.

Receivables: In April 2011, the Financial Accounting Standards Board issued ASU 2011-02 Receivables (Topic 310) – A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. ASU 2011–02 provides additional guidance to help creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring. The amendments in ASU 2011-02 are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. As a result of applying these three amendments, an entity may identify receivables that are newly considered impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. Management has not completed its evaluation of the impact of ASU 2011-02; however, we do not expect it to be material to our financial statements.

Income Taxes – We recorded a tax benefit of $2.0 million and $5.0 million for federal and state income taxes during the three month periods ended March 31, 2011 and 2010, respectively. The effective tax benefit rate was 84.1% and 44.6% for the three month periods ended March 31, 2011 and 2010, respectively, reflecting a tax benefit resulting from a net loss and the proportion of nontaxable income relative to total income. Our income tax provision during the three month period ended March 31, 2010, was calculated by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pre-tax income or loss excluding significant unusual or infrequently occurring items) for the reporting period. For the three month period ended March 31, 2011, we have computed our provision for income taxes based on the actual effective tax rate for the year-to-date by applying the discrete method. We have determined that small changes in estimated “ordinary” income, combined with the impact of permanent non-taxable items result in significant changes in the estimated annual effective tax rate. As such, the effective rate method would not provide a reliable estimate for the three month period ended March 31, 2011. The actual effective rate for the three month period ended March 31, 2011, is impacted by the level of permanent differences, including tax-advantaged investment and loan income and a $1.7 million distribution from bank owned life insurance policies, resulting in an effective rate above statutory rates for the interim reporting period.