SEVERANCE AND NON-COMPETE AGREEMENT

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EXHIBIT 10.2

SEVERANCE AND NON-COMPETITION AGREEMENT

THIS SEVERANCE AND NON-COMPETITION AGREEMENT (the "Agreement") is

entered into effective as of this 2nd day of May, 2005 by and among Sterling

Bancshares, Inc., a Texas corporation ("Bancshares"), Sterling Bank, a banking

association chartered by the State of Texas and an indirect subsidiary of

Bancshares ("Bank") and Sonny Lyles (the "Executive Officer").

WHEREAS, the Executive Officer is being employed by Bancshares and/or

Bank in a position in which he will have access to, and will gain knowledge of,

confidential and proprietary information of Bancshares, Bank, Sterling

Bancorporation, Inc. and their respective affiliates (each, a "Sterling Entity,"

and together, the "Sterling Entities"), and the parties wish to ensure that the

Executive Officer will enjoy access to the Sterling Entities' existing and

future confidential and proprietary information;

WHEREAS, the Sterling Entities' confidential and proprietary

information constitutes a substantial asset of the Sterling Entities that the

parties mutually wish to protect;

WHEREAS, the Executive Officer is already subject to certain

confidentiality obligations under Texas law, and the parties reasonably believe

that it would be difficult, if not impossible, for the Executive Officer to

refrain from using or disclosing the confidential and proprietary information of

the Sterling Entities in the event that the Executive Officer were to work for

any other financial institution after terminating his/her employment with

Bancshares and/or the Bank;

WHEREAS, the parties mutually desire to achieve a level of certainty

and predictability concerning the post-employment activities the Executive

Officer may perform, and when;

WHEREAS, the parties mutually desire to compensate the Executive

Officer for any restriction on his ability to engage in certain competitive

activities; and

WHEREAS, the parties mutually desire to ensure that the Executive

Officer receives certain severance benefits in the event that his employment is

terminated by Bancshares and Bank without cause, or following a "Change of

Control" (as herein defined) under the conditions set forth herein.

NOW, THEREFORE, in consideration of the foregoing and the premises,

representations, and mutual covenants hereinafter set forth, the parties do

hereby agree as follows:

1. Definitions. The following words and terms shall have the meanings

set forth below for purposes of this Agreement:

(a) Cause. A termination of employment is for "Cause" only if

it is due to:

(i) serious intentional misconduct on the part of the

Executive Officer;

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(ii) fraud, misappropriation or embezzlement related

to any of the Sterling Entities on the part of the Executive

Officer;

(iii) the conviction of the Executive Officer of any

felony or crime involving moral turpitude;

(iv) a material violation by the Executive Officer of

any applicable federal or state banking law or regulation that

has had, or may have, a material adverse effect on any

Sterling Entity;

(v) a material breach of any corporate policy

including, without limitation, the Code of Business Conduct

and Ethics and the Code of Ethics for Senior Officers, as

applicable to the Executive Officer which, if correctable,

remains uncorrected for 30 days following written notice to

the Executive Officer by a Sterling Entity of such breach;

(vi) a material breach of this Agreement which, if

correctable, remains uncorrected for 30 days following written

notice to the Executive Officer by a Sterling Entity of such

breach; or

(vii) the willful and continued failure by the

Executive Officer to perform substantially the Executive

Officer's duties on behalf of any Sterling Entity, other than

any such failure resulting from the Executive Officer's

incapacity due to Disability, which failure is not promptly

abated after a demand for substantial performance is delivered

to the Executive Officer by Bancshares or other applicable

Sterling Entity that specifically identifies the manner in

which the Executive Officer has not substantially performed

the Executive Officer's duties and gives the Executive Officer

a reasonable period of cure.

For purposes of this definition, any act or failure to act on the Executive

Officer's part shall be considered "material" or "willful" if done or omitted to

be done by the Executive Officer otherwise than in good faith and without

reasonable belief that the Executive Officer's action or omission was in the

best interest of the Sterling Entities.

(b) Change of Control. A "Change of Control" shall be deemed

to have occurred if:

(i) any "person" or "group" (within the meanings of

Sections 13(d) or 14(d)(2) of the Securities Exchange Act of

1934) becomes the "beneficial owner" (as defined in Rule 13d-3

under the Securities Exchange Act of 1934), directly or

indirectly, of securities of Bancshares representing

thirty-five percent (35%) or more of the combined voting power

of Bancshares' then outstanding securities eligible to vote

for the election of the board of directors of Bancshares (the

"Bancshares Voting Securities"); provided, however, that the

event described in this paragraph (i) shall not be deemed to

be a Change of Control by virtue of any of the following

acquisitions: (A) by Bancshares, (B) by any employee benefit

plan (or related trust) sponsored or maintained by Bancshares,

(C) by any underwriter temporarily holding securities pursuant

to an offering of such

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securities, or (D) pursuant to a Non-Qualifying Transaction

(as defined in paragraph (ii) below);

(ii) the consummation of a merger, consolidation,

share exchange or similar form of corporate transaction

involving Bancshares that requires the approval of Bancshares'

shareholders, whether for such transaction or the issuance of

securities in the transaction (a "Business Combination"),

unless immediately following such Business Combination: (A)

more than seventy-five percent (75%) of the total voting power

of (x) the corporation resulting from such Business

Combination (the "Surviving Corporation"), or (y) if

applicable, the ultimate parent corporation that directly or

indrectly has beneficial ownership of 100% of the voting

securities eligible to elect directors of the Surviving

Corporation (the "Parent Corporation"), is represented by

Bancshares Voting Securities that were outstanding immediately

prior to such Business Combination (or if applicable, is

represented by shares into which such Bancshares Voting

Securities were converted pursuant to such Business

Combination), and such voting power among the holders thereof

is in substantially the same proportion of the voting power of

such Bancshares Voting Securities among the holders thereof

immediately prior the Business Combination, (B) no person

(other than any employee benefit plan (or related trust)

sponsored or maintained by the Surviving Corporation or the

Parent Corporation), is or becomes the beneficial owner,

directly or indrectly, of fifty-percent (50%) or more of the

total voting power of the outstanding voting securities

eligibile to elect directors of the Parent Corporation (or, if

there is no Parent Corporation, the Surviving Corporation) and

(C) at least the majoirity of the board of directors of the

Parent Corporation (or, if there is no Parent Corporation, the

Surviving Corporation) following the consummation of the

Business Combination were Incumbent Directors (as herein

defined) at the time the board of directors of Bancshares

approved the execution of the intial agreement providing for

such Business Combination (any Business Combinaion which

satisfies all of the criteria specified in (A), (B) and (C)

above shall be deemed to be a "Non-Qualifying Transaction");

(iii) the individuals who constitute the board of

directors of Bancshares as of the date of this Agreement (the

"Incumbent Directors") shall cease for any reason to

constitute at least a majority of the members of the board of

directors of Bancshares, provided that any person becoming a

director subsequent to the date of this Agreement, whose

election or nomination was approved by a vote of at least a

majority of the Incumbent Directors then comprising the board

of directors of Bancshares shall be, for purposes of this

Agreement, considered an Incumbent Director; provided,

however, that no individual initially elected or nominated as

a director of Bancshares as a result of an actual or

threatened contest with respect to directors or as a result of

any other actual or threatened solicitation of proxies (or

consents) by or on behalf of any person other than the board

of directors shall be deemed to be an Incumbent Director;

(iv) the consummation of a sale of all or

substantially all of the assets of Bancshares; or

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(v) the shareholders of Bancshares shall approve a

plan of complete liquidation or dissolution of Bancshares.

(c) Change of Control Termination. A "Change of Control

Termination" shall mean the termination of the Executive Officer's

employment with the Sterling Entities (or any Parent Corporation or

Surviving Corporation), within a two-year period commencing on the

effective date of a Change of Control, due to (i) an Involuntary

Termination or (ii) a termination for Good Reason.

(d) Disability. "Disability" means the Executive Officer's

permanent and total disability as defined in any long-term disability

plan sponsored by Bancshares and applicable to the Executive Officer or

in the absence of any such long-term disability plan, the term

"Disability" shall mean the absence of the Executive Officer from his

or her duties with the Sterling Entities on a full-time basis for at

least twelve (12) consecutive weeks as a result of the Executive

Officer's incapacity due to illness, accident, injury, physical or

mental incapacity or other disability.

(e) General Release of Liability. A "General Release of

Liability" means the legal document in which the Executive Officer, in

exchange for benefits under this Agreement, releases the Sterling

Entities, their affiliates, their directors, officers, employees and

agents, their employee benefit plans and the fiduciaries and agents of

said plans from liability and damages in any way related to the

Executive Officer's employment with or separation from the Sterling

Entities.

(f) Good Reason. "Good Reason" means, without the Executive

Officer's express written consent, the occurrence of any one of the

following events after a Change of Control:

(i) (A) any change in the duties or responsibilities

of the Executive Officer that is inconsistent in any material

and adverse respect with the Executive Officer's position,

duties, responsibilities or status with the Sterling Entities

immediately prior to such Change of Control or (B) a material

and adverse change in the Executive Officer's titles or

offices with the Sterling Entities (or any Parent Corporation

or Surviving Corporation) and including, if applicable,

membership or position on a board of directors with Bancshares

or Bank (or their respective successor), as in effect

immediately prior to such Change of Control;

(ii) a reduction of ten percent (10%) or more in the

Executive Officer's rate of annual base salary or annual

target bonus opportunity (including any material and adverse

change in the formula for such annual bonus target) as in

effect immediately prior to such Change of Control or as the

same may be increased from time to time thereafter, or the

failure of the applicable Sterling Entity (or any Parent

Corporation or Surviving Corporation) to pay any such amounts

when due;

(iii) any requirement that the Executive be based

anywhere more than twenty-five (25) miles from the office

where the Executive Officer was located at

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the time of the Change of Control, if such relocation

increases the Executive Officer's commute by more than

twenty-five (25) miles;

(iv) the failure of the Sterling Entities (or any

Parent Corporation or Surviving Corporation) to continue in

effect benefits and a total compensation package including,

without limitation, employee benefit plans, compensation

plans, welfare benefit plans, material fringe benefit plans,

vacation policies and other similar benefit plans providing

not less than ninety percent (90%) of the Executive Officer's

total compensation package in the twelve (12) months

immediately preceding the Change of Control; and

(v) the failure of Bancshares to obtain the

assumption (and, if applicable, guarantee) agreement from any

Surviving Corporation (and, if applicable, Parent Corporation)

as contemplated in Section 13(b).

(g) Involuntary Termination. An "Involuntary Termination"

means an involuntary termination of employment of the Executive Officer

by the Sterling Entities (or any successor thereto including a Parent

Corporation or Surviving Corporation); provided, however, that

"Involuntary Termination" shall not include termination of employment

by reason of death, Disability or Cause.

2. Compensation and Stock Award. In consideration of the services to be

provided by the Executive and the covenants and agreements contained in Sections

3, 4 and 5 of this Agreement, Bancshares shall award the Executive Officer a

$75,000 cash bonus during the first available payroll period of 2005 following

employment and three thousand (3,000) shares of Bancshares' common stock, and

five thousand (5,000) shares of restricted stock, $1.00 par value, to be vested

in equal increments over a four-year period upon commencement of your employment

and execution of the Agreement. The 3,000 shares of common stock issued to the

Executive Officer hereunder shall be awarded under the terms of Bancshares' 2003

Stock Incentive and Compensation Plan (or any successor plan) and shall not be

subject to any forfeiture or vesting requirements.

3. Non-Competition. Executive Officer acknowledges that the Sterling

Entities are providing Executive with access to Confidential Information as

defined below. Ancillary to Executive Officer's agreement not to disclose

Confidential Information, to protect the Confidential Information described

below, and in consideration for Executive Officer receiving access to this

Confidential Information, being entitled to Severance Payments, having rights

after a Change in Control, and other benefits provided in this Agreement, the

Sterling Entities and Executive Officer agree to the following non-competition

provisions. The Executive Officer shall not, during the time that he/she is

employed by any Sterling Entity and, in the event of a termination of employment

for Cause, an Involuntary Termination, or a termination of employment by the

Executive Officer, for a period of twelve (12) mon