AUDIT COMMITTEE CHARTER

I. ORGANIZATION

The Board of Directors (the "Board") of Sterling Financial Corporation ("Sterling") has adopted this Audit Committee Charter (the "Charter") establishing the authority and responsibility of the Audit Committee of Sterling's Board (the "Committee"). The Committee shall be comprised solely of independent directors of Sterling, selected and approved by the Board to serve on the Committee. The Committee shall maintain free and open communication with the Board, the external auditors, the internal auditors and the financial management of Sterling. The Charter shall be reviewed annually by the Board.

II. PURPOSE

The purpose of the Committee is to assist the Board in fulfilling its oversight responsibilities for: (1) the integrity of Sterling's financial statements; (2) Sterling's compliance with applicable laws and regulations; (3) the independent auditor's performance, qualifications and independence; and (4) the performance of Sterling's internal audit function.

III. COMPOSITION, INDEPENDENCE AND QUALIFICATIONS

The Committee shall be comprised of three or more directors appointed by the Board, each of whom shall be an independent director. Each member of the Committee must be able to read and understand fundamental financial statements, including a company's balance sheet, income statement and cash flow statement, or must become able to do so within a reasonable period of time after his or her appointment to the Committee. At least one member of the Committee must have past employment experience in finance or accounting, requisite professional certification in accounting or any other comparable experience or background which results in sufficient financial sophistication for the individual to be designated by the Board as an "audit committee financial expert" as that term is defined by applicable regulations of the Securities and Exchange Commission (the "SEC").

An independent director shall be defined as a person other than an officer or employee of Sterling or its subsidiaries or any other individual having a relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The following persons shall not be considered independent:

*       A director who is employed by Sterling or any of its affiliates for the current year or any of the past three years;

*       A director who accepts any compensation from Sterling or any of its affiliates in excess of $60,000 during the previous fiscal year, other than compensation for Board service, benefits under a tax-qualified retirement plan, or non-discretionary compensation;

*       A director who is a member of the immediate family of an individual who is, or has been in any of the past three years, employed by Sterling or any of its affiliates as an executive officer. Immediate family includes a person's spouse, parents, children, siblings, mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law and anyone who resides in such person's home;

*       A director who is a partner in, or a controlling shareholder or an executive officer of, any for-profit business organization to which Sterling made, or from which Sterling received, payments (other than those arising solely from investments in Sterling's securities) that exceed 5% of Sterling's or the businessorganization's consolidated gross revenues for that year, or $200,000, whichever is more, in any of the past three years; or

*       A director who is employed as an executive of another entity where any of Sterling's executives serve on that entity's compensation committee.

The Committee members shall promptly inform the Board of any fact or circumstance that may impair their independence. The independence criteria shall be reviewed annually by the Board.

IV. RESPONSIBILITY

A. Oversight of the Independent Audit Process

The Committee, in its capacity as a committee of the Board, shall be directly responsible for the appointment, compensation, retention and oversight of the work of any registered public accounting firm (including resolution of disagreements between management and the auditor regarding financial reporting) engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for Sterling. Each such registered public accounting firm must report directly to the Committee. The Committee shall:

*       Review and approve the proposed audit plan of the independent auditors for the annual audit of Sterling's financial statements, including scope, fees and qualifications;

*       Review the performance of the independent auditors annually, and exercise final approval on the appointment or discharge of the auditors;

*       Review and discuss with the independent auditors annually the auditor's written disclosure of any relationships with Sterling and its subsidiaries which could affect the auditor's independence as required by Standard No. 1 of the Independence Standards Board, as may be modified or supplemented,to ensure the independence of the auditors;

*       Review and discuss with management and the independent auditors, prior to filing with the SEC, the annual and quarterly reports on Forms 10-K and 10-Q. Review and discuss with management the type of information to be contained in the earnings press releases;

*       Recommend to the Board, prior to filing of Sterling's annual report on Form 10-K with the SEC, whether the audited financial statements should be included in the Form 10 K;

*       Review and discuss with management and the independent auditors the audited financial statements, the required communication tothe Committee, the assessment of internal controls and the recommendations to management as presented by the independent auditors;

*       Review and approve, as appropriate, all permissible non-audit services and all audit, review and attest engagements to be performed by the independent auditors as required by applicable law. Prior approval may be accomplished by pre-established policy for routine services. Other services will require specific pre-approval. All services shall be reported at the next scheduled Committee meeting; and

*       Discuss with the independent auditors any matters required to be discussed by Statement on Auditing Standards No. 61, as modified or supplemented, and review with the independent auditors any problems or difficulties relating to the audit and management's response to such matters.

B. Oversight of the Effectiveness of Management's System of Internal Controls and the Internal Audit Function

The Committee shall meet not less than two times a year and review the effectiveness of management's system of internal controls. The Director of Audit Services shall report directly to the Committee and provide the Committee with assessments of Sterling's adherence to various policies and procedures and regulatory requirements. The Committee Chairman shall report to the Board in summary the content of any Committee meeting with the Director of Audit Services.

The Committee shall monitor risk to Sterling through review and approval of the Annual Risk Assessment of Auditable Areas as submitted by the Director of Audit Services. Audits are to be scheduled according to the risk assessment with results and management's responses being reported to the Committee.

C. Receipt, Retention and Treatment of Complaints

The Committee shall establish procedures for the receipt, retention and treatment of complaints received by Sterling regarding accounting, internal accounting controls or auditing matters and for confidential, anonymous submission by Sterling employees of concerns regarding questionable accounting or auditing matters.

D. Related Party Transactions

The Committee shall conduct an appropriate review of all related party transactions, for potential conflict of interest situations on an ongoing basis. Related party transactions shall refer to transactions required to be disclosed pursuant to applicable SEC regulations and NASDAQ listing standards. Related party transactions shall not be permitted unless approved by the Committee or another independent body of the Board.

E. Engagement of Advisors

The Committee shall have the authority to engage independent counsel and other advisors as it determines necessary to carry out its duties.

F. Funding

Sterling shall provide for appropriate funding, as determined by the Committee, in its capacity as a committee of the Board, for payment of:

*       Compensation to any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for Sterling;

*       Compensation to any independent counsel and other advisors employed by the Committee as it determines necessary to carry out its duties; and

*       Ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.

V. RECORDKEEPING REQUIREMENTS

Minutes of the Committee meetings will be retained in the Corporate Office of Sterling. Materials presented to the Committee will be retained in the Audit Services Department.