UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


     [X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934


                  For the quarterly period ended: June 30, 2006


                        Commission File Number: 000-31929


                              SONOMA VALLEY BANCORP
             (Exact name of registrant as specified in its charter)

              CALIFORNIA                                   68-0454068
       (State of Incorporation)             (I.R.S. Employer Identification No.)

     202 West Napa Street Sonoma, California                         95476
    (Address of principal executive offices)                       (Zip Code)

                                  (707)935-3200
              (Registrant's telephone number, including area code)



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No

Indicate by a check mark whether the registrant is a large accelerated filer, an
accelerated   filer,  or  a   non-accelerated   filer.  See  the  definition  of
"accelerated  filer and large  accelerated  filer" in Rule 12b-2 of the Exchange
Act.
Large  Accelerated filer __  Accelerated  filer __  Non-accelerated filer X


The number of shares outstanding of the registrant's Common Stock, no par value,
as of August 1, 2006 was 2,240,659.







<PAGE>


INDEX

Part 1    Financial Information                                     Page Number
                                                                    -----------

Item 1.   Financial Statements (Unaudited):

          Consolidated Balance Sheets at June 30, 2006,
          December 31, 2005 and June 30, 2005.................................3

          Consolidated Statements of Operations for the
          three months and six months ended June 30, 2006 and 2005............4

          Consolidated Statements of Changes in Shareholders' Equity
          for the six months ended June 30, 2006,
          and the years ended December 31, 2005 and 2004......................5

          Consolidated Statements of Cash Flows for the
          six months ended June 30, 2006 and 2005.............................7

          Notes to Consolidated Financial Statements..........................8

Item 2.   Management's Discussion and Analysis of
          Financial Condition and Results of Operation.......................10

          Average Balances, Yields and Rates Paid
          for the six months ended June 30, 2006 and 2005....................12

          Average Balances, Yields and Rates Paid
          for the three months ended June 30, 2006 and 2005..................28

Item 3.   Quantitative and Qualitative Disclosure About Market Risk..........29


Item 4.   Controls and Procedures............................................29


Part II   Other Information

Item 1.   Legal Proceedings..................................................29

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds........30

Item 3.   Defaults Upon Senior Securities....................................30

Item 4.   Submission of Matters to a Vote of Security Holders................31

Item 5.   Other Information..................................................31

Item 6.   Exhibits...........................................................31

Signatures...................................................................32

Certifications...............................................................33


                                     Page 2
<PAGE>




                                     Part I

Item 1. The  information  furnished  in these  interim  statements  reflects all
adjustments and accruals which are, in the opinion of management,  necessary for
a fair  statement of the results for such periods.  The results of operations in
the interim statements are not necessarily indicative of the results that may be
expected for the full year.


                              FINANCIAL STATEMENTS
                      SONOMA VALLEY BANCORP AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
              June 30, 2006(Unaudited), December 31, 2005(Audited)
                          and June 30, 2005(Unaudited)
<TABLE>
<S>                                                                               <C>               <C>            <C>
                                                                             June 30,      December 31,       June 30,
                                                                              2006             2005             2005
                                                                          ------------     ------------     ------------
ASSETS
  Cash and due from banks                                                 $  6,058,585     $  6,988,820     $  6,227,692
  Federal funds sold                                                                 0        2,050,000                0
  Interest-bearing due from banks                                               28,262           39,521           30,543
                                                                          ------------     ------------     ------------
                                    Total cash and cash equivalents          6,086,847        9,078,341        6,258,235
  Investment securities available-for-sale, at fair value                   24,821,542       33,917,094       35,160,974
  Investment securities held-to-maturity (fair value
    of $15,603,131, $16,634,519 and $17,480,701
    respectively)                                                           15,703,809       16,499,865       17,028,712
  Loans and lease financing receivables, net                               203,120,698      168,418,085      158,250,210
  Premises and equipment, net                                                1,082,621        1,178,666        1,283,598
  Accrued interest receivable                                                1,523,958        1,400,255        1,318,879
  Cash surrender value of life insurance                                     9,405,245        9,239,439        9,070,168
  Other assets                                                               4,636,920        4,331,172        3,365,893
                                                                          ------------     ------------     ------------
                                                       Total assets       $266,381,640     $244,062,917     $231,736,669
                                                                          ============     ============     ============
LIABILITIES
  Noninterest-bearing demand deposits                                     $ 54,729,699     $ 49,460,864     $ 46,921,796
  Interest-bearing transaction deposits                                     30,941,130       35,586,113       32,399,866
  Savings and money market deposits                                         68,693,834       74,218,076       72,881,168
  Time deposits, $100,000 and over                                          37,745,335       32,011,640       27,637,667
  Other time deposits                                                       26,450,208       24,482,074       20,286,030
                                                                          ------------     ------------     ------------
                                                     Total deposits        218,560,206      215,758,767      200,126,527
  Other borrowings                                                          17,800,000                0        5,500,000
  Accrued interest payable and other liabilities                             5,140,304        4,864,357        4,203,772
                                                                          ------------     ------------     ------------
                                                  Total liabilities        241,500,510      220,623,124      209,830,299

SHAREHOLDERS' EQUITY
  Common stock, no par value; 10,000,000 shares
    authorized; 2,245,611 shares at June 30, 2006
    2,204,949 shares at December 31, 2005 and
    2,160,636 shares at June 30, 2005 issued and
    Outstanding                                                             16,850,709       16,256,427       15,834,326
  Retained earnings                                                          8,374,521        7,493,757        6,259,127
  Accumulated other comprehensive loss                                        (344,100)        (310,391)        (187,083)
                                                                          ------------     ------------     ------------
                                         Total shareholders' equity         24,881,130       23,439,793       21,906,370
                                                                          ------------     ------------     ------------
                         Total liabilities and shareholders' equity       $266,381,640     $244,062,917     $231,736,669
                                                                          ============     ============     ============
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                     Page 3
<PAGE>


                      SONOMA VALLEY BANCORP AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<S>                                                              <C>              <C>             <C>            <C>
                                                                 For the Three Months              For the Six Months
                                                                    Ended June 30,                   Ended June 30,
                                                                2006             2005            2006            2005
                                                             -----------     -----------     -----------    -----------
INTEREST INCOME
 Loans and leases                                            $ 3,848,073     $ 2,928,221     $ 7,135,537     $ 5,666,258
 Taxable securities                                              217,616         277,125         463,107         504,807
 Tax-exempt securities                                           149,749         157,531         300,861         316,868
 Federal funds sold                                                8,965               0          74,102          45,460
 Dividends                                                        10,978          14,520          21,199          14,520
                                                             -----------     -----------     -----------     -----------
                                   Total interest income       4,235,381       3,377,397       7,994,806       6,547,913
INTEREST EXPENSE
 Interest-bearing transaction deposits                            12,835          14,299          25,836          28,816
 Savings and money market deposits                               305,025         192,366         549,284         355,102
 Time deposits, $100,000 and over                                352,250         202,991         662,394         379,396
 Other time deposits                                             237,869         128,799         450,825         235,539
 Other borrowings                                                123,431          54,571         123,905          61,802
                                                             -----------     -----------     -----------     -----------
                                  Total interest expense       1,031,410         593,026       1,812,244       1,060,655
                                                             -----------     -----------     -----------     -----------
NET INTEREST INCOME                                            3,203,971       2,784,371       6,182,562       5,487,258
 Provision for loan and lease losses                             240,000         160,000         290,000         250,000
                                                             -----------     -----------     -----------     -----------
                                     NET INTEREST INCOME
                                     AFTER PROVISION FOR
                                   LOAN AND LEASE LOSSES       2,963,971       2,624,371       5,892,562       5,237,258
NON-INTEREST INCOME                                              519,752         486,592       1,024,386         945,689
NON-INTEREST EXPENSE
 Salaries and employee benefits                                1,156,326       1,118,813       2,293,020       2,226,244
 Premises and equipment                                          253,496         247,719         503,703         477,024
 Other                                                           562,975         577,651       1,180,084       1,214,273
                                                             -----------     -----------     -----------     -----------
                              Total non-interest expense       1,972,797       1,944,183       3,976,807       3,917,541
                                                             -----------     -----------     -----------     -----------
                                 Income before provision
                                        for income taxes       1,510,926       1,166,780       2,940,141       2,265,406
 Provision for income taxes                                      541,665         396,129       1,048,827         764,169
                                                             -----------     -----------     -----------     -----------

                                              NET INCOME     $   969,261     $   770,651     $ 1,891,314     $ 1,501,237
                                                             ===========     ===========     ===========     ===========
NET INCOME PER SHARE                                         $       .43     $       .36     $       .84     $       .70
                                                             ===========     ===========     ===========     ===========
NET INCOME PER SHARE-
ASSUMING DILUTION                                            $       .41     $       .34     $       .81     $       .65
                                                             ===========     ===========     ===========     ===========
</TABLE>



   The accompanying notes are an integral part of these financial statements.



                                     Page 4
<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                     For the six months ended June 30, 2006
                    (Unaudited), and the years ended December
                      31, 2005 (Audited) and 2004 (Audited)

<TABLE>
<S>                               <C>                      <C>                       <C>              <C>               <C>
                                                                                                  Accumulated
                                                       Common Stock                                  Other
                               Comprehensive           ------------                Retained       Comprehensive
                                  Income            Shares          Amount         Earnings          Income            Total
                               -------------      ---------      -----------      -----------     ------------      -----------
BALANCE AT
 JANUARY 1, 2004                                  1,457,594      $15,061,636      $ 6,386,083      $    23,560      $21,471,279

Redemption and retirement
 of stock                                              (601)          (6,218)         (11,839)                          (18,057)
Stock options exercised and
 Related tax benefits                                97,494        1,786,065                                          1,786,065
Redemption of stock
 under tender offer                                (126,208)      (1,416,223)      (3,071,903)                       (4,488,126)
Cash dividend                                                                        (906,732)                         (906,732)
Stock options granted                                                103,680                                            103,680
3 for 2 stock split                                 713,825
Fractional shares                                                                      (7,498)                           (7,498)
Net income for the year        $ 2,907,621                                          2,907,621                         2,907,621

Other comprehensive
 income, net of tax:
 Unrealized holding losses
  on securities available-
  for-sale arising during
  the year, net of taxes
  of $116,844                     (167,072)
                               -----------
Other comprehensive
 loss, net of taxes               (167,072)                                                           (167,072)        (167,072)
                               -----------        ---------      -----------      -----------      -----------      -----------
Total comprehensive income     $ 2,740,549
                               ===========

BALANCE AT
 DECEMBER 31, 2004                                2,142,104       15,528,940        5,295,732         (143,512)      20,681,160

Redemption and retirement                            (5,616)         (41,165)         (72,503)                         (113,668)
 of stock
Stock options exercised and
 Related tax benefits                                68,461          664,972                                            664,972
Cash dividend                                                                      (1,078,001)                       (1,078,001)
Stock options granted                                                103,680                                            103,680
Net income for the year        $ 3,348,529                                          3,348,529                         3,348,529
Other comprehensive
 income, net of tax:
 Unrealized holding losses
  on securities available-
  for-sale arising during
  the year, net of taxes
  of $116,709                     (166,879)
                               -----------
Other comprehensive
 loss, net of taxes               (166,879)                                                           (166,879)        (166,879)
                               -----------      -----------      -----------      -----------      -----------      -----------
Total comprehensive income     $ 3,181,650
                               ===========
</TABLE>


                                     Page 5
<PAGE>






                      SONOMA VALLEY BANCORP AND SUBSIDIARY
     CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Continued)

                     For the six months ended June 30, 2006
                    (Unaudited), and the years ended December
                      31, 2005 (Audited) and 2004 (Audited)

<TABLE>
<S>                                 <C>                     <C>                      <C>               <C>              <C>
                                                                                                  Accumulated
                                                       Common Stock                                  Other
                               Comprehensive           ------------                Retained       Comprehensive
                                  Income            Shares          Amount         Earnings          Income            Total
                               -------------      ---------      -----------      -----------     ------------    ------------
BALANCE AT
  DECEMBER 31, 2005                               2,204,949      $16,256,427      $ 7,493,757     $  (310,391)    $ 23,439,793

Redemption and retirement                           (25,500)        (187,935)        (447,984)                        (635,919)
  of stock
Stock options exercised and
  related tax benefits                               66,162          730,871                                           730,871
Cash dividend                                                                        (562,566)                        (562,566)
Stock options granted                                                 51,346                                            51,346
Net income for the year        $  1,891,314                                         1,891,314                        1,891,314
Other comprehensive income,
  net of tax:
  Unrealized holding losses
    on securities available-
    for-sale arising during
    the year, net of taxes
    of $23,575                      (33,709)
                               ------------
Other comprehensive loss,
  net of taxes                      (33,709)                                                          (33,709)         (33,709)
                               ------------       ---------      -----------      -----------     -----------     ------------
Total comprehensive income     $ 1,857,605
                               ===========

BALANCE AT
 JUNE 30, 2006                                    2,245,611      $16,850,709      $ 8,374,521     $  (344,100)    $ 24,881,130
                                                ===========      ===========      ===========     ===========     ============
</TABLE>



                                     Page 6

   The accompanying notes are an integral part of these financial statements.

<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                For the six months ended June 30, 2006 and 2005
<TABLE>
<S>                                                                                   <C>               <C>
                                                                                      2006              2005
                                                                                   -----------      -----------
OPERATING ACTIVITIES
    Net income                                                                     $ 1,891,314      $ 1,501,237
    Adjustments to reconcile net income
        to net cash provided by operating activities:
            Provision for loan and lease losses                                        290,000          250,000
            Depreciation                                                               146,011          182,149
            Amortization and other                                                      73,247           82,924
            Stock options granted                                                       51,346           51,840
            Net change in interest receivable                                         (123,703)        (180,272)
            Net change in cash surrender value
               of life insurance                                                      (165,806)        (157,032)
            Net change in other assets                                                (282,173)        (255,681)
            Net change in interest payable and other liabilities                       275,947          300,485
                                                                                   -----------      -----------
                                       NET CASH PROVIDED BY OPERATING ACTIVITIES     2,156,183        1,775,650
INVESTING ACTIVITIES
    Purchases of securities available-for-sale                                         (38,923)     (15,014,860)
    Proceeds from maturing securities held-to-maturity                                 750,000          340,000
    Proceeds from maturing securities available-for-sale                             9,050,000                0
    Net change in loans and leases                                                 (34,992,613)      (7,768,123)
    Purchases of premises and equipment                                                (49,966)        (100,868)
                                                                                   -----------      -----------
                                           NET CASH USED BY INVESTING ACTIVITIES   (25,281,502)     (22,543,851)
FINANCING ACTIVITIES
    Net change in demand, interest-bearing
        transaction and savings deposits                                           $(4,900,390)     $ 2,478,322
    Net change in time deposits                                                      7,701,829        3,985,190
    Cash dividend paid                                                                (562,566)        (537,842)
    Net change in FHLB borrowings                                                   17,800,000        5,500,000
    Stock repurchases                                                                 (635,919)               0
    Stock options exercised                                                            730,871          253,546
                                                                                   -----------      -----------
                                       NET CASH PROVIDED BY FINANCING ACTIVITIES    20,133,825       11,679,216
                                                                                   -----------      -----------
                                         NET CHANGE IN CASH AND CASH EQUIVALENTS    (2,991,494)      (9,088,985)
    Cash and cash equivalents at beginning of period                                 9,078,341       15,347,220
                                                                                   -----------      -----------
                                      CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 6,086,847      $ 6,258,235
                                                                                   ===========      ===========

SUPPLEMENTAL DISCLOSURES OF
    CASH FLOW INFORMATION:

Cash paid during the year for:
     Interest expense                                                              $ 1,790,205      $ 1,049,089
     Income taxes                                                                  $   855,000      $   715,000

SUPPLEMENTAL DISCLOSURES OF
     NONCASH ACTIVITIES:
Net change in unrealized gains and losses on securities available for sale         $   (57,284)     $   (74,043)
Net change in deferred income taxes on unrealized
 gains and losses on securities                                                    $    23,575      $    30,472

   The accompanying notes are an integral part of these financial statements.
</TABLE>

                                     Page 7

<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  June 30, 2006
                                   (Unaudited)

Note 1 - Basis of Presentation

In the opinion of  Management,  the  unaudited  interim  consolidated  financial
statements  contain all  adjustments  of a normal  recurring  nature,  which are
necessary to present fairly the financial condition of Sonoma Valley Bancorp and
Subsidiary  (the  "Company") at June 30, 2006 and results of operations  for the
three and six months then ended.

Certain information and footnote  disclosures  presented in the Company's annual
financial  statements  are not included in these interim  financial  statements.
Accordingly,   the  accompanying   unaudited  interim   consolidated   financial
statements  should  be read  in  conjunction  with  the  consolidated  financial
statements  and notes thereto  included in the  Company's  2005 Annual Report on
Form 10-K. The results of operations for the three and six months ended June 30,
2006 are not necessarily  indicative of the operating  results through  December
31, 2006.

Note 2 - Consolidation

The  consolidated  financial  statements  include the accounts of Sonoma  Valley
Bancorp  and its wholly  owned  subsidiary  Sonoma  Valley  Bank.  All  material
intercompany accounts and transactions have been eliminated in consolidation.

Note 3 - Commitments

The Company has no  outstanding  performance  letters of credit at June 30, 2006
and June 30, 2005.

Note 4 - Net Income Per Common Share

Net income per share is calculated by using the weighted  average  common shares
outstanding.  The weighted average number of common shares used in computing the
net income per common  share for the period  ending June 30, 2006 was  2,244,308
and for the period ending June 30, 2005 was 2,153,533.

Net income per share  (diluted)  is  calculated  by using the  weighted  average
common  shares  (diluted)  outstanding.  The weighted  average  number of common
shares (diluted) used in computing the net income per common share (diluted) for
the period ending June 30, 2006 was 2,345,551 and for the period ending June 30,
2005 was 2,295,942.

Note 5 - Stock Option Accounting

The Company has a stock-based employee and director  compensation plan. Prior to
January 1, 2003, the Company  accounted for this plan under the  recognition and
measurement  principles  of APB Opinion No. 25,  Accounting  for Stock Issued to
Employees,  and related  Interpretations.  No stock-based  compensation  cost is
reflected in net income for stock  options  granted prior to January 1, 2003, as
all options  granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant.  Effective January 1,
2003, the Company adopted the fair value recognition provisions of SFAS No. 123,
Accounting for Stock-Based  Compensation,  prospectively  to


                                    Page 8
<PAGE>


all employee awards granted, modified, or settled after January 1, 2003. Options
were granted in 2005 under the fair value  method.  Awards  under the  Company's
plan vest over five years. The cost related to stock-based employee compensation
is included in the  determination  of net income for the periods  ended June 30,
2006 and 2005.

Note 6 - Employee Benefit Plans

The Bancorp  provides  retirement  plans to its key officers and directors.  The
plans are unfunded and provide for the Bancorp to pay the officers and directors
specified amounts for specified periods after retirement.  The amount of pension
expense  related to this plan, and the components of pension expense for the six
months ended June 30, 2006 and 2005 are as follows:


<TABLE>
<S>                                         <C>           <C>           <C>           <C>
                                                 Directors                 Officers
                                         -----------------------     -----------------------

                                            2006          2005         2006           2005
                                         ---------     ---------     ---------     ---------
Service cost                             $  13,387     $  14,270     $ 154,301     $  67,477

Interest cost on projected benefit
 obligation                                 20,747        16,654       (18,973)       (8,871)

Amortization of unrecognized
 liability at transition                     9,802         3,728       113,390        45,030
                                         ---------     ---------     ---------     ---------
Net periodic pension cost recognized     $  43,936     $  34,652     $ 248,718     $ 103,636
                                         =========     =========     =========     =========
</TABLE>


                                     Page 9

<PAGE>


Item 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Forward Looking Statements With the exception of historical facts stated herein,
the matters  discussed in this Form 10-Q are "forward  looking"  statements that
involve  risks and  uncertainties  that  could  cause  actual  results to differ
materially from projected results.  Such "forward looking"  statements  include,
but are not necessarily  limited to statements  regarding  anticipated levels of
future revenues and earnings from the operation of Sonoma Valley  Bancorp's (the
"Company") wholly owned subsidiary,  Sonoma Valley Bank (the "Bank"),  projected
costs  and  expenses  related  to  operations  of the bank,  liquidity,  capital
resources,  and the  availability  of  future  equity  capital  on  commercially
reasonable  terms.  Factors that could cause actual results to differ materially
include,  in addition to the other factors  discussed in Sonoma Valley Bancorp's
Form 10-K for the year ended December 31, 2005, and subsequent periodic reports,
the  following;  (i) increased  competition  from other banks,  savings and loan
associations,  thrift and loan associations,  finance companies,  credit unions,
offerors of money market funds, and other financial institutions; (ii) the risks
and uncertainties  relating to general economic and political  conditions,  both
domestically and internationally,  including,  but not limited to, inflation, or
natural  disasters  affecting the primary  service area of the Bank or its major
industries;  or (iii) changes in the laws and  regulations  governing the Bank's
activities at either the state or federal  level.  Readers of this Form 10-Q are
cautioned not to put undue reliance on "forward  looking"  statements  which, by
their  nature,  are  uncertain  as reliable  indicators  of future  performance.
PlaceNameplaceSonoma   PlaceTypeValley   Bancorp  disclaims  any  obligation  to
publicly update these "forward looking"  statements,  whether as a result of new
information, future events, or otherwise.

For the Six Month Periods
Ended June 30, 2006 and 2005

Overview

The Company  reported net income of $1,891,314 for the six months ended June 30,
2006 compared with  $1,501,237 for the six months ended June 30, 2005. The 26.0%
or $390,077  increase in net income is largely  attributable  to loan growth out
pacing  deposit  growth which  generated  an increase in net interest  income of
$681,688.  On a per share basis,  net income equaled $.84 compared with $.70 per
share during the same period in 2005.

Return on average total assets on an annualized  basis for the six-month  period
was 1.51% in 2006 and 1.32% in 2005. The increase in the return on assets is the
result of the 26.0%  growth  in net  income  compared  to the  11.01%  growth in
average  assets  from  $228.0  million in 2005 to $253.1  million as of June 30,
2006. Return on average  shareholders'  equity on an annualized basis at the end
of the second  quarter  2006 and 2005 was 15.61% and 14.14%,  respectively.  The
higher  return  on  equity is again  the  result  of  stronger  growth in income
compared to 14.8% growth in average  equity from $21.3  million in 2005 to $24.4
million in 2006.

At June 30, 2006,  total assets were $266.4  million a 9.1% increase over $244.1
million as of December 31, 2005 and a 15.0%  increase over $231.7  million as of
June 30,  2005.  The  Company  showed  loans of $206.2  million at June 30, 2006
compared with $171.2 million and $160.9 million as of December 31, 2005 and June
30, 2005, increases of 20.4% and 28.1%,  respectively.  Deposits increased 1.3%,
from $215.8  million  and 9.2% from $200.1  million as of year end 2005 and June
30,  2005,   respectively,   to  $218.6   million  as  of  June  30,  2006.  The
loan-to-deposit  ratio  increased  to 94.3% as of June 30,  2006

                                    Page 10

<PAGE>



from 79.3% at December 31, 2005 and 80.4% at June 30, 2005. Although slower loan
growth was  anticipated  due to the increase in interest  rates,  loan demand in
2006 has been strong.

The Company  continues  to  experience  loan and deposit  growth at the Banco de
Sonoma  Office from $11.6  million in deposits  and $2.7  million in loans as of
December  31, 2005 to $12.6  million in deposits and $5.7 million in loans as of
June 30,  2006.  For the six months  ending June 30, 2006,  the office  showed a
profit of $24,640  compared  with a loss of $71,347  as of June 30,  2005.  This
profitability  is a result of the growth in interest  income due to the increase
in loan volume.  This office is offering services to the Latino community in our
market place. Management identified this as a niche which was underserved and an
opportunity for future growth and  profitability.  The majority of the employees
at the  branch  are  bilingual  and  able to  offer  full  service  banking.  An
additional  product which has been added is the ability for the customer to make
an  immediate  transfer  of  funds  to   country-regionplaceMexico.   Management
anticipates that the growth in the branch will continue to be slow and steady.

Total  shareholders'  equity  increased  by $1.4 million or 6.15% during the six
months ended June 30, 2006. At June 30, 2006, the Company reported net income of
$1.9 million. In March the Company paid out $562,566 for cash dividends declared
in February, 2006. In 2004 stock options were granted to senior employees with a
fifth of the options vesting each year over a five year period.  In 2006, 13,500
options  vested which  increased  equity by $51,346 year to date. The net income
figure of $1.9  million  reflects an expense  for the stock  options of $51,346,
therefore the net effect of the stock option transaction  relative to equity was
zero.  Directors  exercised  27,798  options which added $220,220 to the capital
accounts.  The tax benefit as a result of a  disqualifying  disposition of these
grants was $176,018,  which also increased  equity.  Officers  exercised  38,364
options which added $330,897 to the capital accounts.  The tax benefit on one of
these options was $3,736.  During the six months ended June 30, 2006 the company
repurchased  25,500 shares which lowered  equity by $635,919.  The net effect of
this activity results in capital of $24,881,130 as of June 30, 2006, compared to
capital  of  $23,439,793  as of  December  31,  2005.  See page 6 for  detail of
"Changes in Shareholders' Equity."

Section 404 of Sarbanes-Oxley  requires the SEC to prescribe rules requiring the
establishment,  maintenance  and evaluation of an issuer's  internal  control of
financial  reporting.  Accordingly,  in the annual report for December 31, 2006,
management   was  going  to  be  required  to  include  an   assessment  on  the
effectiveness  of the Company's  internal  controls over financial  reporting in
accordance with standards set by the Public Company Accounting  Oversight Board.
On  September  21,  2005,  the SEC  extended  for another  year the deadline for
non-accelerated  filers to first certify compliance with Section 404. This means
that the Company will not have to certify  compliance  until  December 31, 2007.
The Company's external independent auditors are required to attest to and report
on management's  assessment of internal  control over financial  reporting.  The
Company's  management  and staff are working  diligently  toward  evaluating and
documenting the internal  control systems in order to allow management to report
on, and the Company's  independent auditors to attest to, the Company's internal
control  over  financial  reporting.  The Company has retained the services of a
consulting firm to assist  management and staff with this process and to address
any material  weaknesses and plan  accordingly to maintain  adequate  processes.
Even  so,  there  can  be  no  assurances   that  the  evaluation   required  by
Sarbanes-Oxley  will not result in the  identification  of  significant  control
deficiencies  or that  the  Company's  auditors  will be able to  attest  to the
effectiveness of our internal controls over financial reporting.

The table on the following page sets forth the average balances/yields and rates
paid for the six months ended June 30, 2006 and 2005.

                                    Page 11
<PAGE>


                              SONOMA VALLEY BANCORP
                     AVERAGE BALANCES/YIELDS AND RATES PAID
                 For the six months ended June 30, 2006 and 2005

<TABLE>
<S>                                            <C>            <C>           <C>           <C>             <C>            <C>
                                                              2006                                       2005
                                                              ----                                       ----
ASSETS                                       Average         Income/       Yield/       Average         Income/        Yield/
                                             Balance         Expense        Rate        Balance         Expense         Rate
                                          -------------   -------------    -----    -------------    -------------     -----
Interest-earning assets:
Loans(2):
 Commercial                               $ 129,506,682   $   4,998,637     7.78%   $ 105,752,059    $   3,873,043     7.39%
 Consumer                                    23,504,565         939,155     8.06%      18,246,067          643,315     7.11%
 Real estate construction                    16,329,109         628,164     7.76%      21,628,638          805,136     7.51%
 Real estate mortgage                        14,727,531         501,955     6.87%       7,896,328          267,620     6.83%
 Tax exempt loans (1)                         2,413,275          98,315     8.22%       2,770,405          114,100     8.31%
 Leases                                          47,055           2,737    11.73%          43,021            1,839     8.62%
 Tax exempt leases (1)                                0               0     0.00%               0                0     0.00%
 Unearned loan fees                            (521,845)                                 (478,556)
                                          -------------   -------------             -------------    -------------
         Total loans                        186,006,372       7,168,963     7.77%     155,857,962        5,705,053     7.38%
Investment securities
 Available for sale:
         Taxable                             27,711,292         457,128     3.33%      32,213,007          499,333     3.13%
 Hold to maturity:
         Taxable                                353,649           5,128     2.92%         375,557            5,157     2.77%
         Tax exempt (1)                      15,989,264         455,850     5.75%      16,760,954          480,105     5.78%
                                          -------------   -------------             -------------    -------------
         Total investment securities         44,054,205         918,106     4.20%      49,349,518          984,595     4.02%
Federal funds sold                            3,324,613          74,102     4.49%       3,885,437           45,460     2.36%
         FHLB Stock                             965,649          21,074     4.40%         765,530           14,520     3.82%
Total due from banks/Interest bearing            44,826             977     4.40%          30,794              318     2.08%
                                          -------------   -------------             -------------    -------------
 Total interest earning assets              234,395,665   $   8,183,222     7.04%     209,889,241    $   6,749,946     6.49%
                                                          =============                              =============
Noninterest-earning assets:
 Reserve for loan losses                     (2,852,545)                               (2,572,964)
 Cash and due from banks                      6,231,577                                 6,816,494
 Premises and equipment                       1,143,444                                 1,317,076
 Other assets                                14,171,854                                12,533,982
                                          -------------                             -------------
         Total assets                     $ 253,089,995                             $ 227,983,829
                                          =============                             =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
  Interest bearing deposits
         Interest bearing transaction     $  31,270,100   $      25,836     0.17%   $  34,261,979    $      28,816     0.17%
         Savings deposits                    72,933,759         549,284     1.52%      73,314,994          355,102     0.98%
         Time deposits over $100,000         35,408,931         662,394     3.77%      26,538,659          379,396     2.88%
         Other time deposits                 25,936,927         450,825     3.51%      19,233,274          235,539     2.47%
                                          -------------   -------------             -------------    -------------
Total interest bearing  deposits            165,549,717       1,688,339     2.06%     153,348,906          998,853     1.31%
Federal funds purchased                               0               0     0.00%               0                0     0.00%
 Long term debt & other borrowings            5,028,729         123,905     4.97%       4,171,508           61,802     2.99%
                                          -------------   -------------             -------------    -------------
         Total interest bearing
          liabilities                       170,578,446   $   1,812,244     2.14%     157,520,414    $   1,060,655     1.36%
                                                          =============                              =============
Non interest bearing liabilities:
  Non interest bearing demand deposits       53,275,437                                45,198,415
  Other liabilities                           4,801,067                                 3,971,922
  Shareholders' equity                       24,435,045                                21,293,078
                                          -------------                             -------------
         Total liabilities and
          shareholders' equity            $ 253,089,995                             $ 227,983,829
                                          =============                             =============

Interest rate spread                                                        4.90%                                      5.13%
                                                                            ====                                       ====
Interest income                                           $   8,183,222     7.04%                    $   6,749,946     6.49%
Interest expense                                              1,812,244     1.56%                        1,060,655     1.02%
                                                          -------------     -----                    -------------     ----
Net interest income/margin                                $   6,370,978     5.48%                    $   5,689,291     5.47%
                                                          =============     ====                     =============     ====
</TABLE>

(1)  Fully tax equivalent  adjustments are based on a federal income tax rate of
     34% in 2006 and 2005.
(2)  Non accrual loans have been included in loans for the purposes of the above
     presentation.  Loan fees of approximately $173,613 and $165,379 for the six
     months ended June 30, 2006 and 2005,  respectively,  were  amortized to the
     appropriate interest income categories.

                                    Page 12
<PAGE>





RESULTS OF OPERATIONS

Net interest Income

Net interest  income is the difference  between total interest  income and total
interest expense.  Net interest income,  adjusted to a fully taxable  equivalent
basis,  as shown on the table- Average  Balance,  Yields and Rates Paid, on page
12, is higher than net interest  income on the  statement  of income  because it
reflects adjustments applicable to tax-exempt income from certain securities and
loans ($188,416 in 2006 and $202,030 in 2005,  based on a 34% federal income tax
rate).

The  improvement  in net interest  income for the six months ended June 30, 2006
(stated on a fully taxable  equivalent basis) is a result of the net effect of a
$1.4  million  increase  in  interest  income  offset by a smaller  increase  in
interest expense of $681,688,  showing a net increase of $681,691. This increase
is a result of the 225 basis point  increase in the fed funds and prime  lending
rates since June 30, 2005.  The Fed Funds rate  increased  from 3.25% as of June
30, 2005, to 5.25% as of June 30, 2006 and the prime lending rate increased from
6.25% as of June 30, 2005 to 8.25% as of June 30, 2006. Also contributing to the
increase in net interest income is the strong loan growth experienced during the
first quarter.

Net interest income (stated on a fully taxable  equivalent basis) expressed as a
percentage of average earning assets,  is referred to as net interest margin. In
2006, the Company's net interest  margin has increased one basis point to 5.48%,
from 5.47% for the same period in 2005. The increase in the net interest  margin
is the result of strong loan  growth  offset by the  pressure  to  increase  the
interest rates paid on deposit accounts.

Interest Income

As previously  stated,  interest  income  (stated on a fully taxable  equivalent
basis)  increased  by $1.4  million to $8.2 million in the six months of 2006, a
21.2% increase over the $6.7 million realized during the same period in 2005.

The $1.4 million  increase was the result of the 56 basis point  increase in the
yield on  earning  assets to 7.04% for the six months  ended June 30,  2006 from
6.48% for the same time period of 2005.  Contributing  to this  increase was the
$24.5 million or 11.7% increase in average  earning assets to $234.4 million for
the first six months of 2006.

The gain in volume of average  earning assets was responsible for a $1.0 million
increase in interest  income,  and the  increase in interest  rates  contributed
$396,000, for a total increase in interest income of $1.4 million.

Interest Expense

Total interest  expense for the six months of 2006 increased by $751,588 to $1.8
million  from $1.1  million an increase of 70.9%.  The average  rate paid on all
interest-bearing  liabilities  increased  from  1.36%  in 2005 to 2.14% in 2006.
Average balances of interest bearing  liabilities  increased from $157.5 million
to $170.6 million, an 8.3% gain in earning liabilities.



                                    Page 13


<PAGE>
The gain in volume of average  balances was responsible for a $298,000  increase
in interest  expense and the higher  interest rates paid were  responsible for a
$454,000 increase in interest expense for a total increase of $752,000.

Individual  components of interest  income and interest  expense are provided in
the table-Average Balances, Yields and Rates Paid on page 12.

Provision for Loan Losses

The provision for loan losses charged as of June 30, 2006 was $290,000  compared
to $250,000 for the same period of 2005.  The provision for loan losses  charged
to operations is based on the Company's monthly evaluation of the loan portfolio
and the  adequacy  of the  allowance  for loan losses in relation to total loans
outstanding.  The Company  experienced  strong loan growth  during the first six
months of 2006 and  management  anticipates  that  loan  growth  will  continue,
requiring that additional provisions may be made for loan losses.  Additionally,
there are regulatory  concerns about  concentrations  of commercial  real estate
loans among many financial  institutions.  The Company does have a concentration
of  commercial   real  estate  loans  and  although  the  loans  are  adequately
collateralized,  management  determined that it would be prudent to increase the
provision.

The economic climate continues to improve and the non-performing assets to total
loans  ratio  continues  to be below  1%.  Loans  charged-off  were  $9,559  and
recoveries  were  $9,504 for the six  months of 2006  compared  with  $36,939 in
charge-offs and $48,109 in recoveries for the same period in 2005.

Non-interest Income

Non-interest income of $1.1 million increased 8.32% or $79,000 over the $946,000
recorded in the  comparable  period in 2005. Of the  increase,  52.9% was due to
increases  in service  charges on deposit  accounts.  Year to date  income  from
service charges on deposit accounts has increased 6.72% or $42,000 from $620,000
in 2005 to $662,000 in 2006.  This  increase was  predominantly  a result of the
growth in new accounts.

Other fee income has shown an increase at June 30, 2006 of 17.6% or $28,000 from
$162,000  as of June 30, 2005 to  $190,000  in 2006 and  comprised  36.3% of the
total $79,000 increase in non interest income.  The higher income is a result of
an  increase of $22,000 in income the bank  earned  from loan  referrals,  which
increased  from  $8,000 as of June 30,  2005 to $30,000  for the same  period of
2006.  Also  contributing  to the increase was an increase of $7,000 or 65.0% in
wire transfer income from $11,000 in 2005 to $18,000 in 2006.

Other non-interest  income showed a 5.2% increase,  or $9,000,  from $164,000 in
2005 to $173,000 in 2006.  This is largely a result of an increase in the income
generated  by bank owned life  insurance  policies.  Income on the  policies was
$157,000 as of June 30, 2005  compared  to  $166,000  as of June 30,  2006.  The
earnings on these  policies  should  increase as the  balances  increase  and if
market  rates  increase,  the income  produced  by these  policies  should  also
increase.



                                    Page 14
<PAGE>


Non-interest Expense

Total  non-interest  expense  increased $59,000 or 1.51% from $3.9 million as of
June 30,  2005 to $4.0  million  for six months  ended  June 30,  2006 and 2005.
Non-interest  expense on an annualized basis  represented 3.17% of average total
assets in 2006 compared with 3.47% in the comparable period in 2005.

Salaries  and benefits  increased  $67,000 or 3.0% from $2.2 million for the six
months  ended June 30, 2005 to $2.3  million  for the six months  ended June 30,
2006.  The  increases  are  largely  the  result of normal  merit and  incentive
increases.  At June 30, 2006 and 2005 total full time equivalent  employees were
44 and 52,  respectively.  As of June 30, 2006,  assets per  employee  were $6.1
million  compared  with $4.5  million as of June 30, 2005.  Management  tries to
utilize efficiencies to stabilize the growth in full time equivalent employees.

Expense  related to premises and equipment  increased  5.59% to $504,000 in 2006
from $477,000 for the same period of 2005. The increase of $27,000 in expense in
2006 is the  result  of a 31.6% or  $14,000  increase  in  expenses  related  to
maintenance  and  repairs for fixed  assets  from  $43,000 in 2005 to $57,000 in
2006.  There was a 25.4% or $9,000  increase in  janitorial  service to $43,000.
This is the result of the  addition of  janitorial  service for the new facility
and  improvements  that have been made in the landscaping.  Additionally,  lease
expense increased 7.4% or $13,000 to $183,000.  This is a result of the addition
of  the  placeplaceplaceplaceFinance   placeplaceCenter  facility  beginning  in
mid-March,  2005 as well as normal  increases in lease  expense on the remaining
leased properties.

Other operating  expenses declined by 2.8% in 2006 to $1.180 million from $1.214
million  in 2005,  a  decrease  of  $34,000.  The  decline  is a result of lower
professional  fees a result of a postponement in the  implementation of Sarbanes
Oxley,  Rule  404 and  pending  a  resolution  by the  Securities  and  Exchange
Commission regarding the depth of the analysis for small public companies.

Provision for Income Taxes

The provision  for income taxes  declined to an effective tax rate of 35.67% for
the six months of 2006  compared  with  33.73%  for the six months of 2005.  The
higher effective tax rate is a reflection of the increase in taxable income when
compared with income derived from tax exempt investments.  Income taxes reported
in the  financial  statements  include  deferred  taxes  resulting  from  timing
differences  in the  recognition  of  items  for  tax  and  financial  reporting
purposes.


BALANCE SHEET ANALYSIS

Investments

Investment securities were $40.5 million at June 30, 2006, a 19.6% decrease from
the $50.4  million at December 31, 2005 and a 22.3%  decrease from $52.2 million
at June 30, 2005. The decline in the portfolio is a result of strong loan demand
and the need to utilize  maturing  and



                                    Page 15


<PAGE>



called  investments  to  fund  loans.  The  Company  will  usually  maintain  an
investment  portfolio of securities rated A or higher by Standard and Poor's and
or Moody's Investors Service.  Local tax-exempt bonds are occasionally purchased
without an A rating.

Securities  are classified as held to maturity (HTM) if the Company has both the
intent and the  ability to hold these  securities  to  maturity.  As of June 30,
2006, the Company had  securities  totaling $15.7 million with a market value of
$15.6 million  categorized as HTM.  Decisions to acquire  municipal  securities,
which are generally placed in this category, are based on tax planning needs and
pledge requirements.

Securities are classified as available for sale (AFS) if the Company  intends to
hold these debt securities for an indefinite period of time, but not necessarily
to maturity.  Investment securities which are categorized as AFS are acquired as
part of the  overall  asset and  liability  management  function  and serve as a
primary  source of  liquidity.  Decisions  to acquire  or  dispose of  different
investments  are  based on an  assessment  of  various  economic  and  financial
factors,  including,  but not  limited to,  interest  rate risk,  liquidity  and
capital  adequacy.  Securities  held in the AFS  category are recorded at market
value,  which is $24.8 million compared to an amortized cost of $25.4 million as
of June 30, 2006.

There were twenty Federal Farm Credit Bank, Federal Home Loan Bank, Federal Home
Loan Mortgage Corporation or Federal National Mortgage Association securities of
$19.4  million  and six U.S.  Treasury  securities  of $5.4  million  in the AFS
portfolio and forty  municipal  securities of $10.2 million in the HTM portfolio
that were  temporarily  impaired as of June 30, 2006.  Of the above,  there were
nineteen  Federal  Farm Credit Bank,  Federal Home Loan Bank,  Federal Home Loan
Mortgage  Corporation or Federal  National  Mortgage  Association  securities of
$18.4  million  and six U. S.  Treasury  securities  of $5.4  million in the AFS
portfolio and twenty  municipal  securities of $6.0 million in the HTM portfolio
that have been in a continuous  loss  position  for twelve  months or more as of
June 30,  2006.  The primary  cause of the  impairment  of these  securities  is
interest rate volatility  inherent in a rising rate environment which causes the
market value of the security to decline.  Management  understood  the  potential
market  risks at the time of  acquisition  and  determined  the  benefit  to the
Company of the higher  interest rates received at the time of purchase more than
offset the potential deterioration in value. It is the Company's intent to carry
the  securities  to maturity  date,  at which time the Company will receive face
value for the securities at no loss.

Although the quoted market values fluctuate, investment securities are generally
held to maturity, and accordingly,  gains and losses to the income statement are
recognized upon sale, or at such time as management  determines that a permanent
decline in value exists.  In the opinion of management,  there was no investment
in  securities at June 30, 2006 that  constituted a material  credit risk to the
Company.  The lower market value to amortized costs was a result of the increase
in market interest rates and not an indication of lower credit quality.

As of June 30, 2006, hold to maturity  securities with a carrying amount of $7.3
million  and an  approximate  fair  value  of  $7.4  million  were  pledged,  in
accordance  with  federal  and state  requirements,  as  collateral  for  public
deposits.  Available for sale  investment  securities  with a fair value of $5.2
million and an  amortized  cost of $5.4 million at June 30, 2006 were pledged to
meet the requirements of the Federal Reserve and the U.S. Department of Justice.


                                    Page 16
<PAGE>


Loans

The Company's  loan  portfolio was $206.2  million at June 30, 2006, or 94.3% of
total deposits.  This compares with $171.2 million,  or 79.3% of total deposits,
at December 31, 2005 and $160.9 million, or 80.4% of total deposits, at June 30,
2005. A comparative  schedule of average loan balances is presented in the table
on page 12;  period-end  and year-end  balances are  presented in the  following
table.






<TABLE>
<S>                                    <C>            <C>             <C>             <C>              <C>             <C>
                                      June 30,     Percentage      December 31,    Percentage        June 30,      Percentage
                                       2006         of Total          2005          of Total           2005          of Total
                                   ------------    ----------      ------------    ----------      ------------    ----------

Commercial                         $149,036,419          72.1%     $118,590,731          69.1%     $110,303,513         68.3%

Consumer                             25,384,234          12.3%       21,804,507          12.7%       19,621,946         12.2%

Real estate construction             16,162,913           7.8%       18,004,805          10.5%       19,696,683         12.2%

Real estate mortgage                 16,187,234           7.8%       13,251,137           7.7%       11,761,509          7.3%

Leases                                   49,358           0.0%           25,822           0.0%           37,694          0.0%
                                   ------------         -----      ------------         -----      ------------        -----
Gross loans and leases              206,820,158         100.0%      171,677,002         100.0%      161,421,345        100.0%
                                                        =====                           =====                          =====
Deferred loan fees                     (633,008)                       (482,410)                       (481,390)
                                   ------------                    ------------                    ------------

Total loans and leases, net of
 unearned fees                      206,187,150                     171,194,592                     160,939,955

Allowance for loan
 and lease losses                    (3,066,452)                     (2,776,507)                     (2,689,745)
                                   ------------                    ------------                    ------------


                                   $203,120,698                    $168,418,085                    $158,250,210
                                   ============                    ============                    ============
</TABLE>


As of June 30,  2006,  $73.5  million in loans were  pledged at the Federal Home
Loan Bank as collateral  for up to $59.3 million in  borrowings.  As of June 30,
2006, the Company  borrowed $17.8  million.  The Company is currently  borrowing
because loans are growing faster than deposits.

Risk Elements

The majority of the Company's  loan activity is with  customers  located  within
placeplaceplaceplaceSonoma placeplaceCounty. Approximately 90% of the total loan
portfolio is secured by real estate located in the Company's service area.

Significant  concentrations  of  credit  risk  may  exist  if a  number  of loan
customers  are  engaged  in  similar   activities  and  have  similar   economic
characteristics.  The  Company  believes  it has  policies  in place to identify
problem loans and to monitor concentrations of credits.

Non Performing Assets

Management  classifies all loans as non-accrual loans when they become more than
90 days past due as to principal or interest,  or when the timely  collection of
interest or principal becomes uncertain,  if earlier, unless they are adequately
secured and in the process of collection.



                                    Page 17
<PAGE>



A loan remains in a  non-accrual  status until both  principal and interest have
been current for six months and meets cash flow or collateral criteria,  or when
the loan is  determined  to be  uncollectible  and is charged  off  against  the
allowance for loan losses,  or in the case of real estate loans,  is transferred
to other real estate owned. A loan is classified as a restructured loan when the
interest rate is reduced, when the term is extended beyond the original maturity
date, or other concessions are made by the Company,  because of the inability of
the borrower to repay the loan under the original terms.

There were $961,000  non-accrual loans and no loans 90 days or more past due and
still  accruing at June 30, 2006 which is down  slightly from $1.0 million as of
June 30, 2005.  Of which there were $263,000 non accrual loans that were 90 days
or more past due at June 30, 2006  compared to $1.0 million  loans last year. As
of June 30, 2006,  there were $89,403 in loans classified as restructured and as
of June 30, 2005 there were $89,552 in loans classified as restructured.

Allowance for Loan Losses

The allowance for loan losses is  maintained at a level  considered  adequate to
provide  for  losses  that  can be  reasonably  anticipated.  The  allowance  is
increased by provisions charged to operating expense and reduced by charge-offs,
net of recoveries.  The allowance is based on estimates, and ultimate losses may
vary from the current  estimates.  These estimates are reviewed  monthly and, as
adjustments  become  necessary,  they are reported in earnings in the periods in
which they become known.

The  review   process  is  intended  to  identify  loan  customers  who  may  be
experiencing financial difficulties. In these circumstances,  a specific reserve
allocation  or  charge-off  may be  recommended.  Other  factors  considered  by
management in evaluating  the adequacy of the  allowance  include:  loan volume,
historical net loan loss experience,  the condition of industries and geographic
areas  experiencing  or  expected to  experience  economic  adversities,  credit
evaluations and current  economic  conditions.  The allowance for loan losses is
not a precise amount,  but based on the factors above,  represents  management's
best  estimate of losses that may be  ultimately  realized from the current loan
portfolio.

Worsening  conditions in certain  economic  sectors and  geographic  areas could
adversely affect the loan portfolio,  necessitating  larger  provisions for loan
losses  than  currently  estimated.  However,  as of June 30,  2006 the  Company
believes its overall allowance for loan losses is adequate based on its analysis
of conditions at that time.

At June 30, 2006,  the allowance  for loan losses was $3.1 million,  or 1.49% of
period-end loans,  compared with $2.8 million, or 1.62% at December 31, 2005 and
$2.7 million, or 1.67% at June 30, 2005.


                                    Page 18

<PAGE>



An  analysis  of the  changes  in  the  allowance  for  loan  losses,  including
charge-offs and recoveries by loan categories, is presented below.

<TABLE>
<S>                                                      <C>                  <C>                <C>
                                                  For the Six Months     For the Year     For the Six Months
                                                         Ended               Ended              Ended
                                                        6/30/06            12/31/05            6/30/05

Balance beginning of year                          $  2,776,507        $  2,428,572       $  2,428,572

Charge-offs:

Commercial                                               (6,594)            (53,337)           (20,198)

Consumer                                                 (2,965)            (16,976)           (16,738)
                                                   ------------        ------------       ------------

                    Total charge-offs                    (9,559)            (70,313)           (36,936)
                                                   ------------        ------------       ------------

Recoveries:

Commercial                                                9,077              55,055             48,109

Consumer                                                    427               3,193                  0
                                                   ------------        ------------       ------------
                    Total recoveries                      9,504              58,248             48,109
                                                   ------------        ------------       ------------


Net (charge-offs) recoveries                                (55)            (12,065)            11,173

Provision charged to operations                         290,000             360,000            250,000
                                                   ------------        ------------       ------------
Balance end of period                              $  3,066,452        $  2,776,507       $  2,689,745
                                                   ============        ============       ============
Ratio of net charge-offs/(recoveries)
 annualized to average loans                               0.00%               0.01%             -0.01%

Balance in allowance as a percentage
 of loans outstanding at period end                        1.49%               1.62%              1.67%

</TABLE>


Deposits

A comparative  schedule of average deposit balances is presented in the table on
page 12; period end and year-end deposit balances are presented in the following
table.

<TABLE>
<S>                              <C>            <C>             <C>              <C>               <C>             <C>
                               June 30,      Percentage      December 31,     Percentage         June 30,       Percentage
                                2006          of Total           2005          of Total           2005           of Total
                            ------------     ----------      -----------      ----------      ------------     ----------


Interest bearing
 transaction deposits       $ 30,941,130           14.2%     $ 35,586,113           16.6%     $ 32,399,866           16.2%

Savings deposits              68,693,834           31.4%       74,218,076           34.4%       72,881,168           36.4%

Time deposits,
 $100,000 and over            37,745,335           17.3%       32,011,640           14.8%       27,637,667           13.8%

Other time deposits           26,450,208           12.1%       24,482,074           11.3%       20,286,030           10.2%
                            ------------          -----      ------------          -----      ------------           ----

Total interest bearing
 deposits                    163,830,507           75.0%      166,297,903           77.1%      153,204,731           76.6%

Demand deposits               54,729,699           25.0%       49,460,864           22.9%       46,921,796           23.4%
                            ------------          -----      ------------          -----      ------------          -----

Total deposits              $218,560,206          100.0%     $215,758,767          100.0%     $200,126,527          100.0%
                            ============          =====      ============          =====      ============          =====
</TABLE>




                                    Page 19


<PAGE>
Total deposits increased by $2.8 million (1.3%),  during the six months of 2006,
to $218.6  million from $215.8  million at December 31, 2005,  and  increased by
9.2% or $18.4 million from $200.1 million as of June 30, 2005.  Demand deposits,
time deposits  greater than $100,000 and other time deposits  showed an increase
over year end 2005.  Demand deposits  increased $5.3 million or 10.7% during the
first six months of 2006. Time deposits greater than $100,000  increased by $5.7
million or 17.9% to $37.7  million  during  the first six months of 2006.  Other
time deposits showed growth of 8.0% or $2.0 million to $26.5 million, during the
first six months of 2006.

Interest  bearing  deposits  showed a decline of $4.6 million (13.1%) from $35.6
million as of December 31, 2005 to $30.9  million as of June 30,  2006.  Savings
deposits were $68.7 million as of June 30, 2006 compared to $74.2 as of year end
2005,  a  decline  of $5.5  million  or 7.4%.  The  decline  could  be, in part,
investors  moving funds from these  accounts into higher  yielding time deposits
discussed above.

With the future of interest  rates  uncertain,  the Company  cannot  predict how
quickly rates may change on deposit  accounts which could cause the net interest
margin to  decline,  resulting  in lower net  income.  The  Company  has seen an
increase in the yield on deposits  from 1.31% as of June 30, 2005 to 2.06% as of
June 30, 2006, a 75 basis point increase.

Although the Company has  experienced  deposit growth this year, loan demand has
far out paced deposit  growth,  therefore the Company has taken advantage of its
ability to borrow at the Federal Home Loan Bank. These short-term borrowings are
responsible  for a three basis point  increase in the yield of interest  bearing
liabilities  when  compared  to the  prior  year.  The  Federal  Home  Loan Bank
borrowings are also  responsible  for an eight basis point increase in the yield
paid on all interest bearing  liabilities of 2.14%.  Refer to the  table-Average
Balance,  Yields and Rates Paid, on page 12. The decision was made by management
that it was more cost  effective  to borrow  instead of paying  higher  rates of
interest on time deposits.

Capital

The Bank is subject to Federal Deposit Insurance  Corporation (FDIC) regulations
governing capital adequacy.  The FDIC has adopted  risk-based capital guidelines
which establish a risk-adjusted  ratio relating capital to different  categories
of assets and off-balance sheet exposures.  Under current guidelines, as of June
30, 2006,  the Bank was  required to have  minimum  Tier I and total  risk-based
capital ratios of 4% and 8%,  respectively.  To be well capitalized under Prompt
Corrective  Action  Provisions  requires  minimum  Tier I and  total  risk-based
capital ratios of 6% and 10%, respectively.

The FDIC has also adopted  minimum  leverage ratio  guidelines for compliance by
banking organizations.  The guidelines require a minimum leverage ratio of 4% of
Tier 1 capital to total average assets. Banks experiencing high growth rates are
expected to  maintain  capital  positions  well above the  minimum  levels.  The
leverage ratio in conjunction with the risk-based  capital ratio constitutes the
basis for determining the capital adequacy of banking organizations.

Based on the FDIC's  guidelines,  the Bank's total  risk-based  capital ratio at
June 30, 2006 was 10.71% and its Tier 1 risk-based  capital ratio was 9.47%. The
Bank's leverage ratio was 9.09%. All the ratios exceed the minimum guidelines of
8.00%, 4.00% and 4.00%, respectively.

In January  2001,  the Company  approved a program to  repurchase  Sonoma Valley
Bancorp  stock up to $1.0

                                    Page 20


<PAGE>

million;  in August 2002 the Company  approved the  repurchase  of an additional
$1.0 million of Sonoma Valley  Bancorp  stock;  and in February 2006 the Company
approved the  repurchase of an additional  $1.1 million of Sonoma Valley Bancorp
stock, for a cumulative total of $3.1 million  authorized for repurchase.  As of
June 30, 2006,  $635,919 had been  repurchased and retired in 2006 with $883,919
available  to  repurchase  additional  shares.  Refer to page 6 for the table of
"Changes in Shareholders' Equity."

Off Balance Sheet Commitments

The  Company's  off balance  sheet  commitments  as of June 30, 2006  consist of
commitments  to extend credit of $55.6 million and standby  letters of credit of
$348,000  compared to  commitments to extend credit of $32.9 million and standby
letter of credit of $290,000 as of June 30, 2005. These commitments are extended
to customers in the normal course of business.  The Company also has contractual
obligations  consisting of operating leases for various  facilities and payments
to participants under the Company's  supplemental  executive retirement plan and
deferred compensation plan.

Liquidity Management

The  Company's  liquidity  is  determined  by the level of assets (such as cash,
federal  funds  sold  and   available-for-sale   securities)  that  are  readily
convertible  to cash to meet customer  withdrawal and borrowing  needs.  Deposit
growth also  contributes  to the Company's  liquidity.  The Company's  liquidity
position  is  reviewed  by  management  on a regular  basis to verify that it is
adequate to meet  projected  loan funding and potential  withdrawal of deposits.
The Company has a  comprehensive  Asset and  Liability  Policy  which it uses to
monitor and  determine  adequate  levels of  liquidity.  At June 30,  2006,  the
Company's total  liquidity  ratio (adjusted  liquid assets to deposits and short
term liabilities) was 13.3% compared to 20.1% and 20.3% at December 31, 2005 and
June 30,  2005,  respectively.  Management  expects that  liquidity  will remain
adequate throughout 2006, with deposit growth, security maturities and borrowing
capacity  offsetting  the strong loan growth the  Company is  experiencing.  Any
excess funds will be invested in quality  liquid assets,  such as U.S.  Treasury
and Agency securities.

Market Risk Management

Overview.  Market risk is the risk of loss from adverse changes in market prices
and rates.  The Company's  market risk arises  primarily from interest rate risk
inherent in its loan and deposit functions. The goal for managing the assets and
liabilities of the Company is to maximize  shareholder  value and earnings while
maintaining a high quality  balance sheet without  exposing the Company to undue
interest rate risk. The Board has overall  responsibility  for the interest rate
risk  management  policies.  Sonoma  Valley  Bank  has an  Asset  and  Liability
Management  Committee (ALCO) that establishes and monitors guidelines to control
the sensitivity of earnings to changes in interest rates.

Asset/Liability  Management.  Activities involved in asset/liability  management
include but are not  limited to lending,  accepting  and  placing  deposits  and
investing  in  securities.  Interest  rate  risk  is  the  primary  market  risk
associated with asset/liability management.  Sensitivity of earnings to interest
rate changes  arises when yields on assets change in a different  time period or
in a different  amount from that of interest costs on  liabilities.  To mitigate
interest rate risk,  the structure of the balance sheet is managed with the goal
that  movements of interest rates on assets and  liabilities  are correlated and
contribute to earnings even in periods of volatile interest rates. When interest
rates increase,  the market value of securities held in the investment portfolio




                                    Page 21



<PAGE>

declines.  Generally,  this decline is offset by an increase in  earnings.  When
interest rates decline,  the market value of securities increases while earnings
decrease  due to the bank's  asset  sensitivity  which is caused by the variable
rate  loans.  Usually  the Bank is able to  mitigate  its risk from  changes  in
interest  rates with this balance  sheet  structure.  At the present  time,  the
market is experiencing an anomaly from historical norms.  While short term rates
have  increased  over  the past  year as a result  of the  Federal  Open  Market
Committee  increasing the Fed Funds target rate from 3.25% to 5.25%, a 200 basis
point increase, the long term interest rates have only increased about 103 basis
points when compared to June 2005. The  asset/liability  management  policy sets
limits on the  acceptable  amount of variance in net interest  margin and market
value of equity under changing interest  environments.  The Bank uses simulation
models to forecast earnings, net interest margin and market value of equity.

Simulation  of earnings is the primary tool used to measure the  sensitivity  of
earnings to interest rate changes. Using computer-modeling  techniques, the Bank
is able to estimate the potential impact of changing interest rates on earnings.
A balance  sheet  forecast is prepared  quarterly  using inputs of actual loans,
securities and interest bearing liabilities (i.e. deposits/borrowings) positions
as the beginning  base.  The forecast  balance  sheet is processed  against five
interest rate  scenarios.  The scenarios  include 100 and 200 basis point rising
rate  forecasts,  a flat rate  forecast and 100 and 200 basis point falling rate
forecasts which take place within a one year time frame. The net interest income
is  measured  during  the year  assuming  a  gradual  change  in rates  over the
twelve-month  horizon.  The Bank's  2006-2007 net interest  income,  as forecast
below,  was modeled  utilizing a forecast  balance sheet projected from June 30,
2006 balances.  The following table summarizes the effect on net interest income
(NII) of  +/-100  and  +/-200  basis point  changes in  interest  rates as
measured against a constant rate (no change) scenario.

Interest  Rate Risk  Simulation  of Net Interest  Income as of June 30, 2006 (In
thousands)

   Variation from a constant rate scenario            $ Change in NII
             +200bp                                        ($804)
             +100bp                                        ($402)
             -100bp                                        ($132)
             -200bp                                        ($212)


The  simulations of earnings do not incorporate  any management  actions,  which
might moderate the negative consequences of interest rate deviations. Therefore,
they do not reflect likely actual results,  but serve as conservative  estimates
of interest rate risk.

Since the primary tool used by  management  to measure and manage  interest rate
exposure  is a  simulation  model,  use  of the  model  to  perform  simulations
reflecting  changes  in  interest  rates  over a twelve  month  horizon  enables
management to develop and initiate  strategies for managing exposure to interest
rate risks.  Management believes that both individually and in the aggregate its
modeling  assumptions  are  reasonable,  but the  complexity  of the  simulation
modeling process results in a sophisticated  estimate, not an absolutely precise
calculation of exposure.

Interest Rate Sensitivity  Analysis.  Interest rate sensitivity is a function of
the repricing characteristics of the portfolio of assets and liabilities.  These
repricing  characteristics are the time frames within which the interest-bearing
assets  and  liabilities  are  subject  to change in  interest  rates  either at
replacement, repricing or maturity. Interest rate sensitivity management

                                    Page 22


<PAGE>


focuses on the maturity of assets and  liabilities  and their  repricing  during
periods  of  change in market  interest  rates.  Interest  rate  sensitivity  is
measured as the difference  between the volumes of assets and liabilities in the
current  portfolio that are subject to repricing at various time  horizons.  The
differences are known as interest sensitivity gaps.

A positive  cumulative  gap may be equated to an asset  sensitive  position.  An
asset  sensitive  position in a rising  interest rate  environment  will cause a
bank's interest rate margin to expand. This results as floating or variable rate
loans reprice more rapidly than fixed rate  certificates of deposit that reprice
as they mature over time. Conversely, a declining interest rate environment will
cause the  opposite  effect.  A  negative  cumulative  gap may be  equated  to a
liability  sensitive  position.  A  liability  sensitive  position  in a  rising
interest rate  environment will cause a bank's interest rate margin to contract,
while a declining  interest rate environment will have the opposite effect.  The
table above shows net interest  income  declining  both when rates  increase and
when rates decline. Although the Company is usually asset sensitive, which would
cause the  Bank's  net  interest  margin  to expand  when  rates  increase,  the
simulation is showing a negative  change in net interest income both in a rising
and  declining  rate  environment  due to the need to rapidly  increase  deposit
rates.  The decline in net interest  income in the rising rate  environment is a
result  of  management's  conservative  evaluation  of the  market  pressure  to
increase rates on deposits, which causes a decline in the net interest margin.

The following table sets forth the dollar amounts of maturing  and/or  repricing
assets and liabilities for various periods.  This does not include the impact of
prepayments  or other  forms of  convexity  caused by changing  interest  rates.
Historically, this has been immaterial and estimates for them are not included.

The Bank has more  liabilities  than  assets  repricing  during  the next  year.
Usually  because the Bank's  asset rates  change more than  deposit  rates,  the
Bank's  interest  income  will  change  more than the cost of funds  when  rates
change.  For the  current  quarter,  the  Bank  is  making  a more  conservative
assumption.  Historically,  the Bank has been able to raise deposit rates with a
lag to loan rate  increases,  however loan rates have  remained  fairly flat and
market  demands are  creating  pressure  to raise  interest  rates on  deposits.
Therefore,  for a period of time,  the Bank has chosen to use the  simulation to
forecast  deposits  rates  rising  quite  rapidly.  This causes the net interest
margin to shrink and net interest income to decline in both a rising and falling
rate environment. The table below indicates that the Bank is liability sensitive
throughout  the  next  year.  At the end of the  twelve  month  cycle,  the rate
sensitive  gap shows  $78.7  million  more in  liabilities  than  assets  with a
repricing opportunity.


                                    Page 23


<PAGE>


The Bank  controls its long term  interest  rate risk by keeping long term fixed
rate assets  (longer  than 5 years) less than its long term fixed rate  funding,
primarily  demand deposit  accounts and capital.  The following table sets forth
cumulative   maturity   distributions  as  of  June  30,  2006  for  the  Bank's
interest-bearing  assets  and  interest-bearing   liabilities,  and  the  Bank's
interest rate sensitivity gap as a percentage of total interest-earning  assets.
Of the  $150.0  million  in fixed rate  assets  repricing  in the over 12 months
category, shown in the table below, $32.0 million are long term assets over five
years. This $32.0 million compares  favorably to the $78.2 million in demand and
core deposits and equity.





<TABLE>
<S>                                      <C>             <C>          <C>          <C>           <C>           <C>

June 30, 2006                         Immediate        Up to 3      4 to 6       7 to 12        Over 12
                                       Reprice          Months      Months        Months        Months         Totals
(in thousands)                        ---------      ---------     ---------     ---------     ---------     ---------

Fed Funds Sold                        $       0      $       0     $       0     $       0     $       0     $       0
Securities + IBB                              0          1,595         4,208         8,417        26,333        40,553
Loans                                    38,378          9,828        10,881        20,416       123,618       203,121
                                      ---------      ---------     ---------      --------     ---------     ---------
                 Total RSA            $  38,378      $  11,423     $  15,089     $  28,833     $ 149,951     $ 243,674


MMDA/NOW/SAV
                                        100,909              0             0             0             0       100,909
CDs < $100k                                   0          8,636         6,488         6,488         4,838        26,450
CDs > $100k                                   0         17,414        11,719         2,930         5,682        37,745
Borrowings                               17,800              0             0             0             0        17,800
                                      ---------      ---------     ---------     ---------     ---------     ---------
                 Total RSL            $ 100,909      $  43,850     $  18,207     $   9,418     $  10,520     $ 182,904

Gap                                     (80,331)       (14,627)       (3,118)       19,415       139,431        60,770
Cumulative                              (80,331)       (94,958)      (98,076)      (78,661)       60,770

% of Assets
                                         -30.20%        -35.70%       -36.90%       -29.60%        22.80%
</TABLE>






Market risk in securities. Market risk in securities shows the amount of gain or
loss  (before  tax)  in  the  securities  portfolio.  Portfolio  volume,  sector
distribution,  duration,  and quality all affect market valuation.  The adjusted
equity  ratio is tier 1 capital  adjusted  for the market  gain or loss less any
applicable  tax effect  divided by average  total  assets for  leverage  capital
purposes  for the most  recent  quarter.  The ratio is  designed  to show tier 1
capital  if the  securities  portfolio  had to be  liquidated  and all gains and
losses  recognized.  If the ratio remains  strong after a +2% or +3% rate shock,
market  risk is  reasonable  in  relation  to the level of  capital.  A bank has
flexibility  and strength when the  securities  portfolio can be liquidated  for
liquidity purposes without affecting capital adequacy.

The Bank has only  moderate  market  risk in  investments  because  the  average
maturity in the  portfolio is not very long,  except for  municipals,  which are
held to maturity  (see page 15 for  discussion  of  investments).  The portfolio
should  decline in value only about 2.0% or $790,000 for a 1% increase in rates.
The gain in value if rates fall would be somewhat  less,  because there are some
callable  bonds.  Marking-to-market  available  for sale  securities  when rates
change would add only modest volatility to a strong level of equity. This market
risk acts to offset the  interest  rate risk (i.e.  if rates  decline and NIM is
squeezed, there would be a concurrent gain in the value of securities).


                                    Page 24
<PAGE>




For the Three Month Periods
Ended June 30, 2005 and 2005

Overview

The  Company  reported  net income of  $969,261  for the second  quarter of 2006
compared with $770,651 for the second quarter of 2005. On a per share basis, net
income for the three months ended June 30, 2006 equaled $.43 per share  compared
with  $.36  per  share  during  the  same  period  in  2005,  see page 4 for the
comparative detail.

Return on average total assets on an annualized basis for the three months ended
June 30,  2006 and 2005 was 1.50% and  1.34%,  respectively.  Return on  average
shareholders'  equity on an annualized basis for the three months ended June 30,
2006 and 2005 was 15.7% and 14.4%,  respectively.  The increase in the return on
equity is a result of the strong  growth in earnings  experienced  in the second
quarter of 2006 when compared to 2005. Net income showed an increase of 25.8% or
$198,610 from $770,651 to $969,261 as of June 30, 2005 and 2006, respectively.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income,  adjusted to a fully taxable  equivalent  basis,  increased
$414,000 to $3.3 million for the three  months  ended June 30, 2006,  from $2.97
million  during the comparable  period of 2005.  Net interest  income on a fully
taxable  equivalent basis, as shown on the table -Average  Balances,  Yields and
Rates Paid on page 28, is higher than net interest  income on the  statements of
income  because it reflects  adjustments  applicable to  tax-exempt  income from
certain  securities and loans  ($94,000 in 2006 and $99,000 in 2005,  based on a
34% federal income tax rate).

Net interest income (stated on a fully taxable  equivalent basis) expressed as a
percentage of average earning assets, is referred to as net interest margin. The
Company's net interest margin for the second quarter of 2006 increased  slightly
to 5.51% from 5.47% for the quarter  ending June 30,  2005.  The increase in the
net interest margin is the result of the Company's  strong loan growth.  For the
three  months  ended June 30, 2006,  the yield on interest  bearing  liabilities
increased  87 basis  points from 1.50% for the three months of 2005 to 2.37% for
the three months period ended June 30, 2006. Although the prime lending rate has
increased  200 basis points since June 30, 2005,  the long term lending rates in
the  marketplace  have not increased as quickly and the Company has had pressure
to  increase  rates  paid on  liabilities.  This has had some  effect on the net
interest margin, but the strong loan growth has offset some of the effect of the
increase in interest expense on liabilities.

Interest Income

Interest  income for the three months ended June 30, 2006  increased by $853,000
to $4.3 million, a 24.5% increase over the $3.5 million realized during the same
period in 2005.  The gain in volume of average  balances was  responsible  for a
$657,000 increase in interest income and a


                                    Page 25

<PAGE>


$196,000 increase in income was related to higher interest rates, resulting in a
total increase in interest income of $853,000.

Interest Expense

Total  interest  expense for the three months  ended June 30, 2006  increased by
$438,000 to $1.0 million  compared with $593,000 in the same period of 2005. The
average rate paid on all interest-bearing  liabilities for the second quarter of
2006  increased to 2.37% from 1.50% in the second  quarter of 2005,  and average
balances for the second  quarter of 2006 increased to $174.3 million from $159.0
million in the same period of 2005, a 9.59% gain.

The gain in volume of average  balances  accounted  for a $179,000  increase  in
interest  expense  while an increase of $259,000 was related to higher  interest
rates paid,  resulting in a $438,000 increase in interest expense for the second
quarter of 2006.

Individual  components of interest  income and interest  expense are provided in
the table - Average Balances, Yields and Rates Paid on page 28.

Provision for Loan Losses

The  provision  for loan losses was $240,000  during the second  quarter of 2006
compared to the $160,000  provision for the second quarter of 2005. The increase
in the provision is the result of managements'  evaluation and assessment of the
loan portfolio and the loan growth the Company has experienced.

Non-interest Income

Non-interest  income of $519,752 for the second  quarter of 2006  represented an
increase of $33,160,  or 6.8%,  from the $486,592 for the  comparable  period in
2005.  Income from service charges on deposit  accounts and loan referral income
were major contributors to the growth in income over 2005.

Non-interest Expense

For the second quarter of 2006, non-interest expense was $1.973 million compared
with $1.944  million for the same  period in 2005,  representing  an increase of
$29,000,  or 1.5%. The largest increase of non interest expense was salaries and
benefits expense of $1.156 million,  which increased  $38,000,  or 3.4% compared
with  $1.118  million  for the three  months  ended June 30,  2005.  The $38,000
increase in 2006 is largely the result of normal merit and  incentive  increases
and  increases in employee  benefit  costs.  At June 30,  2006,  total full time
equivalent employees were 44 compared to 49 in 2005.

The expenses for premises and  equipment  increased  2.3% from  $248,000 for the
second  quarter of 2005 to $254,000 in 2006.  The $6,000  increase in expense in
2006 is a result of increased  expenses  related to maintenance  and repairs for
fixed assets, increases in real property tax and increases in utility costs.




                                    Page 26


<PAGE>


Other non interest  expense for the three  months ended June 30, 2006  decreased
2.5% or $15,000 to $563,000  compared  to $578,000  for the same period of 2005.
All categories of other  operating  expense  remained level or declined from the
prior year.

Provision for Income Taxes

The  provision  for income taxes  increased to an effective tax rate of 35.8% in
the second  quarter of 2006  compared  with 34.0% for the  comparable  period in
2005.  Income taxes reported in the financial  statement  include deferred taxes
resulting  from  timing  differences  in the  recognition  of items  for tax and
financial reporting purposes.

                                    Page 27

<PAGE>


                              SONOMA VALLEY BANCORP
                     AVERAGE BALANCES/YIELDS AND RATES PAID
                For the three months ended June 30, 2006 and 2005


<TABLE>
<S>                                            <C>            <C>           <C>           <C>             <C>            <C>
                                                              2006                                       2005
                                                              ----                                       ----
ASSETS                                       Average         Income/       Yield/      Average          Income/        Yield/
                                             Balance         Expense        Rate       Balance          Expense         Rate
                                          -------------   -------------    -----    -------------    -------------     -----
Interest-earning assets:
Loans(2):
 Commercial                               $ 139,650,217   $   2,736,560     7.86%   $ 107,637,506    $   1,999,744      7.45%
 Consumer                                    24,455,537         506,180     8.30%      19,274,262          352,442      7.33%
 Real estate construction                    15,514,942         311,605     8.06%      20,872,556          397,498      7.64%
 Real estate mortgage                        15,046,811         259,646     6.92%       8,502,518          142,675      6.73%
 Tax exempt loans (1)                         2,413,275          49,427     8.22%       2,578,814           52,943      8.23%
 Leases                                          52,144           1,458    11.22%          40,302              920      9.16%
 Unearned loan fees                            (571,521)                                 (476,005)
                                          -------------    ------------             -------------    -------------
         Total loans                        196,561,405       3,864,876     7.89%     158,429,953        2,946,222      7.46%
Investment securities
  Available for sale:
         Taxable                             25,517,542         214,506     3.37%      35,036,366          274,428      3.14%
  Hold to maturity:
         Taxable                                349,221           2,522     2.90%         373,093            2,551      2.74%
         Tax exempt (1)                      15,848,262         226,892     5.74%      16,671,217          238,686      5.74%
                                          -------------    ------------             -------------    -------------
         Total investment securities         41,715,025         443,920     4.27%      52,080,676          515,665      3.97%
Federal funds sold                              721,889           8,965     0.00%               0                0      0.00%
FHLB Stock                                    1,054,780          10,853     4.13%         819,451           14,520      7.11%
Total due from banks/interest bearing            50,032             714     5.72%          27,687              147      2.13%
                                          -------------    ------------             -------------    -------------
   Total interest-earning assets          $ 240,103,131    $  4,329,328     7.23%   $ 211,357,767    $   3,476,554      6.60%
                                                           ============                              =============
Non interest-earning assets:
  Reserve for loan losses                    (2,909,044)                               (2,627,044)
  Cash and due from banks                     5,714,977                                 7,506,650
  Premises and equipment                      1,122,134                                 1,293,459
  Other assets                               14,339,485                                12,679,073
                                          -------------                             -------------
                        Total assets       $258,370,683                             $ 230,209,905
                                          =============                             =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
  Interest-bearing deposits
         Interest-bearing transaction     $  30,947,763    $     12,835     0.17%   $  33,848,999    $      14,299      0.17%
         Savings deposits                    70,765,110         305,025     1.73%      70,951,813          192,366      1.09%
         Time deposits over $100,000         36,232,799         352,250     3.90%      27,189,942          202,991      2.99%
         Other time deposits                 26,381,272         237,870     3.62%      19,811,949          128,799      2.61%
                                          -------------    ------------             -------------    -------------
     Total interest-bearing deposits        164,326,944         907,980     2.22%     151,802,703          538,455      1.42%
Federal funds purchased                               0               0     0.00%               0                0
  Other short-term borrowings                 9,923,154         123,431     4.99%       7,196,273           54,571      3.07%
                                          -------------    ------------             -------------    -------------
  Total interest-bearing liabilities        174,250,098    $  1,031,411     2.37%     158,998,976    $     593,026      1.50%
                                                           ============                              =============

Non interest-bearing liabilities:
  Non interest-bearing demand deposits       54,462,745                                45,642,472
  Other liabilities                           4,909,656                                 4,112,583
           Shareholders' equity              24,748,184                                21,455,874
                                          -------------                             -------------
               Total liabilities and
                shareholders' equity      $ 258,370,683                             $ 230,209,905
                                          =============                             =============
Interest rate spread                                                        4.86%                                       5.10%
                                                                           =====                                       =====
Interest income                                            $  4,329,328     7.23%                    $   3,476,554      6.60%
Interest expense                                              1,031,411     1.72%                          593,026      1.13%
                                                           ------------    -----                     -------------     -----
Net interest income/margin                                 $  3,297,917     5.51%                    $   2,883,528      5.47%
                                                           ============    =====                     =============     =====
</TABLE>


(1)  Fully tax equivalent  adjustments are based on a federal income tax rate of
     34% in 2006 and 2005.

(2)  Non accrual loans have been included in loans for the purposes of the above
     presentation.  Loan fees of approximately $99,469 and $89,271 for the three
     months ended June 30, 2006 and June 30, 2005, respectively,  were amortized
     to the appropriate interest income categories.

                                     Page 28
<PAGE>



Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Information regarding Quantitative and Qualitative Disclosures about Market Risk
appears  on page 15 under  "Investments"  and on pages 21  through  24 under the
caption  "Management's   Discussion  and  Analysis  of  Consolidated   Financial
Condition  and  Results  of  Operations  -  Market  Risk   Management"   and  is
incorporated herein by reference.

Item 4. CONTROLS AND PROCEDURES

Our management,  with the  participation  and under the supervision of our Chief
Executive  Officer and our Chief Financial  Officer,  reviewed and evaluated the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures,  as of the end of the  fiscal  quarter  covered by this  report,  as
required  by  Securities  Exchange  Act  Rule  13a-15,  and  concluded  that our
disclosure  controls and  procedures  are  effective to ensure that  information
required to be disclosed in our reports filed with the  Securities  and Exchange
Commission  pursuant to the Securities  Exchange Act of 1934 is accumulated  and
communicated  to  management,  including our Chief  Executive  Officer and Chief
Financial  Officer.  Based on this evaluation,  our Chief Executive  Officer and
Chief  Financial  Officer have concluded that as of the end of such period,  our
disclosure  controls  and  procedures  are  effective  to ensure that we record,
process,  summarize  and report  information  required  to be  disclosed  in the
reports  we filed  under the  Securities  Exchange  Act of 1934  within the time
periods  specified  by  the  Securities  and  Exchange  Commission's  rules  and
regulations.

During  the  quarter  ended  June 30,  2006,  there  have been no changes in our
internal  control  over  financial  reporting,  or to our  knowledge,  in  other
factors,  that have materially  affected or, are reasonable likely to materially
affect our internal controls over financial reporting.

Part II

Item 1. LEGAL PROCEEDINGS

From time to time the Company may be a party to legal proceedings arising in the
ordinary course of business. The Company is not currently a party to, nor is any
of its properties the subject of , any material pending legal proceedings.


                                    Page 29


<PAGE>


Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following chart  summarizes the Company  repurchases of the Company's common
shares as part of the Company's publicly announced repurchase plan.


<TABLE>
<S>           <C>                    <C>                       <C>                 <C>                         <C>
                                     (a)                       (b)                 (c)                         (d)
                                                                                                         Maximum Number
                                                                                                         (or Approzimate
                                                                                  Total Number Of        Dollar Value) of
                                                                                  Shares (or Units)      Shares (or Units)
                                                                                 Purchased as Part       that May Yet be
                                  Total Number of                                  of Publicly           Purchased Under
                                  Shares (or Units)       Average Price paid    Announced Plans or          the Plans or
             Period                 Purchased             per Share (or Unit)        Programs                Programs
           -----------            ----------------        ------------------    ------------------       ----------------

           Month #1:                         7,168                    $24.45                 7,168             $1,155,046(1)
           4/1/06 - 4/30/06

           Month #2:                             0                         0                     0             $1,155,046
           5/1/06 - 5/31/06

           Month #3:                        10,465                    $25.91                10,465             $  883,919
           6/1/06 - 6/30/06

           Total                            17,633                    $25.31                17,633
</TABLE>


(1)  On January 17, 2001 a repurchase program was approved up to $1,000,000.  On
     August 21, 2002 an additional  $1,000,000 was approved.  No expiration.  On
     February  15, 2006 an  additional  $1,100,000  was  approved to  repurchase
     Company stock. No expiration.


Item 3. DEFAULTS UPON SENIOR SECURITIES

None

                                    Page 30

<PAGE>


Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The  Company  held the  annual  meeting of  shareholders  on May 17,  2006.  The
following table sets forth the proposals and outcome from the voting.

Proposal Number 1                                    Election of Directors; and


<TABLE>
<S>       <C>                        <C>                         <C>
        Nominees               Shares Voted For           Shares Withholding
                                                        Authority/Voted Against
  --------------------        -----------------         -----------------------
  Suzanne Brangham                    1,815,966                         27,661
  Dale T. Downing                     1,819,235                         24,292
  Fred H. Harland                     1,816,849                         26,779
  Robert B. Hitchcock                 1,819,279                         24,348
  Robert J. Nicholas                  1,781,477                         62,151
  Angelo C. Sangiacomo                1,819,130                         24,497
  J. Robert Stone                     1,818,410                         25,217
  Mel Switzer, Jr.                    1,781,017                         62,611
  Harry Weise                         1,781,369                         62,258

</TABLE>

Proposal Number 2                        Ratification of Richardson and Company

Total shares voted:       For           Against      Abstain/Broker Non-Votes
                       ---------        -------      ------------------------
                       1,829,967          7,554                         6,106

Item 5. OTHER INFORMATION

None

Item 6. EXHIBITS

(a)  Exhibits

               3.(ii) Amendment to Bylaws of Sonoma Valley Bancorp

               31.1 Certification  of Principal  Executive  Officer  pursuant to
                    Section 302 of the Sarbanes-Oxley Act

               31.2 Certification  of Principal  Financial  Officer  pursuant to
                    Section 302 of the Sarbanes-Oxley Act

               32   Certification  of CEO and CFO pursuant to Section 906 of the
                    Sarbanes-Oxley Act


                                    Page 31
<PAGE>





                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                              SONOMA VALLEY BANCORP



Date:  August 9, 2006              /s/ Mel Switzer, Jr.
       --------------              --------------------------------------------
                                   Mel Switzer, Jr.
                                   President and Chief Executive Officer
                                   (Principal Executive Officer)




Date:  August 9, 2006              /s/ Mary Dieter Smith
       --------------              --------------------------------------------
                                   Mary Dieter Smith
                                   Executive Vice President and
                                   Chief Operating Officer and
                                   Chief Financial Officer
                                   (Principal Financial and Accounting Officer)