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: March 31, 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 May 2, 2006 was 2,254,276.




<PAGE>



INDEX

Part I Financial Information                                        Page Number
                                                                    -----------

Item 1.  Financial Statements (Unaudited):

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

     Consolidated Statements of Operations for the
     three months ended March 31, 2006 and 2005...............................4

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

     Consolidated Statements of Cash Flows for the
     three months ended March 31, 2006 and 2005...............................7

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

     Average Balances, Yields and Rates Paid
     for the three months ended March 31, 2006 and 2005......................10

Item 2.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations.......................11

Item 3.  Quantitative and Qualitative Disclosure About Market Risk...........24

Item 4.  Controls and Procedures.............................................24


Part II  Other Information

Item 1.  Legal Proceedings...................................................25

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.........25

Item 3.  Defaults Upon Senior Securities.....................................25

Item 4.  Submission of Matters to a Vote of Security Holders.................25

Item 5.  Other Information...................................................25

Item 6.  Exhibits............................................................26

Signatures...................................................................27

Certifications...............................................................28



<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
             March 31, 2006 (Unaudited), December 31, 2005 (Audited)
                         and March 31, 2005 (Unaudited)

<TABLE>
<S>                                                                                <C>                <C>              <C>
                                                                             March 31,       December 31,       March 31,
                                                                               2006             2005              2005
                                                                           ------------     ------------     -------------
ASSETS
    Cash and due from banks                                                $  6,650,468     $  6,988,820     $  5,921,096
    Federal funds sold                                                        3,900,000        2,050,000                0
    Interest-bearing due from banks                                              39,292           39,521           28,491
                                                                           ------------     ------------     ------------
                                       Total cash and cash equivalents       10,589,760        9,078,341        5,949,587
                                                                             26,856,363       33,917,094       34,893,820
    Investment securities available-for-sale at fair value
    Investment securities held-to-maturity (fair value
        of $16,584,803, $16,634,519 and $17,282,849,
         respectively)                                                       16,476,519       16,499,865       17,053,628
    Loans and lease financing receivables, net                              181,803,742      168,418,085      154,268,219
    Premises and equipment, net                                               1,145,540        1,178,666        1,299,879
    Accrued interest receivable                                               1,329,099        1,400,255        1,225,535
    Cash surrender value of life insurance                                    9,321,560        9,239,439        8,989,359
    Other assets                                                              4,050,794        4,331,172        3,108,467
                                                                           ------------     ------------     ------------
                                                          Total assets     $251,573,377     $244,062,917     $226,788,494
                                                                           ============     ============     ============
LIABILITIES
    Noninterest-bearing demand deposits                                    $ 55,181,969     $ 49,460,864     $ 43,438,855
    Interest-bearing transaction deposits                                    30,890,134       35,586,113       33,489,731
    Savings and money market deposits                                        73,355,289       74,218,076       72,910,910
    Time deposits, $100,000 and over                                         36,831,872       32,011,640       26,442,251
    Other time deposits                                                      26,306,510       24,482,074       18,621,134
                                                                           ------------     ------------     ------------
                                                        Total deposits      222,565,774      215,758,767      194,902,881
    Other borrowings                                                                  0                0        7,150,000
    Accrued interest payable and other liabilities                            4,679,252        4,864,357        3,915,337
                                                                           ------------     ------------     ------------
                                                     Total liabilities      227,245,026      220,623,124      205,968,218

SHAREHOLDERS' EQUITY
    Common stock, no par value; 10,000,000
     shares authorized; 2,261,444 shares at
     March 31, 2006, 2,204,949 shares at
     December 31, 2005 and 2,151,370 shares at
     March 31, 2005 issued and outstanding                                   16,914,230       16,256,427       15,686,097
    Retained earnings                                                         7,721,657        7,493,757        5,488,476
    Accumulated other comprehensive loss                                       (307,536)        (310,391)        (354,297)
                                                                           ------------     ------------     ------------
                                            Total shareholders' equity       24,328,351       23,439,793       20,820,276
                                                                           ------------     ------------     ------------

                            Total liabilities and shareholders' equity     $251,573,377     $244,062,917     $226,788,494
                                                                           ============     ============     ============
</TABLE>

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

                                       3
<PAGE>


                      SONOMA VALLEY BANCORP AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

               For the three months ended March 31, 2006 and 2005


<TABLE>
<S>                                                                      <C>              <C>
                                                                         2006             2005
                                                                      -----------     -----------
INTEREST INCOME
    Loans and leases                                                  $ 3,287,464     $ 2,738,037
    Taxable securities                                                    245,491         227,682
    Tax-exempt securities                                                 151,112         159,337
    Federal funds sold                                                     65,137          45,460
    Dividends                                                              10,221               0
                                                                      -----------     -----------
                                            Total interest income       3,759,425       3,170,516

INTEREST EXPENSE
    Interest-bearing transaction deposits                                  13,001          14,517
    Savings and money market deposits                                     244,259         162,736
    Time deposits, $100,000 and over                                      310,144         176,405
    Other time deposits                                                   212,956         106,740
    Other borrowings                                                          474           7,231
                                                                      -----------     -----------
                                           Total interest expense         780,834         467,629
                                                                      -----------     -----------
          NET INTEREST INCOME                                           2,978,591       2,702,887
    Provision for loan and lease losses                                    50,000          90,000
                                                                      -----------     -----------
                                        NET INTEREST INCOME AFTER
                                           PROVISION FOR LOAN AND
                                                     LEASE LOSSES       2,928,591       2,612,887
NON-INTEREST INCOME                                                       504,634         459,097
NON-INTEREST EXPENSE
    Salaries and employee benefits                                      1,136,694       1,107,431
    Premises and equipment                                                250,207         229,305
    Other                                                                 617,109         636,622
                                                                      -----------     -----------
                                       Total non-interest expense       2,004,010       1,973,358
                                                                      -----------     -----------
Income before provision for income taxes                                1,429,215       1,098,626
Provision for income taxes                                                507,162         368,040
                                                                      -----------     -----------

                                                       NET INCOME     $   922,053     $   730,586
                                                                      ===========     ===========

                                             NET INCOME PER SHARE     $       .41     $       .34
                                                                      ===========     ===========
                                             NET INCOME PER SHARE
                                                ASSUMING DILUTION     $       .40     $       .32
                                                                      ===========     ===========
</TABLE>

                                       4
   The accompanying notes are an integral part of these financial statements.


<PAGE>


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

      For the three months ended March 31, 2006 (Unaudited), and the years
              ended December 31, 2005 (Audited) and 2004 (Audited)

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

                                                                                                     Accumulated
                                                                                                        Other
                                   Comprehensive             Common Stock             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 dividends                                                                          (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                -----------
income, 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
 of stock                                                (5,616)        (41,165)         (72,503)                         (113,668)
Stock options exercised and
 related tax benefits                                    68,461         664,972                                            664,972
Cash dividends                                                                        (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 income,
 net of taxes                           (166,879)                                                         (166,879)       (166,879)
                                   -------------      ---------    ------------     ------------     -------------    ------------
Total comprehensive income         $   3,181,650
                                   =============
</TABLE>

                                       5
<PAGE>


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

      For the three months ended March 31, 2006 (Unaudited), and the years
              ended December 31, 2005 (Audited) and 2004 (Audited)
<TABLE>
<S>                                    <C>               <C>         <C>                <C>             <C>              <C>

                                                                                                     Accumulated
                                                                                                        Other
                                   Comprehensive             Common Stock             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                                (7,867)        (57,980)        (131,587)                         (189,567)
  of stock
Stock options exercised and
  related tax benefits                                   64,362         689,863                                            689,863
Cash dividend                                                                           (562,566)                         (562,566)
Stock options granted                                                    25,920                                             25,920
Net income for the year            $     922,053                                         922,053                           922,053
Other comprehensive income,
  net of tax:
  Unrealized holding gains
    on securities available-
    for-sale arising during
    the year, net of taxes
    of ($1,997)                            2,855
                                   -------------
Other comprehensive loss,
  net of taxes                             2,855                                                             2,855           2,855
                                   -------------      ---------    ------------     ------------     -------------    ------------
Total comprehensive income         $     924,908
                                   =============
BALANCE AT
 MARCH 31, 2006                                       2,261,444    $ 16,914,230     $  7,721,657     $    (307,536)   $ 24,328,351
                                                      =========    ============     ============     =============    ============

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

                                       6
<PAGE>


                      SONOMA VALLEY BANCORP AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

               For the three months ended March 31, 2006 and 2005



<TABLE>
<S>                                                                  <C>               <C>
                                                                     2006              2005
                                                                 ------------     ------------

OPERATING ACTIVITIES
    Net income                                                   $    922,053     $    730,586
    Adjustments to reconcile net income
      to net cash provided by operating activities:
         Provision for loan and lease losses                           50,000           90,000
         Depreciation                                                  73,723           77,416
         Amortization and other                                        38,929           41,005
         Stock options granted                                         25,920           25,920
         Net change in interest receivable                             71,156          (86,928)
         Net change in cash surrender value
          of life insurance                                           (82,121)         (76,223)
         Net change in other assets                                   278,381          118,688
         Net change in interest payable and other liabilities        (185,105)          12,050
                                                                 ------------     ------------
                     NET CASH PROVIDED BY OPERATING ACTIVITIES      1,192,936          932,514

INVESTING ACTIVITIES
    Purchases of securities available-for-sale                              0      (15,014,860)
    Proceeds from maturing securities held-to-maturity              7,050,000          340,000
    Net change in loans and leases                                (13,435,657)      (3,626,132)
    Purchases of premises and equipment                               (40,597)         (12,416)
                                                                 ------------     ------------
                        NET CASH USED FOR INVESTING ACTIVITIES     (6,426,254)     (18,313,408)
FINANCING ACTIVITIES
    Net change in demand, interest-bearing
      transaction and savings deposits                                162,339          114,988
    Net change in time deposits                                     6,644,668        1,124,878
    Stock repurchases                                                (189,567)               0
    Cash dividend paid                                               (562,566)        (537,842)
    Net change in FHLB borrowings                                           0        7,150,000
    Stock options exercised                                           689,863          131,237
                                                                 ------------     ------------
                     NET CASH PROVIDED BY FINANCING ACTIVITIES      6,744,737        7,983,261
                                                                 ------------     ------------
                       NET CHANGE IN CASH AND CASH EQUIVALENTS      1,511,419       (9,397,633)
    Cash and cash equivalents at beginning of period                9,078,341       15,347,220
                                                                 ------------     ------------
                    CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 10,589,760     $  5,949,587
                                                                 ============     ============
SUPPLEMENTAL DISCLOSURES OF
    CASH FLOW INFORMATION:

Cash paid during the year for:
    Interest expense                                             $    756,950     $    462,501
    Income taxes                                                 $     60,000     $    140,000

SUPPLEMENTAL DISCLOSURES OF
  NONCASH ACTIVITIES:
Net change in unrealized gains and losses on securities          $      4,852     $   (358,200)
Net change in deferred income taxes on unrealized
    gains and losses on securities                               $     (1,997)    $    147,415
</TABLE>


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

                                        7
<PAGE>


                      SONOMA VALLEY BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 MARCH 31, 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 March 31, 2006 and results of operations for the
three 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 months ended March 31, 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 March 31, 2006
and March 31, 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 March 31, 2006 was  2,226,317
and for the period ending March 31, 2005 was 2,150,804.

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 March 31, 2006 was  2,333,134 and for the period ending March
31, 2005 was 2,300,299.

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 all employee awards
granted,  modified,  or settled after  January 1, 2003.  Options were granted in
2004 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 quarters ended March 31, 2006 and 2005.

                                       8

<PAGE>

Note 6 - Employee Benefit Plans

The Company  provides  retirement  plans to its key officers and directors.  The
plans are unfunded and provide for the Company 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
three months ended March 31, 2006 and 2005 are as follows:

<TABLE>
<S>                                                  <C>          <C>          <C>             <C>
                                                        Directors                   Officers
                                                  --------------------     ------------------------
                                                    2006         2005         2006            2005
                                                  --------    --------     ---------     ----------

Service cost                                      $  6,694    $  7,135     $  77,152     $   33,739

Interest cost on projected benefit obligation       10,373       8,327        (9,489)        (4,436)

Amortization of unrecognized liability at            4,901       1,864        56,696         22,515
                                                  --------     -------     ---------     ----------
transition
Net periodic pension cost recognized              $ 21,968    $ 17,326     $ 124,359     $   51,818
                                                  ========    ========     =========     ==========
</TABLE>




                                       9


<PAGE>


                              SONOMA VALLEY BANCORP
                     AVERAGE BALANCES/YIELDS AND RATES PAID
               For the three months ended March 31, 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                               $119,227,389     $  2,262,077      7.69%     $103,846,235     $  1,873,299      7.32%
  Consumer                                   22,549,704          432,975      7.79%       17,207,074          290,873      6.86%
  Real estate construction                   17,155,745          316,559      7.48%       22,388,984          407,638      7.38%
  Real estate mortgage                       14,404,792          242,309      6.82%        7,291,775          124,945      6.95%
  Tax exempt loans (1)                        2,413,275           48,888      8.22%        2,964,915           61,156      8.37%
  Leases                                         41,910            1,279     12.38%           45,772              919      8.14%
  Unearned loan fees                           (471,460)                                    (481,186)
                                           ------------     ------------                ------------     ------------
          Total loans                       175,321,355        3,304,087      7.64%      153,263,569        2,758,830      7.30%
Investment securities
  Available for sale:
          Taxable                            29,931,856          242,622      3.29%       29,357,909          224,905      3.11%
  Hold to maturity:
          Taxable                               358,082            2,606      2.95%          378,051            2,606      2.80%
          Tax exempt (1)                     16,133,313          228,958      5.76%       16,851,691          241,419      5.81%
                                           ------------     ------------                ------------     ------------
          Total investment securities        46,423,251          474,186      4.14%       46,587,651          468,930      4.08%
Federal funds sold                            5,964,278           65,137      4.43%        7,814,044           45,460      2.36%
FHLB stock                                      875,000           10,221      4.74%          711,400                0      0.00%
Total due from banks/interest-bearing            39,258              263      2.72%           35,137              171      1.97%
                                           ------------     ------------                ------------     ------------
  Total interest-earning assets             228,623,142     $  3,853,894      6.84%      208,411,801     $  3,273,391      6.37%
                                                            ============                                 ============
Noninterest-bearing assets:
  Reserve for loan losses                    (2,795,419)                                  (2,518,248)
  Cash and due from banks                     6,757,160                                    6,124,570
  Premises and equipment                      1,165,004                                    1,341,021
  Other assets                               14,005,681                                   12,388,308
                                           ------------                                 ------------
          Total assets                     $247,755,568                                 $225,747,452
                                           ============                                 ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
  Interest- bearing deposits
          Interest-bearing transaction     $ 31,606,947     $     13,001      0.17%     $ 34,686,629     $     14,518      0.17%
          Savings deposits                   75,134,509          244,259      1.32%       75,711,503          162,736      0.87%
          Time deposits over $100,000        34,579,760          310,144      3.64%       25,877,781          176,405      2.76%
          Other time deposits                25,486,632          212,955      3.39%       18,646,261          106,740      2.32%
                                           ------------     ------------                ------------     ------------
  Total interest-bearing deposits           166,807,848          780,359      1.90%      154,922,174          460,399      1.21%
  Other borrowings                               44,444              474      4.33%        1,106,222            7,231      2.65%
                                           ------------     ------------                ------------     ------------
          Total interest-bearing
             liabilities                    166,852,292     $    780,833      1.90%      156,028,396     $    467,630      1.22%
                                                            ============                                 ============
Non interest-bearing liabilities:
  Non interest-bearing demand deposits       52,088,272                                   44,760,794
  Other liabilities                           4,691,730                                    3,829,625
  Shareholders' equity                       24,123,274                                   21,128,637
                                           ------------                                 ------------
          Total liabilities and
           shareholders' equity            $247,755,568                                 $225,747,452
                                           ============                                 ============
Interest rate spread                                                          4.94%                                        5.15%
                                                                              ====                                         ====
Interest income                                             $  3,853,894      6.84%                      $  3,273,391      6.37%
Interest expense                                                 780,833      1.39%                           467,630      0.91%
                                                            ------------      ----                       ------------      ----
Net interest income/margin                                  $  3,073,061      5.45%                      $  2,805,761      5.46%
                                                            ============      ====                       ============      ====
</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 $74,144 and $76,108 for the three
     months ended March 31, 2006 and 2005,  respectively,  were amortized to the
     appropriate interest income categories.

                                       10
<PAGE>


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


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's  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. Sonoma
Valley Bancorp disclaims any obligation to publicly update these forward looking
statements, whether as a result of new information, future events, or otherwise.

For the Three Month Periods
Ended March 31, 2006 and 2005

Overview

The Company  reported  net income of $922,053 for the first three months of 2006
compared with $730,586 for the first three months of 2005. The $191,467 increase
in net income is largely  attributable to loan growth  outpacing  deposit growth
which generated an increase in net interest  income of $275,704.  On a per share
basis,  net income  equaled  $.41  compared  with $.34 per share during the same
period in 2005.

Return on average total assets on an annualized basis for the three-month period
was 1.51% in 2006 and 1.31% in 2005. The increase in the return on assets is the
result  of the  26.21%  growth in net  income  compared  to the 9.75%  growth in
average  assets  from $225.7  million in 2005 to $247.8  million as of March 31,
2006. Return on average  shareholders'  equity on an annualized basis at the end
of the first  quarter  2006 and 2005 was 15.50% and  14.02%,  respectively.  The
higher  return  on  equity is again  the  result  of  stronger  growth in income
compared to 14.2% growth in average  equity from $21.1  million to $24.1 million
in 2006.

At March 31, 2006, total assets were $251.6 million, a 3.1% increase over $244.1
million as of December 31, 2005 and a 10.9%  increase over $226.8  million as of
March 31, 2005.  The Company  showed  loans of $184.6  million at March 31, 2006
compared  with  $171.2  million and $156.8  million as of December  31, 2005 and
March 31, 2005, increases of 7.9% and 17.7%, respectively. Deposits

                                       11

<PAGE>

increased 3.2%, from $215.8 million and 14.2% from $194.9 million as of year end
2005 and March 31, 2005,  respectively,  to $222.6 million as of March 31, 2006.
The  loan-to-deposit  ratio  increased  to 83.0% at March 31, 2006 from 79.3% at
December  31, 2005 and 80.5% at March 31,  2005.  With the  increase in interest
rates, loans could experience slower growth.

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 $12.4  million in deposits and $4.4 million in loans as of
March 31,  2006.  For the quarter  ending March 31,  2006,  the office  showed a
profit of $7,234  compared  with a loss of  $40,180 as of March 31,  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
effect an immediate transfer of funds to Mexico. Management anticipates that the
growth in the branch will continue to be slow and steady.

Total shareholders' equity increased by $888,558 or 3.79% during the quarter. At
March 31,  2006,  the  Company  reported  net income of  $922,053.  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 $25,920  year to date.  The net income  figure of  $922,053
reflects an expense for the stock  options of $25,920,  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 of
these options was $176,018,  which also  increased  equity.  Officers  exercised
36,564  options which added $293,625 to the capital  accounts.  During the first
quarter the company  repurchased  7,867 shares which lowered equity by $189,567.
The net effect of this activity  results in capital of  $24,328,351  as of March
31, 2006, compared to capital of $23,439,793 as of December 31, 2005. See page 5
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,
unless the  Company's  market cap  exceeds  $75  million at June 30,  2006.  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.

                                       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  Balances,  Yields and Rates Paid, on page
10, 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  ($94,466 in 2006 and $102,875 in 2005,  based on a 34% federal income tax
rate).

The improvement in net interest income for the three months ended March 31, 2006
(stated on a fully taxable  equivalent basis) is a result of the net effect of a
$580,000  increase in interest  income offset by a smaller  increase in interest
expense of  $313,000,  showing a net increase of  $267,000.  This  increase is a
result of the 200 basis point  increase in the fed funds and prime lending rates
since March 31, 2005.  The Fed Funds rate  increased  from 2.75% as of March 31,
2005,  to 4.75% as of March 31, 2006 and the prime lending rate  increased  from
5.75% as of March 31, 2005 to 7.75% as of March 31, 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 decreased one basis point to 5.45%, from
5.46% for the same period in 2005. The decline in the net interest margin is the
result of 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 $580,000 to $3.9  million in the three  months of 2006,  a
17.73% increase over the $3.3 million realized during the same period in 2005.

The $580,000 increase was the result of the 47 basis point increase in the yield
on earning  assets to 6.84% for the three months ended March 31, 2006 from 6.37%
for the same time period of 2005.  Contributing  to this  increase was the $20.2
million or 9.7%  increase in average  earning  assets to $228.6  million for the
first quarter of 2006.

The gain in volume of  average  earning  assets was  responsible  for a $382,000
increase in interest  income,  and the  increase in interest  rates  contributed
$198,000, for a total increase in interest income of $580,000.

Interest Expense

Total interest  expense for the first three months of 2006 increased by $313,000
to $781,000 from $468,000 for the same period of 2005.  The average rate paid on
all interest-bearing  liabilities increased from 1.22% in 2005 to 1.90% in 2006,
an increase of 68 basis points. Average balances of interest-bearing liabilities
increased from $156.0 million to $166.9 million, a 6.9% gain in interest-bearing
liabilities.


                                       13

<PAGE>

The gain in volume of average  balances was responsible for a $121,000  increase
in interest  expense and the higher  interest rates paid were  responsible for a
$192,000 increase in interest expense for a total increase of $313,000.

Individual  components of interest  income and interest  expense are provided in
the table-Average Balances, Yields and Rates Paid on page 10.

Provision for Loan Losses

The  provision  for loan losses  charged to  operations as of March 31, 2006 was
$50,000  compared to $90,000 for the same time period in 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's  analysis  indicates  a
sufficient  amount is being accrued to cover any potential  loan losses,  but as
loans continue to grow  additional  provisions will be made to the allowance for
loan losses as needed.

The economic climate  continues to improve and the  non-performing  assets ratio
(non-performing  assets/total  loans) was .57% as of March 31, 2006, compared to
..71% at March 31, 2005. There have been no loans charged off and recoveries were
$6,238 as of March 31, 2006,  compared with $5,683 in charge offs and $47,909 in
recoveries for the same period in 2005.

Non-interest Income

Non-interest  income of $505,000  increased  9.92% or $46,000  over the $459,000
recorded in the  comparable  period in 2005. Of the  increase,  48.2% was due to
increases  in service  charges on deposit  accounts.  Year to date  income  from
service charges on deposit accounts has increased 7.25% or $22,000 from $303,000
in 2005 to $325,000 in 2006.  This  increase was  predominantly  a result of the
growth in new accounts.

Other fee income  has shown an  increase  at March 31,  2006 of 23.3% or $18,000
from $76,000 as of March 31, 2005 to $94,000 in 2006 and comprised  39.2% of the
total  increase  of  $46,000.  The higher  income is a result of an  increase of
$13,000 in income the bank earns from loan referral income, which increased from
$5,000  as of March  31,  2005 to  $18,000  for the same  period  of 2006.  Also
contributing to the increase was an increase of $4,000 or 77.8% in wire transfer
income from $5,000 in 2005 to $9,000 in 2006.

Other  non-interest  income showed a 7.2% increase,  or $6,000,  from $80,000 in
2005 to $86,000 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
$76,000 as of March 31,  2005  compared  to $82,000  as of March 31,  2006.  The
earnings on the policies  will  increase as the balances  increase and if market
rates increase, the income produced by these policies should also increase.

Non-interest Expense

Total  non-interest  expense  remained  constant  at $2.0  million for the three
months  ended March 31,  2006 and 2005.  Non-interest  expense on an  annualized
basis  represented  3.28% of average total assets in 2006 compared with 3.55% in
the comparable period in 2005.


                                       14

<PAGE>


Salaries  and  benefits  remained  constant at $1.1  million for the first three
months of 2006 and 2005.  At March 31, 2006 and 2005 total full time  equivalent
employees  were 49 and 52,  respectively.  As of  March  31,  2006,  assets  per
employee  were $5.1  million  compared  with $4.4  million as of March 31, 2005.
Management  tries to utilize  efficiencies  to stabilize the growth in full time
equivalent employees.

Expense  related to premises and equipment  increased  9.12% to $250,000 in 2006
from $229,000 for the same period of 2005. The increase of $21,000 in expense in
2006 is the result of a 9.01%  increase in lease  expense of $7,000 from $82,000
in 2005 to  $89,000 in 2006.  This is a result of the  addition  of the  Finance
Center  facility  beginning in  mid-March,  2005 as well as normal  increases in
lease  expense on the remaining  leased  properties.  Additionally,  there was a
46.3% or $8,000  increase in janitorial  and  landscape  expense from $17,000 in
2005 to  $25,000  in 2006.  This is the  result of the  addition  of  janitorial
service  for the new  facility  and  improvements  that  have  been  made in the
landscaping.

Other  operating  expenses  decreased 3.07% in 2006 to $617,000 from $637,000 in
2005, a decrease of $20,000.  The decline is a result of lower professional fees
because 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  increased to an effective tax rate of 35.49% for
the three months of 2006 compared with 33.50% for the three months of 2005.  The
higher  effective  tax rate is a  reflection  of the  lower  ratio of  municipal
securities  in the  investment  portfolio  and stronger  earnings.  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 $43.3  million at March 31, 2006, a 14.1%  decrease
from the $50.4  million at  December  31, 2005 and a 16.6%  decrease  from $51.9
million at March 31,  2005.  The decline in the  portfolio is a result of strong
loan  demand and the need to utilize  maturing  and 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 March 31,
2006, the Company had  securities  totaling $16.5 million with a market value of
$16.6 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


                                       15

<PAGE>

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 $26.9 million compared to an amortized cost of $27.4 million as
of March 31, 2006.

There were twenty two Federal Farm Credit Bank,  Federal Home Loan Bank, Federal
Home  Loan  Mortgage   Corporation  or  Federal  National  Mortgage  Association
securities of $21.5 million and six U.S. Treasury  securities of $5.4 million in
the AFS  portfolio  and thirty  municipal  securities of $8.7 million in the HTM
portfolio  that were  temporarily  impaired as of March 31, 2006.  Of the above,
there were twenty one Federal Farm Credit Bank,  Federal Home Loan Bank, Federal
Home  Loan  Mortgage   Corporation  or  Federal  National  Mortgage  Association
securities of $20.5 million and six U. S. Treasury securities of $5.4 million in
the AFS  portfolio and fifteen  municipal  securities of $4.9 million in the HTM
portfolio that have been in a continuous loss position for twelve months or more
as of March 31, 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 March 31, 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.


                                       16
<PAGE>


Loans

The Company's  loan  portfolio was $184.6 million at March 31, 2006, or 83.0% of
total deposits.  This compares with $171.2 million,  or 79.3% of total deposits,
at December 31, 2005 and $156.8 million,  or 80.5% of total  deposits,  at March
31, 2005. A  comparative  schedule of average loan  balances is presented in the
table  on page  10;  period  end and  year-end  balances  are  presented  in the
following table.


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

Commercial                   $ 127,641,802      68.9%     $ 118,590,731      69.1%     $ 108,068,054       68.7%
Consumer                        23,487,299      12.7%        21,804,507      12.7%        18,253,222       11.6%
Real estate construction        18,797,449      10.2%        18,004,805      10.5%        23,081,948       14.7%
Real estate mortgage            15,158,886       8.2%        13,251,137       7.7%         7,872,218        5.0%
Leases                              55,407       0.0%            25,822       0.0%            42,243        0.0%
                             -------------     -----      -------------     -----      -------------      -----
                              185,140,843      100.0%       171,677,002     100.0%       157,317,685      100.0%
                                               =====                        =====                         =====
Deferred loan fees
 and costs, net                  (504,356)                     (482,410)                    (488,668)
Allowance for loan
 and lease losses              (2,832,745)                   (2,776,507)                  (2,560,798)
                             ------------                 -------------                -------------
                             $181,803,742                 $ 168,418,085                $ 154,268,219
                             ============                 =============                =============
</TABLE>


Risk Elements

The majority of the Company's  loan activity is with  customers  located  within
Sonoma  County.  Approximately  89.4% 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.

Based  on its  risk  management  review  and a  review  of its  loan  portfolio,
management  believes that its  allowance for loan losses for the quarter  ending
March 31, 2006, is sufficient to absorb losses  inherent in the loan  portfolio.
This  assessment is based upon the best available  information  and does involve
uncertainty and matters of judgment.  Accordingly, the adequacy of the loan loss
reserve cannot be determined with precision,  but is subject to periodic review,
and could be susceptible to significant change in future periods.

                                       17

<PAGE>


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.

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 $971,000  non-accrual loans and no loans 90 days or more past due and
still accruing at March 31, 2006 down from $1.0 million non-accrual loans and no
loans 90 days or more past due and still  accruing at March 31, 2005.  There was
$164,000  in  non-accrual  loans 90 days or more past due at March 31,  2006 and
$1,021,000 loans in non-accrual  status and 90 days or more past due as of March
31, 2005.

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 March 31,  2006 the Company
believes its overall allowance for loan losses is adequate based on its analysis
of conditions at that time.

At March 31, 2006,  the allowance for loan losses was $2.8 million,  or 1.53% of
period-end loans,  compared with $2.8 million, or 1.62% at December 31, 2005 and
$2.6 million, or 1.63% at March 31, 2005.


                                       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 Three       For the Year        For the Three
                                           Months Ended          Ended             Months Ended
                                             3/31/06            12/31/05             3/31/05
                                         ---------------     --------------      ---------------

Balance beginning of year                $     2,776,507     $     2,428,572     $     2,428,572
Charge-offs:

  Commercial                                           0             (53,337)                  0

  Consumer                                             0             (16,976)             (5,683)
                                         ---------------     ---------------     ---------------
        Total charge-offs                              0             (70,313)             (5,683)

Recoveries:

  Commercial                                       6,082              55,055              47,909

  Consumer                                           156               3,193                   0
                                         ---------------     ---------------     ---------------

         Total recoveries                          6,238              58,248              47,909

Net recoveries (charge-offs)                       6,238             (12,065)             42,226

Provision charged to operation                    50,000             360,000              90,000
                                         ---------------     ---------------     ---------------
Balance end of period                    $     2,832,745     $     2,776,507     $     2,560,798
                                         ===============     ===============     ===============

Ratio of net charge-offs
 annualized to average loans                       -0.01%               0.01%              -0.11%

Balance in allowance as a percentage
  of loans outstanding at period end                1.53%               1.62%               1.63%
</TABLE>

Deposits

A comparative  schedule of average deposit balances is presented in the table on
page 10; period end and year-end deposit balances are presented in the following
table.


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

Interest-bearing
 transaction deposits       $ 30,890,134      13.9%       $ 35,586,113      16.6%       $ 33,489,731      17.2%

Savings deposits              73,355,289      33.0%         74,218,076      34.4%         72,910,910      37.4%

Time deposits,
$100,000 and over             36,831,872      16.5%         32,011,640      14.8%         26,442,251      13.6%

Other time deposits           26,306,510      11.8%         24,482,074      11.3%         18,621,134       9.5%
                            ------------     -----        ------------     -----        ------------     -----

Total interest-bearing
  deposits                   167,383,805      75.2%        166,297,903      77.1%        151,464,026      77.7%

Demand deposits               55,181,969      24.8%         49,460,864      22.9%         43,438,855      22.3%
                            ------------     -----        ------------     -----        ------------     -----
Total deposits              $222,565,774     100.0%       $215,758,767     100.0%       $194,902,881     100.0%
                            ============     =====        ============     =====        ============     =====
</TABLE>


                                       19

<PAGE>

Total deposits  increased by $6.8 million (3.15%) during the 3 months of 2006 to
$222.6  million from $215.8  million at December 31, 2005 and increased by 14.2%
from $194.9 million as of March 31, 2005. Demand deposits, time deposits greater
than  $100,000 and other time  deposits  showed an increase  over year end 2005.
Demand deposits increased $5.7 million or 11.6% during the first three months of
2006. Time deposits greater than $100,000  increased by $4.8 million or 15.1% to
$36.8 million during the first three months of 2006.  Other time deposits showed
growth of 7.5% or $1.8  million to $26.3  million,  during  the three  months of
2006.

Interest  bearing  deposits  showed a decline of $4.7 million (13.2%) from $35.6
million as of December 31, 2005 to $30.9  million as of March 31, 2006.  Savings
deposits  were $73.4  million as of March 31, 2006  compared to $74.2 as of year
end 2005,  a  decline  of  $863,000  or 1.16%.  The  decline  could be, in part,
investors  moving funds from these  accounts into higher  yielding time deposits
discussed above.

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 March
31, 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
March 31, 2006 was 11.14% and its Tier 1 risk-based capital ratio was 9.90%. 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  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.  As of March 31,  2006,  $1,769,730  had been
repurchased  and  retired,   net  of  options  which  were  exercised  and  then
subsequently repurchased and retired. Refer to page 5, for the table of "Changes
in Shareholders' Equity."

Off Balance Sheet Commitments

The Company's off balance sheet  commitments  consist of  commitments  to extend
credit  and  standby  letters of  credit.  These  commitments  are  extended  to
customers in the normal course of business. Unfunded loan commitments were $50.8
million at March 31, 2006 and $35.2 million at March 31, 2005.  Standby  letters
of credit  outstanding were $338,000 at March 31, 2006 and $340,000 at March 31,
2005.  The Company  also has  contractual  obligations  consisting  of operating
leases for


                                       20

<PAGE>


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 March 31, 2006,  the
Company's total  liquidity  ratio (adjusted  liquid assets to deposits and short
term liabilities) was 21.5% compared to 24.4% and 25.5% at December 31, 2005 and
March 31, 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
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  caused by the variable rate loans.
Usually the Company 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 2.75% to 4.75%,  a 200 basis  point
increase, the long term interest rates have only increased about 38 basis points
when compared to March 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.



                                       21
<PAGE>



Simulation of earnings is the primary tool used to measure the sensitivity of
earnings to interest rate changes. Using computer-modeling techniques, the
Company 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 Company's 2005 net interest income, as forecast below,
was modeled utilizing a forecast balance sheet projected from March 31, 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 March 31, 2006
(In thousands)

Variation from a constant rate scenario            $ Change in NII
                  +200bp                                      ($591)
                  +100bp                                      ($295)
                  -100bp                                      ($279)
                  -200bp                                      ($574)

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 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


                                       22

<PAGE>

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,  the negative  change in net interest
income shows both in a rising and declining rate environment. The decline in the
rising rate environment is a result of management's  conservative  evaluation of
the pressure to increase rates on deposits, which temporarily causes the 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 Company has more  liabilities  than assets  repricing  during the next year.
Usually  because the Company's  asset rates change more than deposit rates,  the
Company's  interest  income  will  change more than the cost of funds when rates
change.  For the  current  quarter,  the  Company is making a more  conservative
assumption.  Historically, the Company has been able to raise deposit rates with
a lag to loan rate  increases,  however loan rates have remained flat and market
demands are creating  pressure to raise interest  rates on deposits.  Therefore,
for a period of time,  the Company 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 Company is liability  sensitive
throughout  the  next  year.  At the end of the  twelve  month  cycle,  the rate
sensitive gap shows $87.8 million more in liabilities than assets repricing.

The Company 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  March  31,  2006  for the  Company's
interest-bearing  assets and  interest-bearing  liabilities,  and the  Company's
interest rate sensitivity gap as a percentage of total interest-earning  assets.
Of the $150.9  million in fixed rate assets  over 12 months,  shown in the table
below,  $34.3  million are long term assets over five years.  This $34.3 million
compares favorably to the $79.4 million in demand and core deposits and equity.

<TABLE>
<S>                                            <C>           <C>            <C>            <C>           <C>          <C>
    MARCH 31, 2006                       Immediate       Up to 3         4 to 6       7 to 12        Over
                                          Reprice         Months         Months        Months      12 Months       Total
                                         ---------     -----------     ---------     ---------     ----------    ---------
    FFS + overnight IBB                  $   3,939                                                               $   3,939
    Securities + Other IBB                       0     $     3,755     $   3,089     $   6,178     $   30,311       43,333
    Loans                                   37,967           5,780         6,071        11,396        120,590      181,804
                                         ---------     -----------     ---------     ---------     ----------    ---------
    Total RSA                            $  41,906     $     9,535     $   9,160     $  17,574     $  150,901    $ 229,076
                                         ---------     -----------     ---------     ---------     ----------    ---------

    MMDA/NOW/SAV                         $ 104,245                                                               $ 104,245
    CD's <$100k                                  0     $     8,972     $   6,567     $   6,567     $    4,199       26,305
    CD's >$100k                                  0          11,641        15,807         3,952          5,432       36,832
    Borrowings                                   0               0             0             0              0            0
                                         ---------     -----------     ---------     ---------     ----------    ---------
    Total RSL                            $ 104,245     $    20,613     $  22,374     $  10,519     $    9,631    $ 167,382
                                         ---------     -----------     ---------     ---------     ----------    ---------
    GAP                                  $ (62,339)    $   (11,078)    $ (13,214)    $   7,055     $  141,270    $  61,694
    Cumulative                           $ (62,339)    $   (73,417)    $ (86,631)    $ (79,576)    $   61,694
    % Assets                                 -24.8%          -29.2%        -34.5%        -31.7%          24.6%
</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



                                       23

<PAGE>
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 1.7% or $758,000 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).

Item 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Information regarding Quantitative and Qualitative Disclosures about Market Risk
appears on page 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 defined by Securities  Exchange Act Rule 13a-15(e) or 15d-15(e)),
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 or submitted 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  March 31,  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 reasonably likely to materially
affect our internal controls over financial reporting.

                                       24
<PAGE>


                                     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.

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 Approximate
                                                                                    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:                        0                       0                      0                  $ 419,832(1)
           1/1/06 - 1/31/06

           Month #2:                       17                  $22.50                     17                 $1,519,456(2)
           2/1/06 - 2/28/06

           Month #3:                    7,850                  $24.10                  7,850                 $1,330,271
           3/1/06 - 3/31/06

           Total                        7,867                  $24.10                  7,867
           -------------------- --------------------- ---------------------- ----------------------- ---------------------
</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.

     (2)  On  February  15,  2006  an  additional  $1,100,000  was  approved  to
          repurchase Company stock. No expiration.

Item 3.  DEFAULTS UPON SENIOR SECURITIES

    None

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

    None

Item 5.   OTHER INFORMATION

    None


                                       25
<PAGE>


Item 6.  EXHIBITS

Exhibits

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

     31.2 Certification of Principal Financial Officer and Principal  Accounting
          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


                                       26
<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
                                          (Registrant)



Date:  May 11, 2006                       /s/ Mel Switzer, Jr.
       ------------                       -------------------------------------
                                          Mel Switzer, Jr.
                                          President and Chief Executive Officer
                                          (Principal Executive Officer)




Date:  May 11, 2006                       /s/ Mary Dieter Smith
       ------------                       -------------------------------------
                                          Mary Dieter Smith
                                          Executive Vice President and
                                          Chief Operating Officer and
                                          Chief Financial Officer
                                          (Principal Financial Officer and
                                          Principal Accounting Officer)


                                       27