U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


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


                  For the quarterly period ended: June 30, 2004


                        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 o No |_|

Indicate by a check mark  whether the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No o

The number of shares outstanding of the registrant's Common Stock, no par value,
as of August 6, 2004 was 2,142,103.




                                     Page 1

<PAGE>



INDEX

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

Item 1.  Financial Statements (Unaudited):

         Consolidated Balance Sheets at June 30, 2004,
         December 31, 2003 and June 30, 2003..................................3

         Consolidated Statements of Operations for the
         three months and six months ended June 30, 2004 and 2003.............4

         Consolidated Statements of Changes in Shareholders Equity
         for the six months ended June 30, 2004,
         and the years ended December 31, 2003 and 2002.......................5

         Consolidated Statements of Cash Flows for the
         six months ended June 30, 2004 and 2003..............................7

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

         Average Balances, Yields and Rates Paid
         for the six months ended June 30, 2004 and 2003.....................10

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

Item 3.  Quantitative and Qualitative Disclosure About Market Risk...........25

Item 4.  Controls and Procedures.............................................25


Part II  Other Information

Item 1.  Legal Proceedings...................................................26

Item 2.  Changes in Securities and Use of Proceeds and Issuer Purchases of
         Equity Securities...................................................26

Item 3.  Default Upon Senior Securities......................................26

Item 4.  Submission of Matters to a Vote of Security Holders.................27

Item 5.  Other Information...................................................27

Item 6.  Exhibits and Reports on Form 8-K....................................27

Signatures...................................................................29

Certifications...............................................................30

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.


                                     Page 2

<PAGE>



Part I

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

                              FINANCIAL STATEMENTS
                      SONOMA VALLEY BANCORP AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
             June 30, 2004 (Unaudited), December 31, 2003 (Audited)
                          and June 30, 2003 (Unaudited)
<TABLE>
<S>                                                                          <C>              <C>             <C>

                                                                               June 30,         December 31,     June 30,
                                                                                 2004              2003           2003
                                                                             ------------     ------------     ------------
ASSETS
    Cash and due from banks                                                  $ 11,703,947     $  9,803,272     $  9,076,170
    Federal funds sold                                                          2,850,000       25,220,000       26,840,000
    Interest-bearing due from banks                                                35,234          330,930          330,719
                                                                             ------------     ------------     ------------
                                  Total cash and cash equivalents              14,589,181       35,354,202       36,246,889
    Investment securities available-for-sale, at fair value                    24,305,780       20,119,777       14,045,526
    Investment securities held-to-maturity (fair value
        of $17,754,000, $17,042,000 and $11,803,000,
         respectively)                                                         17,724,113       16,558,153       11,165,263
    Loans and lease financing receivables, net                                139,468,818      119,833,989      119,318,628
    Premises and equipment, net                                                 1,365,588        1,313,995        1,117,100
    Accrued interest receivable                                                 1,116,202          906,958          908,680
    Cash surrender value of life insurance                                      7,891,610        7,730,600        7,559,156
    Other assets                                                                3,681,787        3,288,463        2,629,646
                                                                             ------------     ------------     ------------
                                                     Total assets            $210,143,079     $205,106,137     $192,990,888
                                                                             ============     ============     ============
LIABILITIES
    Noninterest-bearing demand deposits                                      $ 43,813,055     $ 37,947,577     $ 39,193,991
    Interest-bearing transaction deposits                                      32,377,851       32,467,678       29,619,477
    Savings and money market deposits                                          68,092,556       63,680,697       56,662,440
    Time deposits, $100,000 and over                                           24,840,625       26,565,347       24,466,069
    Other time deposits                                                        18,555,309       19,453,317       19,833,979
                                                                             ------------     ------------     ------------
                                                   Total deposits             187,679,396      180,114,616      169,775,956
    Accrued interest payable and other liabilities                              3,495,595        3,520,242        3,208,416
                                                                             ------------     ------------     ------------
                                                Total liabilities             191,174,991      183,634,858      172,984,372
    Commitments and contingencies  (see accompanying notes)

SHAREHOLDERS' EQUITY
    Common stock, no par value; 10,000,000 shares authorized; 2,100,719 shares
        at June 30, 2004 1,457,594 shares at December 31, 2003 and 1,451,786
        shares at June 30, 2003 issued and
        outstanding                                                            14,916,010       15,061,636       14,967,466
    Retained earnings                                                           4,268,298        6,386,083        4,882,517
    Accumulated other comprehensive income (loss)                                (216,220)          23,560          156,533
                                                                             ------------     ------------     ------------
                                       Total shareholders' equity              18,968,088       21,471,279       20,006,516
                                                                             ------------     ------------     ------------
                       Total liabilities and shareholders' equity            $210,143,079     $205,106,137     $192,990,888
                                                                             ============     ============     ============
</TABLE>


                                     Page 3

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<S>                                                          <C>               <C>              <C>               <C>

                                                                   For the Three Months                For the Six Months
                                                                       Ended June 30,                    Ended June 30,
                                                                  2004              2003            2004                2003
                                                             -------------     -------------     -------------     -------------

INTEREST INCOME
  Loans and leases                                           $   2,438,882     $   2,276,001     $   4,632,055     $   4,718,704
  Taxable securities                                               223,418            88,392           426,364           141,828
  Tax-exempt securities                                            164,568           109,492           326,034           218,093
  Federal funds sold                                                17,327            93,395            64,568           169,555
  Dividends                                                          5,756             7,095             5,756             7,095
                                                             -------------     -------------     -------------     -------------
                                   Total interest income         2,849,951         2,574,375         5,454,777         5,255,275
INTEREST EXPENSE
  Interest-bearing transaction deposits                             12,362            15,119            23,957            27,981
  Savings and money market deposits                                104,599           120,058           203,007           246,271
  Time deposits, $100,000 and over                                 163,004           184,525           333,429           380,440
  Other time deposits                                               97,170           122,480           199,015           252,882
                                                             -------------     -------------     -------------     -------------
                                  Total interest expense           377,135           442,182           759,408           907,574
                                                             -------------     -------------     -------------     -------------
NET INTEREST INCOME                                              2,472,816         2,132,193         4,695,369         4,347,701
  Provision for loan and lease losses                               30,000                 0            30,000            20,000
                                                             -------------     -------------     -------------     -------------

                                     NET INTEREST INCOME
                                     AFTER PROVISION FOR
                                          LOAN AND LEASE
                                                  LOSSES         2,442,816         2,132,193         4,665,369         4,327,701
NON-INTEREST INCOME                                                390,746           436,925           812,112           841,021
NON-INTEREST EXPENSE
  Salaries and employee benefits                                 1,057,762           815,644         2,010,804         1,659,640
  Premises and equipment                                           209,639           183,376           432,109           365,021
  Other                                                            555,947           509,675         1,096,385         1,045,531
                                                             -------------     -------------     -------------     -------------
                              Total non-interest expense         1,823,348         1,508,695         3,539,298         3,070,192
                                                             -------------     -------------     -------------     -------------
                                 Income before provision
                                        for income taxes         1,010,214         1,060,423         1,938,183         2,098,530
  Provision for income taxes                                       318,621           353,545           601,020           697,923
                                                             -------------     -------------     -------------     -------------

                                              NET INCOME     $     691,593     $     706,878     $   1,337,163     $   1,400,607
                                                             =============     =============     =============     =============
NET INCOME PER SHARE                                         $         .32     $         .32     $         .61     $         .64
                                                             =============     =============     =============     =============
NET INCOME PER SHARE-
ASSUMING DILUTION                                            $         .29     $         .29     $         .56     $         .58
                                                             =============     =============     =============     =============
</TABLE>

                                     Page 4

<PAGE>



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

     For the six months ended June 30, 2004(Unaudited), and the years ended
                 December 31, 2003 (Audited) and 2002 (Audited)

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

                                                                                              Accumulated
                                                                                                Other
                             Comprehensive        Common  Stock               Retained       Comprehensive
                                Income         Shares      Amount             Earnings         Income               Total
                             -------------    ---------   -------------    --------------   --------------     -------------

BALANCE AT
   JANUARY 1, 2002                            1,333,504   $  11,025,885    $    5,483,779   $      161,398     $  16,671,062

5% stock dividend                                65,742       1,775,026        (1,775,026)
Fractional shares                                                                 (13,951)                           (13,951)
Redemption and retirement
  of stock                                      (14,596)       (121,257)         (223,345)                          (344,602)
Stock options exercised and
 related tax benefits                            16,496         256,571                                              256,571
Net income for the year      $   2,744,333                                      2,744,333                          2,744,333
Other comprehensive loss,
  net of tax:
  Unrealized holding losses
    on securities available-
    for-sale arising during
    the year, net of taxes
    of $51,125                     (73,103)
                             -------------
Other comprehensive loss,
  net of taxes                     (73,103)                                                        (73,103)          (73,103)
                             -------------    ---------   -------------    --------------   --------------     -------------

Total comprehensive income   $   2,671,230
                             =============

BALANCE AT
  DECEMBER 31, 2002                           1,401,146   $  12,936,225    $    6,215,790   $       88,295     $  19,240,310

5% stock dividend                                68,665       1,997,422        (1,997,422)
Fractional shares                                                                 (14,193)                           (14,193)
Redemption and retirement
  of stock                                      (38,987)       (361,296)         (729,099)                        (1,090,395)
Stock options exercised and
  related tax benefits                           26,770         489,285                                              489,285
Net income for the year      $   2,911,007                                      2,911,007                          2,911,007
Other comprehensive loss,
  net of tax:
  Unrealized holding losses
    on securities available-
    for-sale arising during
    the year, net of taxes
    of $45,274                     (64,735)
                             -------------
Other comprehensive loss,
  net of taxes                     (64,735)                                                        (64,735)          (64,735)
                             -------------    ---------   -------------    --------------   --------------     -------------

Total comprehensive income   $   2,846,272
                             =============
</TABLE>



                                     Page 5

<PAGE>



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

     For the six months ended June 30, 2004(Unaudited), and the years ended
                 December 31, 2003 (Audited) and 2002 (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, 2003                                  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)
Cash dividend of $.25 per
share                                                                                  (371,206)                           (371,206)
Stock options granted                                                   41,472                                               41,472
Stock options exercised and
  related tax benefits                                  69,693       1,235,343                                            1,235,343
Redemption of stock
  under tender offer                                  (126,208)     (1,416,223)      (3,071,903)                         (4,488,126)
  3 for 2 stock split (declared in
  July 2004 - shown retroactive
  for reporting purposes)                              700,241
Net income for the period          $   1,337,163                                      1,337,163                           1,337,163
Other comprehensive loss,
  net of tax:
  Unrealized holding losses
    on securities available-
    for-sale arising during
    the year, net of taxes
    of $ 167,693                        (239,780)
                                  --------------
Other comprehensive loss,
  net of taxes                          (239,780)                                                         (239,780)        (239,780)
                                   -------------     ---------    ------------    -------------     --------------     ------------


Total comprehensive income         $   1,097,383
                                   =============


BALANCE AT
 June 30, 2004                                       2,100,719    $ 14,916,010    $   4,268,298     $     (216,220)    $ 18,968,088
                                                     =========    ============    =============     ==============     ============
</TABLE>


                                     Page 6

<PAGE>



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

                 For the six months ended June 30, 2004 and 2003
<TABLE>
<S>                                                                                <C>                 <C>


                                                                                        2004                 2003
                                                                                   --------------      -------------
OPERATING ACTIVITIES
    Net income                                                                     $   1,337,163       $   1,400,607
    Adjustments to reconcile net income
        to net cash provided by operating activities:
            Provision for loan and lease losses                                           30,000              20,000
            Depreciation                                                                 148,763             108,995
            Gain on sale of premise and equipment                                            (45)                  0
            Amortization and other                                                        64,861              41,153
            Stock options granted                                                         41,472                   0
            Net change in interest receivable                                           (209,244)           (109,399)
            Net change in cash surrender value
               of life insurance                                                        (161,010)           (171,444)
            Net change in other assets                                                  (225,631)            335,892
            Net change in interest payable and other liabilities                         (24,647)           (165,749)
                                                                                   ------------        -------------
                                  NET CASH PROVIDED BY OPERATING ACTIVITIES            1,001,682           1,460,055
INVESTING ACTIVITIES
    Purchases of securities held-to-maturity                                          (1,984,960)         (2,766,843)
    Purchases of securities available-for-sale                                        (8,154,337)        (10,884,142)
    Proceeds from maturing securities held-to-maturity                                   765,000           1,505,000
    Proceeds from maturing securities available-for-sale                               3,550,000             750,000
    Net change in loans and leases                                                   (19,664,829)          5,930,553
    Purchases of premises and equipment                                                 (200,311)           (350,398)
                                                                                   -------------       -------------
                                      NET CASH USED BY INVESTING ACTIVITIES          (25,689,437)         (5,815,830)

FINANCING ACTIVITIES
    Net change in demand, interest-bearing
        transaction and savings deposits                                           $  10,187,510       $  10,284,799
    Net change in time deposits                                                       (2,622,730)           (497,095)
    Cash dividend paid                                                                  (371,206)                  0
    Stock repurchases                                                                 (4,506,183)         (1,080,123)
    Stock options exercised                                                            1,235,343             377,484
                                                                                   -------------       -------------
                                   NET CASH PROVIDED BY FINANCING ACTIVITIES           3,922,734           9,085,065
                                                                                   -------------       -------------
                                     NET CHANGE IN CASH AND CASH EQUIVALENTS         (20,765,021)          4,729,290
    Cash and cash equivalents at beginning of period                                  35,354,202          31,517,599
                                                                                   -------------       -------------
                                  CASH AND CASH EQUIVALENTS AT END OF PERIOD       $  14,589,181       $  36,246,889
                                                                                   =============       =============

SUPPLEMENTAL DISCLOSURES OF
    CASH FLOW INFORMATION:

Cash paid during the year for:
    Interest expense                                                               $     765,148       $     914,317
    Income taxes                                                                   $     115,000       $     280,000

SUPPLEMENTAL DISCLOSURES OF
     NONCASH ACTIVITIES:
Net change in unrealized gains and losses on securities available for sale         $    (407,473)      $     115,961
Net change in deferred income taxes on unrealized
     gains and losses on securities                                                $     167,693       $     (47,723)
</TABLE>


                                     Page 7

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  June 30, 2004
                                   (Unaudited)

Note 1 - Basis of Presentation

In the opinion of  Management,  the  unaudited  interim  consolidated  financial
statements  contain all  adjustments  of a normal  recurring  nature,  which are
necessary to present fairly the financial condition of Sonoma Valley Bancorp and
Subsidiary  (the  "Company") at June 30, 2004 and results of operations  for the
three and six months then ended.

Certain information and footnote  disclosures  presented in the Company's annual
financial  statements  are not included in these interim  financial  statements.
Accordingly,   the  accompanying   unaudited  interim   consolidated   financial
statements should be read in conjunction with the financial statements and notes
thereto  included in the Company's  2003 Annual Report on Form 10-K. The results
of  operations  for the  three  and six  months  ended  June  30,  2004  are not
necessarily indicative of the operating results through December 31, 2004.

Note 2 - Consolidation

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

Note 3 - Commitments

The Company has no  outstanding  performance  letters of credit at June 30, 2004
and June 30, 2003.

Note 4 - Net Income Per Common Share

Net income per share is calculated by using the weighted  average  common shares
outstanding.  The weighted average number of common shares used in computing the
net income per common  share for the period  ending June 30, 2004 was  2,191,136
and for the period ending June 30, 2003 was 2,194,449.

Net income per share  (diluted)  is  calculated  by using the  weighted  average
common  shares  (diluted)  outstanding.  The weighted  average  number of common
shares (diluted) used in computing the net income per common share (diluted) for
the period ending June 30, 2004 was 2,389,336 and for the period ending June 30,
2003 was 2,402,238.

Note 5 - Stock Option Accounting

The Company has two  stock-based  employee and director  compensation  plans. In
December  2002 the  Financial  Accounting  Standards  Board issued SFAS No. 148,
Accounting for Stock-Based Compensation, an Amendment of SFAS No. 123 ("SFAS No.
123") in an effort to encourage the recognition of compensation  expense for the
issuance of stock options. The Company adopted SFAS No. 148 effective January 1,
2003  using  the  prospective   application  method.   Under  this  method,  the
compensation expense and related tax benefit associated with stock option grants
issued on or after January 1, 2003 will be  recognized in the income  statement.
Prior to  January 1, 2003,  the  Company  accounted  for those  plans  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

                                     Page 8

<PAGE>



granted under those plans had an exercise price equal to the market value of the
underlying  common stock on the date of grant.  The following table  illustrates
the effect on net income and  earnings  per share if the Company had applied the
fair value  recognition  provisions of FASB  Statement No. 123,  Accounting  for
Stock-Based  Compensation,  to stock-based compensation on stock options granted
prior to January 1, 2003.
<TABLE>
<S>                                                     <C>             <C>             <C>             <C>


                                                            For the Three Months           For the Six Months
                                                                Ended June 30                 Ended June 30
                                                            2004            2003           2004             2003
                                                        -----------     -----------     -----------     -----------
    Net Income, as reported                             $   691,593     $   706,878     $ 1,337,163     $ 1,400,607
    Deduct: Total stock-based
       compensation expense determined
       under fair value based method for all
       awards, net of related tax effects                   (31,000)        (44,975)        (62,000)        (89,950)
                                                        -----------     -----------     -----------     -----------
    Pro forma net income                                $   660,593     $   661,903     $ 1,275,163     $ 1,310,657
                                                        ===========     ===========     ===========     ===========
Net income per share:
    Basic - As reported                                         .32             .32             .61             .64
    Basic - Pro forma                                           .30             .30             .58             .60
    Diluted - As reported                                       .29             .29             .56             .58
    Diluted - Pro forma                                         .28             .28             .53             .55
</TABLE>

Note 6 - Employee Benefit Plans

The Bancorp  provides  retirement  plans to its key officers and directors.  The
plans are unfunded and provide for the Bancorp to pay the officers and directors
specified amounts for specified periods after retirement.  The amount of pension
expense  related to this plan, and the components of pension expense for the six
months ended June 30, 2004 and 2003 are as follows:

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

                                                            Directors                            Officers
                                                  -------------------------------     ------------------------------
                                                      2004               2003             2004               2003
                                                  -------------     -------------     -------------     ------------
Service cost                                      $      31,604     $      35,694     $      92,140     $    100,811
Interest cost on projected benefit obligation            10,909             6,819            34,552           38,534
Amortization of unrecognized liability at
 transition                                                                                 (15,089)         (17,901)
                                                  -------------     -------------     -------------     ------------
Net periodic pension cost recognized              $      42,513     $      42,513     $     111,603     $    121,444
                                                  =============     =============     =============     ============
</TABLE>

Note 7 - Subsequent Event

On July 21, 2004,  the  Company's  Board of  Directors  declared a 3 for 2 stock
split on  outstanding  common stock to be  distributed  on August 26,  2004,  to
holders  of record on August 6, 2004.  As a result of the  split,  approximately
700,241  shares of common  stock  will be  distributed.  The  balance  sheet and
statement of changes in shareholders'  equity have been  retroactively  adjusted
for financial reporting purposes to present the stock split as of June 30, 2004.
All data with respect to net income per common share and weighted average number
of shares outstanding has also been retroactively  adjusted to reflect the stock
split.  In  addition,  the Board of  Directors  declared  a $.25 per share  cash
dividend to be distributed on August 26, 2004, to holders of record on August 6,
2004, after reflecting the stock split.

                                     Page 9

<PAGE>

                              SONOMA VALLEY BANCORP
                     AVERAGE BALANCES/YIELDS AND RATES PAID
                 For the six months ended June 30, 2004 and 2003
                             (dollars in thousands)
<TABLE>
<S>                                        <C>          <C>            <C>         <C>          <C>            <C>
                                                              2004                                 2003
                                                              ----                                 ----
ASSETS                                      Average        Income/      Yield/      Average        Income/      Yield/
                                            Balance       Expense        Rate       Balance       Expense        Rate
                                           --------     -----------     ------     --------     -----------     -----
Interest-earning assets:
Loans(2):
  Commercial                               $ 92,696     $     3,267      7.09%     $ 84,518     $     3,162      7.54%
  Consumer                                   13,307             458      6.92%       12,175             464      7.69%
  Real estate construction                   18,038             686      7.65%       20,099             795      7.98%
  Real estate mortgage                        3,353             132      7.92%        4,508             193      8.63%
  Tax exempt loans (1)                        3,067             128      8.39%        3,182             132      8.37%
  Leases                                         37               5     27.18%           85              13     30.84%
  Tax exempt leases (1)                           2               0      0.00%           63               7     22.41%
  Unearned loan fees                           (440)                                   (415)
                                           --------     -----------                 -------     -----------
         Total loans                        130,060           4,676      7.23%      124,215           4,766      7.74%
Investment securities
  Available for sale:
         Taxable                             23,574             417      3.56%        7,313             134      3.70%
  Hold to maturity:
         Taxable                                396               5      2.54%          378               8      4.27%
         Tax exempt (1)                      16,943             494      5.86%        9,544             330      6.97%
                                           --------     -----------                --------     -----------
         Total investment securities         40,913             916      4.50%       17,235             472      5.52%
Federal funds sold                           14,032              64      0.92%       29,179             170      1.17%
                FHLB Stock                      495               6      2.44%          285               7      4.95%
Total due from banks/Interest bearing           274               4      2.94%           71               0      0.00%
                                           --------     -----------                --------     -----------
  Total interest earning assets             185,774     $     5,666      6.13%      170,985     $     5,415      6.39%
                                                        ===========                             ===========
Noninterest-bearing assets:
  Reserve for loan losses                    (2,475)                                 (2,785)
  Cash and due from banks                     9,530                                   8,783
  Premises and equipment                      1,355                                     972
  Other assets                               11,863                                  10,919
                                           --------                                --------
           Total assets                    $206,047                                $188,874
                                           ========                                ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest bearing liabilities:
  Interest bearing deposits
         Interest bearing transaction      $ 32,935     $        24      0.15%     $ 29,000     $        28      0.19%
         Savings deposits                    65,316             203      0.63%       55,168             246      0.90%
         Time deposits over $100,000         25,747             333      2.60%       24,930             381      3.08%
         Other time deposits                 18,904             199      2.12%       19,897             253      2.56%
                                           --------     -----------                --------     -----------
         Total interest bearing deposits    142,902             759      1.07%      128,995             908      1.42%
Federal funds purchased                           0               0      0.00%            0               0      0.00%
  Other short term borrowings                     0               0      0.00%            0               0      0.00%
                                           --------     -----------                --------     -----------
           Total interest bearing
                     liabilities            142,902     $       759      1.07%      128,995     $       908      1.42%
                                                        ===========                             ===========
Non interest bearing liabilities:
  Non interest bearing demand deposits       38,154                                  36,949
  Other liabilities                           3,397                                   3,180
  Shareholders' equity                       21,594                                  19,750
                                           --------                                --------
         Total liabilities and
         shareholders' equity              $206,047                                $188,874
                                           ========                                ========
Interest rate spread                                                     5.06%                                   4.97%
                                                                         ====                                   =====
Interest income                                         $     5,666      6.13%                  $     5,415      6.39%
Interest expense                                                759      0.82%                          908      1.07%
                                                        -----------      ----                   -----------     -----
Net interest income/margin                              $     4,907      5.31%                  $     4,507      5.32%
                                                        ===========      ====                   ===========     =====
</TABLE>

(1)  Fully tax equivalent  adjustments are based on a federal income tax rate of
     34% in 2004 and 2003.
(2)  Non accrual loans have been included in loans for the purposes of the above
     presentation.  Loan fees of approximately $139,809 and $188,870 for the six
     months ended June 30, 2004 and 2003,  respectively,  were  amortized to the
     appropriate interest income categories.

                                     Page 10

<PAGE>



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


Forward Looking Statements

  For the Six Month Periods
  Ended June 30, 2004 and 2003

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 wholly owned
subsidiary,  Sonoma  Valley  Bank (the  "Bank"),  projected  costs and  expenses
related  to  operations  of the  bank,  liquidity,  capital  resources,  and the
availability of future equity capital on commercially  reasonable terms. Factors
that could cause actual results to differ materially include, in addition to the
other  factors  identified  in this Form  10-Q,  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.

Overview

The Company continues to be profitable, however, net income decreased by $63,444
from $1,400,607 for the six months ended June 30, 2003 to $1,337,163 for the six
months  ended June 30,  2004.  The  decrease in net income is a result  expenses
associated with the opening of a new branch,  Banco de Sonoma,  during the first
quarter and the  recognition of expense for stock options granted during January
2004. Additionally,  the Company experienced a decline in income associated with
loan  referral  fees.  The Company now  originates  most of the  mortgage  loans
previously  outsourced  to a vendor.  The net effect of these items  combined to
lower net income.  On a per share basis,  net income  equaled $.61 compared with
$.64 per share during the same period in 2003.

Return on average total assets on an annualized basis for the six-month  periods
was 1.31% in 2004 and 1.50% in 2003. Return on average  shareholders'  equity on
an  annualized  basis for the same periods was 12.45% and 14.30%,  respectively.
The  decline  in the  return  on  average  assets  in 2004 is the  result of the
increase  in  average  assets and lower  income  during the period and the lower
return on  equity is the  result  of the  decrease  in income  for the six month
period of 2004.


                                     Page 11

<PAGE>



Income for the six month  period  ending June 30, 2004 is lower than 2003 due to
the decline in interest rates on loans, the significant decline in loan referral
income,  the increase in operating expense due to the new Banco de Sonoma Branch
and the  expensing of stock  options.  The Company has  experienced  pressure to
refinance  loans  for  customers  and many of the  loans  are tied to the  prime
lending rate and have repriced accordingly.

The most significant  event affecting the Company's growth is the opening of the
Banco de  Sonoma  branch  in Boyes  Hot  Springs.  Initially,  this  will have a
negative  effect on the Income  Statement  by  creating in excess of $200,000 in
additional  expense  for the  Company.  The branch is  offering  services to the
Latino  community in our market  place.  Management  identified  this as a niche
which was under served and an opportunity  for future growth and  profitability.
All  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 be slow and steady and profitable
within three or four years.

Total shareholders' equity declined by $2.5 Million or 11.66% for the six months
ended June 30,  2004.  On May 21, 2004,  the Company  closed the tender offer to
purchase 100,000 shares of stock at $35.00 per share. The Company  exercised its
right to purchase  an  additional  number of shares up to 2% of the  outstanding
shares or approximately  29,696 shares.  In total the Company  purchased 126,208
shares of stock at the conclusion of the tender offer for  $4,488,126  including
expenses  associated  with the  offering,  lowering  equity.  In addition to the
tender  offer,  the  Company  repurchased  and  retired  601 shares of stock for
$18,000. For the six months ending June 30, 2004 the Company reported net income
of  $1,337,000  and paid out  $371,000 in cash  dividends  in March,  2004.  The
directors and officers  exercised  69,693  options  which added  $841,000 to the
capital accounts. The tax benefit on these options exercised was $395,000, which
also increases equity. See page 6 for detail of "Changes in Shareholder Equity."

RESULTS OF OPERATIONS

Net interest Income

Net interest  income is the difference  between total interest  income and total
interest expense.  Net interest income,  adjusted to a fully taxable  equivalent
basis,  as shown on the table- Average  Balance,  Yields and Rates Paid, on page
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 ($211,000 in 2004 and $160,000 in 2003,  based on a 34% federal income tax
rate).

The  improvement  in net interest  income for the six months ended June 30, 2004
(stated on a fully taxable  equivalent basis) is a result of the net effect of a
$251,000  increase in interest income offset by a decline in interest expense of
$149,000,  resulting in an increase of $400,000. The increase in interest income
is a result of the growth in the loan portfolio  offset by the low rates paid on
deposit accounts which was a result of the decline in the fed funds rate and the
prime lending rate in June 2003.


                                     Page 12

<PAGE>



Net interest income (stated on a fully taxable  equivalent basis) expressed as a
percentage of average earning assets, is referred to as net interest margin. The
Company's net interest margin for 2004 declined to 5.31% from 5.32% for the same
period in 2003.

Interest Income

As previously  stated,  interest  income  (stated on a fully taxable  equivalent
basis)  increased  by $251,000 to $5.7 million in the six months of 2004, a 4.6%
increase over the $5.4 million realized during the same period in 2003.

The  $251,000  increase  was the net effect of the growth in the loan  portfolio
offset by the 25 basis point decline in the prime lending rate in June, 2003 and
higher  yielding  loans  refinancing at lower interest  rates.  Average  earning
assets grew 8.65% from $171.0 in 2003 to $185.8 in 2004.

Interest Expense

Total interest expense  declined by $148,000 to $759,000.  The average rate paid
on all  interest-  bearing  liabilities  declined from 1.42% in 2003 to 1.07% in
2004. Average balances of earning  liabilities  increased from $129.0 million to
$142.9  million,  a 10.8% gain in  deposits.  The  increase in volume of average
balances was  responsible for a $49,000  increase in interest  expense which was
more than  offset by a $197,000  decrease in expense  related to lower  interest
rates.

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 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.  Due to  managements'
evaluation and  assessment of the loan  portfolio as a result of loan growth,  a
provision of $30,000 was made in 2004 compared to $20,000 during the same period
of 2003.  Management  anticipates  that loan growth  will  increase in the third
quarter which could necessitate an additional  provision to the reserve for loan
losses. The provision for loan losses at year end 2003 was $20,000.

The economic climate  continues to slowly improve and the non-accrual  portfolio
dropped to below 1% of total  loans  during  the first six months of 2004,  down
over half from the level in the first six months of 2003. Loans charged-off were
$290,604 (one loan  represented  over 92.9% of this figure) and recoveries  were
$12,041 for the six months of 2004  compared  with  $38,249 in  charge-offs  and
$9,418 in recoveries for the same period in 2003.

Non-interest Income

Non-interest income of $812,000 decreased 3.4% from the $841,000 recorded in the
comparable  period in 2003.  The  Company  has  experienced  a  decline  in loan
referral  income which is a result of the decline in loan  refinancings  and new
purchase loans, offset by an increase in service charge income.

                                     Page 13

<PAGE>



Non-interest Expense

Total non-interest  expense increased 15.3% to $3.5 million during the first six
months of 2004  from  $3.1  million  for the same  period in 2003.  Non-interest
expense on an annualized basis represented 3.45% of average total assets in 2004
compared with 3.28% in the  comparable  period in 2003. The increase in the 2004
expense ratio  largely  reflects  expenses  incurred with the opening of our new
branch, Banco de Sonoma and the expensing of stock options.

Salaries and benefits  increased 21.2% from $1.7 million in 2003 to $2.0 million
in 2004. The 2004 increase is largely the result of the additional  staffing and
benefits  required for the Banco de Sonoma  branch which opened during the first
quarter;  and the effect of a 64.9% increase in the cost of Workers Compensation
insurance when comparing the six months ended June 30, 2004 with the same period
of 2003.  Additionally,  the Company began  expensing  stock options  awarded in
2004. At June 30, 2004, total full time equivalent employees were 56 compared to
48 in 2003.

Expense  related to premises and equipment  increased  18.4% to $432,000 in 2004
from $365,000 in 2003.  The increase in expense in 2004 is a result of a remodel
of the Sonoma  Branch and the  opening of the Banco de Sonoma  branch.  The bank
continues to emphasize  security in its computer  operations  and  equipment and
software are monitored and upgraded as appropriate to ensure  confidentiality of
customer and company data. The company continues to emphasize the utilization of
technology to generate efficiencies throughout the organization.

Other  operating  expenses  increased  by 4.9% in 2004 to $1.1 million from $1.0
million in 2003. The bank  continues to utilize  professional  assistance  where
appropriate  and bank  insurance  expense showed a large increase in 2004 due to
increases in premiums and additional coverages purchased.

Provision for Income Taxes

The provision  for income taxes  declined to an effective tax rate of 31.01% for
the six months of 2004  compared  with  33.26%  for the six months of 2003.  The
lower effective tax rate is a reflection of the increase of municipal securities
in the investment  portfolio.  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 $42.0 million at June 30, 2004, a 14.6% increase from
the $36.7  million at December 31, 2003 and a 66.7%  increase from $16.8 million
at June 30, 2003.  The  significant  increase in the  portfolio is  management's
attempt  to  generate  higher  earnings  by moving  funds from Fed Funds Sold to
higher  yielding  investments.  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.


                                     Page 14

<PAGE>



Securities  are  classified  as held to  maturity,  if the  Company has both the
intent and the  ability to hold these  securities  to  maturity.  As of June 30,
2004, the Company had  securities  totaling $17.7 million with a market value of
$17.7 million  categorized as held to maturity.  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 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 available for sale are
acquired as part of the overall  asset and  liability  management  function  and
serve as a primary  source of  liquidity.  Decisions  to  acquire  or dispose of
different  investments  are  based on an  assessment  of  various  economic  and
financial factors,  including, but not limited to, interest rate risk, liquidity
and capital  adequacy.  Securities  held in the  available for sale category are
recorded at market value,  which is $24.3 million  compared to an amortized cost
of $24.7 million as of June 30, 2004.

Although the quoted market values fluctuate, investment securities are generally
held to  maturity,  and  accordingly,  gains and  losses are  recognized  in the
accounts upon sale, or at such time as  management  determines  that a permanent
decline in value exists.

Loans

The Company's  loan  portfolio was $141.9  million at June 30, 2004, or 75.6% of
total deposits.  This compares with $122.5 million,  or 68.0% of total deposits,
at December 31, 2003 and $122.1 million, or 71.9% of total deposits, at June 30,
2003. 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>

                                    June 30,      Percentage      December 31,   Percentage        June 30,      Percentage
                                      2004         of Total          2003         of Total          2003         of Total
                                 ------------     ----------     ------------    ----------     ------------     ----------

Commercial                       $101,715,639           71.4%    $ 92,197,984          75.0%    $ 89,840,964           73.3%
Consumer                           14,327,942           10.1%      11,750,131           9.6%      11,359,551            9.3%
Real estate construction           20,742,197           14.6%      16,646,907          13.5%      17,448,570           14.2%
Real estate mortgage                5,526,690            3.9%       2,231,244           1.8%       3,748,583            3.1%
Leases                                 27,790            0.0%          79,884           0.1%          93,277            0.1%
                                 ------------     ----------     ------------     ---------      -----------    ----------
                                  142,340,258          100.0%     122,906,150         100.0%     122,490,945          100.0%
                                                  ==========                      =========                      ==========
Deferred loan fees
 and costs, net                      (485,378)                       (437,536)                      (399,186)
Allowance for loan
 and lease losses                  (2,386,062)                     (2,634,625)                    (2,773,131)
                                 ------------                    ------------                   ------------

                                 $139,468,818          100.0%    $119,833,989         100.0%    $119,318,628          100.0%
                                 ============     ==========     ============     =========     ============     ==========
</TABLE>




                                     Page 15

<PAGE>



Risk Elements

The majority of the Company's  loan activity is with  customers  located  within
Sonoma County.  Approximately 87% of the total loan portfolio is secured by real
estate located in the Company's service area.

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

Non Performing Assets

There were $1.1 million  nonaccrual  loans and no loans 90 days or more past due
and still accruing at June 30, 2004 down from $3.1 million  nonaccrual loans and
no loans 90 days or more past due and still accruing at June 30, 2003.

Allowance for Loan Losses

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

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

Worsening  conditions in certain  economic  sectors and  geographic  areas could
adversely affect the loan portfolio,  necessitating  larger  provisions for loan
losses  than  currently  estimated.  However,  as of June 30,  2004 the  Company
believes its overall allowance for loan losses is adequate based on its analysis
of conditions at that time.

At June 30, 2004,  the allowance  for loan losses was $2.4 million,  or 1.68% of
period-end loans,  compared with $2.6 million, or 2.15% at December 31, 2003 and
$2.8 million, or 2.27% at June 30, 2003.



                                     Page 16

<PAGE>



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


                                          For the Six Months         For the Year      For the Six Months
                                                Ended                   Ended                 Ended
                                               6/30/04                 12/31/03              6/30/03

Balance beginning of year                   $     2,634,625      $     2,781,962     $     2,781,962
Charge-offs:
  Commercial                                       (290,000)            (142,572)             (4,955)
  Consumer                                             (604)             (41,161)            (33,294)
                                            ---------------      ---------------     ---------------

                      Total charge-offs            (290,604)            (183,733)            (38,249)
Recoveries:

  Commercial                                         10,695                8,320               4,480
  Consumer                                            1,346                8,076               4,938
                                            ---------------      ---------------     ---------------

                       Total recoveries              12,041               16,396               9,418

Net charge-offs                                    (278,563)            (167,337)            (28,831)
Provision charged to operations                      30,000               20,000              20,000
                                            ---------------      ---------------     ---------------
Balance end of period                       $     2,386,062      $     2,634,625     $     2,773,131
                                            ===============      ===============     ===============
Ratio of net charge-offs
 annualized to average loans                           0.43%                0.14%               0.05%
Balance in allowance as a percentage                   1.68%                2.15%               2.27%
  of loans outstanding at period end
</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>

                            June 30,      Percentage      December 31,    Percentage      June 30,        Percentage
                             2004          of Total           2003         of Total         2003           of Total
                         ------------     ----------     ------------     ----------     ------------     ----------
Interest bearing
 transaction deposits    $ 32,377,851           17.3%    $ 32,467,678           18.0%    $ 29,619,477           17.4%
Savings deposits           68,092,556           36.3%      63,680,697           35.4%      56,662,440           33.4%
Time deposits,
$100,000 and over          24,840,625           13.2%      26,565,347           14.7%      24,466,069           14.4%
Other time deposits        18,555,309            9.9%      19,453,317           10.8%      19,833,979           11.7%
                         ------------     ----------     ------------     ----------     ------------     ----------
Total interest bearing

  deposits                143,866,341           76.7%     142,167,039           78.9%     130,581,965           76.9%
Demand deposits            43,813,055           23.3%      37,947,577           21.1%      39,193,991           23.1%
                         ------------     ----------     ------------     ----------     ------------     ----------
Total deposits           $187,679,396          100.0%    $180,114,616          100.0%    $169,775,956          100.0%
                         ============     ==========     ============     ==========     ============     ==========
</TABLE>

                                    PAGE 17
<PAGE>

Total  deposits  increased by $7.6  million,  during the six months of 2004,  to
$187.7 million from $180.1  million at December 31, 2003.  Non interest  bearing
demand deposits  showed the greatest  increase of $5.9 million or 15.5% to $43.8
million at June 30,  2004 from  $37.9  million as of  December  31,  2003 and an
increase of $4.6  million or 11.8%  increase  from $39.2  million as of June 30,
2003.  Savings  deposits  increased  $4.4 million or 6.9% to $68.1  million from
$63.7  million as of  December  31,  2003 or $11.4  million and 20.2% from $56.7
million as of June 30, 2003.


When  comparing  December 31,  2003,  the Company  showed  declines in all other
categories of deposits. Time deposits greater than $100,000, other time deposits
and interest bearing checking  declined by 6.5%, 4.6% and .28% to $24.8 million,
$18.6 million and $32.4 million,  respectively. Of those three, interest bearing
checking and time deposits  greater than $100,000 show  increases  over June 30,
2003 of 9.3% and 1.5% from $29.6 million and $24.5 million,  respectively.  Only
the category of other time deposits  declined by 6.4% from $19.8 million at June
30, 2003 to $18.6 million as of June 30, 2004.  Customers may be allowing  funds
to accumulate in savings accounts rather than time deposits to more readily take
advantage of future interest rate increases.

With the future of  interest  rates  uncertain  the Company  cannot  predict how
quickly rates may change on deposit  accounts which could cause the net interest
margin to decline, resulting in lower net income.

Risk-Based Capital

The Federal Deposit Insurance  Corporation (FDIC) has adopted risk-based capital
guidelines  which establish a risk-adjusted  ratio relating capital to different
categories of assets and off- balance sheet exposures. Under current guidelines,
as of June 30,  2004,  the Company 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 should be 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 constitute the
basis for determining the capital adequacy of banking organizations.

The table below presents Tier 1 capital,  total capital and total  risk-weighted
assets at June 30, 2004,  along with the related  risk-based  capital  ratio and
leverage ratio.

(dollars in thousands)
<TABLE>
<S>   <C>              <C>           <C>       <C>         <C>        <C>


         Total
      Risked-based      TIER 1                  TOTAL                 Leverage
         Assets        Capital       Ratio     Capital      Ratio      Ratio
      ------------     ---------     -----     --------     -----     --------

      $181,316         $ 17,384      9.59%     $ 19,652     10.84%     8.37%
</TABLE>

                                     Page 18

<PAGE>



Off Balance Sheet Commitments

The Company's off balance sheet  commitments  consist of  commitments  to extend
credit of $34.2  million  and  standby  letters  of credit  of  $410,000.  These
commitments  are  extended to customers  in the normal  course of business.  The
Company also has  contractual  obligations  consisting  of operating  leases for
various facilities and payments to participants under the Company's supplemental
executive retirement plan and deferred compensation plan.

The following table summarizes the Company's contractual  obligations as of June
30, 2004.


                                                       Payments due by period
<TABLE>
<S>                             <C>          <C>          <C>          <C>          <C>
Contractual Obligations
                                              Less than                              More than
                                  Total        1 year     1-3 years     3-5 years     5 years
Operating Lease Obligations     1,550,371     302,802     871,413       376,156          -
Executive Officer and
Director Supplemental
Retirement                      1,879,336       5,450      31,949       202,216      1,639,721
Deferred Compensation           1,065,051      13,846      18,106       114,599        918,500
</TABLE>


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,  investment  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 of Directors  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.  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.  The Company is able to mitigate it's risk from changes in
interest rates with this balance sheet structure. The asset/liability management
policy sets limits on the acceptable  amount of variance in net interest  margin
and market value of equity under

                                     Page 19

<PAGE>



changing interest  environments.  The Company uses simulation models to forecast
earnings, net interest margin and market value of equity.

     Simulation of earnings is the primary tool used to measure the  sensitivity
of earnings to interest rate changes. Using  computer-modeling  techniques,  the
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
four interest rate  scenarios.  The scenarios  include a 100 and 200 basis point
rising rate  forecasts,  a flat rate forecast and a 100 basis point falling rate
forecast 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 2004 net interest income, as forecast below,
was modeled  utilizing a forecast  balance  sheet  projected  from year-end 2003
balances. The following table summarizes the effect on net interest income (NII)
of a +/-100 and +200 basis point change in interest rates as measured  against a
constant rate (no change) scenario.

Interest Rate Risk Simulation of Net Interest Income as of June 30, 2004
(In thousands)
<TABLE>
<S>               <C>                       <C>

Variation from a constant rate scenario     $ Change in NII
                  +200bp                    $   382
                  +100bp                        178
                  -100bp                       (118)
</TABLE>

     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.

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

     A positive cumulative gap may be equated to an asset sensitive position. An
asset  sensitive  position in a rising  interest rate  environment  will cause a
bank's interest rate margin to expand. This results as floating or variable rate
loans reprice more rapidly than fixed rate  certificates of deposit that reprice
as they mature over time. Conversely, a declining interest rate environment will
cause the  opposite  effect.  A  negative  cumulative  gap may be  equated  to a
liability  sensitive  position.  A  liability  sensitive  position  in a  rising
interest rate  environment will cause a bank's interest rate margin to contract,
while a declining interest rate environment will have the opposite effect.

                                     Page 20

<PAGE>



     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 subject to repricing  during
the next year.  However,  because the Company's  asset rates change more quickly
than deposit rates, the Company's interest income will change more than the cost
of funds when rates change.  Its net interest margin should  therefore  increase
somewhat when rates increase and shrink somewhat when rates fall.

     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 June 30, 2004 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.
The table shows $81.5  million in fixed rate loans over 5 years.  Many  variable
rate credit lines reached  floors in 2003,  and were  reclassified  to the fixed
rate category.  As soon as interest rates increase,  the loans will no longer be
at floors and will reclass back to the floating rate category.

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

June 30, 2004                      3 months       12 months       3 years       5 years        15 years     >15 years      Totals
                                  ----------     ----------     ----------     ----------     --------     ---------     ---------
(in thousands)

ASSETS:
  Fixed rate investments          $    1,250     $    2,355     $   15,682     $    6,195     $   15,571   $     977     $  42,030
  Variable rate investments                0              0              0              0              0         697           697
  Fixed rate loans                    11,540         19,156         18,672         31,745         47,101       2,695       130,909
  Variable rate loans                  9,377            995              0              0              0           0        10,372
  Interest-bearing balances due
  from banks                              35                                                                                    35

  Fed funds sold                       2,850                                                                                 2,850
                                  ----------     ----------     ----------     ----------     ----------   ---------     ----------
     Interest bearing assets          25,052         22,506         34,354         37,940         62,672       4,369       186,893
                                  ----------     ----------     ----------     ----------     ----------   ---------     ----------

LIABILITIES:
  Interest bearing transaction
  deposits                            32,378                                                                                32,378
  Savings deposits                    68,093                                                                                68,093
  Time Deposits                                                                                                                  0

     Fixed rate >100m                  9,368          7,284          6,532          1,757                                   24,941
     Fixed rate <100m                  5,661          7,660          4,070          1,040                                   18,431
     Floating rate >100m                                                                                                         0
     Floating rate <100m                  23                                                                                    23

  Borrowings                               0                                                                                     0
                                  ----------     ----------     ----------     ----------     ----------   ---------     ---------

   Interest Bearing Liabilities   $  115,523     $   14,944     $   10,602     $    2,797     $        0   $       0     $  143,86
                                  ----------     ----------     ----------     ----------     ----------   ---------     ---------

Rate Sensitivity Gap                 (90,471)         7,562         23,752         35,143          62,672      4,369
                                  ----------     ----------     ----------     ----------     -----------  ---------
Cumulative Rate Sensitivity Gap      (90,471)       (82,909)       (59,157)       (24,014)         38,658     43,027
                                  ----------     ----------     ----------     ----------     -----------  ---------
Cumulative Position to
Total Assets                          -43.14%        -39.53%        -28.21%        -11.45%          18.43%     20.52%
                                  ==========     ==========     ==========     ==========     ===========  =========
</TABLE>


                                     Page 21

<PAGE>



For the Three Month Periods
Ended June 30, 2004 and 2003

Overview

The  Company  reported  net income of  $692,000  for the second  quarter of 2004
compared with $707,000 for the second quarter of 2003. On a per share basis, net
income for the three months ended June 30, 2004 equaled $.32 per share  compared
with $.32 per share during the same period in 2003.

Return on average total assets on an annualized basis for the three months ended
June 30, 2004 and 2003 was 1.33% and 1.46%, respectively. The decline in the
return on assets is because assets are growing faster than earnings. Return on
average shareholders' equity on an annualized basis for the three months ended
June 30, 2004 and 2003 was 13.2% and 14.2%, respectively. The decline in the
return on equity is a result of the growth in the equity accounts. The Company
began steps to mitigate the decline through the tender offer completed in May,
2004 and through the payment of cash dividends.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income,  adjusted to a fully taxable  equivalent  basis,  increased
$367,000 to $3.0 million for the three months ended June 30, 2004, up 16.6% from
the $2.2 million in the  comparable  period of 2003.  Net  interest  income on a
fully taxable  equivalent basis, as shown on the table Average Balances,  Yields
and Rates Paid on page 24, is higher than net interest  income on the statements
of income because it reflects  adjustments  applicable to tax-exempt income from
certain  securities and loans ($107,000 in 2004 and $80,000 in 2003,  based on a
34% federal income tax rate).

Net interest income (stated on a fully taxable  equivalent basis) expressed as a
percentage of average earning assets, is referred to as net interest margin. The
Company's net interest  margin for the second quarter of 2004 increased to 5.47%
from 5.08% for the comparable  period in 2003.  This variance is the result of a
higher loan to deposit  ratio and  management's  efforts to hold  existing  loan
rates steady and the ability to lower interest rates paid on deposits.

Interest Income

Interest  income for the three months ended June 30, 2004  increased by $302,000
to $3.0 million,  an 11.4%  increase from the $2.7 million  realized  during the
same period in 2003.

Interest Expense

Total  interest  expense for the three  months  ended June 30, 2004  declined by
$65,000 to $377,000  compared  with  $442,000  in the same  period of 2003.  The
average rate paid on all interest-bearing  liabilities for the second quarter of
2004  declined  to 1.04% from 1.35% in the second  quarter of 2003,  and average
balances for the second  quarter of 2004 increased to $144.9 million from $131.7
million in the same period of 2003, a 10.0% gain.


                                     Page 22

<PAGE>



The gain in volume of average balances was responsible for a $23,000 increase in
interest  expense  offset by a $93,000  decline  related to lower interest rates
paid.

Individual  components of interest  income and interest  expense are provided in
the table Average Balances, Yields and Rates Paid on page 24.

Provision for Loan Losses

The provision for loan losses was $30,000  during the second quarter of 2004 and
there was no  provision  for the second  quarter of 2003.  The  increase  in the
provision is the result of  managements'  evaluation  and assessment of the loan
portfolio as a result of the growth in loans.

Non-interest Income

Non-interest  income of $391,000 for the second  quarter of 2004  represented  a
decrease of $46,000,  or 10.6%,  from the $437,000 for the comparable  period in
2003.  Although  service  charge  income is still  growing,  there was no income
received for loan referral fees during the second  quarter of 2004.  The Company
now originates most of the mortgage loans previously outsourced to a vendor.

Non-interest Expense

For the second quarter of 2004,  non-interest  expense was $1.8 million compared
with $1.5  million  for the same  period in 2003,  representing  an  increase of
$315,000,  or 20.9%.  The largest  increase of non interest expense was salaries
and benefits, which increased $242,000, or 29.7%, compared with the three months
ended June 30, 2003.  The increase is largely a result of additional  salary and
benefit costs  associated  with our new branch,  Banco de Sonoma.  The full time
equivalent employees at June 30, 2004 was 56 compared with 48 at June 30, 2003.

Premises and equipment expense increased $26,000,  or 14.3%, to $210,000 for the
second  quarter  of 2004 from  $183,000  for the  second  quarter  of 2003.  The
increase is tied to  depreciation  expense for the remodel of the Sonoma  Branch
and the premises and equipment for the new branch, Banco de Sonoma.

Other non interest expense for the three months ended June 30, 2004 increased by
9.08% to $556,000  compared to $510,000 in the same period in 2003. The increase
is a result of higher insurance premiums and the overall increase in the cost of
doing business.

Provision for Income Taxes

The  provision  for income taxes  decreased to an effective tax rate of 31.5% in
the second  quarter of 2004  compared  with 33.3% for the  comparable  period in
2003. 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.

                                     Page 23

<PAGE>

                              SONOMA VALLEY BANCORP
                     AVERAGE BALANCES/YIELDS AND RATES PAID
                For the three months ended June 30, 2004 and 2003
                             (dollars in thousands)
<TABLE>
<S>                                                         <C>         <C>          <C>        <C>        <C>        <C>

                                                                          2004                             2003
                                                                          ----                             ----
                                                            Average      Income/     Yield/     Average    Income/     Yield/
ASSETS                                                      Balance      Expense      Rate      Balance    Expense      Rate

Interest-earning assets:
Loans(2):
  Commercial                                                 97,231       1,718      7.03%       83,074      1,530      7.39%
  Consumer                                                   14,341         243      6.74%       11,943        226      7.59%
  Real estate construction                                   18,944         352      7.39%       19,797        384      7.78%
  Real estate mortgage                                        4,474          82      7.29%        3,736         83      8.91%
  Tax exempt loans (1)                                        3,065          64      8.31%        3,180         66      8.32%
  Leases                                                         32           2     24.86%           73          7     38.46%
  Tax exempt leases (1)                                                              0.00 %          63          4     25.47%
  Unearned loan fees                                           (466)                               (406)
                                                           --------     -------                --------    -------
         Total loans                                        137,621       2,461      7.11%      121,460      2,300      7.60%
Investment securities
  Available for sale:
         Taxable                                             23,951         217      3.60%       10,918         84      3.09%
         Tax exempt(1)                                            0           0      0.00%            0          0      0.00%
  Hold to maturity:
         Taxable                                                393           2      2.02%          549          5      3.65%
         Tax exempt (1)                                      17,133         249      5.78%        9,624        165      6.88%
                                                           -------      -------                --------   -------
         Total investment securities                         41,477         468      4.49%       21,091        254      4.83%
Federal funds sold                                            7,566          17      0.89%        1,945         93      1.17%
FHLB Stock                                                      695           6      3.43%          288          7      9.75%
Total due from banks/Interest bearing                           216           4      7.37%          107          0      0.37%
                                                           --------     -------                --------    -------
  Total interest earning assets                             187,575       2,956      6.27%      174,891      2,654      6.09%
                                                                        =======                            =======
Non interest-bearing assets:
  Reserve for loan losses                                    (2,375)                             (2,772)
  Cash and due from banks                                     9,841                               8,902
  Premises and equipment                                      1,379                               1,039
  Other assets                                               11,984                              11,007
                                                           --------                            --------
                                          Total assets     $208,404                            $193,067
                                                           ========                            ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
  Interest bearing deposits
         Interest bearing transaction                        33,745     $    12      0.14%       31,119         15      0.19%
         Savings deposits                                    67,280         105      0.62%       56,231        120      0.86%
         Time deposits over $100,000                         25,153         163      2.58%       24,514        185      3.03%
         Other time deposits                                 18,714          97      2.06%       19,823        122      2.47%
                                                            -------     -------                --------    -------
           Total interest bearing Deposits                  144,892         377      1.04%      131,687        442      1.35%
 Other short term borrowings                                      0           0      0.00%            0          0      0.00%
                                                            -------     -------                --------    -------
           Total interest bearing liabilities               144,892     $   377      1.04%      131,687    $   442      1.35%
                                                                        =======                            =======
Non interest bearing liabilities:
  Non interest bearing demand deposits                       39,151                              38,258
  Other liabilities                                           3,420                               3,185
                                  Shareholders' equity       20,941                              19,937
                                                           --------                            --------
            Total liabilities and shareholders' equity     $208,404                            $193,067
                                                           ========                            ========
Interest rate spread                                                                 5.23%                              4.47%
                                                                                     ====                               ====
Interest income                                                         $ 2,956      6.27%                 $ 2,654      6.09%
Interest expense                                                            377      0.80%                     442      1.01%
                                                                        -------      ----                  -------      ----
Net interest income/margin                                              $ 2,579      5.47%                 $ 2,212      5.08%
                                                                        =======      ====                  =======      =====
</TABLE>


(1)  Fully tax equivalent  adjustments are based on a federal income tax rate of
     34% in 2004 and 2003.

(2)  Non accrual loans have been included in loans for the purposes of the above
     presentation.  Loan fees of approximately $69,465 and $87,889 for the three
     months ended June 30, 2004 and June 30, 2003, respectively,  were amortized
     to the appropriate interest income categories.

                                     Page 24
<PAGE>



Item 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
     Information regarding Quantitative and Qualitative Disclosures about Market
Risk appears on page 14 under "Investments" and on pages 19 through 21 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

The  Company  carried  out an  evaluation,  under the  supervision  and with the
participation  of  the  Company's  management,  including  the  Company's  Chief
Executive  Officer  along with the Company's  Chief  Financial  Officer,  of the
effectiveness of the design and operation of the Company's  disclosure  controls
and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation,
the Company's Chief  Executive  Officer along with the Company's Chief Financial
Officer  concluded  that the Company's  disclosure  controls and  procedures are
effective  in timely  alerting  them to  material  information  relating  to the
Company required to be included in this Form 10-Q.

There have been no significant  changes in the Company's internal controls or in
other factors which could  significantly  affect internal controls subsequent to
the date the Company carried out its evaluation.

                                     Page 25

<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. CHANGES IN SECURITIES AND USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
        SECURITIES

The following chart  summarizes the Company  repurchases of the Company's common
shares as part of the  Company's  tender  offer  expiring  May 21,  2004 and the
Company's publicly announced repurchase plan.

<TABLE>
<S>                    <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:                     189                   $29.375                   81,489                 $540,067
1/1/04 - 1/31/04
Month #2:                     383                   $30.00                    81,872                 $534,515
2/1/04 - 2/29/04
Month #3:                       0                        0                    81,872                 $534,515
3/1/04 - 3/31/04
Month #4:                       0                        0                    81,872                 $534,515
4/1/04 - 4/30/04
Month #5:                 126,208(1)                $35.00                   126,208                        0
5/1/04 - 5/31/04
Month #6:                     29                    $35.00                    81,901                 $533,500
6/1/04 - 6/30/04
Total                    126,809                    $34.977                  208,109                 $533,500
</TABLE>

(1)  The  Company  purchased  126,208  shares of  common  stock at $35 per share
     through a tender offer, which expired on May 21, 2004.

Item 3.                    DEFAULTS UPON SENIOR SECURITIES

     None



                                     Page 26

<PAGE>



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

The  Company  held the annual  meeting of  shareholders  on June 24,  2004.  The
following table sets forth the proposals and outcome from the voting.

Proposal Number 1                      Election of Directors; and

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

Nominees                          Shares Voted For             Shares Withholding        Abstentions and Broker
                                                              Authority/Voted Against            Non-Votes
Suzanne Brangham                     1,051,441                        48,221                     277,487
Dale T. Downing                      1,095,702                         3,960                     277,487
Fred H. Harland                      1,080,240                        19,422                     277,487
Robert B. Hitchcock                  1,096,978                         2,684                     277,487
Gerald J. Marino                     1,049,459                        50,202                     277,487
Gary D. Nelson                       1,075,623                        24,039                     277,487
Robert J. Nicholas                   1,095,702                         3,960                     277,487
Angelo C. Sangiacomo                 1,097,007                         2,655                     277,487
J. Robert Stone                      1,095,652                         4,010                     277,487
Mel Switzer, Jr.                     1,061,193                        38,469                     277,487
Harry Weise                          1,097,007                         2,655                     277,487


Proposal Number 2                   Ratification of Richardson and Company

Total shares voted:                 For           Against         Withheld              Abstain/Broker Non-Votes
                                 ---------       --------         --------              ------------------------

                                 1,089,185        1,407            9,070                         277,487
</TABLE>


Item 5. OTHER INFORMATION

        None

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

    (a)      Exhibits

                    31.1 Certification  of CEO  pursuant  to Section  302 of the
                         Sarbanes-Oxley Act

                    31.2 Certification  of CFO  pursuant  to Section  302 of the
                         Sarbanes-Oxley Act

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



                                     Page 27

<PAGE>



    (b)      Reports on Form 8-K

            Date of Report   Date of Event     Item Reported

            July 23, 2004    July 21, 2004     Press Release
                                               announcing 3 for 2 stock split
                                               and a 25 cent cash dividend

            July 16, 2004    July 15, 2004     Press Release
                                               announcing results
                                               Of second quarter

            April 16, 2004   April 15, 2004    Press Release
                                               announcing results
                                               of first quarter

                                     Page 28

<PAGE>




                                   SIGNATURES

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


                                                          SONOMA VALLEY BANCORP




Date:   August 5, 2004                 /s/ Mel Switzer, Jr.
     ------------------------          ----------------------------------------
                                       Mel Switzer, Jr.
                                       President and Chief Executive Officer
                                       (Principal Executive Officer)




Date:  August 5, 2004                  /s/ Mary Quade Dieter
     -----------------------           ----------------------------------------
                                       Mary Quade Dieter
                                       Executive Vice President
                                       Chief Operating Officer and Chief
                                       Financial Officer
                                       (Principal Financial Accounting Officer)


                                     Page 29