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: March 31, 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 May 1, 2004 was 1,484,823.






                                     Page 1

<PAGE>



INDEX

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

Item 1.  Financial Statements (Unaudited):

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

       Consolidated Statements of Operations for the
       three months ended March 31, 2004 and 2003..............................4

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

       Consolidated Statements of Cash Flows for the
       three months ended March 31, 2004 and 2003..............................7

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

      Average Balances, Yields and Rates Paid
       for the three months ended March 31, 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............23

Item 4.  Controls and Procedures..............................................23


Part II  Other Information

Item 1.  Legal Proceedings....................................................23

Item 2.  Changes in Securities and Use of Proceeds and Issuer Purchases
         of Equity Securities.................................................23

Item 3.  Default Upon Senior Securities.......................................24

Item 4.  Submission of Matters to a Vote of Security Holders..................24

Item 5.  Other Information....................................................24

Item 6.  Exhibits and Reports on Form 8-K.....................................24

Signatures....................................................................25

Certifications................................................................26

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
             March 31, 2004 (Unaudited), December 31, 2003 (Audited)
                         and March 31, 2003 (Unaudited)
<TABLE>
<S>                                                                          <C>                  <C>                  <C>

                                                                               March 31,           December 31,           March 31,
                                                                                 2004                 2003                  2003
                                                                             ------------         ------------          ------------
ASSETS
    Cash and due from banks                                                  $  8,023,673         $  9,803,272          $  8,965,986
    Federal funds sold                                                         13,135,000           25,220,000            37,160,000
    Interest-bearing due from banks                                               330,923              330,930                34,748
                                                                             ------------         ------------          ------------
                                         Total cash and cash equivalents       21,489,596           35,354,202            46,160,734
    Investment securities available-for-sale, at fair value                    22,217,390           20,119,777             4,058,495
    Investment securities held-to-maturity (fair value
        of $17,917,000, 17,042,000 and $10,695,000,
       respectively)                                                           17,221,214           16,558,153            10,223,240
    Loans and lease financing receivables, net                                129,763,724          119,833,989           122,183,245
    Premises and equipment, net                                                 1,345,083            1,313,995               904,503
    Accrued interest receivable                                                 1,030,255              906,958               894,671
    Cash surrender value of life insurance                                      7,816,322            7,730,600             7,473,434
    Other assets                                                                3,108,825            3,288,463             2,655,610
                                                                             ------------         ------------          ------------
                                                            Total assets     $203,992,409         $205,106,137          $194,553,932
                                                                             ============         ============          ============
LIABILITIES
    Noninterest-bearing demand deposits                                      $ 37,163,893         $ 37,947,577          $ 40,078,981
    Interest-bearing transaction deposits                                      32,104,881           32,467,678            29,887,026
    Savings and money market deposits                                          64,391,506           63,680,697            57,029,834
    Time deposits, $100,000 and over                                           25,950,385           26,565,347            24,745,449
    Other time deposits                                                        18,646,061           19,453,317            20,144,430
                                                                             ------------         ------------          ------------
                                                          Total deposits      178,256,726          180,114,616           171,885,720
    Accrued interest payable and other liabilities                              3,345,753            3,520,242             3,055,775
                                                                             ------------         ------------          ------------
                                                       Total liabilities      181,602,479          183,634,858           174,941,495
    Commitments and contingencies  (see accompanying notes)

SHAREHOLDERS' EQUITY
    Common stock, no par value; 10,000,000 shares authorized; 1,484,823 shares
        at March 31, 2004 1,457,594 shares at December 31, 2003 and 1,392,138
        shares at March 31, 2003 issued and
        outstanding                                                            15,615,193           15,061,636            12,895,500
    Retained earnings                                                           6,649,314            6,386,083             6,635,241
    Accumulated other comprehensive income                                        125,423               23,560                81,696
                                                                             ------------         ------------          ------------
                                              Total shareholders' equity       22,389,930           21,471,279            19,612,437
                                                                             ------------         ------------          ------------
                              Total liabilities and shareholders' equity     $203,992,409         $205,106,137          $194,553,932
                                                                             ============         ============          ============
</TABLE>



                                     Page 3

<PAGE>



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

               For the three months ended March 31, 2004 and 2003
<TABLE>
<S>                                                            <C>              <C>


                                                                   2004             2003
                                                               -----------      -----------
INTEREST INCOME
    Loans and leases                                           $ 2,193,173      $ 2,442,703
    Taxable securities                                             202,946           53,436
    Tax-exempt securities                                          161,466          108,601
    Federal funds sold                                              47,241           76,160
    Dividends                                                            0                0
                                                               -----------      -----------
                                 Total interest income           2,604,826        2,680,900
INTEREST EXPENSE
    Interest-bearing transaction deposits                           11,595           12,862
    Savings and money market deposits                               98,408          126,213
    Time deposits, $100,000 and over                               170,425          195,915
    Other time deposits                                            101,845          130,402
                                                               -----------      -----------
                                 Total interest expense            382,273          465,392
                                                               -----------      -----------
           NET INTEREST INCOME                                   2,222,553        2,215,508
    Provision for loan and lease losses                                  0           20,000
                                                               -----------      -----------
                                 NET INTEREST INCOME AFTER
                                 PROVISION FOR LOAN AND
                                 LEASE LOSSES                    2,222,553        2,195,508
NON-INTEREST INCOME                                                421,366          404,096
NON-INTEREST EXPENSE
  Salaries and employee benefits                                   953,042          843,996
  Premises and equipment                                           222,470          181,645
  Other                                                            540,438          535,856
                                                               -----------      -----------
                                 Total non-interest expense      1,715,950        1,561,497
                                                               -----------      -----------
                                 Income before provision
                                 for income taxes                  927,969        1,038,107
  Provision for income taxes                                       282,399          344,378
                                                               -----------      -----------

                                 NET INCOME                    $   645,570      $   693,729
                                                               ===========      ===========

                                 NET INCOME PER SHARE          $       .44      $       .47
                                                               ===========      ===========

                                 NET INCOME PER SHARE
                                 ASSUMING DILUTION             $       .40      $       .43
                                                               ===========      ===========
</TABLE>






                                     Page 4

<PAGE>



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

      For the three months ended March 31, 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
   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 gains
    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 income,
  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 income,
  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 three months ended March 31, 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                                            (572)              (5,909)           (11,133)                         (17,042)
Cash dividend of $.25 per share                                                           (371,206)                        (371,206)
Stock options granted                                                    10,368                                              10,368
Stock options exercised and
  related tax benefits                              27,801              549,098                                             549,098
Net income for the period      $      645,570                                              645,570                          645,570
Other comprehensive income,
  net of tax:
  Unrealized holding gains
    on securities available-
    for-sale arising during
    the year, net of taxes
    of $ 71,239                       101,863
                               --------------
Other comprehensive income,
  net of taxes                        101,863                                                                101,863        101,863
                               --------------    -------------   ---------------     -------------    --------------   -------------

Total comprehensive income     $      747,433
                               ==============


BALANCE AT
 MARCH 31, 2004                                  1,484,823       $   15,615,193      $   6,649,314    $      125,423   $ 22,389,930
                                                 =============   ===============     =============    ==============   ============
</TABLE>


                                     Page 6

<PAGE>



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

               For the three months ended March 31, 2004 and 2003
<TABLE>
<S>                                                                                           <C>                <C>


                                                                                                   2004               2003
                                                                                              --------------     --------------
OPERATING ACTIVITIES
    Net income                                                                                $      645,570     $      693,729
    Adjustments to reconcile net income
        to net cash provided by operating activities:
            Provision for loan and lease losses                                                            0             20,000
            Depreciation                                                                              72,376             53,306
            Amortization and other                                                                    34,715             13,287
            Stock options granted                                                                     10,368
            Net change in interest receivable                                                       (123,297)           (95,390)
            Net change in cash surrender value
               of life insurance                                                                     (85,722)           (85,722)
            Net change in other assets                                                               108,399            355,265
            Net change in interest payable and other liabilities                                    (174,489)          (318,390)
                                                                                              --------------     --------------
                                               NET CASH PROVIDED BY OPERATING ACTIVITIES             487,920            636,085
INVESTING ACTIVITIES
    Purchases of securities held-to-maturity                                                        (990,047)          (778,009)
    Purchases of securities available-for-sale                                                    (4,982,240)        (1,001,231)
    Proceeds from maturing securities held-to-maturity                                               300,000            470,000
    Proceeds from maturing securities available-for-sale                                           3,050,000            750,000
    Net change in loans and leases                                                                (9,929,735)         3,065,937
    Purchases of premises and equipment                                                             (103,464)           (82,112)
                                                                                              --------------     --------------
                                        NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES         (12,655,486)         2,424,585

FINANCING ACTIVITIES
    Net change in demand, interest-bearing
        transaction and savings deposits                                                      $     (435,672)    $   11,804,732
    Net change in time deposits                                                                   (1,422,218)            92,736
    Cash dividend paid                                                                              (371,206)
    Stock repurchases                                                                                (17,042)          (411,731)
    Stock options exercised                                                                          549,098             96,728
                                                                                              --------------     --------------
                                        NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES          (1,697,040)        11,582,465
                                                                                              --------------     --------------
                                                 NET CHANGE IN CASH AND CASH EQUIVALENTS         (13,864,606)        14,643,135
    Cash and cash equivalents at beginning of period                                              35,354,202         31,517,599
                                                                                              --------------     --------------
                                              CASH AND CASH EQUIVALENTS AT END OF PERIOD      $   21,489,596     $   46,160,734
                                                                                              ==============     ==============

SUPPLEMENTAL DISCLOSURES OF
    CASH FLOW INFORMATION:

Cash paid during the year for:
     Interest expense                                                                         $      382,539     $      466,326

SUPPLEMENTAL DISCLOSURES OF
     NONCASH ACTIVITIES:
Net change in unrealized gains and losses on securities                                       $      173,102     $      (11,213)
Net change in deferred income taxes on unrealized
     gains and losses on securities                                                           $      (71,239)    $        4,614
</TABLE>




                                     Page 7

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 MARCH 31, 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 March 31, 2004 and results of operations for the
three months then ended.

Certain information and footnote  disclosures  presented in the Company's annual
financial  statements  are not included in these interim  financial  statements.
Accordingly,   the  accompanying   unaudited  interim   consolidated   financial
statements should be read in conjunction with the financial statements and notes
thereto  included in the Company's  2003 Annual Report on Form 10-K. The results
of  operations  for the three  months  ended March 31, 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 March 31, 2004
and March 31, 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 March 31, 2004 was  1,479,930
and for the period ending March 31, 2003 was 1,465,661.

Net income per share  (diluted)  is  calculated  by using the  weighted  average
common  shares  (diluted)  outstanding.  The weighted  average  number of common
shares (diluted) used in computing the net income per common share (diluted) for
the period  ending March 31, 2004 was  1,613,282 and for the period ending March
31, 2003 was 1,604,187.

Prior year shares have been  adjusted to reflect the 5% stock  dividend  paid on
July 16, 2003.

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


                                     Page 8

<PAGE>



Opinion  No.  25,  Accounting  for  Stock  Issued  to  Employees,   and  related
Interpretations. No stock-based compensation cost is reflected in net income for
stock options  granted  prior to January 1, 2003,  as all options  granted under
those plans had an exercise  price equal to the market  value of the  underlying
common stock on the date of grant. 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>

                                                              March 31,        March 31,
                                                                2003             2004
                                                           -------------     -------------

    Net Income, as reported                                $     693,729     $     645,570
    Deduct: Total stock-based compensation expense
      determined under fair value based method for all
      awards, net of related tax effects                         (44,975)          (31,000)
                                                           -------------     -------------
    Pro forma net income                                   $     648,754     $     614,570
                                                           =============     =============

Net income per share:
    Basic - As reported                                              .47               .44
    Basic - Pro forma                                                .44               .42
    Diluted - As reported                                            .43               .40
    Diluted - Pro forma                                              .40               .38
</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
quarters ended March 31, 2004 and 2003 are as follows:
<TABLE>
<S>                                               <C>                <C>               <C>                <C>


                                                              Directors                           Officers
                                                  --------------------------------     -------------------------------
                                                       2004                2003              2004             2003
                                                  --------------     -------------     -------------     -------------

Service cost                                      $       15,802     $      17,847     $      46,004     $      54,555
Interest cost on projected benefit obligation              5,455             3,410            17,272            20,854
Amortization of unrecognized liability at
 transition                                                                                   (7,534)           (9,687)
                                                  --------------     -------------     -------------     -------------
Net periodic pension cost recognized              $       21,257      $     21,257     $      55,722     $      65,722
                                                  ==============      ============     =============     =============
</TABLE>


                                     Page 9

<PAGE>
                              SONOMA VALLEY BANCORP
                     AVERAGE BALANCES/YIELDS AND RATES PAID
               For the three months ended March 31, 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                                $  88,158      $   1,549       7.07%    $  85,981     $   1,632      7.70%
  Consumer                                     12,268            215       7.05%       12,410           238      7.78%
  Real estate construction                     17,141            334       7.84%       20,403           411      8.17%
  Real estate mortgage                          2,233             50       9.01%        5,290           110      8.43%
  Tax exempt loans (1)                          3,069             64       8.39%        3,184            66      8.41%
  Leases                                           43              3      28.06%           97             6     25.09%
  Tax exempt leases (1)                             3              0       0.00%           63             3     19.31%
  Unearned loan fees                             (414)                                   (424)
                                            ---------      ---------                ---------     ---------
         Total loans                          122,501          2,215       7.27%      127,004         2,466      7.87%
Investment securities
  Available for sale:
         Taxable                               23,190            200       3.47%        3,655            50      5.55%
  Hold to maturity:
         Taxable                                  398              3       3.03%          205             3      5.93%
         Tax exempt (1)                        16,751            245       5.88%        9,463           165      7.07%
                                            ---------      ---------                ---------     ---------
         Total investment securities           40,339            448       4.47%       13,323           218      6.64%
Federal funds sold                             20,520             47        .92%       26,425            76      1.17%
                FHLB Stock                        295              0       0.00%          282             0      0.00%
Total due from banks/Interest bearing             331              0       0.00%           34             0      0.00%
                                            ---------      ---------                ---------     ---------
  Total interest earning assets               183,986      $   2,710       5.92%      167,068     $   2,760      6.70%
                                                           =========                              =========
Noninterest-bearing assets:
  Reserve for loan losses                      (2,574)                                 (2,798)
  Cash and due from banks                       9,214                                   8,660
  Premises and equipment                        1,331                                     903
  Other assets                                 11,741                                  10,828
                                            ---------                               ---------
           Total assets                     $ 203,698                               $ 184,661
                                            =========                               =========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest bearing liabilities:
  Interest bearing deposits
         Interest bearing transaction       $  32,127      $      12       0.15%    $  26,862     $      13      0.20%
         Savings deposits                      63,355             98       0.62%       54,092           126      0.94%
         Time deposits over $100,000           26,344            170       2.60%       25,351           196      3.14%
         Other time deposits                   19,094            102       2.15%       19,974           130      2.64%
                                            ---------      ---------                ---------     ---------
           Total interest bearing
                    deposits                  140,920            382       1.09%      126,279           465      1.49%
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              140,920      $     382       1.09%      126,279     $     465      1.49%
                                                           =========                              =========
Non interest bearing liabilities:
  Non interest bearing demand deposits         37,165                                  35,645
  Other liabilities                             3,373                                   3,176
  Shareholders' equity                         22,240                                  19,561
                                            ---------                               ---------
         Total liabilities and
                   shareholders' equity     $ 203,698                               $ 184,661
                                            =========                               =========
Interest rate spread                                                       4.83%                                 5.21%
                                                                          =====                                 =====
Interest income                                            $   2,710       5.92%                  $   2,760      6.70%
Interest expense                                                 382        .84%                        465      1.13%
                                                           ---------      -----                   ---------     -----
Net interest income/margin                                 $   2,328       5.08%                  $   2,295      5.57%
                                                           =========                              =========
</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  $70,344 and  $100,981  for the three
months  ended  March 31,  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

      For the Three Month Periods
      Ended March 31, 2004 and 2003

Forward Looking Statements

With the exception of historical facts stated herein,  the matters  discussed in
this  Form  10-Q  are  "forward  looking"  statements  that  involve  risks  and
uncertainties  that  could  cause  actual  results  to  differ  materially  from
projected  results.  Such  "forward  looking"  statements  include,  but are not
necessarily  limited  to  statements  regarding  anticipated  levels  of  future
revenues and earnings from the operation of Sonoma Valley Bancorp's wholly owned
subsidiary,  Sonoma  Valley  Bank (the  "Bank"),  projected  costs and  expenses
related  to  operations  of the bank's  liquidity,  capital  resources,  and the
availability of future equity capital on commercially  reasonable terms. Factors
that could cause actual results to differ materially include, in addition to the
other  factors  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 $48,
159 from  $693,729 in 2003 to $645,570 in 2004.  The decrease in net income is a
result of the 49 basis point  decline in the net  interest  margin from 5.57% in
2003 to 5.08% in 2004.  Additionally  the  bank  opened a new  branch,  Banco de
Sonoma,  during the first quarter and expenses  associated with that combined to
lower net income.  On a per share basis,  net income  equaled $.44 compared with
$.47 per share  during the same period in 2003.  The March 2003 per share amount
has been adjusted for the 5% stock dividend declared in June 2003.

Return on  average  total  assets  on an  annualized  basis for the  three-month
periods was 1.28% and 1.52% respectively. Return on average shareholders' equity
on an annualized basis for the same periods was 11.68% and 14.39%, 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 growth in equity through  earnings and the
decrease in income for the three month period of 2004.



                                     Page 11

<PAGE>



Income during the first quarter of 2004 is lower than 2003 due to the decline in
the net interest margin which is a result of the lower fed funds target rate and
the prime rate which follows the fed funds rate. The most recent decline was mid
year 2003 and the full  impact of the  decline is now  evident.  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  creating about $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 underserved
and a  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 years.

Total shareholders' equity increased by $918,651 or 4.2% during the quarter. The
Company  reported net income of $646,000,  paid out $371,000 for cash  dividends
declared in February,  2004 and paid in March, 2004, the bank repurchased shares
and paid out $17,000 and the directors  exercised  options and paid in $328,000.
The tax benefit on these options  exercised was $221,000,  which also  increases
equity. The company  repurchased 572 shares and issued 27,801 shares for options
exercised.  On April 6, 2004, the Company began a tender offer to purchase up to
100,000 shares of stock at $35.00 per share set to expire May 14, 2004. 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  ($105,000 in 2004 and $79,000 in 2003,  based on a 34% federal income tax
rate).

The improvement in net interest income for the three months ended March 31, 2004
(stated on a fully taxable  equivalent basis) is a result of the net effect of a
$50,000  decrease  in  interest  income  offset by a larger  decline in interest
expense of  $83,000,  showing a increase of  $33,000.  The  decrease in interest
income is a result of the  decline in the fed funds  rate and the prime  lending
rate in June 2003.

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 5.08% from 5.57% for the same
period in 2003.




                                     Page 12

<PAGE>



Interest Income

As previously  stated,  interest  income  (stated on a fully taxable  equivalent
basis) decreased by $50,000 to $2.7 million in the three months of 2004, a 1.81%
decrease over the $2.8 million realized during the same period in 2003.

The $50,000  decrease  was a result of the 25 basis  point  decline in the prime
lending  rate in June,  2003 and  higher  yielding  loans  refinancing  at lower
interest rates. The decrease in interest income occurred in spite of an increase
in average earning assets of $16.9 million or 10.13% from $167.1 million in 2003
to $184.0 million in 2004.

Interest Expense

Total interest expense declined by $83,000 to $382,000. The average rate paid on
all interest- bearing liabilities  declined from 1.49% in 2003 to 1.09% in 2004.
Average balances of earning liabilities  increased from $126.3 million to $140.9
million,  an 11.6% gain in deposits.  The increase in volume of average balances
was  responsible  for a $26,000  increase in interest  expense  together  with a
$109,000  decrease in expense related to lower interest rates resulting in lower
interest expense of $83,000.

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

Provision for Loan Losses

The  provision  for loan losses  charged to operations 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  there was no provision for loan
losses during the first quarter.  Management  anticipates  that loan growth will
increase in the second quarter which could  necessitate an additional  provision
to the  reserve  for loan  losses.  The  provision  for loan  losses in 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 three  months of 2004,  down
over half from the level in the first three  months of 2003.  Loans  charged-off
were  $270,412,  one loan  represented  over 99.9% of this figure and recoveries
were $9,846 for the three months of 2004  compared  with $32,850 in  charge-offs
and $1,680 in recoveries for the same period in 2003.




                                     Page 13

<PAGE>



Non-interest Income

Non-interest  income of $421,000  increased 4.21% over the $404,000  recorded in
the  comparable  period  in 2003.  Services  Charges  were up due to  growth  in
customer  activity offset by a decline in loan referral income which is a result
of the decline in loan refinancings and new purchase loans.

Non-interest Expense

Total  non-interest  expense  increased  9.9% to $1.72 million  during the three
months of 2004 from  $1.56  million  for the same  period in 2003.  Non-interest
expense on an annualized basis represented 3.39% of average total assets in 2004
compared with 3.43% in the comparable period in 2003. The slight decrease in the
2004  expense  ratio  reflects  managements'  efforts to control the increase in
expense as  average  assets  showed an  increase  of 10.31% or $19.0  million to
$203.7 million in 2004 from $184.7 million in 2003.

Salaries  and  benefits  increased  12.92% from  $844,000 in 2003 to $953,000 in
2004.  The 2004 increase is the result of the  additional  staffing and benefits
required  for the Banco de Sonoma  branch  which  opened  first  quarter and the
effect of a 64.9%  increase in the cost of Workers  Compensation  insurance when
comparing first quarter 2004 with first quarter 2003.

Expense  related to premises and equipment  increased  23.2% to $223,000 in 2004
from $181,000 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.

Other  operating  expenses  increased  by only  0.7% in  2004 to  $540,000  from
$536,000 in 2003. The bank continues to utilize  professional  assistance  where
appropriate  and will be imaging many of the  documents  held within the bank to
enable employees to access information more quickly.

Provision for Income Taxes

The provision  for income taxes  declined to an effective tax rate of 30.43% for
the three months of 2004 compared with 33.17% for the three 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.









                                     Page 14

<PAGE>



BALANCE SHEET ANALYSIS

Investments

Investment securities were $39.4 million at March 31, 2004, a 7.5% increase from
the $36.7 million at December 31, 2003 and a 176.1%  increase from $14.3 million
at March 31, 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.

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 March 31,
2004, the Company had  securities  totaling $17.2 million with a market value of
$17.9 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 $22.2 million  compared to an amortized cost
of $23.0 million as of March 31, 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.




                                     Page 15

<PAGE>



Loans

The Company's  loan  portfolio was $132.1 million at March 31, 2004, or 74.1% of
total deposits.  This compares with $122.5 million,  or 68.0% of total deposits,
at December 31, 2003 and $125.0 million,  or 72.7% of total  deposits,  at March
31, 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>


                              March 31,     Percentage     December 31,     Percentage      March 31,       Percentage
                                2004          of Total        2003           of Total         2003           of Total
                             ------------   ----------     ------------     ----------     ------------     --------

Commercial                   $ 98,282,959         74.1%    $ 92,197,984           75.0%    $ 85,802,958         68.4%
Consumer                       13,289,577         10.0%      11,750,131            9.6%      11,868,556          9.5%
Real estate construction       18,280,825         13.8%      16,646,907           13.5%      23,458,920         18.7%
Real estate mortgage            2,703,348          2.0%       2,231,244            1.8%       4,092,951          3.3%
Leases                             35,476          0.1%          79,884            0.1%         149,976          0.1%
                             ------------   ----------     ------------     ----------     ------------     --------
                              132,592,185        100.0%     122,906,150          100.0%     125,373,361        100.0%
                                            ==========                      ==========                      ========
Deferred loan fees
 and costs, net                  (454,402)                     (437,536)                       (419,324)
Allowance for loan
 and lease losses              (2,374,059)                   (2,634,625)                     (2,770,792)
                             ------------                  ------------                    ------------

                             $129,763,724       100.0%     $119,833,989          100.0%    $122,183,245        100.0%
                             ============   =========      ============     ==========     ============     ========
</TABLE>


Risk Elements

The majority of the Company's  loan activity is with  customers  located  within
Sonoma County.  Approximately 86% 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 $1.2 million  nonaccrual  loans and no loans 90 days or more past due
and still accruing at March 31, 2004 down from $2.3 million nonaccrual loans and
no loans 90 days or more past due and still accruing at March 31, 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.


                                     Page 16

<PAGE>



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

Worsening  conditions in certain  economic  sectors and  geographic  areas could
adversely affect the loan portfolio,  necessitating  larger  provisions for loan
losses  than  currently  estimated.  However,  as of March 31,  2004 the Company
believes its overall allowance for loan losses is adequate based on its analysis
of conditions at that time.

At March 31, 2004,  the allowance for loan losses was $2.4 million,  or 1.80% of
period-end loans,  compared with $2.6 million, or 2.15% at December 31, 2003 and
$2.8 million, or 2.22% at March 31, 2003.




                                     Page 17

<PAGE>



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


                                            For the Three     For the Year          For the Three
                                             Months Ended        Ended               Months Ended
                                               3/31/04          12/31/03               3/31/03

Balance beginning of year                 $     2,634,625     $     2,781,962      $     2,781,962
Charge-offs:
  Commercial                                     (270,000)           (142,572)                   0
  Consumer                                           (412)            (41,161)             (32,850)
                                          ---------------     ---------------      ---------------

                      Total charge-offs          (270,412)           (183,733)             (32,850)
Recoveries:

  Commercial                                        8,500               8,320                  640
  Consumer                                          1,346               8,076                1,040
                                          ---------------     ---------------      ---------------

                       Total recoveries             9,846              16,396                1,680

Net charge-offs                                  (260,566)           (167,337)             (31,170)
Provision charged to operations                         0              20,000               20,000
                                          ---------------     ---------------      ---------------
Balance end of period                     $     2,274,059     $     2,634,625      $     2,770,792
                                          ===============     ===============      ===============
Ratio of net charge-offs
 annualized to average loans                         0.86%               0.14%                0.10%
Balance in allowance as a percentage                 1.80%               2.15%                2.22%
  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>
                               March 31,     Percentage     December 31,   Percentage       March 31,     Percentage
                                 2004         of Total         2003          of Total         2003         of Total
                             ------------    ----------     ------------   ----------     ------------    ---------

Interest bearing
 transaction deposits        $ 32,104,881          18.0%    $ 32,467,678         18.0%    $ 29,887,026          17.4%
Savings deposits               64,391,506          36.1%      63,680,697         35.4%      57,029,834          33.2%
Time deposits,
$100,000 and over              25,950,385          14.6%      26,565,347         14.7%      24,745,449          14.4%
Other time deposits            18,646,061          10.5%      19,453,317         10.8%      20,144,430          11.7%
                             ------------    ----------     ------------   ----------     ------------    ----------
Total interest bearing
  deposits                    141,092,833          79.2%     142,167,039         78.9%     131,806,739          76.7%
Demand deposits                37,163,893          20.8%      37,947,577         21.1%      40,078,981          23.3%
                             ------------    ----------     ------------   ----------     ------------    ----------
Total deposits               $178,256,726         100.0%    $180,114,616        100.0%    $171,885,720         100.0%
                             ============    ==========     ============   ==========     ============    ==========
</TABLE>


Total  deposits  decreased by $1.9 million,  during the three months of 2004, to
$178.3  million from $180.1  million at December 31, 2003.  Other time  deposits
showed the largest  decrease  of $807,000 or 4.15% to $26.0  million as of March
31, 2003 from $26.6 million at December 31, 2003.  Non interest  bearing  demand
declined by $784,000 or 2.07% from $37.9  million at December  31, 2003 to $37.2
million  as of March 31,  2004.  Interest  bearing  checking  accounts  and time
deposits greater than $100,000  declined by 1.12% and 2.31% to $32.1 million and
$26.0  respectively in March, 2003. Savings deposits increased $711,000 or 1.12%
to $64.4  million  from  December 31,  2003.  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 which could lower
net income.



<PAGE>



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 March 31, 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 March 31, 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
    ------------     --------     -----     -------     -----    --------

    $173,286         $ 20,979     12.11%    $23,148     13.36%   10.32%
</TABLE>




                                     Page 18

<PAGE>



Off Balance Sheet Commitments

The Company's off balance sheet  commitments  consist of  commitments  to extend
credit of $32.1  million  and  standby  letters  of credit  of  $465,000.  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 March
31, 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                           1,806,480         5,239       30,710       194,377       1,576,154
Deferred Compensation                1,032,586        13,424       17,554       111,106         890,502
</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 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.  The  asset/liability  management  policy sets  limits on the  acceptable
amount of  variance  in net  interest  margin and market  value of equity  under
changing interest  environments.  The 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


                                     Page 19

<PAGE>



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.  depositis/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 March 31, 2004 (In
thousands)

Variation from a constant rate scenario      $ Change in NII
          +200bp                             $   696
          +100bp                                 300
          -100bp                                (217)

     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.

     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.


                                     Page 20

<PAGE>



         The Company has more liabilities than assets repricing during the next
year. However, because the Company's asset rates change more than deposit rates,
the Company's interest income will change more than the cost of funds when rates
change. 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 March 31, 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 $77.6  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>


MARCH 31, 2004                            3 months     12 months     3 years     5 years       15 years      >15 years       Totals
                                          --------     ---------     ---------   ---------     ---------     ---------     ---------
(in thousands)

ASSETS:
  Fixed rate investments                  $     894    $   3,392     $  13,023   $   4,842     $  16,311     $     977     $  39,439
  Variable rate investments                       0            0             0           0             0           295           295
  Fixed rate loans                           11,958       15,256        14,351      30,332        44,570         2,695       119,162
  Variable rate loans                        11,055        1,180             0           0             0             0        12,235
  Interest-bearing balances due from banks       35                                                                               35
  Fed funds sold                             13,135                                                                           13,135
                                          ---------    ---------     ---------   ---------     ---------     ---------     ---------
     Interest bearing assets                 37,077       19,828        27,374      35,174        60,881         3,967       184,301
                                          ---------    ---------     ---------   ---------     ---------     ---------     ---------

LIABILITIES:
  Interest bearing transaction deposits      32,105                                                                           32,105
  Savings deposits                           64,391                                                                           64,391
  Time Deposits                                                                                                                    0
     Fixed rate >100m                         8,305        9,988         5,584       2,055                                    25,932
     Fixed rate <100m                         5,926        7,609         3,968       1,118                                    18,621
     Floating rate >100m                                                                                                           0
     Floating rate <100m                         44                                                                               44
  Borrowings                                      0                                                                                0
                                          ---------    ---------     ---------   ---------     ---------     ---------     ---------
    Interest Bearing Liabilities          $ 110,771    $  17,597     $   9,552   $   3,173     $       0     $       0     $ 141,093
                                          ---------    ---------     ---------   --------      ---------     ---------     ---------

Rate Sensitivity Gap                        (73,694)       2,231        17,822      32,001        60,881         3,967
                                          ---------    ---------     ---------   ---------     ---------     ---------     ---------
Cumulative Rate Sensitivity Gap             (73,694)     (71,463)      (53,641)    (21,640)       39,241        43,208
                                          ---------    ---------     ---------   ---------     ---------     ---------     ---------

Cumulative Position to Total Assets          -36.13%      -35.03%       -26.30%     -10.61%        19.24%        21.18%

                                          ---------    ---------     ---------    --------     ---------     ---------     ---------
</TABLE>


                                     Page 21

<PAGE>



Item 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
                  MARKET RISK

Information regarding Quantitative and Qualitative Disclosures about Market Risk
appears on page 20 through 22 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.

                                     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 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 PricePaid        Announced Plans or         the Plans or
      Period               Purchased          per Share (or Unit)            Programs                Programs
Month #1:                     189                   $29.375
1/1/04 - 1/31/04
Month #2:                     383                   $30.00
2/1/04 - 2/29/04
Month #3:                       0                        0
3/1/04 - 3/31/04

Total                         572                   $29.79
</TABLE>




                                     Page 22

<PAGE>



Item 3.           DEFAULTS UPON SENIOR SECURITIES

         None

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

         None

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

         (b)      Reports on Form 8-K

                  Date of Report         Date of Event        Item Reported
                  --------------         -------------        -------------

                  January 22, 2004     January 15, 2004       Press Release
                                                              announcing year
                                                              end results

                  February 24, 2004    February 18, 2004      Declaration of
                                                              cash dividend

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


                                     Page 23

<PAGE>



                                   SIGNATURES

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


                                                           SONOMA VALLEY BANCORP




Date:   May 13, 2004                /s/ Mel Switzer Jr.
     ----------------------         --------------------------------------------
                                    Mel Switzer, Jr.
                                    President and Chief Executive Officer
                                    (Principal Executive Officer)



Date:  May 13, 2004                 /s/ Mary Quade Dieter
     ---------------------          --------------------------------------------
                                    Mary Quade Dieter
                                    Executive Vice President
                                    Chief Operating Officer and Chief
                                    Financial Officer
                                    (Principal Financial Accounting Officer)



                                     Page 24