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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 Commission File Number: 000-31929
 
 SONOMA VALLEY BANCORP
  CALIFORNIA
    
    68-0454068(State of incorporation)
    
    (I.R.S. Employer Identification No.)
 202 West Napa Street
Sonoma, California 95476
(707) 935-3200
   Title of each class
    
    Name of each exchange
on which registeredCommon Stock, No Par Value
    
    None
 o þ
 o þ
 þ o
 o
  o o þ
 o þ




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Class
    
    Outstanding at March 13, 2007Common Stock, no par value per share
    
    2,319,627
     2




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TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 1A. RISK FACTORSITEM 1B. UNRESOLVED STAFF COMMENTSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR THE COMPANYS COMMON STOCK AND RELATED SECURITY HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A. CONTROLS AND PROCEDURESITEM 9B. OTHER INFORMATIONPART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESPART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULESSIGNATURESExhibit IndexEXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32    Table of Contents  With the exception of historical facts stated herein, the matters discussed in this Form
10-K are forward looking statements that involve risks and uncertainties that could cause actual
results to differ materially from projected results. Such forward looking statements include, but
are not necessarily limited to statements regarding anticipated levels of future revenues and
earnings from the operation of Sonoma Valley Bancorps (the Company) wholly owned subsidiary,
Sonoma Valley Bank (the Bank), projected costs and expenses related to operations of the banks
liquidity, capital resources, and the availability of future equity capital on commercially
reasonable terms. Factors that could cause actual results to differ materially include, in addition
to the other factors identified in this Form 10-K , 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-K 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.
 
 PART I
 
 ITEM 1. BUSINESS
 General
   Primary Services
  3




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Competition
    Concentration of Credit Risk
  (in thousands of dollars)Secured by real estate:Construction/land development
    
    $
    48,036Farmland
    
    
    7,9531-4 family residences
    
    
    43,440Commercial/multi-family
    
    
    99,354
 4




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Employees
  Supervision and Regulation
     Regulation of Bank Holding Companies
  5




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Federal Deposit Insurance
  Impact of Economic Conditions and Monetary Policies
  Recent and Proposed Legislation
  Sarbanes-Oxley Act of 2002.
  6




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Regulation W .
 Regulatory Capital Treatment of Equity Investments .
 7




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USA Patriot Act .
   Merchant Banking Investments .
 §
    
    30% of the Tier 1 capital of the financial holding company, or§
    
    after excluding interests in private equity funds, 20% of the Tier 1 capital of
the financial holding company.
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Financial Services Modernization Act of 1999 .
   9




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Accounting Pronouncements
  Fair Value Measurements.
 10




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Statistical Data
  Sequential PageNumberI. Distribution of Assets, Liabilities and Share-
holders Equity; Interest Rates and DifferentialA. Average balance sheets
    
    30B. Analysis of net interest earnings
    
    30C. Rate/volume analysis
    
    31II. Investment PortfolioA. Book value (Amortized Cost) of investments
    
    58B. Weighted average yield and maturity
    
    30, 34, 42 and 60C. Securities of issuer exceeding
ten percent of equity
    
    NoneIII. Loan PortfolioA. Types of loans
    
    30 and 61B. Maturities and sensitivities of loans
to change in interest rates
    
    42 and 62C. Risk elements1. Non-accrual, past due,
and restructured loans
    
    36 and 612. Potential problem loans
    
    None3. Foreign outstandings
    
    None4. Loan concentrations
    
    35 and 61D. Other Interest-Bearing Assets
    
    NoneIV. Summary of Loan Loss Experience
    
    36 and 62V. DepositsA. Average balances and average rates paid
    
    30B. Other categories of deposits
    
    NoneC. Foreign outstandings
    
    NoneD. Maturity of time deposits greater than $100,000
    
    42E. Maturity of foreign time deposits
greater than $100,000
    
    NoneVI. Return on Equity and Assets
    
    26VII. Short-term Borrowings:
    
    63
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ITEM 1A. RISK FACTORS.
   Risks Related to the Companys Business
 The Company is Subject to Interest Rate Risk
   The Company is Subject to Lending Risk
  12




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The Companys Allowance for Possible Loan Losses may be Insufficient
  The Company is Subject to Environmental Liability Risk Associated with Lending Activities
  13




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The Companys Profitability Depends Significantly on Economic Conditions in the State of California
  The Company Operates in a Highly Competitive Industry and Market Area
   §
    
    The ability to develop, maintain and build upon long-term customer relationships based
on top quality service, high ethical standards and safe, sound assets.§
    
    The ability to expand the Companys market position.§
    
    The scope, relevance and pricing of products and services offered to meet customer needs
and demands.§
    
    The rate at which the Company introduces new products and services relative to its competitors.§
    
    Customer satisfaction with the Companys level of service.§
    
    Industry and general economic trends.
  14




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The Company is Subject to Extensive Government Regulation and Supervision
  The Companys Controls and Procedures may Fail or be Circumvented
  New Lines of Business or new Products and Services may Subject the Company to Additional Risks
  The Company may not be able to Attract and Retain Skilled People
  15




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The Companys Information Systems may Experience an Interruption or Breach in Security
  The Company Continually Encounters Technological Change
  The Company is Subject to Claims and Litigation Pertaining to Fiduciary Responsibility
  Severe Weather, Natural Disasters, Acts of War or Terrorism and Other External Events Could
Significantly Impact the Companys Business
  16




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Risks Associated with the Companys Common Stock
 The Companys Stock Price can be Volatile
  §
    
    Actual or anticipated variations in quarterly results of operations.§
    
    Recommendations by securities analysts.§
    
    Operating and stock price performance of other companies that investors deem comparable
to the Company.§
    
    News reports relating to trends, concerns and other issues in the financial services industry.§
    
    Perceptions in the marketplace regarding the Company and/or its competitors.§
    
    New technology used, or services offered, by competitors.§
    
    Significant acquisitions or business combinations, strategic partnerships, joint
ventures or capital commitments by or involving the Company or its competitors.§
    
    Failure to integrate acquisitions or realize anticipated benefits from acquisitions.§
    
    Changes in government regulations.§
    
    Geopolitical conditions such as acts or threats of terrorism or military conflicts.
  The Trading Volume in the Companys Common Stock is Less than that of Other Larger Financial
Services Companies
  An Investment in the Companys Common Stock is not an Insured Deposit
  17




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Risks Associated with the Companys Industry
 The Earnings of Financial Services Companies are Significantly Affected by General Business and
Economic Conditions
  Financial Services Companies Depend on the Accuracy and Completeness of Information About Customers
and Counterparties
  Consumers may Decide not to use Banks to Complete Their Financial Transactions
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS.
  
 ITEM 2. PROPERTIES
   18




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st
   th
 
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  19




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PART II
 
 ITEM 5. MARKET FOR THE COMPANYS COMMON STOCK AND RELATED SECURITY HOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
   A.G.Edwards
    
    Monroe Securities703 2nd Street Suite 100
    
    343 W. Erie Street Suite 410Santa Rosa, CA 95409
    
    Chicago, IL 60610Denise Gilseth
    
    Russ Feltes(800) 972-4800
    
    (312) 327-2535Fax (707) 528-1117
    
    Fax (312) 327-2540Baird, Patrick & Company
    
    UBS Financial Services20 Exchange Place
    
    6570 Oakmont DriveR. J. Dragani
    
    Santa Rosa, CA 95409New York, New York 10005
    
    John Rector(800) 421-0123
    
    (707) 539-1500Fax (212) 493-6643
    
    Fax (707) 537-3553Edward Jones
    
    Howe Barnes Hoefer & Arnett515 First Street East
    
    555 Market Street, 18th FloorSonoma, CA 95476
    
    San Francisco, CA 94105Gary Scott
    
    Dave Bonaccorso (415) 538-5723(707) 935-1856
    
    Switchboard (800) 346-5544 Fax (415) 398-4875Fax (707) 935-1894Wedbush Morgan Securities
    
    Stone & Youngberg LLC1300 S.W. Fifth Avenue Suite 2000
    
    P.O.Box 1688Joey Warmenhoven X254
    
    42605 Moonridge RoadPortland, Oregon 97201-5667
    
    Troy Norlander(503) 224-0480
    
    Big Bear, CA 92315Fax (503) 224-7097
    
    (800) 288-2811Fax (909) 585-7220Tnorlander@syllc.comHill, Thompson, Magid & Co., Inc.15 Exchange Place, Suite 800Jersey City, NJ 07302Lisa Lee866-291-6316 or 201-369-2908Fax 201-395-0624Lisa.lee@hillthompson.com
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Quarter Ended:
    
    High
    
    
    LowDecember 31, 2006
    
    $
    31.00
    
    
    $
    27.35September 30, 2006
    
    
    28.00
    
    
    
    25.50June 30, 2006
    
    
    30.00
    
    
    
    23.80March 31, 2006
    
    
    24.95
    
    
    
    20.50December 31, 2005
    
    $
    23.00
    
    
    $
    20.25September 30, 2005
    
    
    23.20
    
    
    
    20.18June 30, 2005
    
    
    22.00
    
    
    
    19.15March 31, 2005
    
    
    25.50
    
    
    
    21.10
  Payment of Dividends
    21




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Dividends Paid by the Bank
 Date Declared
    
    Record Date
    
    Date Paid
    
    Dividend PaidMay 13, 1992
    
    May 31, 1992
    
    June 15, 1992
    
    5% Stock DividendJune 26, 1993
    
    July 15, 1993
    
    July 31, 1993
    
    5% Stock DividendJuly 20, 1994
    
    August 1, 1994
    
    August 15, 1994
    
    5% Stock DividendJanuary 18, 1995
    
    February 5, 1995
    
    February 20, 1995
    
    5% Stock DividendAugust 16, 1995
    
    September 11, 1995
    
    September 29, 1995
    
    5% Stock DividendMay 22, 1996
    
    June 14, 1996
    
    June 28, 1996
    
    10% Stock DividendJune 18, 1997
    
    July 15, 1997
    
    August 1, 1997
    
    10% Stock DividendMarch 18, 1998
    
    April 15, 1998
    
    April 30, 1998
    
    2 for 1 Stock SplitJuly 21, 1999
    
    August 16, 1999
    
    August 31, 1999
    
    5% Stock DividendAugust 16, 2000
    
    September 8, 2000
    
    September 25, 2000
    
    5% Stock Dividend
 Dividends Paid by the Company
 Date Declared
    
    Record Date
    
    Date Paid
    
    Dividend PaidJuly 18, 2001
    
    August 3, 2001
    
    August 17, 2001
    
    5% Stock DividendJune 17, 2002
    
    July 2, 2002
    
    July 16, 2002
    
    5% Stock DividendJune 18, 2003
    
    July 2, 2003
    
    July 16, 2003
    
    5% Stock DividendFebruary 18, 2004
    
    March 1, 2004
    
    March 15, 2004
    
    $.25 Cash DividendJuly 21, 2004
    
    August 6, 2004
    
    August 26, 2004
    
    3 for 2 Stock Split
& $.25 Cash
DividendFebruary 16, 2005
    
    March 1, 2005
    
    March 15, 2005
    
    $.25 Cash DividendJuly 20, 2005
    
    August 1, 2005
    
    August 15, 2005
    
    $.25 Cash DividendFebruary 15, 2006
    
    March 1, 2006
    
    March 15, 2006
    
    $.25 Cash DividendAugust 17, 2006
    
    September 1, 2006
    
    September 15, 2006
    
    $.30 Cash DividendFebruary 22, 2007
    
    March 15, 2007
    
    March 30, 2007
    
    $.30 Cash Dividend
 22




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Comparison of Cumulative Total Return on Investment
  
 Period EndingIndex
    
    
    
    12/31/00
    
    
    
    
    12/31/01
    
    
    
    
    12/31/02
    
    
    
    
    12/31/03
    
    
    
    
    12/31/04
    
    
    
    
    12/31/05
    
    
    
    
    12/31/06Sonoma Valley Bancorp
    
    
    
    100.00
    
    
    
    
    121.03
    
    
    
    
    176.98
    
    
    
    
    180.65
    
    
    
    
    223.45
    
    
    
    
    203.83
    
    
    
    
    272.52Russell 2000
    
    
    
    100.00
    
    
    
    
    102.49
    
    
    
    
    81.49
    
    
    
    
    120.00
    
    
    
    
    142.00
    
    
    
    
    148.47
    
    
    
    
    175.73SNL OTC & Pink Sheet
Western Index
    
    
    
    100.00
    
    
    
    
    101.11
    
    
    
    
    120.72
    
    
    
    
    178.37
    
    
    
    
    223.14
    
    
    
    
    255.27
    
    
    
    
    281.51
 (a)
    
    
    (b)
    
    
    
    
    
    
    (c)
    
    
    (d)Maximum Number (orTotal Number of
    
    
    Approximate DollarShares (or Units)
    
    
    Value) of SharesPurchased as Part
    
    
    (or Units) that MayTotal Number of
    
    
    
    
    
    
    
    
    
    
    of Publicly
    
    
    Yet be PurchasedShares (or Units)
    
    
    Average Price paid
    
    
    Announced Plans or
    
    
    Under the Plans orPeriod
    
    Purchased
    
    
    per Share (or Unit)
    
    
    Programs
    
    
    Programs10/1/06- 10/31/06
    
    
    10,145
    
    
    
    
    
    
    $
    27.60
    
    
    
    10,145
    
    
    
    53,85111/1/06 - 11/30/06
    
    
    0
    
    
    

    
    
    

    
    0
    
    
    
    012/1/06 - 12/31/06
    
    
    0
    
    
    

    
    
    
    
    0
    
    
    
    0Total
    
    
    10,145
    
    
    
    
    
    
    $
    27.60
    
    
    
    10,145
    
    
    
    53,851
 23




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ITEM 6. SELECTED FINANCIAL DATA
 SONOMA VALLEY BANCORP
Selected Consolidated Financial Data
dollars in thousands, except share
and per share data
 For the years ended:2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002RESULTS OF OPERATIONS:Net interest income
    
    $
    12,922
    
    
    $
    11,300
    
    
    $
    10,004
    
    
    $
    8,906
    
    
    $
    8,633Provision for loan losses
    
    
    (500
    )
    
    
    (360
    )
    
    
    (130
    )
    
    
    (20
    )
    
    
    (393
    )Non-interest income
    
    
    2,094
    
    
    
    1,968
    
    
    
    1,710
    
    
    
    1,715
    
    
    
    1,641Non-interest expense
    
    
    (8,306
    )
    
    
    (7,848
    )
    
    
    (7,225
    )
    
    
    (6,244
    )
    
    
    (5,862
    )Provision for income tax
    
    
    (2,218
    )
    
    
    (1,711
    )
    
    
    (1,451
    )
    
    
    (1,446
    )
    
    
    (1,275
    )Net Income
    
    $
    3,992
    
    
    $
    3,349
    
    
    $
    2,908
    
    
    $
    2,911
    
    
    $
    2,744SELECTED AVERAGE BALANCES:Assets
    
    $
    262,090
    
    
    $
    232,543
    
    
    $
    210,883
    
    
    $
    195,177
    
    
    $
    164,200Loans, net of unearned
    
    
    199,001
    
    
    
    160,655
    
    
    
    139,395
    
    
    
    123,044
    
    
    
    116,867Deposits
    
    
    223,560
    
    
    
    203,341
    
    
    
    186,496
    
    
    
    171,620
    
    
    
    143,228Shareholders equity
    
    
    25,111
    
    
    
    21,935
    
    
    
    20,799
    
    
    
    20,232
    
    
    
    17,964PER SHARE DATA:Basic net income
    
    $
    1.78
    
    
    $
    1.54
    
    
    $
    1.35
    
    
    $
    1.34
    
    
    $
    1.26Fully diluted net income
    
    $
    1.68
    
    
    $
    1.45
    
    
    $
    1.25
    
    
    $
    1.23
    
    
    $
    1.16Period end book value
    
    $
    11.71
    
    
    $
    10.63
    
    
    $
    9.65
    
    
    $
    9.89
    
    
    $
    8.81Weighted average shares
outstanding
    
    
    2,247,231
    
    
    
    2,170,866
    
    
    
    2,148,558
    
    
    
    2,165,066
    
    
    
    2,176,386Weighted average shares
outstanding diluted
    
    
    2,369,218
    
    
    
    2,303,639
    
    
    
    2,330,841
    
    
    
    2,364,433
    
    
    
    2,373,208FINANCIAL RATIOS:Return on average assets
    
    
    1.52
    %
    
    
    1.44
    %
    
    
    1.38
    %
    
    
    1.49
    %
    
    
    1.67
    %Return on average
shareholders equity
    
    
    15.90
    %
    
    
    15.27
    %
    
    
    13.98
    %
    
    
    14.39
    %
    
    
    15.27
    %Net yield on earning
assets
    
    
    5.46
    %
    
    
    5.46
    %
    
    
    5.48
    %
    
    
    5.24
    %
    
    
    6.06
    %Efficiency ratio
    
    
    53.95
    %
    
    
    57.44
    %
    
    
    59.52
    %
    
    
    56.95
    %
    
    
    55.07
    %Average shareholders
equity to average assets
    
    
    9.58
    %
    
    
    9.43
    %
    
    
    9.86
    %
    
    
    10.37
    %
    
    
    10.94
    %CAPITAL RATIOS:Risk-based capital:Tier I
    
    
    9.57
    %
    
    
    10.68
    %
    
    
    10.77
    %
    
    
    12.81
    %
    
    
    12.31
    %Total
    
    
    10.26
    %
    
    
    11.93
    %
    
    
    12.02
    %
    
    
    14.07
    %
    
    
    13.57
    %Leverage ratio
    
    
    11.51
    %
    
    
    9.61
    %
    
    
    9.51
    %
    
    
    10.50
    %
    
    
    10.62
    %CREDIT QUALITY:Net charge-offs to
average loans
    
    
    0.00
    %
    
    
    0.01
    %
    
    
    0.24
    %
    
    
    0.14
    %
    
    
    0.02
    %Allowance for possible
loan losses to period
end loans
    
    
    1.49
    %
    
    
    1.62
    %
    
    
    1.59
    %
    
    
    2.15
    %
    
    
    2.17
    %
 24




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The Year Ended December 31, 2006 versus December 31, 2005
  Critical Accounting Policies
  Allowance for Loan and Lease Losses
   25




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Estimation of Fair Value
  Overview
      26




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RESULTS OF OPERATIONS
 Net Interest Income
 ,
  27




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Interest Income
   Interest Expense
    Provision for Loan Losses
  28




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,
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SONOMA VALLEY BANCORP
AVERAGE BALANCES/YIELDS AND RATES PAID
 2006
    
    
    2005
    
    
    2004Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    RateASSETSInterest-earning assets:Loans(2):Commercial
    
    $
    136,909,555
    
    
    $
    10,895,909
    
    
    
    7.96
    %
    
    $
    109,030,041
    
    
    $
    8,186,579
    
    
    
    7.51
    %
    
    $
    98,242,841
    
    
    $
    7,020,157
    
    
    
    7.15
    %Consumer
    
    
    25,167,482
    
    
    
    2,065,754
    
    
    
    8.21
    %
    
    
    19,216,697
    
    
    
    1,367,094
    
    
    
    7.11
    %
    
    
    14,223,761
    
    
    
    941,735
    
    
    
    6.62
    %Real estate construction
    
    
    19,431,136
    
    
    
    1,593,551
    
    
    
    8.20
    %
    
    
    19,741,512
    
    
    
    1,494,312
    
    
    
    7.57
    %
    
    
    19,134,306
    
    
    
    1,470,918
    
    
    
    7.69
    %Real estate mortgage
    
    
    15,624,447
    
    
    
    1,088,846
    
    
    
    6.97
    %
    
    
    10,502,449
    
    
    
    729,886
    
    
    
    6.95
    %
    
    
    5,178,002
    
    
    
    372,145
    
    
    
    7.19
    %Tax exempt loans (1)
    
    
    2,379,741
    
    
    
    195,558
    
    
    
    8.22
    %
    
    
    2,604,858
    
    
    
    215,214
    
    
    
    8.26
    %
    
    
    3,033,269
    
    
    
    254,332
    
    
    
    8.38
    %Leases
    
    
    44,438
    
    
    
    5,185
    
    
    
    11.67
    %
    
    
    37,486
    
    
    
    3,677
    
    
    
    9.81
    %
    
    
    36,061
    
    
    
    7,610
    
    
    
    21.10
    %Tax exempt leases (1)
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %
    
    
    868
    
    
    
    0
    
    
    
    0.00
    %Unearned loan fees
    
    
    (555,992
    )
    
    
    
    
    
    
    
    
    
    
    (478,473
    )
    
    
    
    
    
    
    
    
    
    
    (453,892
    )Total loans
    
    
    199,000,807
    
    
    
    15,844,803
    
    
    
    7.96
    %
    
    
    160,654,570
    
    
    
    11,996,762
    
    
    
    7.47
    %
    
    
    139,395,216
    
    
    
    10,066,897
    
    
    
    7.22
    %Investment securitiesAvailable for sale:Taxable
    
    
    25,545,606
    
    
    
    859,937
    
    
    
    3.37
    %
    
    
    33,559,732
    
    
    
    1,049,443
    
    
    
    3.13
    %
    
    
    23,264,663
    
    
    
    780,886
    
    
    
    3.36
    %Tax exempt (1)
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %Hold to maturity:Taxable
    
    
    175,371
    
    
    
    5,128
    
    
    
    2.92
    %
    
    
    370,518
    
    
    
    10,149
    
    
    
    2.74
    %
    
    
    390,564
    
    
    
    10,094
    
    
    
    2.58
    %Tax exempt (1)
    
    
    15,897,167
    
    
    
    920,114
    
    
    
    5.79
    %
    
    
    16,604,344
    
    
    
    947,633
    
    
    
    5.71
    %
    
    
    17,187,291
    
    
    
    993,469
    
    
    
    5.78
    %Total investment securities
    
    
    41,618,144
    
    
    
    1,785,179
    
    
    
    4.29
    %
    
    
    50,534,594
    
    
    
    2,007,225
    
    
    
    3.97
    %
    
    
    40,842,518
    
    
    
    1,784,449
    
    
    
    4.37
    %Federal funds sold
    
    
    1,648,644
    
    
    
    74,102
    
    
    
    4.49
    %
    
    
    2,291,052
    
    
    
    59,256
    
    
    
    2.59
    %
    
    
    9,446,626
    
    
    
    106,176
    
    
    
    1.12
    %FHLB Stock
    
    
    1,045,871
    
    
    
    50,408
    
    
    
    4.82
    %
    
    
    814,701
    
    
    
    33,032
    
    
    
    4.05
    %
    
    
    599,670
    
    
    
    20,370
    
    
    
    3.40
    %Total Due from Banks/Interest
    
    
    157,468
    
    
    
    4,977
    
    
    
    3.16
    %
    
    
    61,200
    
    
    
    1,453
    
    
    
    2.37
    %
    
    
    154,083
    
    
    
    4,462
    
    
    
    2.90
    %Short term investments
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %Total interest earning assets
    
    
    243,470,934
    
    
    $
    17,759,469
    
    
    
    7.29
    %
    
    
    214,356,117
    
    
    $
    14,097,728
    
    
    
    6.58
    %
    
    
    190,438,113
    
    
    $
    11,982,354
    
    
    
    6.29
    %Noninterest-bearing assets:Reserve for loan losses
    
    
    (2,995,052
    )
    
    
    
    
    
    
    
    
    
    
    (2,668,551
    )
    
    
    
    
    
    
    
    
    
    
    (2,436,434
    )Cash and due from banks
    
    
    6,077,171
    
    
    
    
    
    
    
    
    
    
    
    6,732,111
    
    
    
    
    
    
    
    
    
    
    
    9,319,173Premises and equipment
    
    
    1,078,565
    
    
    
    
    
    
    
    
    
    
    
    1,282,313
    
    
    
    
    
    
    
    
    
    
    
    1,369,737Other real estate owned
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    0Other assets
    
    
    14,458,246
    
    
    
    
    
    
    
    
    
    
    
    12,841,172
    
    
    
    
    
    
    
    
    
    
    
    12,192,166Total assets
    
    $
    262,089,864
    
    
    
    
    
    
    
    
    
    
    $
    232,543,162
    
    
    
    
    
    
    
    
    
    
    $
    210,882,755LIABILITIES AND SHAREHOLDERS EQUITYInterest-bearing liabilities:Interest-bearing depositsInterest-bearing transaction
    
    $
    30,838,635
    
    
    $
    50,928
    
    
    
    0.17
    %
    
    
    34,027,331
    
    
    $
    57,905
    
    
    
    0.17
    %
    
    
    30,888,052
    
    
    $
    51,744
    
    
    
    0.17
    %Savings deposits
    
    
    73,425,495
    
    
    
    1,363,563
    
    
    
    1.86
    %
    
    
    73,821,236
    
    
    
    826,657
    
    
    
    1.12
    %
    
    
    67,113,729
    
    
    
    434,671
    
    
    
    0.65
    %Time less than $100,000
    
    
    26,544,506
    
    
    
    1,015,391
    
    
    
    3.83
    %
    
    
    20,600,270
    
    
    
    568,772
    
    
    
    2.76
    %
    
    
    18,739,735
    
    
    
    399,813
    
    
    
    2.13
    %Time $100,000 and over
    
    
    38,501,063
    
    
    
    1,602,820
    
    
    
    4.16
    %
    
    
    27,300,405
    
    
    
    851,427
    
    
    
    3.12
    %
    
    
    25,666,191
    
    
    
    667,862
    
    
    
    2.60
    %Total interest-bearing deposits
    
    
    169,309,699
    
    
    
    4,032,702
    
    
    
    2.38
    %
    
    
    155,749,242
    
    
    
    2,304,761
    
    
    
    1.48
    %
    
    
    142,407,707
    
    
    
    1,554,090
    
    
    
    1.09
    %Federal funds purchased
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %Long term debit & other borrowings
    
    
    8,225,343
    
    
    
    425,681
    
    
    
    5.18
    %
    
    
    2,990,049
    
    
    
    97,799
    
    
    
    3.27
    %
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %Total
interest-bearing
liabilities
    
    
    177,535,042
    
    
    $
    4,458,383
    
    
    
    2.51
    %
    
    
    158,739,291
    
    
    $
    2,402,560
    
    
    
    1.51
    %
    
    
    142,407,707
    
    
    $
    1,554,090
    
    
    
    1.09
    %Non interest-bearing liabilities:Demand deposits
    
    
    54,250,592
    
    
    
    
    
    
    
    
    
    
    
    47,591,444
    
    
    
    
    
    
    
    
    
    
    
    44,088,274Other liabilities
    
    
    5,193,491
    
    
    
    
    
    
    
    
    
    
    
    4,276,993
    
    
    
    
    
    
    
    
    
    
    
    3,587,532Shareholders equity
    
    
    25,110,739
    
    
    
    
    
    
    
    
    
    
    
    21,935,434
    
    
    
    
    
    
    
    
    
    
    
    20,799,242Total liabilities and
shareholders equity
    
    $
    262,089,864
    
    
    
    
    
    
    
    
    
    
    $
    232,543,162
    
    
    
    
    
    
    
    
    
    
    $
    210,882,755Interest rate spread
    
    
    
    
    
    
    
    
    
    
    4.78
    %
    
    
    
    
    
    
    
    
    
    
    5.06
    %
    
    
    
    
    
    
    
    
    
    
    5.20
    %Interest income
    
    
    
    
    
    $
    17,759,469
    
    
    
    7.29
    %
    
    
    
    
    
    $
    14,097,728
    
    
    
    6.58
    %
    
    
    
    
    
    $
    11,982,354
    
    
    
    6.29
    %Interest expense
    
    
    
    
    
    
    4,458,383
    
    
    
    1.83
    %
    
    
    
    
    
    
    2,402,560
    
    
    
    1.12
    %
    
    
    
    
    
    
    1,554,090
    
    
    
    0.82
    %Net interest income/margin
    
    
    
    
    
    $
    13,301,086
    
    
    
    5.46
    %
    
    
    
    
    
    $
    11,695,168
    
    
    
    5.46
    %
    
    
    
    
    
    $
    10,428,264
    
    
    
    5.48
    %
 
 (1)
    
    Fully tax equivalent adjustments are based on a federal income tax rate of 34% in 2006,
2005 and 2004(2)
    
    Non accrual loans have been included in loans for the purposes of the above presentation.
Loan fees of approximately $471,000, 367,000 and $299,000 for the twelve months ended
December 31, 2006, 2005 and 2004, respectively, were amortized to the appropriate interest
income categories. 30




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##### Table of Contents



2006 over 2005
    
    
    2005 over 2004Volume
    
    
    Rate
    
    
    Vol/Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    Vol/Rate
    
    
    TotalASSETSInterest-earning assets:Loans:Commercial
    
    
    2,093,348
    
    
    
    490,547
    
    
    
    125,435
    
    
    
    2,709,330
    
    
    
    770,823
    
    
    
    356,459
    
    
    
    39,140
    
    
    
    1,166,422Consumer
    
    
    423,344
    
    
    
    210,218
    
    
    
    65,098
    
    
    
    698,660
    
    
    
    330,575
    
    
    
    70,157
    
    
    
    24,627
    
    
    
    425,359Real estate construction
    
    
    (23,494
    )
    
    
    124,693
    
    
    
    (1,960
    )
    
    
    99,239
    
    
    
    46,678
    
    
    
    (22,568
    )
    
    
    (716
    )
    
    
    23,394Real estate mortgage
    
    
    355,962
    
    
    
    2,015
    
    
    
    983
    
    
    
    358,960
    
    
    
    382,670
    
    
    
    (12,291
    )
    
    
    (12,638
    )
    
    
    357,741Tax exempt loans
    
    
    (18,599
    )
    
    
    (1,157
    )
    
    
    100
    
    
    
    (19,656
    )
    
    
    (35,921
    )
    
    
    (3,723
    )
    
    
    526
    
    
    
    (39,118
    )Leases
    
    
    682
    
    
    
    697
    
    
    
    129
    
    
    
    1,508
    
    
    
    301
    
    
    
    (4,073
    )
    
    
    (161
    )
    
    
    (3,933
    )Tax exempt leases
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Unearned fee income
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total loans
    
    
    2,831,244
    
    
    
    827,013
    
    
    
    189,784
    
    
    
    3,848,041
    
    
    
    1,495,126
    
    
    
    383,962
    
    
    
    50,777
    
    
    
    1,929,865Investment securities:Available for sale:Taxable
    
    
    (250,609
    )
    
    
    80,272
    
    
    
    (19,169
    )
    
    
    (189,506
    )
    
    
    345,557
    
    
    
    (53,379
    )
    
    
    (23,621
    )
    
    
    268,557Tax-exempt
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Held to maturity:Taxable
    
    
    (5,345
    )
    
    
    685
    
    
    
    (361
    )
    
    
    (5,021
    )
    
    
    (518
    )
    
    
    604
    
    
    
    (31
    )
    
    
    55Tax-exempt
    
    
    (40,360)
    )
    
    
    13,412
    
    
    
    (571
    )
    
    
    (27,519
    )
    
    
    (33,696
    )
    
    
    (12,566
    )
    
    
    426
    
    
    
    (45,836
    )Total investment
Securities
    
    
    (296,314
    )
    
    
    94,369
    
    
    
    (20,101
    )
    
    
    (222,046
    )
    
    
    311,343
    
    
    
    (65,341
    )
    
    
    (23,226
    )
    
    
    222,776Federal funds sold
    
    
    (16,615
    )
    
    
    43,720
    
    
    
    (12,259
    )
    
    
    (14,846
    )
    
    
    (80,426
    )
    
    
    138,152
    
    
    
    (104,647
    )
    
    
    (46,920
    )FHLB Stock
    
    
    9,373
    
    
    
    6,234
    
    
    
    1,769
    
    
    
    17,376
    
    
    
    7,304
    
    
    
    3,944
    
    
    
    1,414
    
    
    
    12,662Due from banks-int bearing
    
    
    2,286
    
    
    
    481
    
    
    
    757
    
    
    
    3,524
    
    
    
    (2,690
    )
    
    
    (804
    )
    
    
    485
    
    
    
    (3,009
    )Short term investments
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total interest-earning
Assets
    
    
    2,529,973
    
    
    
    971,818
    
    
    
    159,950
    
    
    
    3,661,741
    
    
    
    1,730,658
    
    
    
    459,913
    
    
    
    (75,197
    )
    
    
    2,115,374LIABILITIESInterest-bearing liabilities:Interest-bearing deposits:Savings deposits
    
    
    (5,426
    )
    
    
    (1,711
    )
    
    
    160
    
    
    
    (6,977
    )
    
    
    5,259
    
    
    
    819
    
    
    
    83
    
    
    
    6,161Interest-bearing demand
Deposits
    
    
    (4,432
    )
    
    
    544,255
    
    
    
    (2,918
    )
    
    
    536,906
    
    
    
    43,442
    
    
    
    316,875
    
    
    
    31,669
    
    
    
    391,986Time less than $100,000
    
    
    164,120
    
    
    
    219,238
    
    
    
    63,261
    
    
    
    446,619
    
    
    
    39,695
    
    
    
    117,590
    
    
    
    11,675
    
    
    
    168,959Time $100,000 and over
    
    
    349,319
    
    
    
    285,104
    
    
    
    116,971
    
    
    
    751,393
    
    
    
    42,524
    
    
    
    132,598
    
    
    
    8,443
    
    
    
    183,565Total interest-bearing
Deposits
    
    
    503,581
    
    
    
    1,046,885
    
    
    
    177,475
    
    
    
    1,727,941
    
    
    
    130,920
    
    
    
    567,882
    
    
    
    51,870
    
    
    
    750,671Federal funds purchased
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Long term debit & other
borrowing
    
    
    171,237
    
    
    
    56,943
    
    
    
    99,702
    
    
    
    327,882
    
    
    
    0
    
    
    
    0
    
    
    
    97,799
    
    
    
    97,799Total interest-bearing
Liabilities
    
    
    674,818
    
    
    
    1,103,829
    
    
    
    277,177
    
    
    
    2,055,823
    
    
    
    130,920
    
    
    
    567,882
    
    
    
    149,669
    
    
    
    848,470Interest differential
    
    
    1,855,156
    
    
    
    (132,011
    )
    
    
    (117,227
    )
    
    
    1,605,918
    
    
    
    1,599,739
    
    
    
    (107,968
    )
    
    
    (224,866
    )
    
    
    1,266,904
  
 a.
    
    Changes affected by volume (change in volume times old rate)b.
    
    Changes affected by rates (change in rates times old volume)c.
    
    Changes affected by rate/volume (change in volume times change in rates)  31




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##### Table of Contents



Non-interest Income
    Non-interest Expense
  Salaries and Benefits
  Premises and Equipment
  32




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##### Table of Contents



Other Non-interest Expense
    Provision for Income Taxes
  Unaudited Quarterly Statement of Operations Data
 (Dollars in thousands, except per share data)
 Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1
    
    
    Q4
    
    
    Q3
    
    
    Q2
    
    
    Q12006
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    2005
    
    
    2005
    
    
    2005
    
    
    2005Net interest income
    
    $
    3,440
    
    
    $
    3,298
    
    
    $
    3,204
    
    
    $
    2,978
    
    
    $
    2,947
    
    
    $
    2,865
    
    
    $
    2,784
    
    
    $
    2,703Provision for loan and
lease losses
    
    
    (180
    )
    
    
    (30
    )
    
    
    (240
    )
    
    
    (50
    )
    
    
    (15
    )
    
    
    (95
    )
    
    
    (160
    )
    
    
    (90
    )Other operating income
    
    
    536
    
    
    
    534
    
    
    
    520
    
    
    
    505
    
    
    
    525
    
    
    
    498
    
    
    
    487
    
    
    
    459Other operating expenses
    
    
    (2,098
    )
    
    
    (2,230
    )
    
    
    (1,973
    )
    
    
    (2,004
    )
    
    
    (1,964
    )
    
    
    (1,967
    )
    
    
    (1,944
    )
    
    
    (1,973
    )Income before income taxes
    
    
    1,698
    
    
    
    1,572
    
    
    
    1,511
    
    
    
    1,429
    
    
    
    1,493
    
    
    
    1,301
    
    
    
    1,167
    
    
    
    1,099Provision for income taxes
    
    
    (609
    )
    
    
    (560
    )
    
    
    (542
    )
    
    
    (507
    )
    
    
    (494
    )
    
    
    (453
    )
    
    
    (396
    )
    
    
    (368
    )Net Income
    
    
    1,089
    
    
    
    1,012
    
    
    
    969
    
    
    
    922
    
    
    
    999
    
    
    
    848
    
    
    
    771
    
    
    
    731Per share:Basic earnings per share
    
    $
    .48
    
    
    $
    .45
    
    
    $
    .43
    
    
    $
    .41
    
    
    $
    .46
    
    
    $
    .39
    
    
    $
    .36
    
    
    $
    .34Diluted earnings
per share
    
    $
    .46
    
    
    $
    .43
    
    
    $
    .41
    
    
    $
    .40
    
    
    $
    .43
    
    
    $
    .37
    
    
    $
    .34
    
    
    $
    .32
 33




---



##### Table of Contents



BALANCE SHEET ANALYSIS
 Investment Securities
       34




---



##### Table of Contents



Twelve Months Ended 12/31/06
    
    
    Twelve Months Ended 12/31/05Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    RateInvestment securities:U.S. Treasury securities
    
    $
    5,319,515
    
    
    $
    177,501
    
    
    
    3.34
    %
    
    $
    5,096,320
    
    
    $
    169,259
    
    
    
    3.32
    %U.S. federal agency issues
    
    
    20,201,000
    
    
    
    681,782
    
    
    
    3.37
    %
    
    
    28,463,381
    
    
    
    880,184
    
    
    
    3.09
    %State, county & munis
    
    
    16,072,538
    
    
    
    925,242
    
    
    
    5.76
    %
    
    
    16,974,862
    
    
    
    957,782
    
    
    
    5.64
    %Other securities
    
    
    25,091
    
    
    
    654
    
    
    
    2.61
    %
    
    
    31
    
    
    
    0
    
    
    
    0.00
    %Total investment
securities
    
    $
    41,618,144
    
    
    $
    1,785,179
    
    
    
    4.29
    %
    
    $
    50,534,594
    
    
    $
    2,007,225
    
    
    
    3.97
    %
 Loans
     Risk Elements
   35




---



##### Table of Contents



Loan Commitments and Letters of Credit
   Nonperforming Assets
    Allowance for Loan Losses
   36




---



##### Table of Contents



Deposits
 ;
    December 31,
    
    Percentage
    
    December 31,
    
    Percentage2006
    
    of Total
    
    2005
    
    of TotalInterest-bearing Transaction
Deposits
    
    $
    29,983,572
    
    
    
    12.9
    %
    
    $
    35,586,113
    
    
    
    16.6
    %Savings deposits
    
    
    72,346,136
    
    
    
    31.1
    %
    
    
    74,218,076
    
    
    
    34.4
    %Time deposits, over $100,000
    
    
    44,067,435
    
    
    
    18.9
    %
    
    
    32,011,640
    
    
    
    14.8
    %Other time deposits
    
    
    27,629,801
    
    
    
    11.9
    %
    
    
    24,482,074
    
    
    
    11.3
    %Total interest-bearing deposits
    
    
    174,026,944
    
    
    
    74.8
    %
    
    
    166,297,903
    
    
    
    77.1
    %Noninterest-bearing demand
    
    
    58,740,471
    
    
    
    25.2
    %
    
    
    49,460,864
    
    
    
    22.9
    %Total deposits
    
    $
    232,767,415
    
    
    
    100.0
    %
    
    $
    215,758,767
    
    
    
    100.0
    %
 37




---



##### Table of Contents



Capital
      Off Balance Sheet Commitments and Contractual Obligations
  38




---



##### Table of Contents



Payments due by periodLess than
    
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 Years
    
    
    5 yearsOperating Lease Obligations
    
    
    $961,045
    
    
    
    $363,699
    
    
    
    $570,960
    
    
    
    $26,386
    
    
    
    Executive Officer
Supplemental Retirement
    
    
    $10,006,965
    
    
    
    
    
    
    
    $55,184
    
    
    
    $568,122
    
    
    
    $9,383,659Federal Home Loan Bank -
Long Term Borrowings
    
    
    $5,000,000
    
    
    
    
    
    
    
    $5,000,000
    
    
    
    
    
    
    
    Director Retirement Plan
    
    
    $1,234,276
    
    
    
    $7,917
    
    
    
    $19,510
    
    
    
    $38,397
    
    
    
    $1,168,452Deferred Compensation
    
    
    $1,448,181
    
    
    
    $11,452
    
    
    
    $34,987
    
    
    
    $96,572
    
    
    
    $1,305,170
 Liquidity Management and Capital Resources
  Market Risk Management
 Overview
 Asset/Liability Management.
 39




---



##### Table of Contents



(In thousands)
 Variation from a constant rate scenario
    
    $ Change in Net Income+200bp
    
    
    (238
    )+100bp
    
    
    (125
    )-100bp
    
    
    (166
    )-200bp
    
    
    (399
    )
  Interest Rate Sensitivity Analysis
  40




---



##### Table of Contents



41




---



##### Table of Contents



Immediate
    
    
    Up to 3
    
    
    4 to 6
    
    
    7 to 12
    
    
    OverDecember 31, 2006
    
    Reprice
    
    
    Months
    
    
    Months
    
    
    Months
    
    
    12 Months
    
    
    TotalASSETS:Securities + Other Interest-Bearing Balances
    
    $
    0
    
    
    $
    5,988
    
    
    $
    2,407
    
    
    $
    4,815
    
    
    $
    23,586
    
    
    $
    36,796Loans
    
    
    50,981
    
    
    
    7,532
    
    
    
    15,956
    
    
    
    29,825
    
    
    
    112,037
    
    
    
    216,331Fed Funds Sold + Overnight
Interest-Bearing Balances
    
    
    1,292
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,292Total Rate Sensitive Assets
    
    $
    52,273
    
    
    $
    13,520
    
    
    $
    18,363
    
    
    $
    34,640
    
    
    $
    135,623
    
    
    $
    254,419LIABILITIES:MMDA/NOW/SAV
    
    $
    102,329
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    102,329CDs<$100
    
    
    0
    
    
    
    7,609
    
    
    
    8,356
    
    
    
    8,356
    
    
    
    3,310
    
    
    
    27,631CDs>$100
    
    
    0
    
    
    
    17,992
    
    
    
    17,538
    
    
    
    4,385
    
    
    
    4,154
    
    
    
    44,069Borrowings
    
    
    7,600
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    5,000
    
    
    
    12,600Total Rate Sensitive Liabilities
    
    $
    109,929
    
    
    $
    25,601
    
    
    $
    25,894
    
    
    $
    12,741
    
    
    $
    12,464
    
    
    $
    186,629Rate Sensitivity Gap
    
    $
    (57,656
    )
    
    $
    (12,081
    )
    
    $
    (7,531
    )
    
    $
    21,899
    
    
    $
    123,159
    
    
    $
    88,547Cumulative Rate Sensitivity Gap
    
    $
    (57,656
    )
    
    $
    (69,737
    )
    
    $
    (77,268
    )
    
    $
    (55,369
    )
    
    $
    67,790Cumulative Position to Total Assets
    
    
    (20.8
    %)
    
    
    (25.2
    %)
    
    
    (27.9
    )
    
    
    (20.0
    %)
    
    
    24.5
    %
 Market risk in securities.
  Inflation
  42




---



##### Table of Contents



Managements Discussion and Analysis  The Year Ended December 31, 2005 versus December 31, 2004
 Summary
   Net Interest Income
   Interest Income
  Interest Expense
    Provision for Loan Losses
  43




---



##### Table of Contents



Non-interest Income
    Non-interest Expense
  Salaries and Benefits
  44




---



##### Table of Contents



Premises and Equipment
  Other Non-interest Expense
    Provision for Income Taxes
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  45




---



##### Table of Contents



SONOMA VALLEY BANCORP AND SUBSIDIARY
   46




---



##### Table of Contents



Richardson & Company
    
    550 Howe Avenue, Suite 210Sacramento, California 95825Telephone: (916) 564-8727FAX: (916) 564-8728
 
 
    /s/ Richardson & CompanyRichardson & Company  47




---



##### Table of Contents



2006
    
    
    2005ASSETSCash and due from banks
    
    $
    6,159,931
    
    
    $
    6,988,820Federal funds sold
    
    
    
    
    
    
    2,050,000Interest-bearing due from banks
    
    
    1,292,325
    
    
    
    39,521Total cash and cash equivalents
    
    
    7,452,256
    
    
    
    9,078,341Investment securities available-for-sale, at fair value
    
    
    20,991,232
    
    
    
    33,917,094Investment securities held-to-maturity (fair value
of $15,951,553 and $16,634,519, respectively)
    
    
    15,804,421
    
    
    
    16,499,865Loans and lease financing receivables, net
    
    
    216,330,690
    
    
    
    168,418,085Premises and equipment, net
    
    
    949,224
    
    
    
    1,178,666Accrued interest receivable
    
    
    1,671,618
    
    
    
    1,400,255Cash surrender value of life insurance
    
    
    9,587,306
    
    
    
    9,239,439Other assets
    
    
    4,867,187
    
    
    
    4,331,172Total assets
    
    $
    277,653,934
    
    
    $
    244,062,917LIABILITIESNoninterest-bearing demand deposits
    
    $
    58,740,471
    
    
    $
    49,460,864Interest-bearing transaction deposits
    
    
    29,983,572
    
    
    
    35,586,113Savings and money market deposits
    
    
    72,346,136
    
    
    
    74,218,076Time deposits, $100,000 and over
    
    
    44,067,435
    
    
    
    32,011,640Other time deposits
    
    
    27,629,801
    
    
    
    24,482,074Total deposits
    
    
    232,767,415
    
    
    
    215,758,767Federal Home Loan Bank borrowings
    
    
    12,600,000Accrued interest payable and other liabilities
    
    
    5,882,448
    
    
    
    4,864,357Total liabilities
    
    
    251,249,863
    
    
    
    220,623,124Commitments and contingencies ( see accompanying notes )SHAREHOLDERS EQUITYCommon stock, no par value; 10,000,000 shares
authorized; 2,283,047 shares in 2006 and 2,204,949 in
2005 issued and outstanding
    
    
    15,479,556
    
    
    
    15,004,135Additional paid-in-capital
    
    
    1,872,648
    
    
    
    1,252,292Retained earnings
    
    
    9,206,716
    
    
    
    7,493,757Accumulated other comprehensive loss
    
    
    (154,849
    )
    
    
    (310,391
    )Total shareholders equity
    
    
    26,404,071
    
    
    
    23,439,793Total liabilities and shareholders equity
    
    $
    277,653,934
    
    
    $
    244,062,917
  48




---



##### Table of Contents



2006
    
    
    2005
    
    
    2004INTEREST INCOMELoans and leases
    
    $
    15,778,313
    
    
    $
    11,923,589
    
    
    $
    9,980,424Taxable securities
    
    
    864,410
    
    
    
    1,059,592
    
    
    
    790,980Tax-exempt securities
    
    
    607,276
    
    
    
    625,438
    
    
    
    655,689Federal funds sold and other
    
    
    79,079
    
    
    
    60,710
    
    
    
    110,639Dividends
    
    
    51,062
    
    
    
    33,031
    
    
    
    20,370Total interest income
    
    
    17,380,140
    
    
    
    13,702,360
    
    
    
    11,558,102INTEREST EXPENSEInterest-bearing transaction deposits
    
    
    50,928
    
    
    
    57,905
    
    
    
    51,744Savings and money market deposits
    
    
    1,363,563
    
    
    
    826,657
    
    
    
    434,671Time deposits, $100,000 and over
    
    
    1,602,820
    
    
    
    851,427Interest on borrowings
    
    
    425,681
    
    
    
    97,799
    
    
    
    667,862Other time deposits
    
    
    1,015,391
    
    
    
    568,772
    
    
    
    399,813Total interest expense
    
    
    4,458,383
    
    
    
    2,402,560
    
    
    
    1,554,090NET INTEREST INCOME
    
    
    12,921,757
    
    
    
    11,299,800
    
    
    
    10,004,012Provision for loan and lease losses
    
    
    500,000
    
    
    
    360,000
    
    
    
    130,000NET INTEREST INCOME AFTER PROVISION
FOR LOAN AND LEASE LOSSES
    
    
    12,421,757
    
    
    
    10,939,800
    
    
    
    9,874,012NON-INTEREST INCOME
    
    
    2,093,738
    
    
    
    1,968,394
    
    
    
    1,709,771NON-INTEREST EXPENSESalaries and employee benefits
    
    
    4,940,130
    
    
    
    4,410,604
    
    
    
    4,124,120Premises and equipment
    
    
    1,016,200
    
    
    
    999,019
    
    
    
    900,465Other
    
    
    2,349,639
    
    
    
    2,438,886
    
    
    
    2,200,104Total non-interest expense
    
    
    8,305,969
    
    
    
    7,848,509
    
    
    
    7,224,689Income before provision for income taxes
    
    
    6,209,526
    
    
    
    5,059,685
    
    
    
    4,359,094Provision for income taxes
    
    
    2,217,767
    
    
    
    1,711,156
    
    
    
    1,451,473NET INCOME
    
    $
    3,991,759
    
    
    $
    3,348,529
    
    
    $
    2,907,621BASIC EARNINGS PER SHARE
    
    $
    1.78
    
    
    $
    1.54
    
    
    $
    1.35DILUTED EARNINGS PER SHARE
    
    $
    1.68
    
    
    $
    1.45
    
    
    $
    1.25
  49




---



##### Table of Contents



AccumulatedAdditional
    
    
    
    
    
    
    OtherComprehensive
    
    
    Common Stock
    
    
    Paid-in
    
    
    Retained
    
    
    ComprehensiveIncome
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalBALANCE AT
JANUARY 1, 2004
    
    
    
    
    
    
    1,457,594
    
    
    $
    14,766,301
    
    
    $
    295,335
    
    
    $
    6,386,083
    
    
    $
    23,560
    
    
    $
    21,471,279Redemption and
retirement of stock
    
    
    
    
    
    
    (601
    )
    
    
    (6,218
    )
    
    
    
    
    
    
    (11,839
    )
    
    
    
    
    
    
    (18,057
    )Stock options
exercised
and related tax
benefits
    
    
    
    
    
    
    97,494
    
    
    
    1,168,805
    
    
    
    617,260
    
    
    
    
    
    
    
    
    
    
    
    1,786,065Redemption of stock
under tender offer
    
    
    
    
    
    
    (126,208
    )
    
    
    (1,416,223
    )
    
    
    
    
    
    
    (3,071,903
    )
    
    
    
    
    
    
    (4,488,126
    )Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (906,732
    )
    
    
    
    
    
    
    (906,732
    )Stock options granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103,680
    
    
    
    
    
    
    
    
    
    
    
    103,6803 for 2 stock split
    
    
    
    
    
    
    713,825Fractional shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,498
    )
    
    
    
    
    
    
    (7,498
    )Net income for the
year
    
    $
    2,907,621
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,907,621
    
    
    
    
    
    
    
    2,907,621Other comprehensive
income net of tax:Unrealized holding
losses on
securities
available-for-sale
arising during the
year, net of taxes
of $116,844
    
    
    (167,072
    )Other comprehensive
income, net of
taxes
    
    
    (167,072
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (167,072
    )
    
    
    (167,072
    )Total comprehensive
income
    
    $
    2,740,549BALANCE AT
DECEMBER 31, 2004
    
    
    
    
    
    
    2,142,104
    
    
    
    14,512,665
    
    
    
    1,016,275
    
    
    
    5,295,732
    
    
    
    (143,512
    )
    
    
    20,681,160Redemption and
retirement of stock
    
    
    
    
    
    
    (5,616
    )
    
    
    (41,165
    )
    
    
    
    
    
    
    (72,503
    )
    
    
    
    
    
    
    (113,668
    )Stock options
exercised
and related tax
benefits
    
    
    
    
    
    
    68,461
    
    
    
    532,635
    
    
    
    132,337
    
    
    
    
    
    
    
    
    
    
    
    664,972Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,078,001
    )
    
    
    
    
    
    
    (1,078,001
    )Stock options granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103,680
    
    
    
    
    
    
    
    
    
    
    
    103,680Net income for the
year
    
    $
    3,348,529
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,348,529
    
    
    
    
    
    
    
    3,348,529Other comprehensive
income, net of tax:Unrealized holding
losses on
securities
available-for-sale
arising during
the year, net of
taxes of $116,709
    
    
    (166,879
    )Other comprehensive
income, net of taxes
    
    
    (166,879
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (166,879
    )
    
    
    (166,879
    )Total comprehensive
income
    
    $
    3,181,650BALANCE AT
DECEMBER 31, 2005
    
    
    
    
    
    
    2,204,949
    
    
    
    15,004,135
    
    
    
    1,252,292
    
    
    
    7,493,757
    
    
    
    (310,391
    )
    
    
    23,439,793
 50




---



##### Table of Contents



AccumulatedAdditional
    
    
    
    
    
    
    OtherComprehensive
    
    
    Common Stock
    
    
    Paid-in
    
    
    Retained
    
    
    ComprehensiveIncome
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalRedemption and
retirement of stock
    
    
    
    
    
    
    (55,028
    )
    
    $
    (410,308
    )
    
    
    
    
    
    $
    (1,025,843
    )
    
    
    
    
    
    $
    (1,436,151
    )Stock options exercised
and related tax
benefits
    
    
    
    
    
    
    104,126
    
    
    
    885,729
    
    
    $
    438,757
    
    
    
    
    
    
    
    
    
    
    
    1,324,486Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,252,957
    )
    
    
    
    
    
    
    (1,252,957
    )Stock options granted
    
    
    
    
    
    
    29,000
    
    
    
    
    
    
    
    100,224
    
    
    
    
    
    
    
    
    
    
    
    100,224Restricted stock granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81,375
    
    
    
    
    
    
    
    
    
    
    
    81,375Net income for the year
    
    $
    3,991,759
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,991,759
    
    
    
    
    
    
    
    3,991,759Other comprehensive
Income, net of tax:Unrealized holding
gains on securities
available-for-sale
arising during the
year, net of taxes of $108,781
    
    
    155,542Other comprehensive
income,net of taxes
    
    
    155,542
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    155,542
    
    
    
    155,542Total comprehensive
income
    
    $
    4,147,301BALANCE AT
DECEMBER 31, 2006
    
    
    
    
    
    
    2,283,047
    
    
    $
    15,479,556
    
    
    $
    1,872,648
    
    
    $
    9,206,716
    
    
    $
    (154,849
    )
    
    $
    26,404,071
  51




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##### Table of Contents



2006
    
    
    2005
    
    
    2004OPERATING ACTIVITIESNet income
    
    $
    3,991,859
    
    
    $
    3,348,529
    
    
    $
    2,907,621Adjustments to reconcile net income
to net cash provided by operating activities:Provision for loan and lease losses
    
    
    500,000
    
    
    
    360,000
    
    
    
    130,000Depreciation
    
    
    284,357
    
    
    
    307,202
    
    
    
    306,747Loss on sale of equipment
    
    
    
    
    
    
    306
    
    
    
    206Amortization and other
    
    
    116,041
    
    
    
    166,269
    
    
    
    153,510Stock options and restricted stock granted
    
    
    181,599
    
    
    
    103,680
    
    
    
    103,680Net change in interest receivable
    
    
    (271,363
    )
    
    
    (261,648
    )
    
    
    (231,649
    )Net change in cash surrender value
of life insurance
    
    
    (347,867
    )
    
    
    (326,303
    )
    
    
    (297,536
    )Net change in other assets
    
    
    (185,303
    )
    
    
    (1,002,386
    )
    
    
    942,827Net change in interest payable
and other liabilities
    
    
    1,018,091
    
    
    
    961,070
    
    
    
    383,045NET CASH PROVIDED BY
OPERATING ACTIVITIES
    
    
    5,287,414
    
    
    
    3,656,719
    
    
    
    4,398,451INVESTING ACTIVITIESPurchases of securities held-to-maturity
    
    
    (438,272
    )
    
    
    (399,570
    )
    
    
    (2,519,972
    )Purchases of securities available-for-sale
    
    
    (42,140
    )
    
    
    (15,014,859
    )
    
    
    (8,653,217
    )Proceeds from maturing securities held-to-maturity
    
    
    1,055,000
    
    
    
    1,219,406
    
    
    
    1,551,900Proceeds from maturing securities available-for-sale
    
    
    13,195,000
    
    
    
    1,000,000
    
    
    
    8,190,000Net increase in loans and leases
    
    
    (48,412,605
    )
    
    
    (18,045,998
    )
    
    
    (31,028,098
    )Purchases of premises and equipment
    
    
    (54,915
    )
    
    
    (122,095
    )
    
    
    (361,506
    )Purchases of life insurance
    
    
    
    
    
    
    
    
    
    
    (885,000
    )Proceeds from disposal of equipment
    
    
    
    
    
    
    800
    
    
    
    3,669NET CASH USED FOR
INVESTING ACTIVITIES
    
    
    (34,697,932
    )
    
    
    (31,362,316
    )
    
    
    (33,702,224
    )
  52




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##### Table of Contents



2006
    
    
    2005
    
    
    2004FINANCING ACTIVITIESNet change in demand, interest-bearing
transaction and savings deposits
    
    $
    1,805,126
    
    
    $
    9,540,545
    
    
    $
    15,628,556Net change in time deposits
    
    
    15,203,522
    
    
    
    12,555,207
    
    
    
    (2,080,157
    )Stock repurchases
    
    
    (1,436,151
    )
    
    
    (113,668
    )
    
    
    (4,506,183
    )Stock options exercised
    
    
    864,993
    
    
    
    532,635
    
    
    
    1,168,805Fractional shares purchased
    
    
    
    
    
    
    
    
    
    
    (7,498
    )Proceeds from FHLB borrowings
    
    
    12,600,000Cash dividends paid
    
    
    (1,252,957
    )
    
    
    (1,078,001
    )
    
    
    (906,732
    )NET CASH PROVIDED BY
FINANCING ACTIVITIES
    
    
    27,784,533
    
    
    
    21,436,718
    
    
    
    9,296,791NET CHANGE IN CASH AND CASH
EQUIVALENTS
    
    
    (1,626,085
    )
    
    
    (6,268,879
    )
    
    
    (20,006,982
    )Cash and cash equivalents at beginning of year
    
    
    9,078,341
    
    
    
    15,347,220
    
    
    
    35,354,202CASH AND CASH EQUIVALENTS
AT END OF YEAR
    
    $
    7,452,256
    
    
    $
    9,078,341
    
    
    $
    15,347,220SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATIONInterest expense
    
    $
    4,404,411
    
    
    $
    2,367,482
    
    
    $
    1,550,556Income taxes
    
    $
    2,195,000
    
    
    $
    2,340,000
    
    
    $
    219,200SUPPLEMENTAL DISCLOSURES OF
NONCASH ACTIVITIES:Net change in unrealized gains and losses
on securities
    
    $
    264,323
    
    
    $
    (283,588
    )
    
    $
    (283,916
    )Net change in deferred income taxes on unrealized
gains and losses on securities
    
    $
    108,781
    
    
    $
    116,709
    
    
    $
    116,844
  53




---



##### Table of Contents



Business
 Principles of Consolidation
 Nature of Operations
 Use of Estimates
 Cash and Cash Equivalents
 Investment Securities
  54




---



##### Table of Contents



Loans and Lease Financing Receivables
  Allowance for Loan and Lease Losses
  Income Recognition on Impaired and Nonaccrual Loans and Leases
 55




---



##### Table of Contents



Premises and Equipment
 Income Taxes
 Advertising
 Net Income Per Share of Common Stock
 56




---



##### Table of Contents



Share-Based Payment Accounting Accounting for Stock Issued to Employees, Accounting for Stock-Based
Compensation,
 2006
    
    
    2005
    
    
    2004Net income, as reported
    
    $
    3,991,759
    
    
    $
    3,348,529
    
    
    $
    2,907,621Add: Share-based employee compensation expense
included in reported net income, net of related tax
effects
    
    
    106,871
    
    
    
    61,011
    
    
    
    61,011Deduct: Total share-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects
    
    
    (106,871
    )
    
    
    (61,011
    )
    
    
    (185,012
    )Pro forma net income
    
    $
    3,991,759
    
    
    $
    3,348,529
    
    
    $
    2,783,620Earnings per share:Basicas reported
    
    $
    1.78
    
    
    $
    1.54
    
    
    $
    1.35Basicpro forma
    
    
    1.78
    
    
    
    1.54
    
    
    
    1.30Dilutedas reported
    
    
    1.68
    
    
    
    1.45
    
    
    
    1.25Dilutedpro forma
    
    
    1.68
    
    
    
    1.45
    
    
    
    1.20
 Off-Balance-Sheet Financial Instruments
 57




---



##### Table of Contents



Operating Segments
 Reclassifications
 New Accounting Pronouncements Fair Value Measurements
     Amortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gain
    
    
    Losses
    
    
    Fair ValueDecember 31, 2006:Securities Available-For-SaleU.S. Treasury securities
    
    $
    4,987,285
    
    
    
    
    
    
    $
    (51,816
    )
    
    $
    4,935,469U.S. Government agency
securities
    
    
    16,224,950
    
    
    
    
    
    
    
    (207,344
    )
    
    
    16,017,606Equity securities
    
    
    42,140
    
    
    $
    1,163
    
    
    
    (5,146
    )
    
    
    38,157$
    21,254,375
    
    
    $
    1,163
    
    
    $
    (264,306
    )
    
    $
    20,991,232Securities Held-to-MaturityMunicipal securities
    
    $
    15,804,421
    
    
    $
    262,609
    
    
    $
    (115,477
    )
    
    $
    15,951,553
 58




---



##### Table of Contents



Amortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gain
    
    
    Losses
    
    
    Fair ValueDecember 31, 2005:Securities Available-For-SaleU.S. Treasury securities
    
    $
    5,462,455
    
    
    
    
    
    
    $
    (89,799
    )
    
    $
    5,372,656U.S. Government agency
securities
    
    
    28,982,106
    
    
    
    
    
    
    
    (437,668
    )
    
    
    28,544,438$
    34,444,561
    
    
    
    
    
    
    $
    (527,467
    )
    
    $
    33,917,094Securities Held-to-MaturityMunicipal securities
    
    $
    16,499,865
    
    
    $
    295,863
    
    
    $
    (161,209
    )
    
    $
    16,634,519
    2006Less Than 12 Months
    
    
    12 Months or GreaterFair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDescription of Securities
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S. Treasury securities
    
    
    
    
    
    
    
    
    
    $
    4,935,469
    
    
    $
    51,816U.S. Government agency securities
    
    
    
    
    
    
    
    
    
    
    16,017,606
    
    
    
    207,344Municipal securities
    
    $
    1,582,429
    
    
    $
    8,141
    
    
    
    4,888,575
    
    
    
    107,336Total temporarily impaired securities
    
    $
    1,582,429
    
    
    $
    8,141
    
    
    $
    25,841,650
    
    
    $
    366,496
 59




---



##### Table of Contents



2005Less Than 12 Months
    
    
    12 Months or GreaterFair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDescription of Securities
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S. Treasury securities
    
    $
    982,969
    
    
    $
    12,614
    
    
    $
    4,389,687
    
    
    $
    77,185U.S. Government agency securities
    
    
    7,018,348
    
    
    
    46,292
    
    
    
    21,526,090
    
    
    
    391,376Municipal securities
    
    
    3,380,940
    
    
    
    37,025
    
    
    
    4,771,878
    
    
    
    124,184Total temporarily impaired securities
    
    $
    11,382,257
    
    
    $
    95,931
    
    
    $
    30,687,655
    
    
    $
    592,745
  60




---



##### Table of Contents



2006
    
    
    2005Commercial
    
    $
    146,573,119
    
    
    
    66.6
    %
    
    $
    118,590,731
    
    
    
    69.1
    %Consumer
    
    
    27,797,562
    
    
    
    12.6
    %
    
    
    21,804,507
    
    
    
    12.7
    %Real estate mortgage
    
    
    17,154,768
    
    
    
    7.8
    %
    
    
    13,251,137
    
    
    
    7.7
    %Real estate construction
    
    
    28,590,367
    
    
    
    13.0
    %
    
    
    18,004,805
    
    
    
    10.5
    %Lease financing receivables, net of
unearned income of $9,513 in
2006 and $4,357 in 2005
    
    
    36,030
    
    
    
    0.0
    %
    
    
    25,822
    
    
    
    0.0
    %220,151,846
    
    
    
    100.0
    %
    
    
    171,677,002
    
    
    
    100.0
    %Deferred loan fees and costs, net
    
    
    (544,184
    )
    
    
    
    
    
    
    (482,410
    )Allowance for loan and lease losses
    
    
    (3,276,972
    )
    
    
    
    
    
    
    (2,776,507
    )$
    216,330,690
    
    
    
    
    
    
    $
    168,418,085
    61




---



##### Table of Contents



2006
    
    
    2005Fixed rate loan maturitiesThree months or less
    
    $
    10,269,932
    
    
    $
    10,168,260Over three months to twelve months
    
    
    40,265,531
    
    
    
    12,279,697Over one year to five years
    
    
    97,220,910
    
    
    
    90,625,410Over five years
    
    
    20,611,428
    
    
    
    23,608,069Floating rate loans repricingQuarterly or more frequently
    
    
    46,890,506
    
    
    
    30,197,653Quarterly to annual frequency
    
    
    1,456,216
    
    
    
    79,850One to five years frequency
    
    
    2,617,687
    
    
    
    3,724,175219,332,210
    
    
    
    170,683,114Nonaccrual loans
    
    
    819,637
    
    
    
    993,888$
    220,151,847
    
    
    $
    171,677,002
  2006
    
    
    2005
    
    
    2004Beginning balance
    
    $
    2,776,507
    
    
    $
    2,428,572
    
    
    $
    2,634,625Provision for loan and lease losses
    
    
    500,000
    
    
    
    360,000
    
    
    
    130,000Loans charged off:Commercial
    
    
    (6,593
    )
    
    
    (53,337
    )
    
    
    (290,000
    )Consumer
    
    
    (12,262
    )
    
    
    (16,976
    )
    
    
    (63,007
    )(18,855
    )
    
    
    (70,313
    )
    
    
    (353,007
    )Recoveries:Commercial
    
    
    17,668
    
    
    
    55,055
    
    
    
    15,416Consumer
    
    
    1,652
    
    
    
    3,193
    
    
    
    1,53819,320
    
    
    
    58,248
    
    
    
    16,954Ending balance
    
    $
    3,276,972
    
    
    $
    2,776,507
    
    
    $
    2,428,572
 62




---



##### Table of Contents



2006
    
    
    2005Land
    
    $
    175,000
    
    
    $
    175,000Building
    
    
    71,943
    
    
    
    71,943Leasehold improvements
    
    
    797,191
    
    
    
    797,191Furniture, fixtures and equipment
    
    
    2,016,045
    
    
    
    1,961,1303,060,179
    
    
    
    3,005,264Less: Accumulated depreciation
    
    
    (2,110,955
    )
    
    
    (1,826,598
    )$
    949,224
    
    
    $
    1,178,666
   Maturing within one year
    
    $
    64,234,000Maturing in one year to two years
    
    
    6,070,000Maturing two years through five years
    
    
    1,393,000$
    71,697,000
    63




---



##### Table of Contents



Directors
    
    
    Officers2006
    
    
    2005
    
    
    2006
    
    
    2005Projected benefit obligation
    
    $
    524,469
    
    
    $
    567,281
    
    
    $
    2,311,592
    
    
    $
    1,630,908Accrued prior service costs
    
    
    49,178
    
    
    
    (91,280
    )
    
    
    (187,814
    )
    
    
    70,903Benefit obligation included in other
liabilities
    
    $
    573,647
    
    
    $
    476,001
    
    
    $
    2,123,778
    
    
    $
    1,701,811
  64




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##### Table of Contents



Directors
    
    
    Officers2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004Benefit obligation at beginning of year
    
    $
    476,001
    
    
    $
    396,696
    
    
    $
    293,653
    
    
    $
    1,701,811
    
    
    $
    1,494,540
    
    
    $
    1,439,970Net periodic pension cost:Service cost
    
    
    110,027
    
    
    
    30,469
    
    
    
    39,201
    
    
    
    195,710
    
    
    
    134,943
    
    
    
    35,454Interest cost on projected benefit
Obligation
    
    
    26,275
    
    
    
    35,679
    
    
    
    36,975
    
    
    
    159,440
    
    
    
    90,054
    
    
    
    10,630Amortization of prior service costs
    
    
    (38,656
    )
    
    
    7,990
    
    
    
    36,201
    
    
    
    66,817
    
    
    
    (17,726
    )
    
    
    8,486Amendments
    
    
    
    
    
    
    5,167
    
    
    
    (9,334
    )Net periodic pension cost recognized
    
    
    97,646
    
    
    
    79,305
    
    
    
    103,043
    
    
    
    421,967
    
    
    
    207,271
    
    
    
    54,570Benefit obligation at end of year
    
    $
    573,647
    
    
    $
    476,001
    
    
    $
    396,696
    
    
    $
    2,123,778
    
    
    $
    1,701,811
    
    
    $
    1,494,540
  Directors
    
    Officers2007
    
    $
    7,9172008
    
    
    9,658
    
    
    $
    27,5922009
    
    
    9,852
    
    
    
    27,5922010
    
    
    12,882
    
    
    
    223,1832011
    
    
    25,515
    
    
    
    344,9392012 to 2016
    
    
    288,049
    
    
    
    1,724,695
 65




---



##### Table of Contents



2006
    
    
    2005
    
    
    2004Service charges on deposit accounts
    
    $
    1,352,251
    
    
    $
    1,258,728
    
    
    $
    1,089,315Other fee income
    
    
    380,070
    
    
    
    364,157
    
    
    
    305,847Life insurance earnings
    
    
    347,867
    
    
    
    326,303
    
    
    
    297,536Investment securities gains
    
    
    
    
    
    
    5,094Other
    
    
    13,550
    
    
    
    14,112
    
    
    
    17,073$
    2,093,738
    
    
    $
    1,968,394
    
    
    $
    1,709,771
  2006
    
    
    2005
    
    
    2004Professional and consulting fees
    
    $
    702,221
    
    
    $
    952,681
    
    
    $
    750,846Data processing
    
    
    501,873
    
    
    
    478,991
    
    
    
    462,709Stationary and supplies
    
    
    128,088
    
    
    
    122,578
    
    
    
    168,496Staff related
    
    
    164,335
    
    
    
    173,777
    
    
    
    167,026Advertising and business development
    
    
    308,612
    
    
    
    245,063
    
    
    
    201,409Postage and telephone
    
    
    120,096
    
    
    
    111,429
    
    
    
    112,276Assessments and insurance
    
    
    142,378
    
    
    
    150,049
    
    
    
    152,172Other
    
    
    282,036
    
    
    
    204,318
    
    
    
    185,170$
    2,349,639
    
    
    $
    2,438,886
    
    
    $
    2,200,104
 66




---



##### Table of Contents



2006
    
    
    2005
    
    
    2004CurrentFederal
    
    $
    2,077,673
    
    
    $
    1,648,074
    
    
    $
    929,028State
    
    
    755,982
    
    
    
    605,003
    
    
    
    448,1612,833,655
    
    
    
    2,253,077
    
    
    
    1,377,189DeferredFederal
    
    
    (507,264
    )
    
    
    (441,020
    )
    
    
    67,446State
    
    
    (108,624
    )
    
    
    (100,901
    )
    
    
    6,818(615,888
    )
    
    
    (541,921
    )
    
    
    74,264Provision for income taxes
    
    $
    2,217,767
    
    
    $
    1,711,156
    
    
    $
    1,451,473
  2006
    
    
    2005
    
    
    2004Income tax at Federal statutory rate
    
    $
    2,111,239
    
    
    $
    1,720,293
    
    
    $
    1,482,092State franchise tax, less Federal
income tax benefit
    
    
    444,254
    
    
    
    361,990
    
    
    
    311,867Interest on municipal obligations exempt
from Federal tax
    
    
    (229,226
    )
    
    
    (247,467
    )
    
    
    (269,872
    )Life insurance earnings
    
    
    (143,163
    )
    
    
    (134,288
    )
    
    
    (122,449
    )Incentive stock option expense
    
    
    41,247
    
    
    
    42,669
    
    
    
    42,669Meals and entertainment
    
    
    6,888
    
    
    
    5,452
    
    
    
    7,050Other differences
    
    
    (13,472
    )
    
    
    (37,493
    )
    
    
    116Provision for income taxes
    
    $
    2,217,767
    
    
    $
    1,711,156
    
    
    $
    1,451,473
 67




---



##### Table of Contents



2006
    
    
    2005
    
    
    2004Deferred tax assets:Nonqualified benefit plans
    
    $
    1,706,099
    
    
    $
    1,427,237
    
    
    $
    1,244,196Allowance for loan losses
    
    
    1,153,381
    
    
    
    979,526
    
    
    
    840,827Unrealized securities holding losses
    
    
    108,295
    
    
    
    217,076
    
    
    
    100,407Accrued liabilities
    
    
    240,490
    
    
    
    210,374
    
    
    
    111,035State franchise taxes
    
    
    215,884
    
    
    
    201,710
    
    
    
    96,810Restricted stock
    
    
    63,956Other
    
    
    102,850
    
    
    
    60,983
    
    
    
    21,038Total deferred tax assets
    
    
    3,590,955
    
    
    
    3,096,906
    
    
    
    2,414,313Deferred tax liabilities:Depreciation
    
    
    120,217
    
    
    
    153,976
    
    
    
    143,513Other
    
    
    83,510
    
    
    
    62,809
    
    
    
    49,269Total deferred tax liabilities
    
    
    203,727
    
    
    
    216,785
    
    
    
    192,782Net deferred tax assets
    
    $
    3,387,228
    
    
    $
    2,880,121
    
    
    $
    2,221,531
   68




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##### Table of Contents



2006
    
    
    2005
    
    
    2004Basic:Net income
    
    $
    3,991,759
    
    
    $
    3,348,529
    
    
    $
    2,907,621Weighted-average common shares outstanding
    
    
    2,247,231
    
    
    
    2,170,866
    
    
    
    2,148,558Earnings per share
    
    $
    1.78
    
    
    $
    1.54
    
    
    $
    1.35Diluted:Net income
    
    $
    3,991,759
    
    
    $
    3,348,529
    
    
    $
    2,907,621Weighted-average common shares outstanding
    
    
    2,247,231
    
    
    
    2,170,866
    
    
    
    2,148,558Net effect of dilutive share-based awards 
based on the treasury stock method using
average market price
    
    
    121,987
    
    
    
    132,773
    
    
    
    179,825Weighted-average common shares outstanding
and common stock equivalents
    
    
    2,369,218
    
    
    
    2,303,639
    
    
    
    2,328,383Earnings per share  assuming dilution
    
    $
    1.68
    
    
    $
    1.45
    
    
    $
    1.25
     69




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##### Table of Contents



Incentive Stock Options2006
    
    2005
    
    2004Weighted-
    
    
    
    
    
    Weighted-
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    Average
    
    
    
    
    
    AverageExercise Price
    
    Shares
    
    Exercise Price
    
    Shares
    
    Exercise Price
    
    SharesShares under option at
beginning of year
    
    $
    14.64
    
    
    
    133,085
    
    
    $
    12.94
    
    
    
    179,730
    
    
    $
    8.27
    
    
    
    147,269Options granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20.71
    
    
    
    67,500Options exercised
    
    
    8.90
    
    
    
    (39,264
    )
    
    
    7.70
    
    
    
    (45,295
    )
    
    
    8.29
    
    
    
    (35,039
    )Options forfeited or
expired
    
    
    20.71
    
    
    
    (1,200
    )
    
    
    20.71
    
    
    
    (1,350
    )Shares under option at
end of year
    
    
    17.00
    
    
    
    92,621
    
    
    
    14.64
    
    
    
    133,085
    
    
    
    12.94
    
    
    
    179,730Options exercisable at
end of year
    
    
    15.63
    
    
    
    67,721
    
    
    
    12.11
    
    
    
    93,935
    
    
    
    9.60
    
    
    
    125,730Weighted-average fair
value of options
granted during the
year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.68
 70




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##### Table of Contents



Nonstatutory Stock Options2006
    
    2005
    
    2004Weighted-
    
    
    
    
    
    Weighted-
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    Average
    
    
    
    
    
    AverageExercise Price
    
    Shares
    
    Exercise Price
    
    Shares
    
    Exercise Price
    
    SharesShares under option at
Beginning of year
    
    $
    8.07
    
    
    
    185,300
    
    
    $
    8.05
    
    
    
    208,465
    
    
    $
    8.00
    
    
    
    319,670Options exercised
    
    
    7.95
    
    
    
    (64,862
    )
    
    
    7.94
    
    
    
    (23,165
    )
    
    
    7.90
    
    
    
    (111,205
    )Shares under option at
end of year
    
    
    8.12
    
    
    
    120,438
    
    
    
    8.07
    
    
    
    185,300
    
    
    
    8.05
    
    
    
    208,465Options exercisable at
end of year
    
    
    8.12
    
    
    
    120,438
    
    
    
    8.07
    
    
    
    185,300
    
    
    
    8.05
    
    
    
    208,465
  Incentive Stock Options2006
    
    2005
    
    2004Intrinsic value:Outstanding shares
    
    $
    1,019,333
    
    
    $
    899,589
    
    
    $
    1,988,417Exercisable shares
    
    
    837,751
    
    
    
    872,458
    
    
    
    1,810,595Weighted average
remaining contractual term:Outstanding shares
    
    6.15 years
    
    6.58 years
    
    7.08 yearsExercisable shares
    
    5.71 years
    
    5.54 years
    
    5.23 years
 Nonstatutory Stock Options2006
    
    2005
    
    2004Intrinsic value:Outstanding shares
    
    $
    2,392,987
    
    
    $
    2,470,660
    
    
    $
    3,324,461Exercisable shares
    
    
    2,392,987
    
    
    
    2,470,660
    
    
    
    3,324,461Weighted average
remaining contractual term:Outstanding shares
    
    2.02 years
    
    3.11 years
    
    4.13 yearsExercisable shares
    
    2.02 years
    
    3.11 years
    
    4.13 years
  71




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##### Table of Contents



2006
    
    2005
    
    2004Weighted-
    
    
    
    
    
    Weighted-
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    Average
    
    
    
    
    
    AverageGrant-Date
    
    
    
    
    
    Grant-Date
    
    
    
    
    
    Grant-DateNonvested Shares
    
    Shares
    
    Fair Value
    
    Shares
    
    Fair Value
    
    Shares
    
    Fair ValueNonvested at beginning
of year
    
    
    39,150
    
    
    $
    7.68
    
    
    
    54,000
    
    
    $
    7.68
    
    
    
    4,633
    
    
    $
    4.13Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,500
    
    
    
    7.68Vested
    
    
    (13,050
    )
    
    
    7.68
    
    
    
    (13,500
    )
    
    
    7.68
    
    
    
    (18,133
    )
    
    
    6.77Forfeited
    
    
    (1,200
    )
    
    
    7.68
    
    
    
    (1,350
    )
    
    
    7.68Nonvested at end of year
    
    
    24,900
    
    
    
    7.68
    
    
    
    39,150
    
    
    
    7.68
    
    
    
    54,000
    
    
    
    7.68
   Weighted-Average
    
    
    AggregateGrant-Date
    
    
    IntrinsicRestricted Stock
    
    Shares
    
    
    Fair Value
    
    
    ValueGranted
    
    
    29,000
    
    
    $
    26.25Outstanding at December 31, 2006
    
    
    29,000
    
    
    $
    26.25
    
    
    $
    50,750
   Weighted-AverageGrant-DateNonvested Shares
    
    Shares
    
    
    Fair ValueNonvested at January 1, 2006Granted
    
    
    29,000
    
    
    $
    26.25Nonvested at December 31, 2006
    
    
    29,000
    
    
    $
    26.25
 72




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##### Table of Contents



2006
    
    
    2005Loans outstanding at beginning of year
    
    $
    2,657,000
    
    
    $
    3,474,000Loans disbursements
    
    
    415,000
    
    
    
    1,730,000Loan repayments
    
    
    (415,000
    )
    
    
    (2,547,000
    )Loans outstanding at end of year
    
    $
    2,657,000
    
    
    $
    2,657,000
   73




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##### Table of Contents



Lease Commitments
 Year ended December 312007
    
    $
    363,6992008
    
    
    362,7932009
    
    
    208,1672010
    
    
    26,386$
    961,045
  Financial Instruments with Off-Balance-Sheet Risk
 Contractual Amounts2006
    
    2005Commitments to extend credit
    
    $
    42,043,000
    
    
    $
    48,643,000Standby letters of credit
    
    
    348,000
    
    
    
    348,000
   74




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##### Table of Contents



75




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##### Table of Contents



76




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##### Table of Contents



To Be WellCapitalized UnderFor Capital
    
    Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(in thousands)As of December 31, 2006:Total Capital(to Risk Weighted Assets)
    
    $
    28,223
    
    
    
    11.0
    %
    
    
    3$20,466
    
    
    
    38.0
    %
    
    
    3$25,583
    
    
    
    310.0
    %Tier I Capital(to Risk Weighted Assets)
    
    $
    25,024
    
    
    
    9.8
    %
    
    
    3$10,233
    
    
    
    34.0
    %
    
    
    3$15,350
    
    
    
    3  6.0
    %Tier I Capital(to Average Assets)
    
    $
    25,024
    
    
    
    9.1
    %
    
    
    3$10,960
    
    
    
    34.0
    %
    
    
    3$13,700
    
    
    
    3  5.0
    %As of December 31, 2005:Total Capital(to Risk Weighted Assets)
    
    $
    24,514
    
    
    
    11.4
    %
    
    
    3$17,211
    
    
    
    38.0
    %
    
    
    3$21,513
    
    
    
    310.0
    %Tier I Capital(to Risk Weighted Assets)
    
    $
    21,824
    
    
    
    10.1
    %
    
    
    3$8,605
    
    
    
    34.0
    %
    
    
    3$12,908
    
    
    
    3  6.0
    %Tier I Capital(to Average Assets)
    
    $
    21,824
    
    
    
    9.1
    %
    
    
    3$9,576
    
    
    
    34.0
    %
    
    
    3$11,970
    
    
    
    3  5.0
    %
 77




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##### Table of Contents



2006
    
    
    2005AssetsCash
    
    $
    682,798
    
    
    $
    911,439Other assets
    
    
    764,470
    
    
    
    289,877Investment in common stock of subsidiary
    
    
    25,236,403
    
    
    
    22,459,620Total assets
    
    $
    26,683,671
    
    
    $
    23,660,936
 2006
    
    
    2005LiabilitiesAccrued expenses
    
    $
    279,600
    
    
    $
    221,143Shareholders equityCommon stock
    
    
    15,479,556
    
    
    
    15,004,135Additional paid-in-capital
    
    
    1,872,648
    
    
    
    1,252,292Retained earnings and other equity
    
    
    9,051,867
    
    
    
    7,183,366Total liabilities and shareholders equity
    
    $
    26,683,671
    
    
    $
    23,660,936
 
 2006
    
    
    2005
    
    
    2004Dividend from subsidiary
    
    $
    1,750,000
    
    
    $
    500,000
    
    
    $
    4,000,000Expenses
    
    
    583,724
    
    
    
    601,886
    
    
    
    303,690Income (loss) before income taxes and equity
in undistributed income of subsidiary
    
    
    1,166,276
    
    
    
    (101,886
    )
    
    
    3,696,310Equity in undistributed net income of subsidiary
    
    
    2,621,241
    
    
    
    3,252,996
    
    
    
    (877,370
    )Income tax benefit
    
    
    204,242
    
    
    
    197,419
    
    
    
    88,681Net income
    
    $
    3,991,759
    
    
    $
    3,348,529
    
    
    $
    2,907,621
 78




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##### Table of Contents



2006
    
    
    2005
    
    
    2004Operating activities:Net income
    
    $
    3,991,759
    
    
    $
    3,348,529
    
    
    $
    2,907,621Adjustments to reconcile net income to net cash
provided by operating activities:Equity in undistributed net income of subsidiary
    
    
    (2,621,241
    )
    
    
    (3,252,996
    )
    
    
    877,370Restricted stock granted
    
    
    81,375Stock options granted
    
    
    100,224
    
    
    
    103,680
    
    
    
    103,680Net change in other assets
    
    
    (15,100
    )
    
    
    549,057
    
    
    
    169,526Net change in accrued expenses
    
    
    58,457
    
    
    
    159,893
    
    
    
    (14,210
    )Net cash provided by operating activities
    
    
    1,595,474
    
    
    
    908,163
    
    
    
    4,043,987Financing activities:Stock repurchases
    
    
    (1,436,151
    )
    
    
    (113,668
    )
    
    
    (4,506,183
    )Stock options exercised
    
    
    864,993
    
    
    
    532,635
    
    
    
    1,168,805Cash dividends paid
    
    
    (1,252,957
    )
    
    
    (1,078,001
    )
    
    
    (906,732
    )Fractional shares purchased
    
    
    
    
    
    
    
    
    
    
    (7,498
    )Net cash used by financing activities
    
    
    (1,824,115
    )
    
    
    (659,034
    )
    
    
    (4,251,608
    )Net change in cash and cash equivalents
    
    
    (228,641
    )
    
    
    249,129
    
    
    
    (207,621
    )Cash and cash equivalents at beginning of year
    
    
    911,439
    
    
    
    662,310
    
    
    
    869,931Cash and cash equivalents at end of year
    
    $
    682,798
    
    
    $
    911,439
    
    
    $
    662,310
  Disclosures about Fair Value of Financial
Instruments
 79




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##### Table of Contents



2006
    
    2005Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAmount
    
    Fair Value
    
    Amount
    
    Fair ValueFinancial assets:Cash and due from banks
    
    $
    6,159,931
    
    
    $
    6,159,931
    
    
    $
    6,988,820
    
    
    $
    6,988,820Federal funds sold
    
    
    
    
    
    
    
    
    
    
    2,050,000
    
    
    
    2,050,000Interest-bearing due from banks
    
    
    1,292,325
    
    
    
    1,292,325
    
    
    
    39,521
    
    
    
    39,521Investment securities
available-for-sale
    
    
    20,991,232
    
    
    
    20,991,232
    
    
    
    33,917,094
    
    
    
    33,917,094Investment securities held-
to-maturity
    
    
    15,804,421
    
    
    
    15,951,553
    
    
    
    16,499,865
    
    
    
    16,634,518Loans and lease financing
receivable, net
    
    
    216,330,690
    
    
    
    214,690,033
    
    
    
    168,418,085
    
    
    
    168,520,446Accrued interest receivable
    
    
    1,671,618
    
    
    
    1,671,618
    
    
    
    1,400,255
    
    
    
    1,400,255Cash surrender value of life
insurance
    
    
    9,587,306
    
    
    
    9,587,306
    
    
    
    9,239,439
    
    
    
    9,239,439Financial liabilities:Deposits
    
    
    232,767,415
    
    
    
    233,038,180
    
    
    
    215,758,767
    
    
    
    216,317,041Federal Home Loan Bank
Borrowings
    
    
    12,600,000
    
    
    
    12,600,000Accrued interest payable
    
    
    144,636
    
    
    
    144,636
    
    
    
    90,664
    
    
    
    90,664
     80




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##### Table of Contents



81




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES.
  
 ITEM 9B. OTHER INFORMATION.
  
 PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
  
 ITEM 11. EXECUTIVE COMPENSATION.
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                  STOCKHOLDER MATTERS.
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
  82




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##### Table of Contents



ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
  
 PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
 Financial Statements
  Number
    
    
    Page1.
    
    Independent Auditors Report
    
    472.
    
    Consolidated Balance Sheets as of December 31, 2006 and 2005
    
    483.
    
    Consolidated Statements of Operations for the three years ended
December 31, 2006, 2005 and 2004
    
    494.
    
    Consolidated Statements of Changes in Shareholders Equity
for the three years ended December 31, 2006, 2005 and 2004
    
    50 and 515.
    
    Consolidated Statements of Cash Flows for the three years ended
December 31, 2006, 2005 and 2004
    
    52 and 536.
    
    Notes to Consolidated Financial Statements
    
    54
 Financial Statement Schedules
  83




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##### Table of Contents



Exhibits
  3.1
    
    Sonoma Valley Bancorp Articles of Incorporation, filed as Exhibit 3.1 to the Registrants
Registration Statement on Form S-8 filed on June 5, 2001.3.3
    
    Sonoma Valley Bancorp By-laws, filed as Exhibit 3.2 to the Registrants Registration
Statement on Form S-8 filed on June 5, 2001.4.2
    
    Agreement for the sale of Sonoma Valley Bank Stock dated September 23, 1992, filed as Exhibit
4.2 (formerly A-1) to the Form F-2 for the year ended December 31, 1992.10.1
    
    Lease for Sonoma branch office, filed as Exhibit 10.1 (formerly 7.1) to the Registrants
Registration Statement on Form F-1 filed on May 1, 1989.10.2
    
    Sonoma Valley Bank Chief Executive Officer Severance Agreement dated January 4, 1995, filed
as Exhibit 10.2 to the Form 10-KSB for the year ended December 31, 1997.10.3
    
    Sonoma Valley Bank Supplemental Executive Retirement Plan, as amended on March 20, 1996,
filed as Exhibit 10.3 to the Form 10-KSB for the year ended December 31, 1997.10.4
    
    Sonoma Valley Bank Deferred Compensation Plan, filed as Exhibit 10.4 to the Form 10-KSB for
the year ended December 31, 1997.10.5
    
    Sonoma Valley Bank Master Trust Agreement for Executive Deferral Plans, filed as Exhibit 10.5
to the Form 10-KSB for the year ended December 31, 1997.10.6
    
    Sonoma Valley Bank 1996 Stock Option Plan, filed as Exhibit 10.6 to the Form 10-KSB for the
year ended December 31, 1997.10.7
    
    Sonoma Valley Bank Severance Agreement with Mel Switzer, Jr. dated October 21, 1998, filed as
Exhibit 10.7 to the From 10-KSB for the year ended December 31, 1998.10.8
    
    Sonoma Valley Bank Severance Agreement with Mary Dieter dated October 21, 1998, filed as
Exhibit 10.8 to the From 10-KSB for the year ended December 31, 1998.10.10
    
    Sonoma Valley Bancorp Assumption of Severance Agreement [Form of], filed as Exhibit 10.1 to
the Form 10-KSB for the year ended December 31, 2001.10.11
    
    Sonoma Valley Bancorp 2002 Equity Incentive Plan, filed as Exhibit A to the Companys Proxy
Statement for the Annual Meeting held on May 14, 2002.10.12
    
    Sonoma Valley Bank Severance Agreement with Sean Cuttings dated March 18, 2004, filed as
Exhibit 10.12 to the Form 10-K for the year ended December 31, 2003.23.1
    
    Consent of Richardson and Co., Independent Auditors.31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
 84




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##### Table of Contents



31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act32
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act
 85




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##### Table of Contents



SIGNATURES
  SONOMA VALLEY BANCORP,  A California corporation
 /s/ Mel Switzer, Jr.
    
    
    
    March 14, 2007Mel Switzer, Jr.President andChief Executive Officer(Principal Executive Officer)/s/ Mary Dieter Smith
    
    
    
    March 14, 2007Mary Dieter SmithExecutive Vice President andChief Operating Officer(Principal Finance and Accounting Officer)
  /s/ Suzanne Brangham

Suzanne Brangham, Secretary
    
    
    
    March 14, 2007of the Board and Director/s/ Dale T. Downing

Dale T. Downing, Director
    
    
    
    March 14, 2007/s/ Frederick H. Harland

Frederick H. Harland, Director
    
    
    
    March 14, 2007/s/ Robert B. Hitchcock

Robert B. Hitchcock, Director
    
    
    
    March 14, 2007
 86




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##### Table of Contents



/s/ Robert J. Nicholas

Robert J. Nicholas, Chairman
    
    
    
    March 14, 2007of the Board and Director/s/ Angelo C. Sangiacomo

Angelo C. Sangiacomo, Director
    
    
    
    March 14, 2007/s/ Jesse R. Stone

Jesse R. Stone, Director
    
    
    
    March 14, 2007/s/ Mel Switzer, Jr.

Mel Switzer, Jr., President, Chief
    
    
    
    March 14, 2007Executive Officer and Director(Principal Executive Officer)/s/ Harry Weise

Harry Weise, Director
    
    
    
    March 14, 2007/s/ Mary Dieter Smith

Mary Dieter Smith, Executive Vice
President, Chief Operating Officer and
Chief Financial Officer (Principal
Finance and Accounting Officer)
    
    
    
    March 14, 2007
 87




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##### Table of Contents



Exhibit Index
 3.1
    
    Sonoma Valley Bancorp Articles of Incorporation, filed as Exhibit 3.1 to the Registrants
Registration Statement on Form S-8 filed on June 5, 2001.3.3
    
    Sonoma Valley Bancorp By-laws, filed as Exhibit 3.2 to the Registrants Registration
Statement on Form S-8 filed on June 5, 2001.4.2
    
    Agreement for the sale of Sonoma Valley Bank Stock dated September 23, 1992, filed as Exhibit
4.2 (formerly A-1) to the Form F-2 for the year ended December 31, 1992.10.1
    
    Lease for Sonoma branch office, filed as Exhibit 10.1 (formerly 7.1) to the Registrants
Registration Statement on Form F-1 filed on May 1, 1989.10.2
    
    Sonoma Valley Bank Chief Executive Officer Severance Agreement dated January 4, 1995, filed
as Exhibit 10.2 to the Form 10-KSB for the year ended December 31, 1997.10.3
    
    Sonoma Valley Bank Supplemental Executive Retirement Plan, as amended on March 20, 1996,
filed as Exhibit 10.3 to the Form 10-KSB for the year ended December 31, 1997.10.4
    
    Sonoma Valley Bank Deferred Compensation Plan, filed as Exhibit 10.4 to the Form 10-KSB for
the year ended December 31, 1997.10.5
    
    Sonoma Valley Bank Master Trust Agreement for Executive Deferral Plans, filed as Exhibit 10.5
to the Form 10-KSB for the year ended December 31, 1997.10.6
    
    Sonoma Valley Bank 1996 Stock Option Plan, filed as Exhibit 10.6 to the Form 10-KSB for the
year ended December 31, 1997.10.7
    
    Sonoma Valley Bank Severance Agreement with Mel Switzer, Jr. dated October 21, 1998, filed as
Exhibit 10.7 to the From 10-KSB for the year ended December 31, 1998.10.8
    
    Sonoma Valley Bank Severance Agreement with Mary Dieter dated October 21, 1998, filed as
Exhibit 10.8 to the From 10-KSB for the year ended December 31, 1998.10.10
    
    Sonoma Valley Bancorp Assumption of Severance Agreement [Form of], filed as Exhibit 10.1 to
the Form 10-KSB for the year ended December 31, 2001.10.11
    
    Sonoma Valley Bancorp 2002 Equity Incentive Plan, filed as Exhibit A to the Companys Proxy
Statement for the Annual Meeting held on May 14, 2002.10.12
    
    Sonoma Valley Bank Severance Agreement with Sean Cuttings dated March 18, 2004, filed as
Exhibit 10.12 to the Form 10-K for the year ended December 31, 2003.23.1
    
    Consent of Richardson and Co., Independent Auditors.31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act




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31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act32
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act