SECURITIES AND EXCHANGE COMMISSION

                           Washington, D.C.  20549

                                 FORM 10-Q


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

                For the quarterly period ended June 30, 2001

                                     OR

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

                       Commission File Number 2-91196


                         NORTHERN EMPIRE BANCSHARES
            ----------------------------------------------------
           (Exact name of registrant as specified in its charter)

        California                                      94-2830529
----------------------------                        ------------------
(State or other jurisdiction                       (I.R.S. Employer
      of incorporation                             Identification No.)
      or organization)


           801 Fourth Street, Santa Rosa, California      95404
          ------------------------------------------------------
         (Address of principal executive offices)       (Zip code)


                               707-579-2265
            --------------------------------------------------
           (Registrant's telephone number, including area code)


                                   NONE
     --------------------------------------------------------------
    (Former name, former address and former fiscal year, if changed
                          since last report)


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

                   APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

Title of class:  Common Stock, no par value. Outstanding shares as of
    July 15, 2001: 3,965,541
                                      
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

                 NORTHERN EMPIRE BANCSHARES AND SUBSIDIARY
                        CONSOLIDATED BALANCE SHEETS
                                 (Unaudited)
(dollars in thousands)
                                                  June 30,  December 31,
  ASSETS                                             2001        2000
Cash and equivalents:
  Cash and due from banks                        $ 16,944      $ 14,022
  Federal funds sold                               39,293        35,505
                                                 --------      --------
    Total cash and equivalents                     56,237        49,527

Investment securities available-for-sale            1,010         1,985
Federal Home Loan Bank stock, at cost                 578           561
Federal Reserve Bank stock, at cost                   163           161
Loans receivable, net                             460,073       432,446
Leasehold improvements and equipment, net             985           937
Accrued interest receivable and other assets        8,954         8,773
                                                 --------      --------
   Total assets                                  $528,000      $494,390
                                                 ========      ========

  LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
  Deposits                                       $482,585      $453,437
  Accrued interest payable
   and other liabilities                            3,127         3,022
  FHLB Advances                                     1,815         1,828
                                                 --------      --------
   Total liabilities                              487,527       458,287
                                                 --------      --------

Shareholders' equity:
  Preferred stock, no par value;
   authorized, 10,000,000 shares;
   none issued or outstanding

  Common stock, no par value;
   authorized, 20,000,000 shares;
   shares issued and  outstanding,
   3,965,541 in 2001 and 3,765,493 in 2000         21,925        18,267
  Additional paid-in capital                          742           742
  Accumulated other comprehensive income (loss)         4             4
  Retained earnings                                17,802        17,090
                                                 --------      --------
   Total shareholders' equity                      40,473        36,103
                                                 --------      --------

   Total liabilities and shareholders' equity    $528,000      $494,390
                                                 ========      ========


               See Notes to Consolidated Financial Statements

              NORTHERN EMPIRE BANCSHARES AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF INCOME
         for the three and six months ended June 30, 2001 and 2000
                              (Unaudited)

(dollars in thousands, except per share data)

                                 Three Months Ended    Six Months Ended
                                     June 30,              June 30,
                                    2001     2000       2001       2000
Interest income:
  Loans                          $11,165   $8,855    $21,970    $17,194
  Federal funds sold and
   investment securities             456      543        983      1,056
                                 -------   ------    -------    -------
    Total interest income         11,621    9,398     22,953     18,250

Interest expense                   5,513    4,476     11,024      8,709
                                 -------   ------    -------    -------
    Net interest income before
     provision for loan losses     6,108    4,922     11,929      9,541
Provision for loan losses            240      240        480        480
                                 -------   ------    -------    -------
    Net interest income after
     provision for loan losses     5,868    4,682     11,449      9,061
                                 -------   ------    -------    -------
Other income:
  Service charges on deposits        101       83        204        175
  Gain on sale of loans              164       66        346        253
  Other                              195      222        361        370
                                 -------   ------    -------    -------

    Total other income               460      371        911        798
                                 -------   ------    -------    -------
Other expenses:
  Salaries and employee benefits   1,485    1,316      3,003      2,591
  Occupancy                          227      209        449        414
  Equipment                          148      140        291        263
  Advertising and business
   development                       122      142        232        244
  Outside customer services          106      105        226        206
  Director and shareholder
   expenses                           69       67        145        143
  Deposit and other insurance         74       75        146        131
  Professional fees                   28       78         97        124
  Other                              276      214        522        451
                                 -------   ------    -------    -------
   Total other expenses            2,535    2,346      5,111      4,567
                                 -------   ------    -------    -------

     Income before income taxes    3,793    2,707      7,249      5,292
Provision for income taxes         1,549    1,121      2,926      2,159
                                 -------   ------    -------    -------
Net income                       $ 2,244  $ 1,586    $ 4,323    $ 3,133
                                 =======   ======    =======    =======
Earnings per common share        $  0.57  $  0.40    $  1.09    $  0.79
                                 =======   ======    =======    =======
Earnings per common share
  assuming dilution              $  0.53  $  0.39    $  1.01    $  0.77
                                 =======   ======    =======    =======


               See notes to Consolidated Financial Statements


                 NORTHERN EMPIRE BANCSHARES AND SUBSIDIARY
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
              for the six months ended June 30, 2001 and 2000
                                (Unaudited)


(dollars in thousands)


                                                         2001      2000
Cash flows from operating activities:
  Net income                                         $  4,323  $  3,133

  Adjustments to reconcile net income to net cash
   provided by operating activities:
     Provision for loan losses and OREO losses            480       480
     Depreciation, amortization and accretion             210       189
     FHLB stock dividends                                 (17)      (40)
     Net increase in deferred loan fees and discounts    (471)        3
     Change in deferred income taxes                     (139)      700
     Tax benefit from stock options exercised               -        96
     Increase in interest receivable and other assets     (42)     (910)
     Increase (decrease) in accrued interest payable
      and other liabilities                               105       590
                                                     --------  --------
   Net cash provided by in operating activities         4,449     4,241
                                                     --------  --------
Cash flows from investing activities:
    Purchase of  restricted securities                     (4)      (38)
    Maturities of available for sale securities           977         -
    Redemption of restricted securities                     1       666
    Net increase in loans receivable                  (27,636)  (36,148)
    Purchase of leasehold improvements and
     equipment, net                                      (258)     (254)
                                                     --------  --------
    Net cash used in investing activities             (26,920)  (35,774)
                                                     --------  --------


Cash flows from financing activities:
    Net increase in deposits                           29,148    53,394
    Net decrease FHLB advances                            (13)   (7,211)
    Payment of cash dividends                              (4)       (2)
    Stock options exercised                                50        69
                                                     --------  --------
 Net cash provided by financing activities             29,181    46,250
                                                     --------  --------
Net increase (decrease) in cash and cash equivalents    6,710    14,717
Cash and cash equivalents at beginning of year         49,527    28,059
                                                     --------  --------
Cash and cash equivalents at end of period           $ 56,237  $ 42,776
                                                     ========  ========
Supplemental cash flow information:
  Interest paid                                      $ 11,158  $  8,734
                                                     ========  ========
  Income taxes paid                                  $  2,714  $  1,383
                                                     ========  ========
  Additions to other real estate owned               $      -  $    940
                                                     ========  ========


               See notes to Consolidated Financial Statements

                  Northern Empire Bancshares and Subsidiary
                 Notes to Consolidated Financial Statements

                                June 30, 2001

Note 1 - Basis of Presentation

In the opinion of Management, the unaudited interim consolidated
financial statements contain all adjustments of a normal recurring
nature, which are necessary to present fairly the financial condition of
Northern Empire Bancshares (the "Corporation") and Subsidiary at June
30, 2001 and the results of operations for the three and six months then
ended.

Certain information and footnote disclosures presented in the
Corporation's annual consolidated financial statements are not included
in these interim financial statements.  Accordingly, the accompanying
unaudited interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Corporation's 2000 Annual Report on Form 10-K.  The
results of operations for the three and six months ended June 30, 2001
are not necessarily indicative of the operating results through December 31,
2001.

Note 2 - Net Income per Common and Common Equivalent Share

Basic earnings per share (EPS) is computed by dividing income available
to common shareholders by the weighted average number of common shares
outstanding during the period. Diluted EPS is computed by dividing
diluted income available to common shareholders by the weighted average
number of common shares and common equivalent shares outstanding which
include dilutive stock options.  The computation of common stock
equivalent shares is based on the weighted average market price of the
Corporation's common stock throughout the period. The Corporation's
pertinent EPS data is as follows:
                                      For the three months ended
                                              June 30, 2001
                                                                Per
                                     Income/      Shares/     Share
                                  Numerator    Denominator    Amount
                                  ---------    -----------    ------
Net Income                       $2,244,000
                                 ==========
EPS - Income available to
common stockholders               2,244,000      3,965,496     $0.57
                                 ==========
Effect of Dilutive Securities
- Stock Options                                    284,065
                                                 ---------
EPS assuming dilution - Income
available to common stockholders
plus assumed conversion           $2,244,000     4,249,561     $0.53
                                  ==========     =========     =====

                                      For the three months ended
                                              June 30, 2000
                                                                Per
                                     Income/      Shares/     Share
                                  Numerator    Denominator    Amount
                                  ---------    -----------    ------

Net Income                       $1,584,000
                                 ==========
Eps - Income available to
common stockholders              $1,584,000      3,953,735     $0.40
                                 ==========                    =====
Effect of Dilutive Securities
- Stock Options                                     71,401
									    ---------
Eps assuming dilutions - Income
available to common stockholders
plus assumed conversion          $1,584,000      4,025,136     $0.39
                                 ==========      =========     =====

                                        For the six months ended
                                              June 30, 2001
                                                                Per
                                     Income/      Shares/     Share
                                  Numerator    Denominator    Amount
                                  ---------    -----------    ------

Net Income                       $4,323,000
                                 ==========
Eps - Income available to
common stockholders              $4,323,000      3,961,916     $1.09
                                 ==========                    =====
Effect of Dilutive Securities
- Stock Options                                    324,480
                                                 ---------
Eps assuming dilutions - Income
available to common stockholders
plus assumed conversion          $4,323,000      4,286,396     $1.01
                                 ==========      =========     =====


                                        For the six months ended
                                              June 30, 2000
                                                                Per
                                     Income/      Shares/     Share
                                  Numerator    Denominator    Amount
                                  ---------    -----------    ------

Net Income                       $3,133,000
                                 ==========
Eps - Income available to
common stockholders              $3,133,000      3,942,060     $0.79
                                 ==========                    =====
Effect of Dilutive Securities
- Stock Options                                    139,067
                                                 ---------
Eps assuming dilutions - Income
available to common stockholders
plus assumed conversion          $3,133,000      4,081,127     $0.77
                                 ==========      =========     =====











Note 3 - Comprehensive Income

The Corporation's total comprehensive earnings presentation is as follows:




                                  For the three          For the six
                                   months ended         months ended
                                     June 30,              June 30,
(In thousands)                     2001     2000       2001     2000
                                 ---------------     ---------------
Net Income                       $2,244   $1,586     $4,323   $3,133
Other Comprehensive
 income (loss):
    Change in unrealized
    holding gain (losses)
    arising during the period        (4)        9          8      12
Income tax benefit (expense)          2         4         (4)      4
                                 ------    ------     ------  ------
                                     (2)        5          4       8
                                 ------    ------     ------  ------
Comprehensive income             $2,242    $1,591     $4,327  $3,142
                                 ======    ======     ======  ======

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

Northern Empire Bancshares is the financial holding company of Sonoma
National Bank (the "Bank").  Since the principal business of the
Corporation is the Bank, the following discussion pertains mainly to the
Bank.

This report contains "forward-looking statements" as defined in section
27A of the Securities Act of 1933, as amended, and section 21E of the
Securities Exchange Act of 1934, as amended, which includes statements
such as projections, plans and objectives and assumptions about the
future, and such forward looking statements are subject to the safe
harbor created by these sections.  Many factors could cause the actual
results, amounts or events to differ materially from those the
Corporation expects to achieve or occur, such as changes in
competition, market interest rates, economic conditions and regulations.
Although the Corporation has based its plans and projections on certain
assumptions, there can be no assurances that its assumptions will be
correct, or that its plans and projections can be achieved.

Summary of Financial Results

Total consolidated assets equaled $528,000,000 at June 30, 2001 compared
to $494,390,000 at December 31, 2000.  Net loans increased $27.6 million
since year end with $10.5 million occurring in the second quarter.  Cash
and equivalents decreased $3.2 million during the second quarter.

Net income after tax for the first six months of 2001 equaled $4,323,000
compared to $3,133,000 for the comparable period last year, an increase
of 38.0%. The second quarter's net income of $2,244,000 increased 41.6%
over the second quarter of 2000 when net income equaled $1,586,000.  The
higher profit resulted from increases in net interest income due to
loan growth (a larger volume of higher yielding earning assets).

Net Interest Income

Net interest income (before the provision for loan losses) of $6,108,000
for the second quarter of 2001 increased 24.1% from $4,922,000 for the
comparable period last year. This increase in net interest income
resulted from volume increases of $88.8 million in average earning
assets for the second quarter of 2001 compared to the second quarter of
2000. Average loans outstanding increased $81.8 million over the second
quarter of 2000 while investments and fed funds sold increased $7.0
million.

Interest expense increased from $4,476,000 in the second quarter of 2000
to $5,513,000 in 2001.  The major factor was the increase of $78.5
million in average interest bearing deposits when comparing the second
quarter of 2000 to 2001.  Another factor was the average cost of
interest bearing deposits which increased from 5.24% to 5.21% when
comparing the second quarter of last year to the second quarter of this
year.

The average net interest margin equaled 4.86% during the second quarter
of 2001 compared to an average margin for the second quarter of 2000 of
4.77% and 4.71% for the year ended December 31, 2000.  The yield on
average loans equaled 9.25% in the second quarter of 2001 compared to
9.10% for the same period last year, while the Bank's cost of funds
increased from 5.21% for the second quarter of 2000 to 5.24% for the
second quarter of 2001.

Several factors impact the Bank's interest margin. These include changes
in market interest rates, level of loans relative to deposits, mix of
loans and other earning assets, non-accrual loan balances and mix of
deposits and other funding sources.

        Changes in Market Interest Rates

The recent decline in market rates has resulted in a positive short term
benefit to the Bank's net interest margin.  Prime rate declined 150
basis points during the first quarter of 2001 and an additional 125
basis points during the second quarter of 2001.  The Bank has $105.6
million in SBA 7(a) loans which reprice based upon the prime rate on the
first day of each calendar quarter.  The decline in prime rate during
the second quarter did not impact these 7(a) loans until July 1, when
the yield on these loans declined 125 basis points.  In addition,
approximately $205.4 million of the Bank's loan portfolio is
periodically adjusted (generally every six months using the preceding
month value) based upon the Eleventh District's cost of funds index
(COFI).  COFI moves at a slower pace than prime rate or other
indexes.  COFI  was 5.20% for May 2000 compared to 4.745% in May 2001
(index is released in June for the previous month). Since December 2000
the COFI index has declined 87 basis points significantly lagging the
275 basis point decline in prime rate during the same period.  In
a declining interest rate market the COFI index benefits the Bank's loan
yields.

Of the Bank's loan portfolio totaling $467.7 million at June 30, 2001,
$381.7 million or 81.6% of total loans are adjustable rate loans which
have not reached a floor or ceiling rate.  Approximately $150.1 million
are prime-based loans, of which $44.3 million reprice immediately and
$105.8 million reprice on a quarterly basis.

Interest rates on deposits have also declined during the second quarter.  At
June 30, 2001, the Bank had $118.5 million in Sonoma Investor Reserve
accounts (money market rate deposit accounts).  This is a tiered rate
account.  The cost for accounts with average balances of $100,000 or
higher has declined from 5.25% to 3.75% (150 basis points) since
December 2000. This has had a positive short term impact since the
majority of prime based loans reprice on a quarterly schedule; however,
the drop in rate has not equaled the decline in prime rate. Pricing on
market rate accounts is largely driven by competitive rates in our
current market area.

The Bank has $278.8 million in time certificates of deposits.  These accounts
reprice at a slower pace similar to the COFI discussed above.
The average cost of time deposits has declined less than 22 basis
points since December 31, 2000.  The benefit of lower rates on time
deposits will occur as certificates of deposits mature and are renewed
at the lower rates offered on their maturity dates.  The Bank is in a
very competitive market for deposits with many financial institutions in
our area still offering high rates for time certificates.

        Level of Loans Relative to Deposits

The Bank's ratio of loans to deposits averaged 97.5% in the second
quarter of 2001 compared to 97.6% for the same period last year.  A
higher loan to deposit ratio has a beneficial impact on the Bank's net
interest margin, since loans generally have a higher yield than other
types of earning assets.

        Mix of Loan and Earning Assets

The mix of loans influences the overall yield on loans.  The largest
loan growth occurred in commercial loans which grew from $118.1 million
at December 31, 2000 to $130.2 million at this quarter end.  (SBA loans,
which generally are secured by real estate, are classified as commercial
loans). This category has a higher yield than other types of loans.
Construction loans increased from $46.2 million at year end to $57.0
million at the end of this quarter. Construction loans have higher
yields that other real estate loans.  Commercial real estate loans
totaled $278.2 million compared to $273.3 million at December 31, 2000.


        Non-Accrual Loan Balances

Loans which have been placed on non-accrual status also impact the net
interest margin.  At the time a loan is placed on non-accrual, the
unpaid interest is reversed and interest accruals are discontinued until
the credit quality of the loan justifies returning it to accrual status.  As of
December 31, 2000 the Bank had $2,097,000 in non-accrual loans
compared to $1,721,000 million at the end of this quarter.  When a
non-accrual loan pays off or is reinstated to accrual status the
interest income is reinstated to income which has a positive effect on
loan yields.  At June 30, 2001 non-accrual loans equaled 0.37% of total
loans. The current level of non-accrual loans is considered by
management to be a low level of non-accrual loans based upon comparisons
to our peer group (other banks of comparable asset size).  See Allowance
for Loan Losses for additional information.

        Mix of Deposits and Other Funding Sources

The mix of funding sources determines the cost of funds for the Bank.
Certificates of deposit reprice at the time the certificate matures
which delays the benefit to the Bank's cost of funds in a downward
interest market.  Sonoma Investor Reserve accounts can be repriced
weekly; and therefore, the benefit of falling interest rates is more immediate.
Competition also is a factor in the repricing of certain
deposit products.  While prime rate drops immediately on loans it often
takes longer to receive the same benefit when repricing market rate
deposits due to competitive rates in our market area.  The Bank also has
a borrowing line with the Federal Home Loan Bank which has been used as
a source of liquidity. The borrowing rates are often below rates offered
on certificates of deposits and the Bank will be increasing the use of
this line as a way to reduce our cost of funds.



<PAGE>
The following is an analysis of the net interest margin:

                         Three months ended         Three months ended
                             June 30, 2001              June 30, 2000
(dollars in thousands)
                        Average                     Average
                        Balance  Interest  Yield    Balance  Interest  Yield
                       -------- --------  -----   --------  --------  -----
Earning assets (1)      $504,058  $11,621  9.25%   $415,237    $9,398  9.10%
Interest bearing
 liabilities             421,623    5,513  5.24%    345,527     4,476  5.21%
                                   ------                      ------
Net interest income                $6,108                      $4,922
                                   ======                      ======
Net Interest income to
 earning assets                            4.86%                       4.77%
                                           =====                       =====

(1)  Non-accrual loans are included in the calculation of average
balance of earning assets, and interest not accrued is excluded.



                          Six months ended        Six months ended
                             June 30, 2001          June 30,2000
(dollars in thousands)
                       Average                     Average
                       Balance  Interest  Yield    Balance  Interest  Yield
                      -------- --------  -----    -------  --------  -----
Earning assets (1)    $495,431   $22,953   9.34%  $408,784   $18,250  8.98%
Interest bearing
 liabilities           415,035    11,024   5.36%   341,176     8,709  5.13%
                                 -------                     -------
Net interest income              $11,929                      $9,541
                                 =======                     =======
Net Interest income to
 earning assets                            4.86%                      4.69%
                                           =====                      =====

(1)  Non-accrual loans are included in the calculation of average
balance of earning assets, and interest not accrued is excluded.

The following table sets forth changes in interest income and interest
expense for each major category of interest-earning asset and
interest-bearing liability, and the amount of change attributable to
volume and rate changes for the three and six months ended June 30, 2001
and 2000.  Changes not solely attributable to rate or volume have been
allocated to rate.










                 For the three months ended June 30, 2001
                            over June 30, 2000
(dollars in thousands)
                                           Volume    Yield/Rate   Total
                                           ------     -----      ------
Increase (decrease) in interest income:
  Portfolio loans                          $1,907      $401      $2,308
  Other earning assets                        108      (193)        (85)
                                           ------     -----      ------
  Total increase (decrease)                 2,015       208       2,223
                                           ------     -----      ------

Increase in interest expense:
  Interest-bearing transaction accounts       190      (439)       (249)
  Time deposits                               864       460       1,324
  Other borrowings                            (36)       (2)        (38)
                                           ------     -----      ------
Total increase                              1,018        19       1,037
                                           ------     -----      ------

Increase (decrease) in net interest income   $997      $189      $1,186
                                           ======     =====      ======

                  For the six months ended June 30, 2001
                            over June 30, 2000
(dollars in thousands)
                                           Volume    Yield/Rate   Total
                                           ------     -----      ------
Increase (decrease) in interest income:
 Portfolio loans                           $1,904     $2,872     $4,776
 Other earning assets                          61       (134)       (73)
                                           ------     ------     ------

Total increase (decrease)                   1,965      2,738      4,703
                                           ------     ------     ------

Increase in interest expense:
 Interest-bearing transaction accounts        221       (462)      (241)
 Time deposits                                792      1,878      2,670
 Other borrowings                             (55)       (59)      (114)
                                           ------     ------     ------
Total increase                                958      1,357      2,315
                                           ------     ------     ------

Increase (decrease) in net interest income $1,007     $1,381     $2,388
                                           ======     ======     ======



Provision for Loan Losses

The provision for loan losses equaled $240,000 for the three months
ended June 30, 2001 and $480,000 for the first six months of 2001
unchanged from the same periods last year.  The provision is intended to
maintain the Allowance for Loan Losses given the overall growth in
loans and the level of non-accrual loans.  For further discussion see
Allowance for Loan Losses.

Other Income

Other income is derived primarily from service charges, SBA loan sales,
SBA loan servicing and sales of other real estate owned.  Other income
increased from $371,000 to $460,000 when comparing the second quarter of
2000 to the same period this year.

        Service Charges

Service charges on deposit accounts equaled $101,000 in the second
quarter of 2001 compared to $83,000 for the same period last year.  The
increase relates to charges on analysis customers.  During this quarter
the earnings credit rate has declined due to the declining interest rate
environment.  Analysis customers earn less on their average balance to
cover the cost of services provided to them.  If the earnings credit do
not cover the cost of services they are charged a service fee.  The Bank
also receives fees for safe deposit, visa, and other services.

SBA Loan Sales

In the second quarter of this year, the Bank sold the guaranteed portion
of SBA loans totaling $2.4 million and recognized gains on those sales
of $164,000. During the second quarter of last year, the Bank sold the
guaranteed portion of SBA loans totaling $1.6 million and recognized
gains on those sales of $66,000. The Bank continues to retain the
majority of the SBA loans it makes, in order to realize the interest
yield, rather than selling the guaranteed portion for a one time gain
and servicing fees. Management considers the Bank's liquidity needs and
anticipates loan and deposit growth as a part of the decision to hold
SBA guaranteed loans versus selling them. The premiums on loan sales
increased over those received during the second quarter of last year.
The average premium on sales in the second quarter of 2000 equaled 4.1%
compared to 6.9% during this  quarter.  This change is market driven
based upon factors such as rate of prepayment of SBA loans experienced
throughout the country.  There is no guarantee that premiums will
continue at the current level.

        SBA Loan Servicing

SBA servicing fees totaled $69,000 during the second quarter of 2000,
compared to fees of $78,000 recorded for this quarter. The income varies
depending on the fee income calculated based upon the payments received
during the period and the size of the portfolio serviced. The serviced
portfolio equaled $30.4 million at June 30, 2000 compared to $31.7
million at June 30, 2001.

        Sales of Other Real Estate Owned

There were no sales of other real estate owned (OREO) during the second
quarter of 2000 or  2001.

Non-Interest Expenses

The Bank's non-interest expenses increased from $2,346,000 for the
second quarter of last year to $2,535,000 for the second quarter of
2001. This increase was anticipated since the Bank has continued to grow
at a rapid rate.

        Salaries and Employee Benefits

The Bank's largest expense category is salaries and benefits which
increased 12.8% from $1,316,000 to $1,485,000. The Bank's full time
equivalent (FTE) staff level has increased from 93 at June 30, 2000 to
108 at June 30, 2001. Our Petaluma branch office was opened in November
2000 which added four new staff positions.  The Bank also added a Chief
Information Officer, Compliance Officer, two new staff positions in the
Construction Loan Dept. and increased the Business Development staff in
the Main Branch. Incentive payments continue at a high level due to
growth in the loan portfolio and deposit base. Personnel costs are also
affected by annual salary increases, and changes in benefit costs.

Occupancy and Equipment

Occupancy expenses increased 8.6%, mainly due to the new branch and rent
increases on existing facilities.  In August, the Bank will relocate its
computer operations to a separate location which will further increase
our occupancy costs. Equipment costs increased to $148,000 up from
$140,000 for the second quarter last year.  The Bank continues to
upgrade computer equipment and operations.  The Bank also completed the
I Banc (internet banking) project during the first quarter of this year.
It is expected that equipment costs will continue to increase.

        Deposit and Other Insurance

Deposit and other insurance of $74,000 was relatively unchanged from the
second quarter of last year.  There is no assurance that regulatory
assessments will continue at the current low level. The cost of other
insurance is included in this category.

        Professional Services

Professional fees decreased by $50,000 from the second quarter of 2000
to $28,000 in this quarter.  Legal expenses vary depending upon problem
loans requiring outside counsel (See discussion on Allowance for Loan
Losses) and other professional services vary depending upon the
scheduling of other contracted services such as loan reviews, tax
services, and other consulting services.

        Business Development and Advertising

Advertising and business development costs, which vary depending on loan
and deposit promotions, decreased to $122,000 from $142,000 in the
second quarter of 2000.

        Outside Customer Services

Outside customer services was relatively unchanged when comparing second
quarter of this year to last year's. The Bank pays for certain direct
costs (i.e.: payroll services, escrow fees, etc.) which are expensed.
The analysis customer receives earnings credits based upon their
deposit account balances which can be used to offset these charges. The
customer is charged a bank service fee if their earnings credits do not
cover the costs.

        Shareholder and Director Expenses

Second quarter expenses for shareholder and Director Expenses equaled
$69,000, up from $67,000 for the second quarter of last year.  Included
in this category are directors' fees for attending Board, Loan
Committee, ALCO, Executive Committee, Audit and Personnel Committee
meetings.  The cost of the Corporation's annual report, transfer agent
fees and other costs of communicating with shareholders is included in
this expense category.

        Other Expenses

Other expenses, which includes stationery and supplies, telephone,
postage, loan expenses, dues and subscriptions and automobile costs have
increased due to growth and the volume of activity.

Total non-interest expenses for the SBA lending department for the
second quarter of 2001 was approximately $442,000 ($291,000 in personnel
costs, $62,000 in occupancy and equipment expenses, $37,000 in
marketing/business development and $52,000 in other expenses) compared
to $483,000 for the second quarter of 2000.  Since June 30, 2000, the
SBA Dept.'s loan portfolio which includes the serviced portion ($31.7
million) and the Bank's portion ($137.2 million) of SBA loans,
construction loans ($4.9 million) and commercial real estate loans
($80.7 million) has increased 19.7% to $254.5 million, of which $31.7
million has been sold and is being serviced.

        Income Taxes

The effective tax rate was 40.8% for the second quarter of 2001.  The
provision for the second quarter of 2001 was $1,549,000 versus
$1,121,000 for the same period last year.  The increase resulted from
the increase in pre-tax income during the comparable quarters.

Liquidity and Investment Portfolio

Liquidity is a bank's ability to meet possible deposit withdrawals, to
meet loan commitments and increased loan demand, and to take advantage
of other investment opportunities as they arise. The Bank's liquidity
practices are defined in both the Asset and Liability Policy and
the Investment Policy.  These policies define acceptable liquidity
measures in terms of ratios to total assets, deposits, liabilities and
capital.

Cash and due from banks and federal funds sold totaled $56.2 million or
10.7% of total assets at June 30, 2001, compared to $49.5 million or
10.0% of total assets at December 31, 2000.  The Bank sold $2.4 million
in SBA loans during the second quarter of 2001 to increase the
Bank's liquidity. As of June 30, 2001 the Bank held $65.5 million in SBA
guaranteed loans which could be sold if additional liquidity was needed.


At June 30, 2001, the Bank had unused federal funds lines of credit
totaling $11 million.  The Bank also has a credit line with the Federal
Home Loan Bank (FHLB) which is based upon the value of collateral
(investments and loans).  The Bank has collateral pledged which would
allow the Bank to borrow up to $12.7 million.  The Bank could borrow an
amount equal to 25% of our assets, assuming that collateral values would
support that level of borrowings.  Management believes this amount of
secondary liquidity is adequate to meet any cash demands that may arise.

At present, the Corporation's primary sources of liquidity are from
interest on deposits, exercise of stock options and dividends from the
Bank.  The Bank's ability to pay dividends to the Corporation is subject
to the restrictions of the national banking laws and, under certain
circumstances, the approval of the Comptroller of the Currency.


At June 30, 2001, the Corporation had non-interest and interest bearing
cash balances of $251,000, which management believes is adequate to meet
the Corporation's operational expenses.

The Corporation and the Bank do not engage in hedging transactions
(interest rate futures, caps, swap agreements, etc.).

Deposits

During the second quarter of 2001 total deposits increased by $4.3
million to $482.6 million at June 30, 2001.

Money market deposits totaling $118.5 million at June 30, 2001 declined
from $126.7 at December 31, 2000.  This is a limited transaction account
with a discretionary rate which is set by management (previously tied to
the 13 week treasury bill less a margin of 75 basis points). The rate
offered on this account dropped significantly during the first quarter
of this year as a result of the declining rate environment.  The lower
rates offered have negatively impacted the growth of this account. There
has also been increased competition in our market area for these types
of funds with local financial institutions offering high rates on money
market accounts.  The Bank's customers have held their funds in this
deposit product rather than locking into a specific maturity since the
certificate of deposit rates, especially for short term maturities, have
been comparable.

Certificates of deposits increased from $254.0 million at December 31,
2000 to $278.8 million as of June 30, 2001. The Bank has increased
certificates of deposit by offering attractive rates on certificates for
specific terms.  The Bank has been successful in retaining the majority
of funds received through certificate campaigns; however, with the lower
rate environment deposits have become more volatile. Depositors are
negotiating rates based upon specials offered in the local market, and
there is increased competition for these deposits.

As of June 30, 2001, non-interest bearing deposits equaled $63.2 million
compared to $51.0 million at December 31, 2000.  The Bank's transaction
accounts have significant changes in daily balances, mainly due to
deposits held by title companies.  This type of deposit account has
greater balance fluctuations than other types of accounts based upon
their business activity.

The low interest rate environment over the last six months and the
increased competition from the financial services industry has made it
more difficult to attract new deposits at favorable rates. The Bank
continually monitors competitors' rates, strives to be competitive
in pricing deposits, and has offered attractive time deposit rates to
raise funds during periods of high loan growth.

Loans

Loans, net of discounts and reserves, equaled $460.1 million at June 30,
2001 compared to $432.4 million at December 31, 2000, increasing 6.4%
over year end and 17.1% over the June 30, 2000 balance of $392.9
million.

The following is an analysis of the loan portfolio.












Type of Loan
in thousands)
                                      June 30,       December 31,
                                       2001              2000
                                     --------           --------
Commercial                           $130,244           $118,134
Real Estate Construction               56,955             46,244
Real Estate Other                     278,213            273,298
Installment Loans to Individuals        2,296              2,412
                                     --------          ---------
                                      467,699            440,088
Deferred loan fees and discount        (2,489)            (2,961)
Allowance for loan losses              (5,137)            (4,681)
                                     --------           --------
TOTAL                                $460,073           $432,446
                                     ========           ========


The SBA loan program continued to be a popular program and competition
continues to be strong in our market area. At June 30, 2001, loans with
SBA guarantees equaled $105.6 million, net of $31.7 million in SBA loans
sold and being serviced by the Bank. The majority of the Bank's SBA
loans are secured by real estate; however, these loans are reported as
commercial loans.  SBA loans have the same underwriting requirements as
the Bank's other loans, they are sometimes for longer terms (7 to 25
years) and have higher loan-to-value ratios than the Bank typically
accepts. The SBA loan program remains subject to budget considerations
at the Federal government level.  Major changes to the federal program
could affect the Bank's profitability and future SBA loan growth. The
guaranteed portion of SBA loans currently held by the Bank which could
be sold in the secondary market increased from $62.1 million to $65.5
million when comparing June 30, 2000 to June 30, 2001.

The Bank continues to emphasize commercial and real estate lending.  At
June 30, 2001, 27.8% of the loans held for investment were commercial
loans and 71.7% were real estate and construction loans, compared to
26.8% and 72.6% respectively at December 31, 2000.  The Bank has
increased the commercial and commercial real estate portfolio through
its reputation, in Sonoma and surrounding counties, as an experienced
business and real estate lender that facilitates the successful
negotiation of complex commercial loans.  The Bank maintains high
credit qualifications with most real estate loans having 60-70%
loan-to-value ratios. Management is aware of the risk factors in making
commercial and real estate loans and is continually monitoring the local
market place.  A decline in real estate values and/or demand could
potentially have an adverse impact on the loan portfolio, and on the
financial condition of the Bank.

Construction loans grew from $46.2 million at December 31, 2000 to $57.0
million at the end of June 2001.  The Bank continues to focus on
residential construction lending since it created a construction lending
group in 1997.  Construction loans are made to owner/occupied and
owner/users of the properties and occasionally to developers with a
successful history of developing projects in the Bank's market area. The
construction lending business is subject to among other things, the
volatility of interest rates, real estate prices in the area and the
market availability of conventional real estate financing to repay such
construction loans.  A decline in real estate values and/or demand could
potentially have an adverse impact on this portion of the loan portfolio
and on the earnings and financial condition of the Bank.

The Bank offers residential mortgages on a limited basis.  The Bank has
a small portfolio of consumer loans which equaled 0.5% of the total loan
portfolio at June 30, 2001 and December 31, 2000.

Allowance for Loan Losses

The allowance for loan losses equaled $5,137,000 at June 30, 2001,
compared to $4,681,000 at December 31, 2000.  At June 30, 2001,  the
allowance for loan losses equaled 1.3% of loans, net of the guaranteed
portion of SBA loans .  The allowance for loan losses is reviewed on
a monthly basis, based upon an allocation for each loan category, plus
an allocation for any outstanding loans which have been classified by
regulators or internally for the "Watch List".  Each loan that has been
classified is individually analyzed for the risk involved with a
specific reserve allocation assigned according to the risk assessment.

At June 30, 2001, there were three borrowers non-accrual totaling
$1,721,000 of which $1,205,000 was collateralized by real estate and
$903,000 was guaranteed by the SBA. There were no loans past due 90 days
or more and still accruing interest.  Loans past due 30 to 89 days
totaled $1,992,000 of which $1,912,000 was collateralized by real estate
and $639,000 was guaranteed by the SBA.  On December 31, 2000, the Bank
had $2,097,000 in non-accrual loans, and $158,000 in loans past due 90
or more days and still accruing interest.

During the second quarter of 2001 there were $24,000 in loan charge offs
which constitutes total charge offs for the year-to-date.  During the
first six months of 2000 there was $30,000 in charge offs and no
recoveries. The Bank has a low charge off experience compared to
industry standards, but there is no guarantee that this will continue.
The following is an analysis of the activity in the allowance for loan
losses during the quarter and year-to-date.

(In thousands)                 Quarter ended        Six months ended
                               June 30, 2001          June 30, 2001
                               -------------          -------------
Balance - Beginning of period         $4,921                 $4,681
Provision for loan losses                240                    480
Charge offs                              (24)                   (24)
Recoveries                                 -                      -
                                      ------                 ------
Balance - End of period               $5,137                 $5,137
                                      ======                 ======

Capital Resources

Pursuant to regulations under the FDIC Improvement Act of 1991 (FDICIA),
five capital levels were prescribed as applicable for banks, ranging
from well-capitalized to critically under-capitalized.  At June 30,2001,
the Bank was considered "well capitalized."  The total risk-based
capital ratios were 11.2% for the Bank and 11.3% for the Corporation.

At March 21, 2001, the Corporation declared a 5% stock dividend to
shareholders of record on May 4, 2001.

ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk

The Bank's financial performance is impacted by, among other factors,
interest rate risk and credit risk.  The Bank utilizes no derivatives to
mitigate its credit risk, relying instead on loan review and adequate
loan loss reserves.  See Allowance for Loan Losses.

Interest rate risk is the risk of loss in value due to changes in
interest rates.  Since virtually all of the Corporation's interest rate
risk exposure lies at the Bank level, this risk is addressed by the
Bank's Asset Liability Committee ("ALCO"), which includes members of the
Board of Directors and senior officers of the Bank. ALCO attempts to
manage the various components of the Corporation's balance sheet to
minimize the impact of sudden and sustained changes in interest rates on
portfolio values and net interest income.

A fundamental objective is to manage its assets and liabilities to
maximize the economic value of the Bank while maintaining adequate
liquidity and minimizing exposure to interest rate risk. Management
believes an acceptable degree of exposure to interest rate risk results
from the management of assets and liabilities through maturity, pricing
and mix with the goal of limiting its exposure to interest rate risk.
The Bank's profitability is dependent to a large extent upon its net
interest income. The Bank is subject to interest rate risk to the
degree that its interest-earning assets reprice differently than its
interest-bearing liabilities.

Interest rate sensitivity analysis is used to measure the Bank's
interest rate risk by computing estimated changes in the net present
value (NPV) of its cash flows from assets, liabilities and off-balance
sheet items in the event of a range of assumed changes in market
interest rates.  NPV represents the market value of portfolio equity and
is equal to the market value of assets minus the market value of
liabilities, with adjustments made for off-balance sheet items.  This
analysis assesses the risk of loss in market rate sensitive instruments
in the event of sudden and sustained increases and decreases in market
interest rates.  The Bank has no trading securities.

Management expects that, in a declining rate environment, the Bank's net
interest margin would tend to decline, and, in an increasing rate
environment, the Bank's net interest margin would tend to increase.  On
a monthly basis, management prepares an analysis of interest rate risk
exposure.  Such analysis calculates the change in net interest income
given a change in general interest rates of 200 basis points up or down.
 All changes are measured in dollars and are compared to projected net
interest income and the value of the Bank's equity is calculated by
discounting cash flows associated with the Bank's assets and
liabilities.  The following table summarizes the simulated change in net
interest income based on the twelve months ending December 31, 2001,
given a change in general interest rates of 200 basis points up or down.

  Change in              Estimated              Estimated Change in
Interest Rate        Net Interest Income        Net Interest Income


+200                       22,550                       527

+100                       22,352                       329

Base Scenario              22,023                         -

-100                       21,960                       (63)
-200                       21,690                      (333)

The model utilized by management to create the report presented above
makes numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposit runoff and should not be relied upon
as indicative of actual future results.  Computations do not contemplate
any actions that ALCO could undertake in response to changes in interest
rates. Actual results could differ significantly from those estimates,
which would result in significant differences in the calculated
projected change.

Interest rate risk management is a function of the repricing
characteristics of the portfolio of assets and liabilities.  Interest
rate risk management focuses on the maturity structure of assets and
liabilities and their repricing characteristics during periods of
changes in market interest rates.  Effective interest rate risk
management seeks to ensure that both assets and liabilities respond to
changes in interest rates within an acceptable time frame,
thereby minimizing the effect of interest rate movements on net interest
income.  Interest rate sensitivity is measured as the difference between
the volume of assets and liabilities in the current portfolio that are
subject to repricing at various time horizons. The differences are known
as interest rate sensitivity gaps.

The following schedule represents interest rate sensitivity profile as
of June  30, 2001 of assets, liabilities and shareholders' equity
classified by earliest possible repricing opportunity or maturity date.















<TABLE>
<CAPTION>

                                       Over 3     Over 1     Non-rate
                                       months     year       Sensitive
Balance sheet             Through 3   through     through    or Over 5
(in thousands)              months     1 year     5 years    years       Total
                          --------   --------     -------    -------  --------
<S>                      <C>         <C>         <C>        <C>      <C>
Assets
Fed funds sold &
 certificates
 of deposit                $39,293                                      $39,293
Investment securities                              $1,008                  $743        1,751
Loans (net of
 discounts)                139,046    181,095     $59,222     31,847    465,210
Non-interest-earning
 assets
(net of allowance for
 loan losses)                                                 21,746     21,746
                          --------   --------     -------    -------   --------
                          $232,339   $182,103     $59,222    $54,336   $528,000
                          ========   ========     =======    =======   ========

Liabilities & Shareholders' Equity
Time Deposits $
100,000 and over           $25,852    $70,230     $10,801              $106,883
All other interest-
bearing  liabilities       185,050    102,450      20,279     $6,579    314,358

Non-interest bearing
 liabilities                                                  63,159     63,159
Other Liabilities &
 Shareholders' Equity                                          43,600    43,600
                          --------    --------     -------   -------   --------
                          $210,902    $172,680     $31,080  $113,338   $528,000
                          ========    ========     =======   =======   ========

Interest Rate
 Sensitivity (1)           $21,437      $9,423     $28,142  $(59,002)
                          ========    ========     =======   =======
Cumulative Interest
 Rate Sensitivity          $21,437    $30,860      $59,002           -
                          ========   ========      =======     =======

</TABLE>

(1)  Interest rate sensitivity is the difference between interest rate
sensitive assets and interest rate sensitive liabilities within the
above time frames.


           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings -

   None other than in the ordinary course of business.

Item 2.  Changes in Securities and Use of Proceeds - None

Item 3.  Defaults Upon Senior Securities  - None

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

      The Annual Meeting of Shareholders of the Corporation was held on
      May 15, 2001.  The following candidates received the votes
      indicated.
                                                Withheld/Abstained/
                                  For             Broker Non-Votes
   Clement C. Carinalli        3,197,662              220
   Patrick R. Gallaher         3,197,662              220
   William P. Gallaher         3,195,403             2479
   William E. Geary            3,197,232              650
   James B. Keegan, Jr.        3,197,662              220
   Dennis R. Hunter            3,197,662              220
   Robert V. Pauley            3,194,010             3872
   All candidates were re-elected.

   No other matters were voted on at the meeting.

Item 5.  Other Information -        None

Item 6.  Exhibits and Reports on Form 8-K

a.  Exhibits:

(3)      (a)  Articles of Incorporation of the
         Corporation (filed as Exhibit 3.1 to the
         Corporation's S-1 Registration Statement,
         filed May 18, 1984 and incorporated herein
         by this reference).

         (b)  Certificate of Amendment to Articles of Incorporation,
         filed January 17, 1989 (filed as exhibit (3)(b) to the
         Corporation's Annual Report on Form 10-K for the Fiscal Year
         Ended December 31, 1988 and incorporated herein by this
         reference).

         (c)  Bylaws of the Corporation, as amended (filed as Exhibit
         3.2 to the Corporation's S-2 Registration Statement, File No.
         33-51906 filed September 11, 1992 and incorporated herein by
         this reference).

         (d)  Amendment to the Bylaws of the Corporation and revised
         Bylaws (filed as Exhibit (3)(d) to the Corporation's Annual
         Report on Form 10-KSB for the Fiscal Year Ended December 31,
         1994 and incorporated herein by this reference).

         (e)  Secretary's certificate of Amendment to the Bylaws of the
         Corporation and revised Bylaws ((filed as Exhibit (3)(e) to the
         Corporation's Annual Report on Form 10-KSB for the Fiscal Year
         Ended December 31, 1997 and incorporated herein by this
         reference).

b.  Reports on Form 8-K  -  None



SIGNATURES

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

NORTHERN EMPIRE BANCSHARES

Date: August 10, 2001



/s/s Dennis R. Hunter                /s/ Patrick R. Gallaher
---------------------                ------------------------
Dennis R. Hunter                        Patrick R. Gallaher
Chairman of the Board                 Chief Accounting Officer