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 September 30, 2005

                                   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 or organization)                      Identification No.)


          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 ___

Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act).  Yes   X   No ___



Indicate by check mark whether the registrant is a shell company (as
defined in rule 12b-2 of the Exchange Act).
Yes ___ No   X

                  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
September 30, 2005: 10,393,641



PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


               NORTHERN EMPIRE BANCSHARES AND SUBSIDIARY
                      CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

ASSETS                                    September 30,      December 31,
                                               2005               2004
                                           (unaudited)


Cash and equivalents:
  Cash and due from banks                 $    32,722        $     21,006
  Federal funds sold                           52,076              95,498
                                          ------------       -------------
    Total cash and equivalents                 84,798             116,504
Investment securities available
 -for-sale                                     50,269               1,082
Federal Home Loan Bank (FHLB)
 stock, at cost                                11,759               9,020
Federal Reserve Bank stock, at cost               166                 254
Loans receivable, net                       1,051,476             938,104
Leasehold improvements and
 equipment, net                                 3,493               2,709
Accrued interest receivable
 and other assets                              15,140              13,251
                                          ------------       -------------
    Total assets                          $ 1,217,101        $  1,080,924
                                          ============       =============

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:

  Deposits                                $   898,554        $    791,025
  FHLB Advances                               210,389             191,912
  Accrued interest payable and other
   liabilities                                  5,483               8,109
                                          ------------       -------------
    Total liabilities                       1,114,426             991,046
                                          ------------       -------------

Shareholders' equity:

  Common stock, no par value;
  authorized, 40,000,000 shares;
  shares  issued and outstanding,
  10,393,641 at September 30, 2005
  and 10,346,770 at December 31, 2004
  (retroactively stated for 5% stock
  dividend)                                    60,618              47,302
  Additional paid-in-capital                    7,681               7,681
  Accumulated other comprehensive
   income (loss)                                  (86)                (10)
  Retained earnings                            34,462              34,905
                                          ------------       -------------
    Total shareholders' equity                102,675              89,878
                                          ------------       -------------
      Total liabilities and
       shareholders' equity               $ 1,217,101        $  1,080,924
                                          ============       =============
             See Notes to Consolidated Financial Statements


                NORTHERN EMPIRE BANCSHARES AND SUBSIDIARY
                    CONSOLIDATED STATEMENTS OF INCOME
                               (Unaudited)

                                    Three Months Ended   Nine Months Ended
                                       September 30,       September 30,
                                    ------------------  ------------------
(dollars in thousands, except per     2005      2004      2005      2004
share data)                         --------  --------  --------  --------
Interest income:

  Loans                             $ 18,203  $ 13,480  $ 51,381  $ 38,391
  Federal funds sold and investment
   securities                          1,093       424     2,720       971
                                    --------  --------  --------  --------
    Total interest income             19,296    13,904    54,101    39,362

Interest expense                       7,772     3,924    20,120    10,731
                                    --------  --------  --------  --------
  Net interest income before
   provision for loan losses          11,524     9,980    33,981    28,631
Provision for loan losses                600       475     1,650     1,025
                                    --------  --------  --------  --------
  Net interest income after
   provision for loan losses          10,924     9,505    32,331    27,606
                                    --------  --------  --------  --------
Other income:

  Service charges on deposits            115        96       368       348
  Gain on sale of loans                  803       594     2,168     1,294
  Other                                  248       275       662       905
                                    --------  --------  --------  --------
    Total other income                 1,166       965     3,198     2,547


Other expenses:

  Salaries and employee benefits       2,914     2,711     8,399     7,486
  Occupancy                              501       364     1,403     1,008
  Equipment                              287       266       855       682
  Advertising and business
   development                           202       168       642       471
  Outside customer services              113       100       283       273
  Director and shareholder expenses      141       127       476       290
  Deposit and other insurance            130       121       392       345
  Professional fees                       43       161       456       354
  Other                                  372       338     1,179       938
                                    --------  --------  --------  --------
    Total other expenses               4,702     4,356    14,085    11,847
                                    --------  --------  --------  --------
      Income before provision for
        income taxes                   7,388     6,114    21,444    18,306
Provision for income taxes             3,026     2,503     8,806     7,465
                                    --------  --------  --------  --------
      Net income                    $  4,362  $  3,611  $ 12,638  $ 10,841
                                    ========  ========  ========  ========
Basic earnings per common share     $   0.42  $   0.35  $   1.22  $   1.06
                                    ========  ========  ========  ========
Diluted earnings per common share   $   0.40  $   0.30  $   1.17  $   0.93
                                    ========  ========  ========  ========
             See notes to Consolidated Financial Statements



               NORTHERN EMPIRE BANCSHARES AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (Unaudited)


                                                       Nine months ended
                                                         September, 30
                                                     ---------------------
 (dollars in thousands)                                 2005        2004
                                                     ---------   ---------
Cash flows from operating activities:

  Net income                                         $ 12,638    $ 10,841
  Adjustments to reconcile net income to net cash
   from operating activities:

    Provision for loan losses                           1,650       1,025
    Depreciation of fixed assets                          637         448
    Accretion of investment securities                   (193)          -
    FHLB Stock dividends                                 (304)       (191)
    Tax benefit from stock option exercised                 -       2,073
    Gain on sale of loans                              (2,168)     (1,294)
    Change in deferred income taxes                       471        (573)
  Changes in operating assets and liabilities:

    Change in deferred loan fees and discounts            599         134
    Change in interest receivable and other assets     (2,309)     (1,637)
    Change in accrued interest payable and other
      liabilities                                      (2,847)      2,490
                                                      ---------   --------
      Net cash provided by operating activities         8,174      13,316
                                                     ---------   ---------
Cash flows from investing activities:
  Purchases of investment securities                  (49,122)     (1,096)
  Proceeds from the maturity of investment securities       -         631
  Purchase of restricted stock, net of redemption      (2,347)     (1,770)
  Net increase in loans receivable                   (113,233)   (136,092)
  Purchase of leasehold improvements and equipment,
    net                                                (1,420)     (1,618)
                                                     ---------   ---------
    Net cash used by investing activities            (166,122)   (139,945)
                                                     ---------   ---------
Cash flows from financing activities:
  Net change in deposits                              107,529     119,555
  Net change in FHLB advances                          18,477      42,709
  Cash paid for fractional shares                          (9)         (6)
  Proceeds from exercise of stock options                 245       2,223
                                                     ---------   ---------
    Net cash from financing activities                126,242     164,481
                                                     ---------   ---------
Net change in cash and cash equivalents               (31,706)     37,852
Cash and cash equivalents, at beginning of year       116,504      94,575
                                                     ---------   ---------
Cash and cash equivalents, at end of period          $ 84,798   $ 132,427
                                                     =========  ==========
Supplemental cash-flow information:
  Interest paid                                      $ 19,750   $  10,370
                                                     =========  ==========
  Income taxes paid                                  $ 11,720   $   4,231
                                                     =========  ==========
                   See Notes to Consolidated Financial Statements


                Northern Empire Bancshares and Subsidiary
                Notes to Consolidated Financial Statements

                           September 30, 2005


Note 1 - Basis of Presentation

The unaudited financial information contained in this report reflects all
adjustments, consisting of normal recurring accruals which, in the
opinion of Management, are necessary to present fairly the financial
condition of Northern Empire Bancshares and Subsidiary at September 30,
2005 and the results of operations for the three and nine months then
ended.  The results of operations for the three and nine months ended
September 30, 2005, are not necessarily indicative of the operating
results to be anticipated for the year ending December 31, 2005.

The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect amounts
reported in the consolidated financial statements.  Changes in these
estimates and assumptions are considered reasonably possible and may have
a material impact on the consolidated financial statements and thus
actual results could differ from the amounts reported and disclosed
herein.  The Company considers the allowance for loan loss a critical
accounting policy subject to estimate.

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 2004 Annual Report on Form 10-K.


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
income available to 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 adjusted for the impact of the 5% stock
dividends declared on March 22, 2005 and March 16, 2004.  Earnings per
share on a diluted basis are calculated based on the average number of
shares outstanding including options at the time.  During November 2004,
there was a substantial reduction in the number of shares subject to
outstanding options. The Corporation's EPS data is as follows:

<TABLE>
<CAPTION>
                                           For the three months ended           For the three months ended
                                                September 30, 2005                  September 30, 2004
                                       --------------------------------       -------------------------------
                                                                  Per                                    Per
                                         Income/      Shares/    Share          Income/      Shares/    Share
                                       Numerator    Denominator  Amount       Numerator    Denominator  Amount
                                       ----------   -----------  ------       ----------   -----------  ------
<S>                                    <C>          <C>          <C>          <C>          <C>          <C>
Net Income                             $4,362,000                             $3,611,000


EPS - Income available to
 common stockholders                   $4,362,000   10,388,418    $0.42      $3,611,000   10,374,230    $0.35
                                       ==========   ==========    =====      ==========   ==========    ======
Effect of Dilutive Securities -
 Stock Options                                         463,702                             1,480,337
                                                    ----------                            ----------
EPS assuming dilution - Income
 available to common stockholders
 plus assumed conversion               $4,362,000   10,852,120    $0.40      $3,611,000   11,854,567    $0.30
                                       ==========   ==========    =====      ==========   ==========    =====
</TABLE>

<TABLE>
<CAPTION>

                                           For the nine months ended            For the nine months ended
                                              September 30, 2005                    September 30, 2004
                                       --------------------------------      --------------------------------
                                                                   Per                                    Per
                                         Income/      Shares/     Share        Income/     Shares/       Share
                                        Numerator   Denominator   Amount      Numerator   Denominator    Amount
                                       ===========  ==========    =====      ===========  ===========    ======
<S>                                    <C>          <C>           <C>        <C>          <C>            <C>
Net Income                             $12,638,000                           $10,841,000
                                       ===========                           ===========
EPS - Income available to common
  stockholders                         $12,638,000  10,371,747    $1.22      $10,841,000  10,233,500     $1.06
                                       ===========                =====      ===========                 =====
Effect of Dilutive Securities
  - Stock Options                                      453,096                             1,471,257
                                                    ----------                            ----------
EPS assuming dilution - Income
 available to common stockholders
 plus assumed conversion               $12,638,000  10,824,843    $1.17      $10,841,000  11,705,064     $0.93
                                       ===========  ==========    =====      ===========  ==========     =====
</TABLE>
Note 3 - Stock Based Compensation

The Company accounts for stock-based employee compensation arrangements
using the intrinsic value method in accordance with the provisions of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB No. 25) and complies with the disclosure provisions of
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation (SFAS No. 123). Under APB No. 25, compensation expense
is the excess, if any, of the fair value of the Company's stock at a
measurement date over the amount that must be paid to acquire the stock.

As of December 31, 2002, the Company adopted the disclosure requirements
of SFAS 148, Accounting for Stock Based Compensation, which amends
Accounting Principals Board ("APB") No. 25 by adding to the list of
disclosures to be made for interim periods.

SFAS No. 123 requires a fair value method to be used when determining
compensation expense for stock options and similar equity instruments.
SFAS No.123 permits a company to continue to use APB No. 25 to account for
stock-based compensation to employees, but pro forma disclosures of net
income and earnings per share must be made as if SFAS No. 123 had been
adopted in its entirety. For purposes of pro forma disclosures, the
estimated fair value of the options is amortized over the options' vesting
period. Stock options issued to non-employees are valued under the
provisions of SFAS No. 123. Had compensation cost for the Company's
options been determined based on the methodology prescribed under SFAS
No.123, the Company's net income and income per share would have been as
follows:


                               For the three months   For the nine months
                                ended September 30,    ended September 30,
                               --------------------   --------------------
(In thousands)                  2005         2004       2005        2004
                               ------       ------    -------     -------
Net Income for the period      $4,362       $3,611    $12,638     $10,841
Compensation expense, net of
  tax effect                      281           32        349          96
                               ------       ------    -------     -------
Proforma net income            $4,081       $3,579    $12,289     $10,745
                               ======       ======    =======     ========

Proforma earnings per common
  share                         $0.39        $0.35      $1.18       $1.05
Proforma earnings per common
  share, assuming dilution      $0.38        $0.30      $1.14       $0.92


The fair value of each option is estimated on date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions.

                                  September 30, 2005    September 30, 2004
                                  ------------------    ------------------

Dividends                                 0%                    0%
Expected volatility                    21.1%                 26.8%
Risk-free interest rate                4.24%                 2.57%
Expected life                         10 years              3 years



Note 4 - Comprehensive Income

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

                                    For the three         For the nine
                                     months ended         months ended
                                    September 30,         September 30,
                                   ----------------     ----------------
(In thousands)                       2005    2004         2005     2004
                                   ----------------     ----------------
Net Income                         $4,362   $3,611      $12,638   $10,841
                                   ------   ------      -------   -------
Other Comprehensive income
  (loss):
  Change in unrealized holding
    gain (losses) arising during
    the period                       (127)       9         (128)      (14)
  Income tax benefit (expense)         52       (4)          52         5
                                   ------   ------      -------   -------

  Net Other Comprehensive income
    (loss):                           (75)       5          (76)       (9)
                                   ------   ------      -------   -------
Comprehensive income               $4,287   $3,616      $12,562   $10,832
                                   ======   ======      =======   =======


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

Northern Empire Bancshares (the "Corporation") is the bank 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.

Critical Accounting Policies

The Corporation and Bank's accounting policies are fundamental to
understanding management's discussion and analysis of results of
operations and financial condition. One policy, Allowance for Loan Losses,
has been identified as being critical because it requires management to
make difficult and subjective judgments about matters that are inherently
uncertain and because of the likelihood that materially different amounts
would be reported under different conditions or using different
assumptions.  This policy is reviewed by Loan Committee and approved by
the Board of Directors.

The Allowance for Loan Losses represents management's estimate of probable
losses inherent in the loan portfolio at the balance sheet date. The
allowance for loan losses is reviewed monthly and is based on allocations
for each loan category (e.g. Real Estate, Commercial) plus an allocation
for any outstanding loans which have been classified and are on the "Watch
 List."  Each loan that has been classified is individually analyzed for
the risk involved and an allowance provided according to the risk
assessment. In addition to the allocated component, there is an
unallocated component.  The unallocated component incorporates
management's judgment of the inherent risks in the portfolio based on:
historical loan loss experience, loan concentrations, evaluations made by
regulatory agencies and our outside consultants, and assessment of
economic conditions. The allocated and unallocated components represent
the total allowance for loan losses that management estimates is adequate
to cover losses inherent in the loan portfolio.

Changes in the estimate related to the allowance for loan losses can
materially affect net income.  The process of determining the allowance
requires us to make assumptions regarding the inherent losses which are
highly uncertain, requires a high degree of judgment; and is impacted by
regional, national and global economic trends. Different assumptions
regarding possible future economic conditions could have been used and may
have had a material impact on the provision for loan losses and on the
consolidated results of operations.

Forward-looking statements

The discussion of certain matters in this report may constitute "forward-
looking statements" as defined in section 27A of the Securities Act of
1933, and section 21E of the Securities Exchange Act of 1934, which
include statements such as projections, plans, objectives and assumptions
about the future, and such forward looking statements are subject to the
safe harbor created by these sections.  Although the Corporation and the
Bank have based their plans and projections on certain assumptions, there
can be no assurances that such assumptions will be correct, or that their
plans and projections can be achieved.  Many factors, risks and
uncertainties could cause the actual results, amounts or events to differ
materially from those the Corporation and the Bank expect to achieve or
occur.  Such factors, risks and uncertainties include, but are not limited
to the following:

Changes in economic conditions and real estate collateral.

At September 30, 2005, 98.8%, or $1.0 billion of the Bank's loans,
including real estate loans and a majority of the Bank's SBA loans, were
secured by real estate as the principal source of collateral.  A worsening
of economic conditions, a decline in real estate values and/or rising
interest rates could have an effect on the value of real estate securing
these loans and could have an adverse effect on the financial condition of
the Bank.

Changes in the market interest rates and volatility of rate sensitive
loans and deposits.

Changes in interest rates impact new loan demand, loan prepayment speeds,
the rates received on loans and securities and the rates paid on deposits
and borrowings.  Significant fluctuations in interest rates may have an
adverse effect on the business, financial condition and results of
operations of the Corporation and the Bank.

Competitive pressures in the banking industry.

The banking business is highly competitive, and competition among
financial institutions for all types of financial products and services is
expected to increase.  The ability of the Bank to compete in the future
will depend on the nature and level of future competition.

Changes in the legislative and regulatory environment.

Banks and bank holding companies are subject to extensive supervision and
regulation.  The banking business is also affected by the monetary and
fiscal policies of the United States government and the Federal Reserve
Board.  The future regulatory environment may significantly affect the
Bank' business.

Declines in the national or regional economy.

A worsening of economic conditions could reduce the demand for loans,
cause credit quality deterioration and/or result in a decline in the value
of real estate collateral securing a substantial portion of the Bank's
loans.  Any of these factors could have an adverse impact on the Bank's
financial condition.

Changes in accounting standards by the Financial Accounting Standards
Board, the Securities and Exchange Commission (SEC) or other standard-
setting bodies.

Such changes could affect the manner in which the Corporation and the Bank
are required to account for and report income, expenses, reserves, or a
merger or acquisition, if any and could materially affect the
Corporation's business and financial statements

Changes in the U.S. Small Business Administration (SBA) program.

The Bank makes a significant portion of its commercial loans through the
U.S. Small Business Administration program, which guarantees a portion of
such loans, and the Bank generates income through the sale of such loans.
Changes in the Small Business Administration program could have an adverse
effect on the Bank's business.

Changes in Federal Home Loan Bank (FHLB) borrowing policies.

The Bank relies upon the FHLB for a large portion of the funding which is
collateralized by loan assets.  Based upon the current policies of the
FHLB we believe the advances are renewable. Changes in the requirements of
the FHLB could materially affect the Bank's business and financial
statements.

Investors are cautioned to consider these and other risks and
uncertainties.

The Corporation specifically disclaims any obligation to update any such
factors or to publicly announce the results of any revisions to any
forward-looking statements in this report to reflect future events or
developments.

Summary of Financial Results

Total consolidated assets of $1,217.1 million at September 30, 2005, grew
$136.2 million during the first nine months of 2005 compared to $1,080.9
million at December 31, 2004.  Net loans totaled $1,051.5 million, an
increase of $113.4 million during 2005, with $30.8 million in growth
occurring within the third quarter.  Cash and equivalents decreased $31.7
million, while investment securities available-for-sale increased $49.2
million during 2005.  Deposits totaled $898.6 million at September 30,
2005, an increase of $107.5 million during 2005.

Net income after tax for the first nine months of 2005 equaled $12.6
million compared to $10.8 million for the comparable period in 2004, an
increase of 16.6%. Net income for the third quarter of 2005 equaled $4.4
million, an increase of 20.8% when compared to net income of $3.6 million
for the third quarter of 2004.  Increased profit resulted primarily from
growth in net interest income due to loan growth.

Net Interest Income

Net interest income (before the provision for loan losses) of $11.5
million for the third quarter of 2005 increased 15.5% from $10.0 million
for the comparable period last year.  This increase in net interest income
resulted primarily from volume increases of $215.4 million in average
earning assets for the current quarter compared to the third quarter of
2004.  Average loans outstanding increased $204.2 million for the current
quarter compared to the third quarter of 2004.  Additionally, average
investments, average funds held in interest bearing accounts and average
fed funds investments increased $11.1 million during the third quarter of
2005. Average interest bearing deposits for the third quarter increased
$125.4 million over the same period last year and average borrowings with
the Federal Home Loan Bank increased $47.9 million.

The net interest margin equaled 3.89% during the third quarter of 2005
compared to net interest margin for the third quarter of 2004 of 4.14% and
4.20% for the year ended December 31, 2004.  The yield on average loans
equaled 6.84% in the third quarter compared to 6.29% for the same period
last year, while the Bank's cost of funds increased to 3.07% for the third
quarter of 2005 from 1.88% for the third quarter of 2004.

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

Changes in Market Interest Rates

Changes in economic conditions and the actions of the Federal Reserve
Board to increase or decrease the fed funds and discount rates have a
direct impact on the Bank's net interest margin.  The prime rate and other
market indices generally move in response to Federal Reserve Board
actions.  During 2004, the prime rate increased 125 basis points to 5.25%
at year end.  During the first nine months of 2005, the prime rate
increased by an additional 150 basis points to 6.75%.  While short term
rates have increased 200 basis points during the past twelve months, long
term rates (i.e. the 10 year Treasury) have only increased by
approximately 20 basis points.  Changes in market interest rates and the
shape of the yield curve have a complex impact on the Bank's balance sheet
and net interest income.  Rising short term interest rates have
contributed to an increasing yield on our variable rate loans.  However,
combined with falling longer term rates, many borrowers are refinancing
their variable rate loans into fixed rate alternatives.  As a result of
these market forces, rising short term interest rates, combined with a
flattening yield curve, have contributed to an acceleration of loan
prepayments within our adjustable rate loan portfolio.  There are no
assurances that earnings will not be adversely impacted by future actions
of the Federal Reserve Board and changes in market interest rates.  We
expect the present trends of increases in short term rates will continue
and will have a negative effect on the Bank's earnings.

Since not all loans or deposits reprice immediately, the full impact of
rate changes on the Bank's earnings is not realized immediately.  The
majority of SBA loans are tied to the prime rate and reprice on a calendar
quarter basis.  The Bank also has adjustable rate loans, mainly commercial
real estate loans, which are tied to a variety of indices including the
prime rate, the Eleventh District Cost of Funds Index (COFI), six-month
LIBOR, the six-month constant maturity treasury (CMT) and the five-year
CMT.  Each of these indices reacts to changes in market interest rates at
different speeds and magnitudes.  The Bank also has fixed rate loans it
its portfolio, the yield on which does not vary with changes in market
interest rates.

Of the Bank's loan portfolio totaling $1,063.1 million at September 30,
2005, $643.2 million or 60.5% were adjustable rate loans.  Of that total,
approximately $308.0 million were prime-based loans, of which $94.9
million reprice when prime changes and $213.1 million reprice on a
calendar quarter basis.

Market rates also impact the Bank's ability to attract deposits and grow
the loan portfolio.  In a rising rate environment, it is necessary to
remain competitively priced in order to retain existing and acquire new
deposit balances.  The Bank has experienced an increase in loan payoffs as
borrowers have refinanced their existing loans with loans at more
attractive rates and terms.  The Bank had $51.0 million and $164.2 million
in loans pay off during the three and nine month periods ended September
30, 2005 compared to $42.7 million and $115.3 million for the same periods
one year ago.

Interest rates offered on deposits have increased due to an increasing
interest rate environment.  The Bank has responded to the highly
competitive rate environment by increasing rates, especially savings and
certificate of deposit rates.  The Bank had $106.0 million of Sonoma
Investor Reserve accounts (money market rate deposit accounts) at
September 30, 2005.  The cost of these deposits equaled 1.82% during the
third quarter of 2005 and 1.08% for the third quarter of last year.

The Bank had $584.7 million in time certificates of deposits at September
30, 2005.  These accounts reprice at the time the certificates mature
which delays the impact of rising interest rates.  The Bank has offered
competitive market rates for deposits when compared to other financial
institutions in our area. The cost of time deposits equaled 3.37% for the
third quarter of 2005 compared to 2.33% in the third quarter of 2004.

Level of Loans Relative to Deposits

The Bank's ratio of loans-to-deposits increased to an average of 119.3% in
the third quarter of 2005 compared to 115.0% for the same period last
year.  An increase in the loan-to-deposit ratio generally has a positive
impact on net interest margin.

Mix of Loans and Earning Assets

Changes in the mix of loans also impact the Bank's interest margin.  The
largest loan growth occurred in real estate mortgage loans growing to
$784.7 million at this quarter end from $663.6 million at December 31,
2004.  The yield on this category was 6.65%, which is 19 basis points
lower than the yield on average loans for the quarter.  The Bank has
developed new loan products tied to US Treasury and LIBOR index with other
favorable terms to attract new loan volume.  Loan volume has increased as
a result of these new products and the Bank's competitive rate structure.

Construction loans decreased slightly to $36.7 million at the end of this
quarter compared to $41.1 million at December 31, 2004.  Residential
construction lending continues to benefit from competitive and continued
low rates on residential mortgages. Construction loans generally have
higher yields than other real estate loans. General economic conditions
greatly influence the demand for construction loans.

SBA loans totaling $212.3 million at September 30, 2005, which generally
are secured by real estate, are classified as commercial loans.
Commercial loans totaled $235.7 million at September 30, 2005 compared to
$236.7 million at December 31, 2004.  Under the SBA's 504 program 55% of
the loan is funded by the Bank compared to 100% of loan amount under the
SBA 7(a) program.  The 504 loans also carry additional risks since the
Bank's loan amount is not guaranteed by the SBA; however, this is
mitigated by the lower loan to collateral value ratio of approximately
50%. Under the current federal government SBA 7(a) program the maximum
guaranty amount was increased to $1.5 million last year, resulting in a $2
million limit on each 7(a) loan.  The 7(a) loan program was approved at an
authorization level of $16.5 billion last year.  This provides for a more
stable loan program as it eliminates the appropriation battles that have
historically hampered the program resulting in periodic caps and program
shut downs.  The zero subsidy was achieved by increasing borrower and bank
fees. Budget funds are no longer appropriated to fund the program; hence
there is a zero subsidy from the government.  Should the default rates
within the government SBA program increase dramatically, the borrower and
bank fees could rise, thereby impacting the profitability of the program
for the Bank.  Additional government actions may further alter the SBA
program, which could have a negative impact on the Bank's profits.

Economic conditions and competition have impacted the mix of loans.  The
rising short term interest rate environment has contributed to an
increasing yield on variable rate loans.  The structure of the variable
interest rate loan determines how often and how rapidly interest rates
increase on loans.  As longer term rates decline, refinancing activity
continues to be strong as borrowers seek fixed rate loan products which
will reduce their interest cost during an increasing rate environment. The
Bank offers loan products tied to prime rate, U.S. Treasury rates or LIBOR
which may have lower interest rates at the time of funding but reprice at
a faster rate than loans tied to COFI.  The Bank continues to experience
strong competition for loans, which has resulted in lower loan pricing in
the market place, which impacts the Bank's offering rates on new loans and
negatively impacts the Bank's net interest margin.

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 September 30, 2005, the Bank had $1.1 million in non-accrual loans or
0.10% of total loans compared to $0.3 million or 0.03% of total loans at
December 31, 2004. 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.  The current level of non-accrual loans is
considered by management to be low 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 impact to the Bank's cost of funds in a upward interest rate
market.  Sonoma Investor Reserve accounts are repriced weekly at the
discretion of the Bank. The impact of increasing interest rates is more
immediate since all balances will earn at the higher rates at the time of
a rate change.  Competition also is a factor in the repricing of certain
deposit products.  In an increasing rate environment deposit rates are
monitored to be competitive in the market place to retain existing
deposits and when liquidity is needed higher rates are offered to attract
new deposits to fund growth.  The Bank also has a borrowing line with the
Federal Home Loan Bank (FHLB) which has been used as a source of funding
balance sheet growth and liquidity.  The initial borrowing rates are
generally below rates offered on certificates of deposits and the Bank has
increased the use of this line as a way to reduce our cost of funds.  As
of September 30, 2005, the Bank increased borrowed funds from the FHLB to
$210.4 million as compared to $161.9 million at September 30, 2004, an
increase of $48.5 million.

Interest expense increased to $7.8 million in the third quarter of 2005
from $3.9 million in the third quarter of 2004.  The major factors were
the increase in funds borrowed from the FHLB and an increase in interest
bearing deposits to fund loan growth.  Variable rate advances totaled
$160.2 million at September 30, 2005 as compared to $146.7million at
September 30, 2004.  The cost of FHLB advances increased to 3.58% during
the third quarter from 1.58% for the same period last year.  The increased
costs associated with the FHLB advances is not only the result of an
increase of $13.5 million in the amount of prime rate based advances, but
also the result of the 200 basis point increase in the prime rate during
the last twelve months. As the prime rate increases or decreases, the cost
related to these advances will increase or decrease accordingly.  In
addition, the average cost of interest bearing deposits increased to 2.93%
from 1.95% when comparing the third quarter of 2005 to the third quarter
of 2004. The following is an analysis of the net interest margin:

<TABLE>
<CAPTION>


                                                           Three months ended          Three months ended
                                                           September 30, 2005          September 30, 2004
                                                       ------------------------------------------------------
                                                       Average               Yield/   Average            Yield/
(dollars in thousands)                                 Balance     Interest   Cost    Balance  Interest   Cost
                                                       ----------  --------  -----   --------  --------  -----
<S>                                                    <C>         <C>       <C>     <C>       <C>       <C>
Earning assets (1)                                     $1,174,180  $19,296   6.52%   $958,783  $13,904   5.77%
Interest bearing liabilities                            1,004,839    7,772   3.07%    831,516    3,924   1.88%
                                                                   -------                     -------
Net interest income                                                $11,524                     $ 9,980
                                                                   =======                     =======
Net Interest income to earning assets                                        3.89%                       4.14%
                                                                             =====                       =====

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

<TABLE>
<CAPTION>


                                                            Nine months ended              Nine months ended
                                                           September 30, 2005             September 30, 2004
                                                           ----------------------------------------------------
                                                       Average               Yield/   Average            Yield/
(dollars in thousands)                                 Balance     Interest   Cost    Balance   Interest  Cost
                                                       ----------  --------  -----    --------  -------- ------
<S>                                                    <C>          <C>      <C>      <C>       <C>       <C>
Earning assets (1)                                     $1,133,503   $54,101  6.38%    $904,800  $39,362   5.81%
Interest bearing liabilities                              973,873    20,120  2.76%     785,891   10,731   1.82%
                                                                    -------                     -------
Net interest income                                                 $33,981                     $28,631
                                                                    =======                     =======
Net Interest income to earning assets                                        4.01%                        4.23%
                                                                             =====                        =====


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

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 nine months ended September 30, 2005 and
2004.  Changes not solely attributable to rate or volume have been
allocated to rate.

                                                For the three months ended
                                                 September 30, 2005 over
                                                    September 30, 2004
                                             -----------------------------
(dollars in thousands)                       Volume   Yield/Rate   Total
                                             -------  ----------  -------
Increase (decrease) in interest income:
  Loans                                      $3,318    $1,405      $4,723
  Investment securities and other interest
    bearing investments                         410        15         425
  Federal funds sold                           (100)      344         244
                                             -------   -------    -------
Total increase                                3,628     1,764       5,392
                                             =======   =======    =======
Increase in interest expense
  Interest-bearing transaction accounts          98       461         559
  Time deposits                                 526     1,515       2,041
  Other borrowings                              191     1,057       1,248
                                             -------   -------    -------
Total increase                                  815     3,033       3,848
                                             -------   -------    -------
Increase (decrease) in net interest income   $2,813   ($1,269)     $1,544
                                             =======   =======    =======

                                                For the nine months ended
                                                  September 30, 2005 over
                                                    September 30, 2004
                                             -----------------------------
(dollars in thousands)                       Volume   Yield/Rate   Total
                                             -------  ----------  --------
Increase (decrease) in interest income:
  Loans                                      $10,209    $2,781     $12,990
  Investment securities and other
    interest bearing investments                 517        38         555


  Federal funds sold                              18     1,176       1,194
                                             -------   --------    -------
Total increase                                10,744     3,995      14,739
                                             -------   --------    -------
Increase in interest expense
  Interest-bearing transaction accounts          249     1,134       1,383
  Time deposits                                1,480     2,918       4,398
  Other borrowings                               758     2,850       3,608
                                             -------   --------    -------
Total increase                                 2,487     6,902       9,389
                                             -------   --------    -------
Increase (decrease) in net interest income   $ 8,257   ($2,907)    $ 5,350
                                             =======   ========    =======

Provision for Loan Losses

The provision for loan losses for the three and nine months ended
September 30, 2005, amounted to $0.6 million and $1.7 million compared to
$0.5 million and $1.0 million for the same time periods last year.  The
provision was based upon the overall growth in the loan portfolio and the
level of nonperforming loans at the end of the current quarter.  For
further discussion see Allowance for Loan Losses.

Non-Interest Income

Other income is derived primarily from service charges, SBA loan sales and
SBA loan servicing. Other income increased to $1.2 million from $1.0
million when comparing the third quarter of 2005 to the third quarter of
2004.  The majority of the increase is a result of increased volume in SBA
loan sales during the third quarter as compared to the third quarter of
2004.

The following table sets forth non-interest income by category for the
periods indicated.

                                           Three months       Nine months
                                              ended              ended
                                          September 30,      September 30,
                                        ---------------    ---------------
(in thousands)                            2005     2004      2005     2004
                                        ---------------    ---------------
Gains on loan sales                     $  803     $594    $2,168   $1,294
Service charges on deposits                115       96       368      348
Other Service charges                       52       53       176      158
Loan servicing fees                        113      114       308      301
Income on insurance policies                24       24        72       92
Gain on OREO sales                           -        -         -      183
Other                                       59       84       106      171
                                        ------     ----    ------   ------
Total Other Income                      $1,166     $965    $3,198   $2,547
                                        ======     ====    ======   ======


The increase in gains on the sale of the guaranteed portion of SBA loans
results from the increase in the volume of loan sales with $8.5 million
and $21.0 million sold during the three and nine month periods in 2005
compared to $4.1  million and $11.4 million during the same periods in
2004. 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
average percent gain on sales in the third quarter of 2005 equaled 9.5%
compared to 11.3% for the third quarter of 2004.  Premiums on loan sales
are market driven based upon factors such as rate of prepayments of SBA
loans experienced throughout the country.  There is no guarantee that
premiums will continue at the current level.

SBA servicing fees are based on loan payments and payoffs received on the
sold potion of SBA loans, and therefore, vary from quarter to quarter.
The Bank's average SBA loan portfolio serviced was $59.4 million in the
third quarter of 2005 compared to $53.1 million for the same period last
year.  The serviced portfolio reflects SBA loan payoffs and volume of new
sales during the period.

There can be no assurances that the SBA program will continue to generate
significant amounts of other non-interest income in the future.
Governmental actions may alter the SBA program at any time, which could
have a negative impact on the Bank's profits.

The Bank did not hold any OREO property during 2005 and therefore there
were no OREO sales during the three and nine month periods.  During the
first nine months of 2004 the Bank took possession of property as a result
of a loan foreclosure.  This property was sold at a gain of $0.2 million
during the first quarter of 2004.

Non-Interest Expenses

For the third quarter of 2005, non-interest expense totaled $4.7 million,
an increase of 7.9% from $4.4 million for the third quarter last year.
The following table outlines the components of non-interest expense for
the periods indicated:


(In thousands)                                   Three months
                                                   Ended
                                                September 30,   Percentage
                 Expense Item                    2005    2004    Change
                                                --------------  ----------
Salaries & Employee Benefits                    $2,914  $2,711      7.5  %
Occupancy                                          501     364     37.6
Equipment                                          287     266      7.9
Advertising/Business Development/Donations         202     168     20.2
Outside Customer Services                          113     100     13.0
Director & Shareholder expenses                    141     127     11.0
Deposit and Other Insurance                        130     121      7.4
Postage & courier expenses                          96      86     11.6
Professional Fees                                   43     161    (73.3)
Stationery & Supplies                               92      81     13.6
Telephone expense                                   62      48     29.2
Loan expenses                                       26      26      0.0
Other                                               95      97     (2.1)
                                                ------  ------   ---------
Total                                           $4,702  $4,356      7.9  %

                                                ======  =======



(In thousands)                                   Nine months
                                                    Ended
                                                September 30,   Percentage
           Expense Item                          2005    2004     Change
                                              ----------------  ----------
Salaries & Employee Benefits                  $ 8,399  $ 7,486     12.2  %
Occupancy                                        1,403   1,008     39.2
Equipment                                          855     682     25.4
Advertising/Business Development/Donations         642     471     36.3
Outside Customer Services                          283     273      3.7
Director & Shareholder expenses                    476     290     64.1
Deposit and Other Insurance                        392     345     13.6
Postage & courier expenses                         299     246     21.5
Professional Fees                                  456     354     28.8
Stationery & Supplies                              256     225     13.8
Telephone expense                                  173     137     26.3
Loan expenses                                      112      75     49.3
Other                                              339     255     33.5
                                               -------  -------  ---------
Total                                          $14,085  $11,847    18.9  %

                                               =======  =======


Most of the Bank's expense categories increased as a result of Bank
expansion and the addition of four new branches opened during the past
twelve months.  The Bank opened a branch in San Rafael during the third
quarter of 2004, a branch in Walnut Creek during the first quarter of
2005, a branch in Petaluma during the second quarter of 2005 and a branch
in Concord in July 2005.  Additionally, the Bank relocated its lending
functions and certain administrative departments to a larger location in
Santa Rosa during the second quarter of 2004.  Also during 2004, premises
for the Bank's operations center were expanded.  In addition to increases
in the categories mentioned below, increases in postage & courier,
stationery & supplies and telephone expenses grew due to Bank expansion.

The increase in salaries and employee benefits is due primarily to an
increase in staffing levels, with the Bank's full time equivalent
employees increasing to 166 at September 30, 2005 compared to 151 at
September 30, 2004.  The increase in the number of full time equivalent
employees is primarily caused by additional staff hired for the new
branches.  Personnel costs are also impacted by annual salary increases,
incentives based upon production goals and changes in insurance and
benefit costs.

Occupancy and equipment expenses increased due to the expansion discussed
above. Occupancy expenses will continue to increase as, and if, the Bank
continues to expand.  Equipment expense will continue to increase as the
Bank continues to upgrade computer equipment.

Advertising, business development and donations increased due to the
additional publicity necessary to promote the Bank's expansion to new
locations and the opening of additional branches.

Regulatory assessments and FDIC insurance costs grew due to the increase
in deposits.  There is no assurance that regulatory assessments will
continue at the current low level. The cost of other insurance was higher
due to expansion, increases in coverage and insurance rates.

Professional fees increased due to legal costs, consulting costs for our
internal controls review, and accounting costs associated with SEC
reporting and compliance with new regulations, such as the Sarbanes Oxley
Act.  Audit or review services are contracted by the Audit Committee and
are performed on a varying schedule with most of the audit fees occurring
during the first quarter.  During the third quarter of 2005, a
reimbursement of $51,000 was received for previously expensed legal fees.
Additionally, during the third quarter 2004, professional fees were higher
than normal due to a review of the Company's stock options.  It is
expected that the cost of professional services will continue to increase
with the expansion of the Bank and new regulations.

Outside customer services vary depending upon the costs incurred by
analysis customers. The Bank pays for certain direct costs (i.e.: payroll
services, escrow fees, etc.), which are included in non-interest expense.
These costs are based upon the depositor using the analysis system.  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.  With the lower interest rate environment, the earnings credit rate
is low and as a result our customers have the option of paying for covered
services, or increasing their average balances to increase the earnings on
their accounts.  These expenses vary depending upon the cost of services
incurred by the analysis customers.

Included in shareholder and director expenses are directors' fees for
attending Board, Loan Committee, ALCO, Executive Committee and Audit
Committee meetings.  The cost of the Corporation's annual report, transfer
agent fees, the cost related to the Company's NASDAQ listing and other
costs of communicating with shareholders are also included in this expense
category.

Loan expenses vary depending upon the level of problem loans and the use
of contracted loan services to assist staff during periods of high loan
production.  The Bank generally charges for direct costs associated with
loan originations.  During the first nine months of 2005, the Bank
incurred higher loan related expenses as a result of increased loan
production and an increase of $.8 million in the level of non-accrual
loans.  Additionally, during 2005 the Bank recorded $19,000 related to the
allowance for unfunded loan commitments, where there was no similar
accrual during the first nine months of 2004.

Other expenses decreased slightly during the third quarter of 2005 to
$95,000 compared to $97,000 one year ago.  Costs related to publications
and subscriptions, business travel costs and operational losses are
included in this category.

Income Taxes

The effective tax rate was 41.0% for the third quarter of 2005, compared
to 40.9% for the third quarter of 2004.  The effective tax rate is
affected by several factors which include apportionment ratios between
states, the enterprise zone deduction and applicable tax rates.

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.  See
the Consolidated Statements of Cash Flows contained in Item 1. Financial
Statements.

Cash and due from banks, federal funds sold and interest bearing deposits
totaled $84.8 million or 7.0% of total assets at September 30, 2005,
compared to $116.5 million or 10.8% of total assets at December 31, 2004.
The Bank purchased $50.0 million in investment securities during the third
quarter of 2005 which reduced the level of federal funds sold.  The
investment securities purchased during the third quarter bear a slightly
higher yield when compared to the yield earned on federal funds sold.
Deposits increased 5.4% to $898.6 million during the third quarter of
2005.  In an effort to fund projected loan growth, the Bank continues to
offer special rates on time deposits to attract new deposits.  Management
may continue to borrow from the FHLB to fund loan growth if FHLB borrowing
rates are favorable over comparable current rates offered on time
deposits.  Additionally, the Bank may continue to borrow from the FHLB in
order to assure that targeted liquidity levels are met.  These short term
borrowings are invested in federal funds sold.  On September 30, 2005, the
Bank borrowed $25.0 million for three days.

The Bank considers the unsold guaranteed portion of 7(a) SBA loans as a
secondary source of liquidity.  There is an established market for these
loans and a sale transaction can typically be completed within 30 days. As
of September 30, 2005, the Bank held $141.7 million in SBA guaranteed
loans which could be sold for additional liquidity.

At September 30, 2005, the Bank had unused federal funds lines of credit
totaling $26.0 million. The Bank also has a credit line with the Federal
Home Loan Bank which is based upon the value of collateral (investments
and loans). At September 30, 2005, the Bank had collateral pledged which
would allow the Bank to borrow up to $327.1 million.  The FHLB will permit
the Bank to borrow up to 25% of the Bank's total assets provided that
adequate collateral has been pledged to the FHLB.  At September 30, 2005,
the Bank had borrowed $210.4 million, which left $116.7 million available
to borrow.  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
September 30, 2005, the Corporation had non-interest and interest bearing
cash balances of $10.8 million, 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 third quarter of 2005, deposits increased to $898.6 million
compared to $791.0 million at the end of the year.

The following table outlines the components of deposits on the dates
indicated:

(in thousands)                                 September 30,  December 31,
                                                   2005           2004
                                               -------------  ------------
Non-interest bearing demand deposits             $ 91,277       $ 72,156
Interest bearing transaction accounts             222,558        210,959
Time certificates, $100,000 and over              273,578        228,838
Other time certificates                           311,141        279,072
                                                 --------       --------
Total                                            $898,554       $791,025
                                                 ========       ========


Demand deposits and interest bearing transaction account balances vary
depending upon the activity of customers.  Approximately 51% of these
accounts are business accounts which tend to be more volatile than
consumer deposits.  Money market accounts, which are included in interest
bearing transaction accounts, are a limited transaction account with a
discretionary rate set by management. The Bank has tried to remain
competitive without offering the highest rates, which has made retention
of these accounts more challenging as market rates continue to increase.
In September 2004, the Bank offered a new saving product at a more
competitive rate and was successful in attracting new money into that
account. Many depositors continue to retain funds in transaction accounts
rather that locking in time certificate rates even though rates on time
certificates have improved due to the increasing interest rate market.
These funds are also more volatile and fluctuate during various business
cycles.  During 2005, deposit totals increased $107.5 million to $898.6
million, an increase of 13.6% over $791.0 million at December 31, 2004.
Included in this deposit growth is $49.6 million related to the opening of
the San Rafael branch in the third quarter of 2004, the Walnut Creek
branch in the first quarter of 2005, the West Petaluma branch opening in
the second quarter of 2005 and the Concord branch opening during the third
quarter of 2005.

Certificates of deposit totaled $584.7 million at September 30, 2005, an
increase of 15.1% over $507.9 million at December 31, 2004.  The Bank
continued to offer time deposit promotions during this quarter.
Competition has increased with a new community bank opening during the
first quarter of 2005 and other competitors offering similar rates and
products, which has made it more challenging to attract new deposits.

The interest rate environment and the increased competition have 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 $1,051.5 million at
September 30, 2005 compared to $938.1 million at December 31, 2004,
increasing 12.1% over year end and 20.8% over the September 30, 2004
balance of $870.1 million.  While the Bank continues to benefit from
strong loan demand, impacting the level of loan growth was $51.0 million
and $164.2 million in loan payoffs during the three and nine months of
2005.  The following is an analysis of the loan portfolio.



          Type of Loan                     September 30,      December 31,
         (in thousands)                        2005              2004
                                          ---------------    -------------
Real estate - mortgage                    $   784,740            $663,620
Real estate - construction                     36,742              41,145
Commercial loans                              235,734             236,718
Consumer installment loans                      5,861               6,193
                                          ------------           ---------
                                            1,063,077             947,676
Deferred loan fees and discount                (1,452)               (853)
Allowance for loan losses                     (10,149)             (8,719)
                                          ------------           ---------
Total                                     $ 1,051,476            $938,104
                                          ============           =========


The SBA loan program continues to be a popular program; however,
competition remains very strong in our market areas. At September 30,
2005, total SBA (7a) guaranteed loans equaled $212.3 million, net of $64.0
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, they are
reported as commercial loans.  SBA loans have the same underwriting
requirements as the Bank's other loans, except they are sometimes for
longer terms (7 to 25 years) and have higher loan-to-value ratios than the
Bank typically accepts. The federal government SBA 7(a) program is now
operating at a zero subsidy thereby removing the budget considerations at
the government level.  With a $16.5 billion dollar government
authorization level, the program will not be subject to any limitations on
funding.  Major changes to the default rates and subsequent subsidy
calculation could affect the Bank's profitability and future SBA loan
growth. The guaranteed portion of SBA loans which could be sold in the
secondary market was $141.7 million at September 30, 2005 compared to
$142.6 million at September 30, 2004.

The Bank continues to emphasize commercial and real estate lending.  At
September 30, 2005, 22.2% of the loans held for investment were commercial
loans and 77.3% were commercial and residential real estate and
construction loans, compared to 25.0% and 74.4% respectively at December
31, 2004.  The Bank has continued to grow its commercial and commercial
real estate portfolio through its reputation as an experienced business
and real estate lender which facilitates the successful negotiation of
complex commercial loans.  The Bank maintains high credit qualifications
with most real estate loans having 60-75% 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.  At
September 30, 2005, 98.8%, or $1,048.8 million of the Bank's loans,
including real estate, and a majority of the Bank's SBA loans were secured
by real estate as the principal source of collateral.   A decline in real
estate values and/or demand, a worsening of economic conditions or a
natural disaster could potentially have an adverse impact on the value of
collateral, on the loan portfolio, and on the financial condition of the
Bank.

Construction loans totaled $36.7 million at September 30, 2005, compared
to $41.1 million at December 31, 2004. 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 equity lines of credit on a limited basis. The
Bank has a small portfolio of consumer loans which equaled 0.6% of the
total loan portfolio at September 30, 2005 and 0.8% at December 31, 2004.

Allowance for Loan Losses

The allowance for loan losses equaled $10.1 million at September 30, 2005,
compared to $8.7 million at December 31, 2004.  At September 30, 2005, the
allowance for loan losses equaled 1.1% 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 September 30, 2005, there was one loan on non-accrual totaling $1.1
million, which is collateralized by real estate.  There were no loans past
due 90 days or more.  Loans past due 30 to 89 days totaled $5.0 million
with $4.9 million of that amount collateralized by real estate.  At
December 31, 2004, the Bank had $0.3 million in non-accrual loans and
$0.8 million in loans past due 90 or more days and still accruing
interest. Past due 30 to 89 days totaled $5.4 million at December 31,
2004.

During the third quarter of 2005, there were no loans charged off and
there were no recoveries on loans previously charged off.  The Bank
continues to have a low charge off experience compared to industry
standards but there can be no assurances that this will continue or that
the Bank will not experience loan losses.  The following is an analysis of
the activity in the allowance for loan losses for the periods indicated:


                                         Three months        Nine months
                                            ended               ended
                                         September 30,       September 30,
(In thousands)                               2005                2005
                                         -------------      --------------
Balance - Beginning of period               $ 9,549              $ 8,719
  Reclassification to other liabilities           -                 (220)
  Provision for loan losses                     600                1,650
  Charge offs                                     -                    -
  Recoveries                                      -                    -
                                            -------              --------
Balance - End of period                     $10,149              $10,149
                                            =======              ========


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 September 30, 2005,
the Bank was considered "well capitalized."  The capital ratios for the
Bank and the Corporation are presented in the following table.

<TABLE>
<CAPTION>
                                           Sonoma National Bank                Northern Empire Bancshares
                                 September  30, 2005  December 31, 2004   September  30, 2005  December 31, 2004
                                 -------------------  -----------------   -------------------  -----------------
<S>                                    <C>                  <C>                  <C>                <C>
Tier 1 leverage ratio                   7.6%                 7.6%                 8.5%               8.6%
Tier 1 risk-based capital ratio         9.9%                 9.7%                11.1%              11.1%
Total risk based capital ratio         11.0%                10.8%                12.2%              12.1%

</TABLE>


The Corporation declared a 5% stock dividend on March 22, 2005 with a
record date of May 2, 2005.

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 of 100 and 200 basis
points.  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 100 and 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 next twelve months given a change in general interest rates
of 100 and 200 basis points up or down.


        Change in                Estimated           Estimated Change in
      Interest Rate        Net Interest Income       Net Interest Income
      (basis points)          (in thousands)            (in thousands)
      --------------       -------------------       -------------------
          +200                   $42,738                    ($1,488)
          +100                    43,809                       (418)
      Base Scenario               44,226                          -
          -100                    44,344                        118
          -200                    44,745                        518



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 is 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
September 30, 2005 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
              (in thousands)                        months      1 year      5 years    5 years        Total
                                                  ----------   ----------   --------   ----------   -----------
                Assets
<S>                                               <C>          <C>          <C>        <C>          <C>
Fed funds sold & certificates of deposit           $ 59,293                                         $   59,293
Investment securities                                           $ 49,193    $  1,076    $ 11,925        62,194
Loans (net of discounts)                            207,826      462,387     388,010       3,402     1,061,625
Non interest-earning assets
  (net of allowance for loan losses)                                                      33,989        33,989
                                                  ----------   ----------   --------    --------    ----------
                                                   $267,119     $511,580    $389,086    $ 49,316    $1,217,101
                                                  ==========   ==========   ========    ========    ==========
    Liabilities & Shareholders' Equity
Time Deposits $100,000 and over                    $ 64,294     $203,739    $  5,545                $  273,578
All other interest-bearing liabilities              338,104      392,997      12,794    $    193       744,088
Non interest bearing liabilities                                                          96,760        96,760
Shareholders' Equity                                                                     102,675       102,675
                                                   ---------   --------    --------    ---------    ----------
                                                   $402,398    $596,736    $ 18,339     $199,628    $1,217,101
                                                   ========    ========    ========     ========    ==========
Interest Rate Sensitivity (1)                     ($135,279)  ($ 85,156)   $370,747    ($150,312)
Cumulative Interest Rate Sensitivity              ($135,279)  ($220,435)   $150,312           $0


Interest rate sensitivity is the difference between interest rate sensitive assets and interest rate sensitive
liabilities within the above time frames.
</TABLE>

ITEM 4.   Controls and Procedures

As of the end of the period covered by this report, the Corporation
carried out an evaluation, under the supervision and with the
participation of the Corporation's management, including its Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Corporation's disclosure controls and
procedures, as defined in Securities Exchange Act Rule 13a-15(e).  Based
on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Corporation's disclosure controls and
procedures are effective in a timely manner to alert them to material
information relating to the Corporation which is required to be included
in the Corporation's periodic Securities and Exchange Commission filings.
No change in internal control over financial reporting, as defined in
Securities and Exchange Act Rule 13a-15(f), occurred during the fiscal
quarter ended September 30, 2005 that has materially affected or is
reasonably likely to materially affect the Corporation's internal control
over financial reporting.



PART II - OTHER INFORMATION

Item 1.  Legal Proceedings - None other than in the ordinary course of
         business.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds -
         None

Item 3.  Defaults Upon Senior Securities - None

Item 4.  Submission of Matters to a Vote of Security Holders - None

Item 5.  Other Information - None

Item 6.  Exhibits

Exhibits:

   (3)   (a)  Restated Articles of Incorporation, as amended through
              December 1, 2003 (filed as Exhibit (3)(d) to the
              Corporation's Annual Report on Form 10-K for the Fiscal Year
              Ended December  31, 2003, file number 2-9116, and
              incorporated herein by this reference).

         (b)  Secretary's certificate of Amendment to the Bylaws of the
              Corporation and revised Bylaws (filed as Exhibit (3)(b) to
              the Corporation's Annual Report on Form 10-K for the Fiscal
              Year Ended December 31, 2004 and incorporated herein by this
              reference).

  (10)   (a)  Indemnification Agreement between Sonoma National Bank and
              Kevin E. Carinalli dated September 27, 2005.

         (b)  Indemnification Agreement between Sonoma National Bank and
              Michael J. Wright dated September 27, 2005.

         (c)  Indemnification Agreement between Northern Empire Bancshares
              and Deborah A. Meekins dated September 27, 2005.

         (d)  Amendment No. 1 to Indemnification Agreement between
              Northern Empire Bancshares and Clement C. Carinalli dated
              September 27, 2005.

         (e)  Amendment No. 1 to Indemnification Agreement between
              Northern Empire Bancshares and Patrick R. Gallaher dated
              September 27, 2005.

         (f)  Amendment No. 1 to Indemnification Agreement between
              Northern Empire Bancshares and William E. Geary dated
              September 27, 2005.

         (g)  Amendment No. 1 to Indemnification Agreement between
              Northern Empire Bancshares and Dennis R. Hunter dated
              September 27, 2005.

         (h)  Amendment No. 1 to Indemnification Agreement between
              Northern Empire Bancshares and James B. Keegan dated
              September 27, 2005.

         (i)  Amendment No. 1 to Indemnification Agreement between Sonoma
              National Bank and Clement C. Carinalli dated September 27,
              2005.

         (j)  Amendment No. 1 to Indemnification Agreement between Sonoma
              National Bank and Patrick R. Gallaher dated September 27,
              2005.

         (k)  Amendment No. 1 to Indemnification Agreement between Sonoma
              National Bank and William E. Geary dated September 27, 2005.

         (l)  Amendment No. 1 to Indemnification Agreement between Sonoma
              National Bank and Dennis R. Hunter dated September 27, 2005.

         (m)  Amendment No. 1 to Indemnification Agreement between Sonoma
              National Bank and James B. Keegan, Jr.dated September 27,
              2005.

         (n)  Amendment No. 1 to Indemnification Agreement between Sonoma
              National Bank and Deborah A. Meekins dated September 27,
              2005.

         (o)  Amendment No. 1 to Indemnification Agreement between Sonoma
              National Bank and David F. Titus dated September 27, 2005.

  (31)        Rule 13a-14(a)/15d-14(a) Certifications

  (32)        Section 1350 Certification



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

        November 7, 2005
Date:   -------------------


  /s/Deborah A. Meekins                     /s/ Jane M. Baker
 ---------------------------                -------------------------
Deborah A. Meekins                          Jane M. Baker
President and Chief Executive Officer       Chief Financial Officer