FORM 10-QSB


                  SECURITIES AND EXCHANGE COMMISSION

                        Washington, D.C.  20549


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

             For the quarterly period ended June 30, 1998

                                  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 of                        (I.R.S. Employer
incorporation or organization)                      Identification No.)
                                  
                                  
          801 Fourth Street, Santa Rosa, California  95404
        (Address of principal executive  offices) (Zip code)
                                  
                                  
 Registrant's telephone number, including area code    707-579-2265
                                  
                                  
                                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 and
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 31, 1998:     1,651,452
Transitional Small Business Disclosure Format (check one):  Yes  No  X


PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

              NORTHERN EMPIRE BANCSHARES AND SUBSIDIARY
                     CONSOLIDATED BALANCE SHEETS
                              (Unaudited)
(dollars in thousands)

                                           June 30,    December 31,
                                             1998          1997 

          ASSETS

Cash and equivalents:
Cash and due from banks                    $  9,880     $ 7,412
Federal funds sold                           26,438       8,770
                                            -------     -------
    Total cash and equivalents               36,318      16,182
Investment securities
     Held-to-maturity                             0       1,500
     Available-for-sale                       3,493       3,951
     Restricted                               1,685       1,639
Loans receivable, net                       234,149     204,408
Leasehold improvements and equipment, net       817         683
Accrued interest receivable and other assets  5,742       5,374
                                           --------    --------
           Total assets                    $282,204    $233,737
                                           ========    ========

    LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:

   Deposits                                $261,000    $214,747
   Accrued interest payable and 
    other liabilities                         1,202       1,281
                                           --------    --------
    Total liabilities                       262,202     216,028
                                           --------    --------

Commitments and contingencies (Note 10).

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,
    1,651,452 in 1998 and 
    1,628,727 in 1997                        12,345       9,778

  Unrealized gain (loss) on available
    for sale securities                          (3)          0

  Retained earnings                           7,660       7,931
                                           --------     -------
    Total shareholders' equity               20,002      17,709
                                           --------     -------
           Total liabilities and 
            shareholders' equity           $282,204    $233,737
                                           ========    ========
                                   
            See Notes to Consolidated Financial Statements


              NORTHERN EMPIRE BANCSHARES AND SUBSIDIARY
                  CONSOLIDATED STATEMENTS OF INCOME
      for the three and six months ended June 30, 1998 and 1997

(Unaudited)              Three Months Ended   Six Months Ended
                              June 30,              June 30,
                               1998    1997      1998     1997
 (dollars in thousands,
 except per share data)

Interest income:
  Loans                      $5,724  $4,668   $11,087   $8,987
  Federal funds sold and 
   investment securities        389     346       772      739
                             ------  ------    ------   ------
   Total interest income      6,113   5,014    11,859    9,726

Interest expense              2,683   2,237     5,238    4,371  
                             ------  ------   -------   ------
  Net interest income before 
   provision for loan losses  3,430   2,777     6,621    5,355

Provision for loan losses       120     120       240      240
                             ------  ------   -------   ------
  Net interest income after
   provision for loan losses  3,310   2,657     6,381    5,115
                             ------  ------   -------   ------
Other income:
 Service charges on deposits     87      91       176      180
 Gain on sale of loans          134     130       332      130
 Other                          190     203       359      388
                             ------  ------   -------   ------
   Total other income           411     424       867      698
                             ------  ------   -------   ------
Other expenses:
  Salaries and  
     employee benefits        1,046     879     2,043    1,741
  Occupancy                     186     178       365      344
  Equipment                     115      84       228      167
  Advertising                    89     101       164      174
  Outside customer services      59      63       123      123
  Director and 
    shareholder expenses         80      71       131      122
  Deposit and other insurance    48      44        94       86
  Professional fees              32      38        79       78
  Other                         185     190       369      375
                             ------  ------   -------   ------
   Total other expenses       1,840   1,648     3,596    3,210
                             ------  ------    ------   ------
 Income before income taxes   1,881   1,433     3,652    2,603

 Provision for income taxes     741     560     1,466    1,056
                             ------  ------   -------   ------ 
   Net income                $1,140   $ 873   $ 2,186   $1,547
                             ======  ======   =======   ======
Earnings per common share    $ 0.69  $ 0.54   $  1.32   $ 0.95
                             ====== =======   =======   ======
Earnings per common share 
  assuming dilution          $ 0.67  $ 0.52   $  1.28   $ 0.92
                             ====== =======   =======   ======
                                   
            See notes to Consolidated Financial Statements
                                  
              NORTHERN EMPIRE BANCSHARES AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF CASH FLOWS
           for the six months ended June 30, 1998 and 1997
                                  
                             (Unaudited)
                                                1998        1997
(dollars in thousands)

Cash flows from operating activities:

 Net income                                  $ 2,186       1,547   
 Adjustments to reconcile net income to
 net cash provided by operating activities:
  
   Provision for loan losses and OREO losses     240         240
   Depreciation, amortization and accretion      178         150
   Net increase (decrease) in deferred 
    loan fees and discounts                      173        (112)
   Decrease (increase) in interest
    receivable and other assets                 (368)        438
   Increase (decrease) in accrued interest
    payable and other liabilities                (79)       (443)
                                             -------     -------         
     Net cash provided by in
      operating activities                     2,330       1,820
                                             -------     -------
Cash flows from investing activities:
   Purchase of:
            Held to maturity securities            0      (9,843)  
            Available for sale securities     (2,018)     (7,015)
            Restricted securities                (45)     (1,517)

   Maturities of: 
            Held to maturity securities        1,500      10,000
            Available for sale securities      2,474       7,696
 Net decrease in deposits in other
   financial institutions                          0       2,873
 Net decrease (increase) in loans receivable (30,154)    (24,219)
 Purchase of leasehold improvements 
  and equipment, net                            (313)       (137)
                                             -------     -------
 Net cash used in investing activities       (28,556)    (22,162)
                                             -------     -------
      
Cash flows from financing activities:
 Net increase (decrease) in deposits          46,253      (1,685)
 Payment of cash dividends                        (5)         (2)
 Stock options exercised                         114          77
                                             -------     -------
 Net cash provided by financing activities    46,362      (1,610)
                                             -------     -------
   Net increase (decrease) in cash and 
    cash equivalents                          20,136     (21,952)

Cash and cash equivalents at
  beginning of year                           16,182      33,790
                                             -------     -------
Cash and cash equivalents at end
 of period                                   $36,318     $11,838
                                             =======     =======
Other cash flow information
   Interest paid                             $ 5,176     $ 4,389
                                             =======     =======
   Income taxes paid                         $ 1,725     $   944
                                             =======     =======
   Additions to other real estate owned      $     0     $    97
                                             =======     ======= 
                                   
            See notes to Consolidated Financial Statements
      
      

               Northern Empire Bancshares and Subsidiary

              Notes to Consolidated Financial Statements

                             June 30, 1998

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, 1998 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 1997 Annual Report on Form 10-KSB.  The
results of operations for the three and six months ended June 30, 1998
are not necessarily indicative of the operating results through December
31, 1998.

NOTE 2 - NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

Earnings per share (EPS) are shown in accordance with SFAS No. 128
"Earnings per Share" which was effective for fiscal years ended after
December 31, 1997 and requires restatement of prior period EPS.  Basic
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 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 Bank's common stock throughout
the period.
<TABLE>
<CAPTION>
                                          For the three months ended    For the six months ended
                                                   June 30,                       June 30,
                                                    1998         1997         1998          1997
<S>                                        <C>            <C>           <C>           <C>           
Weighted average number of common 
   shares outstanding - Basic                  1,651,144    1,617,566    1,646,968     1,628,421

Effect of dilutive securities: Stock options      54,816       61,722       54,737        52,101

Weighted average number of common                           
   shares outstanding - diluted                1,705,960    1,679,288     1,701,705    1,680,522
Net income                                    $1,140,000     $873,000    $2,186,000   $1,547,000
Basic earnings per share                           $0.69        $0.54         $1.32        $0.95
Diluted earnings per share                         $0.67        $0.52         $1.28        $0.92

</TABLE>

NOTE 3 - NEW AMD PENDING ACCOUNTING STANDARDS

See the Corporation's 1997 Annual Report on Form 10-KSB for a discussion
of new and pending accounting standards.


  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

Northern Empire Bancshares 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.

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.

Total consolidated assets equaled $282,204,000 at June 30, 1998 compared
to $233,737,000 at December 31, 1997.  Cash and cash equivalents
increased $20.1 million since year end. Net loans increased $29.7
million since year end with $12.2 million occurring in the second
quarter. The growth in cash and cash equivalents and loans was funded by
new deposits.

Net income for the first six months of 1998 equaled $2,186,000 compared
to $1,547,000 for the comparable period last year, an increase of 41%.
The second quarter's net income of $1,140,000 increased 31% over the
second quarter of 1997 when net income equaled $873,000.  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 of $3,430,000 for the second quarter of 1998
increased 24% from $2,777,000 for the comparable period last year.  This
increase in net interest income resulted from volume increases of $45.6
million in average earning assets for the second quarter of 1998
compared to the second quarter of 1997. $42.5 million of that increase
was in average loans outstanding, which have the highest yield of
interest earning assets.  Average interest bearing deposits for the
second quarter increased $35.4 million over the same period last year.

The net interest margin equaled 5.31% during the second quarter of 1998
compared to an average margin for the year of 1997 of 5.22%.  The yield
on average loans equaled 9.95% in the second quarter compared to
9.98% for the year of 1997, while the Bank's cost of funds was 4.98%
compared to 5.00% during the year of 1997. 

Several factors impact the Bank's interest margin.  The Bank's ratio of
loans to deposits increased from an average of 90.6% in 1997 to 93.4%
during the second quarter of 1998.  The mix of loans influences the
overall yield on loans.  During the second quarter of 1998, there was
significant growth in all loan categories: however, an increase of $12.9
in average construction loan balances had a positive effect since that
loan category has the highest loan yield.  Net interest margin is also
affected by the level of loans relative to deposits. 

The Bank is considered asset sensitive and benefits from rate increases,
since its assets reprice at a faster rate than deposits.  The Prime
lending rate was 8.25% from December 31, 1996 through March 26, 1997
when it increased to 8.5%, where it has remained. Of the Bank's loan
portfolio totaling $238.9 million at June 30, 1998, $214.1 million or
90% of the loans are adjustable rate loans which have not reached a
floor or ceiling rate.  Approximately $147.9 million are prime-based
loans, of which $26.0 million reprice immediately and $120.3 million
reprice on a quarterly basis.  Approximately $80.8 million of the Bank's
loan portfolio is periodically adjustable (generally every six months)
based upon the Eleventh District's cost of funds index.  This
index was 4.88% in June 1998 and equaled 4.86% in June 1997. 

Interest expense increased from $2,237,000 in the second quarter of 1997
to $2,683,000 in 1998.  The major factor was the increase of $35.4
million in average interest bearing deposits when comparing the second
quarter of 1997 to 1998.  The average cost of interest bearing deposits
was 4.98% during the second quarter of 1998 compared to 4.97% in the
second quarter of 1997. 

Other Income

Other income is derived primarily from service charges on deposit
accounts, discount brokerage income, earnings on life insurance, SBA
loan servicing, SBA loan sales and sales of other real estate owned. 
Other income decreased to $411,000 from $424,000 when comparing the
second quarter of 1998 to the same period last year.  This decline
resulted from less income from servicing SBA loan.  SBA servicing fees,
which totaled $83,000 during the quarter, decreasing from $103,000 for
the same period of 1997.  This change reflects the decrease in the pool
of loans serviced, on which the Bank receives a servicing fee.  The
serviced portfolio equaled $30.9 at June 30, 1998 compared to $38.9
million at the end of the second quarter of 1997.
 
Service charges during the quarter decreased slightly to $87,000 from
$91,000 during the second quarter last year.  This fluctuation is not
unusual since service charges vary depending on the services to customer
and earnings credits provided from balances maintained by analysis
customers.

There were $1,460,000 in sales of SBA loans during the second quarter of
1998, compared to sales of $1,454,000 for the second quarter of 1997. 
The 1998 sales resulted in gains totaling $134,000 during the
second quarter of 1998 compared to $130,000 for the same period last
year.  The Bank has been retaining the majority of the guaranteed
portion of SBA loans to realize the interest yield, rather than selling
the guaranteed portion for a one time gain and then servicing the loan
for a fee. Management considers the Bank's liquidity needs and the
estimated loans and deposit growth as a part of the decision to hold SBA
guaranteed loans versus selling them. There is an established market for 
SBA guaranteed loans which the Bank can access to sell qualifying SBA
guaranteed loans.

There were no sales of other real estate owned (OREO) during the first
six months of 1998.  During 1997, the Bank sold four OREO properties
realizing book gains totaling $23,000 ($9,000 in the second quarter).

Non-Interest Expenses

The Bank's non-interest expenses increased from $1,648,000 in the second
quarter of 1997 to $1,840,000 in the second quarter of 1998. This
increase was anticipated since the Bank has continued to grow at a rapid
rate with minimal increases in non-interest expenses for the last few
years.

The Bank's largest expense category is salaries and benefits which
increased 19% from $879,000 to $1,046,000.  A new loan group
specializing in residential construction loans was added during the
second quarter of last year which added three new staff positions.  The
Bank has also added Branch staff to handle the increased deposit
customer activity.  The growth in the loan portfolio and deposits
resulted in higher incentive payments over the second quarter of 1997.
Personnel costs were also affected by annual salary increases and
changes in benefit costs. 

Occupancy expenses increased 4.5% for the second quarter of 1998, which
resulted from increased rent charges.  In June 1998, the lending and
loan administrative staff was relocated to a new building, which is
expected to improve work flow and provide space for future growth. 
Equipment costs also increased in the second quarter of 1998 to $115,000
over $84,000 for the comparable quarter last year. As a part of the
move, a computer network was installed, which required upgrading
existing computer equipment and purchasing new equipment.  Equipment
costs are expected to continue to increase during 1998 and 1999 as
additional networks are installed throughout the branches.

Deposit and other insurance of $48,000 increased $4,000 over the second
quarter of last year.  Regulatory assessments and FDIC insurance cost
grew due to the increase in deposit assessment base for Financing
Corporation (FICO) assessment which became effective January 1, 1997. 
There is no assurance that the current FDIC assessment will continue at
such a low level.  Other insurance costs increased due to Bank
growth and additions to the Bank's insurance coverage which resulted in
higher premiums.

Advertising and business development costs decreased to $89,000 up from
$101,000 in the second quarter of 1997. Professional fees declined by
$6,000 from the second quarter of 1997 to $32,000.  Both of these
expense categories vary significantly based on activity throughout the
year. Other expenses, which includes stationery & supplies, telephone,
postage, loan expenses, director fees, dues and subscriptions and
automobile costs, approximated the second quarter of 1997's expense
level.

Total non-interest expenses for the SBA lending department for the
second quarter was approximately $442,000 ($260,000 in personnel costs,
$59,000 in occupancy and equipment expenses, $26,000 in
marketing/business development) compared to $380,000 for the second
quarter of 1996.  At June 30, 1998, the SBA loan portfolio (serviced
portion and Bank's portion) equaled $110.5 million, of which $30.9
million has been sold and is being serviced. 

Income Taxes

The effective tax rate was 39.4% for the second quarter of 1998.  The
provision for the second quarter of 1998 was $741,000 versus $560,000
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, federal funds sold and certificates of deposit
totaled $36.3 million or 12.9% of total assets at June 30, 1998,
compared to $16.2 million or 6.9% of total assets at December 31, 1997.
Liquid assets were lower than normal at year end due to the rapid growth
in loans at the end of the year.  During the first quarter of 1998 the
Bank offered special time deposits at slightly higher then market rates
to attract new deposits and sold loans in order to restore liquidity to
normal levels.  At the end of the first quarter, total cash and
equivalents equaled $33 million or 12.3% of total assets.

The Bank has several ways of providing additional liquidity.  Special
deposit campaigns, which offer slightly higher than market rates,
continue to attract new deposits to the Bank.  The Bank also has the
option of selling SBA guaranteed loans to provide liquidity. As of June
30, 1998, the Bank held $54.2 million in SBA guaranteed loans which
could be sold if liquidity was needed. 

At June 30, 1998, the Bank had unused federal funds lines of credit
totaling $9,000,000.  The Bank also has a credit line with the Federal
Home Loan Bank which is based upon the value of collateral (investments
and loans).  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, 1998, the Corporation had non-interest and interest bearing
cash balances of $303,000, 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 1998 total deposits increased $13.9 million
to $261 million at June 30, 1998.

Money market rate deposits grew from $64.8 million at year end to $75.1
million at June 30, 1998.  This is a limited transaction account which
pays a floating rate equal to the 13 week treasury bill less a margin of
50 basis points.  The rate offered on this account has been very
attractive and many of the Bank's customers have held their funds in
this deposit product rather than locking a specific maturity.  New
customers continue to find this deposit account attractive due to the
immediate availability of the funds versus a time certificate bearing
a future maturity.

Certificates of deposits increased from $102.9 million at December 31,
1997 to $133.4 million as of June 30, 1998. 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.

As of June 30, 1998, non-interest bearing deposits equaled $36 million
compared to $30.1 million at December 31, 1997 and $26.7 million on June
30, 1997.  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 deposits based upon their business activity; however, they
carry average daily balances in excess of $3 million.  

The low interest rate environment over the past few years 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 $234.1 million at June 30,
1998 compared to $189.8 million at December 31, 1997, increasing 23.3%. 

The SBA department continues to experience strong loan demand with SBA
loans, net of sold loans, growing $9.5 million during the second quarter
to $87.5 million on June 30, 1998. 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 program could
affect profitability and future SBA loan growth. The guaranteed portion
of SBA loans currently held by the Bank  but which could be sold in the
secondary market increased 40% from $38.7 million to $54.2 million when
comparing June 30, 1997 to June 30, 1998.

The Bank continues to emphasize commercial and real estate lending.  At
June 30, 1998, 48.0% of the loans held for investment were commercial
loans and 51.2% were real estate and construction loans, compared to
48.0% and 51.0% respectively at December 31, 1997.  The Bank has
increased the commercial and commercial real estate portfolio through
its reputation, in Sonoma and Marin 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.

During the second quarter of 1997, the Bank added a residential
construction loan group.  As a result, construction loan balances have
increased from $6.1 million at June 30, 1997 to $11.0 million at year
end to $17.8 million at June 30, 1998.  The Bank offers residential
mortgages on a limited basis.

The Bank has a small portfolio of consumer loans which equaled 0.7% of
the total loan portfolio at June 30, 1998.
  
Allowance for Loan Losses

The allowance for loan losses equaled $2.8 million at June 30, 1998,
compared to $2.5 million at December 31, 1997.  At June 30, 1998,  the
allowance for loan losses equaled 1.6% of loans, net of the guaranteed
portion of SBA loans , which was unchanged from 1997 year end.  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, 1998, there was one loan on non-accrual for $26,000 which
was collateralized by real estate and $24,000 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 $1,324,000 of which $1,311,000 was
secured by real estate and $875,000 was guaranteed by the SBA.  On
December 31, 1997, the Bank had $318,000 in non-accrual loans,
and $150,000 in loans past due 90 or more days and still accruing
interest. 

There were no loans charged offs and no loan recoveries during 1998. The
Bank has experienced very low credit losses.
 
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,
1998, the Bank was considered "well capitalized."  The total risk-based
capital ratios were 10.7% for the Bank and 11.0% for the Corporation.

The Corporation declared a 5% stock dividend on March 31, 1998 with a
record date of May 1, 1998.  The dividend was distributed on May 15,
1998.  This report has been adjusted to reflect this dividend.  During
1997 the Bank issued a 5% stock dividend to shareholders of record on
March 31, 1997.

On May 19, 1998, the shareholders of the Company approved the Northern
Empire Bancshares 1997 Stock Option Plan (the "Plan").  Among the
purposes of the Plan is to attract and retain the best available
personnel for positions of substantial responsibility and to attract and
retain the best available persons to serve as directors and to provide a
means whereby employees and directors may purchase shares of common
stock of the Company.  Based on the current number of shares outstanding
and the number of shares currently covered by options still outstanding
under the prior stock option plan, the number of shares for which the
Board may initially grant options under the Plan is 406,957.

On July 21, 1998 the Board of Directors granted stock options for
352,000 shares of Northern Empire Bancshares under the Plan. The
President and the Chairman of Northern Empire Bancshares,Dennis Hunter
and James B. Keegan, Jr., each received options for 50,000 shares and
the six other directors of the Bank, Clement Carinalli, Patrick
Gallaher, William Gallaher, William Geary, Robert Pauley and Deborah
Meekins, received options for 42,000 shares.  The exercise price for all
of the options equals the market value of the Company's stock on the
date of the grant, which was $29.375 per share, and each of the options
vests over five years from the date of grant.


                               SCHEDULES


                       LOANS HELD FOR INVESTMENT
                            (In thousands)

                              June 30, 1998    December 31, 1997

Commercial Loans                   $114,804             $100,283
Real Estate Loans-Construction       17,821               10,982
Real Estate Loans-Other             104,596               95,513
Installment Loans                     1,722                2,012
                                  ---------             -------- 
  Total                            $238,943             $208,790
                                  =========             ========

Of the total loans due in more than one year, $45.8 million were at
fixed interest rates or had reached the loan's floor or ceiling rates
and $158.5 million were at adjustable interest rates at June 30, 1998. 
The loan portfolio has no foreign balances.



               ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
                            (In thousands)

                                  Quarter Ended  Six Months Ended
                                  June 30, 1998     June 30, 1998

Balance - Beginning of Period            $2,659            $2,539
Provision for Loan Losses                   120               240
Charge Offs                                   0                 0
Recoveries                                    0                 0
                                         ------            ------
Balance - End of the Period              $2,779            $2,779
                                         ======            ======

There was one loan on non-accrual at June 30, 1998, amounting to $26,000
which was secured by real estate collateral and $24,000 was guaranteed
by the U.S. Government.  There were no loans past due 90 days or
more and still accruing interest.






                             GAP ANALYSIS

The following schedule represents interest rate sensitivity profile as
of June 30, 1998 of assets, liabilities and
shareholder's equity classified by earliest possible repricing
opportunity or maturity date.
<TABLE>
<CAPTION>
                                                  Over 3                
                                                  months   Over 1 year      Non-rate
Balance Sheet                      Through 3     through    through 5    Sensitive or
(in thousands)                        months     1 year       Years       Over 5 years   Total
<S>                                 <C>         <C>         <C>           <C>          <C> 
Assets
                                                       
Fed funds sold                       $26,438                                           $26,438
Investment securities                                         $3,493         $1,685      5,178
Loans (net of discounts)             116,550     $64,359      21,314         34,704    236,927
Non-interest-earning assets    
(net of allowance for loan losses)                                           13,661     13,661
                                     -------     -------      -------        ------   --------
                                    $142,988     $64,359      $24,807       $50,050   $282,204
                                    ========     =======      =======       =======   ========
Liabilities & Shareholders Equity
Time Deposits $100,000 and over       $6,537     $24,520       $6,202        $1,797    $39,056
All other interest-bearing deposits  108,849      62,154       14,927                  185,930
Non-interest bearing deposits                                                36,013     36,013
Other Liabilities & 
  Shareholders' Equity                                                       21,205     21,205
                                    --------      -------     -------        ------    -------  
                                    $115,386      $86,674     $21,129       $59,015   $282,204
                                    ========      =======     =======       =======   ========
Interest Rate Sensitivity (1)        $27,602     ($22,315)     $3,678       ($8,965) 
Cumulative Interest Rate Sensitivity $27,602       $5,287      $8,965            $0
</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  

    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 19, 1998.  The following candidates received the votes        
    indicated.  
                                     For   Withheld     Against
    Clement C. Carinalli       1,390,091      1,514           0
    Patrick R. Gallaher        1,390,091      1,514           0
    William P. Gallaher        1,390,091      1,514           0
    William E. Geary           1,390,091      1,514           0
    James B. Keegan, Jr.       1,390,091      1,514           0
    Dennis R. Hunter           1,390,091      1,514           0
    Robert V. Pauley           1,389,591      1,514         500

    All candidates were re-elected.

    The shareholders approved the 1997 Stock Option Plan at the Annual   
    Meeting.  1,336,460 shares voted for the approval of the Plan,     
    38,091 shares voted against the Plan and 15,540 shares abstained     
    from voting.

    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).

(10)    (a)  Indemnification Agreement between William P. Gallaher and   
        Northern Empire Bancshares.

        (b)  Indemnification Agreements between Clement C. Carinalli and 
        Sonoma National Bank and Northern Empire Bancshares.  

        (c) 1997 Stock Option Plan, as amended, and Stock Option         
        Agreement

(27)    (a)  Financial Data Schedule

    (b.)  Reports on Form 8-K  -  None




SIGNATURES

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

NORTHERN EMPIRE BANCSHARES

Date:   August 11, 1998
-----------------------

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