SECURITIES AND EXCHANGE COMMISSION

                         Washington, D.C.  20549

                                FORM 10-Q


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

              For the quarterly period ended June 30, 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
                                                      ---     ---
                  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
June 30, 2005:    10,384,740



PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


               NORTHERN EMPIRE BANCSHARES AND SUBSIDIARY
                      CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

                 ASSETS                 June 30, 2005   December 31, 2004
                                        -------------   -----------------
                                         (unaudited)
Cash and equivalents:
  Cash and due from banks                  $   34,428          $   21,006
  Federal funds sold                          101,373              95,498
                                           ----------          ----------
    Total cash and equivalents                135,801             116,504
Investment securities
  available-for-sale                            1,081               1,082
Federal Home Loan Bank (FHLB) stock,
 at cost                                       11,639               9,020
Federal Reserve Bank stock, at cost               166                 254
Loans receivable, net                       1,020,650             938,104
Leasehold improvements and equipment,
 net                                            3,406               2,709
Accrued interest receivable and other
 assets                                        14,557              13,251
                                           ----------          ----------
    Total assets                           $1,187,300          $1,080,924
                                           ==========          ==========

  LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
  Deposits                                 $  852,263          $  791,025
  FHLB Advances                               230,395             191,912
  Accrued interest payable and
 other liabilities                              6,298               8,109
                                           ----------          ----------
    Total liabilities                       1,088,956             991,046
                                           ----------          ----------

Shareholders' equity:
  Common stock, no par value;
   authorized, 40,000,000 shares;
   shares  issued and outstanding,
   10,384,740 at June 30, 2005 and
   10,346,770 at December 31, 2004
   (retroactively stated for 5% stock
   dividend)                                   60,574              47,302
  Additional paid-in-capital                    7,681               7,681
  Accumulated other comprehensive
   income (loss)                                  (11)                (10)
  Retained earnings                            30,100              34,905
                                           ----------          ----------
    Total shareholders' equity                 98,344              89,878
      Total liabilities and
       shareholders' equity                $1,187,300          $1,080,924
                                           ==========          ==========

              See Notes to Consolidated Financial Statements



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


                                     Three Months          Six Months
                                      Ended June 30,      Ended June 30,
                                    ------------------  ------------------
                                      2005      2004      2005      2004
(dollars in thousands, except       --------  --------  --------  --------
   per share data)

Interest income:

  Loans                             $ 17,230  $ 12,870  $ 33,179  $ 24,912
  Federal funds sold and
   investment securities                 920       297     1,626       546
                                    --------  --------  --------  --------

    Total interest income             18,150    13,167    34,805    25,458


Interest expense                       6,877     3,475    12,348     6,807
                                    --------  --------  --------  --------

    Net interest income before
     provision for loan losses        11,273     9,692    22,457    18,651

Provision for loan losses                525       325     1,050       550
                                    --------  --------  --------  --------

    Net interest income after
     provision for loan losses        10,748     9,367    21,407    18,101
                                    --------  --------  --------  --------

Other income:

  Service charges on deposits            124       180       252       251
  Gain on sale of loans                  853       248     1,365       700
  Other                                  211       179       414       631
                                    --------  --------  --------  --------
    Total other income                 1,188       607     2,031     1,582
                                    --------  --------  --------  --------

Other expenses:

  Salaries and employee
   benefits                            2,870     2,362     5,486     4,775
  Occupancy                              479       337       902       643
  Equipment                              315       215       568       416
  Advertising and business
   development                           249       161       440       303
  Outside customer services               93        80       170       174
  Director and shareholder
   expenses                              125       105       240       163
  Deposit and other insurance            132       112       262       224
  Professional fees                      201        89       413       194
  Other                                  532       279       902       600
                                    --------  --------  --------  --------
    Total other expenses               4,996     3,740     9,383     7,492
                                    --------  --------  --------  --------
      Income before provision
       for income taxes                6,940     6,234    14,055    12,191
Provision for income taxes             2,864     2,585     5,780     4,961
                                    --------  --------  --------  --------
      Net income                    $  4,076  $  3,649  $  8,275  $  7,230
                                    ========  ========  ========  ========
Basic earnings per common share     $   0.39  $   0.35  $   0.80  $   0.71
                                    ========  ========  ========  ========
Diluted earnings per common share   $   0.38  $   0.31  $   0.77  $   0.62
                                    ========  ========  ========  ========

             See notes to Consolidated Financial Statements




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

                                                  Six months ended June 30,
                                                  -------------------------
(dollars in thousands)                               2005            2004
                                                     ----            ----
Cash flows from operating activities:
   Net income                                    $  8,275        $  7,230
Adjustments to reconcile net income to net
 cash from operating activities:
  Provision for loan losses                         1,050             550
  Depreciation and amortization                       400             281
  FHLB Stock dividends                               (184)           (108)
  Tax benefit from stock option exercised               -           2,073
  Gain on sale of loans                            (1,365)           (700)
  Change in deferred income taxes                      98            (467)

Changes in operating assets and liabilities:
  Change in deferred loan fees and discounts          171             119
  Change in interest receivable and other
   assets                                          (1,404)         (1,055)
  Change in accrued interest payable and
   other liabilities                               (2,031)            555
                                                 --------        --------
      Net cash provided by operating
       activities                                   5,010           8,478
                                                 --------        --------
Cash flows from investing activities:
  Purchases of investment securities                    -          (1,100)
  Proceeds from the sale of investment
   securities                                           -             638
  Purchase of restricted stock, net of
   redemption                                      (2,347)         (1,301)
  Net increase in loans receivable                (82,181)        (90,462)
  Purchase of leasehold improvements and
   equipment, net                                  (1,097)         (1,106)
      Net cash used by investing activities       (85,625)        (93,331)

Cash flows from financing activities:
  Net change in deposits                           61,238          62,564
  Net change in FHLB advances                      38,483          36,984
  Payment of cash dividends                            (9)             (6)
  Proceeds from exercise of stock options             200           2,158
                                                 --------        --------
      Net cash from financing activities           99,912         101,700
                                                 --------        --------
Net change in cash and cash equivalents            19,297          16,847
Cash and cash equivalents, at beginning of
 year                                             116,504          94,575
                                                 --------        --------
Cash and cash equivalents, at end of period      $135,801        $111,422
                                                 ========        ========
Supplemental cash-flow information:
  Interest paid                                  $ 11,865        $  6,646
                                                 ========        ========
  Income taxes paid                              $  8,410        $  3,345
                                                 ========        ========

             See Notes to Consolidated Financial Statements



                Northern Empire Bancshares and Subsidiary
               Notes to Consolidated Financial Statements

                             June 30, 2005


Note 1 - Basis of Presentation

The unaudited financial information contained in this report reflects all
adjustments which, in the opinion of Management, are necessary to present
fairly the financial condition of Northern Empire Bancshares and
Subsidiary at June 30, 2005 and the results of operations for the three
and six months then ended.  The results of operations for the three and
six months ended June 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.  There was a substantial
reduction in the number of shares subject to outstanding options in
November 2004. The Corporation's EPS data is as follows:


<TABLE>
<CAPTION>
                               For the three months ended                     For the three months ended
                                    June 30, 2005                                    June 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                  $4,076,000                                   $3,649,000
                            ==========                                   ==========
EPS - Income available
 to common stockholders     $4,076,000   10,376,546      $0.39           $3,649,000   10,292,162     $0.35
                            ==========                   =====           ==========                  =====
Effect of dilutive
Securities - Stock
Options                                     470,966                                    1,508,692
                                          ---------                                    ---------

EPS assuming dilution -
Income available to
common stockholders plus
assumed conversion          $4,076,000   10,847,512      $0.38           $3,649,000   11,800,854     $0.31
                            ==========   ==========      =====           ==========   ==========     =====
</TABLE>



<TABLE>
<CAPTION>
                                For the six months ended                 For the six months ended
                                    June 30, 2005                              June 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                  $8,275,000                                   $7,230,000
                            ==========                                   ==========
EPS - Income available
 to common stockholders     $8,275,000   10,363,293      $0.80           $7,230,000   10,162,373     $0.71
                            ==========                   =====           ==========                  =====

Effect of dilutive
 Securities - Stock
 Options                                    451,587                                    1,471,257
                                         ----------                                   ----------
EPS assuming dilution -
 Income available to
 common stockholders
 plus assumed conversion    $8,275,000   10,814,880      $0.77           $7,230,000   11,633,630     $0.62
                            ==========   ==========      =====           ==========   ==========     =====
</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:


<TABLE>
<CAPTION>
                                For the three months ended          For the six months ended
                                         June 30,                           June 30,
(In thousands)                        2005         2004                   2005         2004
                                     ------       ------                -------       ------
<S>                                 <C>          <C>                   <C>           <C>
Net income for the period            $4,076       $3,649                $8,275        $7,230
Compensation expense, net of
 tax effect                              33           33                    66            64
                                     ------       ------                ------        ------

Pro-forma net income                 $4,043       $3,616                $8,209        $7,166
                                     ======       ======                ======        ======

Pro-forma earnings per common
 share                                $0.39        $0.35                 $0.79        $ 0.71
Pro-forma earnings per common
 share, assuming dilution             $0.37        $0.31                 $0.76        $ 0.62
</TABLE>



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.  No options were granted in the six-month period ended June
30, 2005.


                                                      June 30, 2004
                                                      -------------
Dividends                                                      0%
Expected volatility                                         26.8%
Risk-free interest rate                                     2.57%
Expected life                                             3 years


On July 26, 2006, nonstatutory stock options for an aggregate of 37,000
shares of the Corporation's common stock were granted to the seven
directors of the Bank, five of whom are also directors of the Corporation.
The options were granted pursuant to the Corporation's 1997 Stock Option
Plan, as amended.  Each option is exercisable immediately and may be
exercised for a period of ten years.  Each option was granted at an
exercise price of $26.65, which was the per share market value of the
Corporation's common stock as of the date of grant.

Note 4 - Comprehensive Income

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


                                       For the three        For the six
                                       months ended         months ended
                                         June 30,             June 30,
(In thousands)                        2005     2004         2005     2004
                                     -------------------------------------

Net Income                          $4,076   $3,649       $8,275   $7,230
                                    ------   ------       ------   ------
Other Comprehensive income
 (loss):
  Change in unrealized holding
   gain (losses) arising during the
   period                                9      (20)          (1)     (23)
  Income tax benefit (expense)          (3)     (10)           0       10
                                    ------   ------       ------   ------
    Net Other Comprehensive income
     (loss):                             6      (10)          (1)     (13)
                                    ------   ------       ------   ------
Comprehensive income                $4,082   $3,639       $8,274   $7,217
                                    ======   ======       ======   ======


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

     Changes in interest rates impact the demand for new loans, 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's 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 economic conditions and real estate collateral.

     At June 30, 2005, 97.6%, or $1,006.2 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 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 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 $1,187,300,000 at June 30, 2005, grew
$106 million during the first six months of 2005 compared to
$1,080,924,000 at December 31, 2004.  Net loans totaled $1,020,650,000, an
increase of $82.5 million during 2005, with $33.8 million in growth
occurring within the second quarter.  Cash and equivalents increased
$14.2 million during the second quarter.  Deposits totaled $852,263,000 at
June 30, 2005, an increase of $49.8 million during the second quarter.

Net income after tax for the first six months of 2005 equaled $8,275,000
compared to $7,230,000 for the comparable period in 2004, an increase of
14.5%. Net income for the second quarter of 2005 equaled $4,076,000, an
increase of 11.7% when compared to net income of $3,649,000 for the second
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 $11,273,000
for the second quarter of 2005 increased 16.3% from $9,692,000 for the
comparable period last year.  This increase in net interest income
resulted primarily from volume increases of $237.2 million in average
earning assets for the current quarter compared to the second quarter of
2004.  Average loans outstanding increased $209.7 million for the current
quarter compared to the second quarter of 2004.  Additionally, average
investments, average funds held in interest bearing accounts and average
Fed Funds investments increased $27.5 million during the second quarter of
2005. Average interest bearing deposits for the second quarter increased
$107.7 million over the same period last year and average borrowings with
the Federal Home Loan Bank increased $90.6 million.

The net interest margin equaled 3.95% during the second quarter of 2005
compared to net interest margin for the second quarter of 2004 of 4.30%
and 4.20% for the year ended December 31, 2004.  The yield on average
loans equaled 6.75% in the second quarter compared to 6.36% for the same
period last year, while the Bank's cost of funds increased to 2.79% for
the second quarter of 2005 from 1.77% for the second 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 six months of 2005, the prime rate has
increased an additional 100 basis points to 6.25%. While short term rates
have increased 225 basis points during the past twelve months, long term
rates (i.e. the 10 year Treasury) have decreased approximately 60 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, borrowers are provided an incentive to refinance 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 prepayment speeds 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.

The full impact of rate changes on the Bank's earnings is not realized for
several months, since not all loans or deposits reprice 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), LIBOR, the
six-month constant maturity treasury (CMT) and the five-year CMT.  Each of
these indices react to changes in market interest rates at different
speeds and magnitudes.  The Bank also has a fixed rate loan portfolio
which generally reduces net interest margin as interest rates rise and
benefits interest margin as rates decline.

Of the Bank's loan portfolio totaling $1,031.2 million at June 30, 2005,
$577.8 million or 56.0% of total loans were adjustable rate loans which
had not reached a floor or ceiling rate.  Of that total, approximately
$322.4 million were prime-based loans, of which $105.8 million reprice
when prime changes and $216.6 million reprice on a quarterly basis.

Market rates also impact the Bank's ability to attract deposits and grow
the loan portfolio.  The current relatively low rates offered on deposits
makes them less attractive to depositors.  The Bank has also experienced
an increase in loan payoffs as borrowers have refinanced their existing
loans with loans at more attractive rates and terms.  The Bank had
$65.0 million and $113.2 million in loans paid off during the three and
six month periods ended June 30, 2005 compared to $41.4 million and
$72.6 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 $103.3 million of Sonoma
Investor Reserve accounts (money market rate deposit accounts) at June 30,
2005.  The cost of these deposits equaled 1.81% during the second quarter
of 2005 and 1.08% for the second quarter of last year.

The Bank had $559.3 million in time certificates of deposits at June 30,
2005.  These accounts reprice at the time the certificate matures 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 3.04% for the
second quarter of 2005 compared to 2.27% in the second quarter of the
preceding year.

     Level of Loans Relative to Deposits
     -----------------------------------

The Bank's ratio of loans-to-deposits increased to an average of 123.0% in
the second quarter of 2005 compared to 115.2% 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
$742.2 million at this quarter end from $663.6 million at December 31,
2004.  The yield on this category was 6.66%, which is 9 basis points lower
than the yield on the entire loan portfolio 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 were relatively unchanged at $40.7 million at the end
of this quarter compared to $41.1 million at December 31, 2004. Despite
experiencing $18.9 million in payoff activity during the first six months
of 2005, construction lending activity continues to remain strong.
Residential construction lending continues to benefit from competitive and
continued low rates on residential mortgages. The Bank's Construction
loans yielded 7.43% in the second quarter compared to 7.53% for the second
quarter of last year.  Construction loans generally have higher yields
than other real estate loans. General economic conditions greatly
influence the demand for construction loans and there are no guarantees
that the current level of construction lending will continue.

SBA loans totaling $216.3 million at June 30, 2005, which generally are
secured by real estate, are classified as commercial loans.  Commercial
loans totaled $242.3 million at June 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 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, providing for 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
increasing interest rate environment has resulted in higher rates on
loans.  The structure of the variable interest rate loans determines how
often and how rapidly interest rates increase on loans.  Refinancing
activity continues to be strong as borrowers seek 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 June 30, 2005, the Bank had $2,015,000 in non-accrual loans or 0.20% of
total loans compared to $311,000 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 a low
level of non-accrual loans based upon comparisons to our peer group (other
banks of comparable asset size).  See Allowance for Loan Losses for
additional information.

     Mix of Deposits and Other Funding Sources
     -----------------------------------------

The mix of funding sources determines the cost of funds for the Bank.
Certificates of deposit reprice at the time the certificate matures, which
delays the 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 June 30, 2005, the Bank increased borrowed funds from the FHLB to
$230.4 million as compared to $156.7 million at June 30, 2004, an increase
of $73.7 million.

Interest expense increased to $6,877,000 in the second quarter of 2005
from $3,475,000 in the second quarter of 2004.  A major factor was the
increase in funds borrowed from the FHLB to fund loan growth and an
increase in interest bearing deposits.  Variable rate advances
totaled $203.5 million at June 30, 2005 as compared to $135.0 million at
June 30, 2004.  The cost of FHLB advances increased to 3.09% during the
second quarter from 1.24% for the same period last year.  The increased
costs associated with the FHLB advances is not only the result of an
increase of $68.5 million in the amount of prime rate based advances, but
also the result of the 225 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 2.70%
from 1.89% when comparing the second quarter of this year to the second
quarter of last year. The following is an analysis of the net interest
margin:



<TABLE>
<CAPTION>
                                       Three months ended June 30, 2005      Three months ended June 30, 2004
                                       --------------------------------      --------------------------------
(dollars in thousands)                  Average                                Average
                                        Balance      Interest    Yield         Balance      Interest    Yield
                                       ----------    --------    -----        --------      --------    -----
<S>                                    <C>            <C>        <C>          <C>            <C>        <C>
Earning assets (1)                     $1,144,017     $18,150    6.36%        $906,814       $13,167    5.84%
Interest bearing liabilities              987,198       6,877    2.79%         788,892         3,475    1.77%
                                                      -------                                -------
Net interest income                                   $11,273                                $ 9,692
                                                      =======                                =======
Net Interest income to earning
 Assets                                                          3.95%                                  4.30%
                                                                 =====                                  =====
(1)  Non-accrual loans are included in the calculation of average balance of earning assets, and interest not
     accrued is excluded.
</TABLE>

<TABLE>
<CAPTION>
                                       Six months ended June 30, 2005      Six months ended June 30, 2004
                                       ------------------------------      ------------------------------
                                        Average                               Average
(dollars in thousands)                  Balance      Interest   Yield         Balance       Interest    Yield
                                       ----------    --------   -----         --------      --------    -----
<S>                                    <C>            <C>        <C>          <C>            <C>        <C>
Earning assets (1)                     $1,112,826     $34,805    6.31%        $877,513       $25,458    5.83%
Interest bearing liabilities              958,128      12,348    2.60%         761,780         6,807    1.80%
                                                      -------                                -------
Net interest income                                   $22,457                                $18,651
                                                      =======                                =======
Net Interest income to earning
 assets                                                          4.07%                                  4.27%
                                                                 =====                                  =====

(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 six months ended June 30, 2005 and 2004.
Changes not solely attributable to rate or volume have been allocated to
rate.




                                For the three months ended June 30, 2005
                                           over June 30, 2004

(dollars in thousands)                    Volume      Yield/Rate   Total
                                          ------      ----------   -----
Increase (decrease) in interest income:

   Loans                                  $3,432      $   928      $4,360
   Investment securities and other
    interest bearing investments              64           10          74
   Federal funds sold                         44          505         549
                                          ------       ------      ------
Total increase                             3,540        1,443       4,983
                                          ------       ------      ------
Increase in interest expense
   Interest-bearing transaction accounts      85          450         535
   Time deposits                             881          610       1,491
   Other borrowings                          279        1,097       1,376
                                          ------       ------      ------
Total increase                             1,245        2,157       3,402
                                          ------       ------      ------
Increase (decrease) in net
  interest income                         $2,295        ($714)     $1,581
                                          ======       ======      ======


                                For the six months ended June 30, 2005
                                            over June 30, 2004


(dollars in thousands)                    Volume      Yield/Rate   Total
                                          ------      ----------   -----
Increase (decrease) in interest income:

   Loans                                  $6,864       $1,403      $8,267
   Investment securities and other
    interest bearing investments              99           32         131
   Federal funds sold                         85          864         949
                                          ------       ------      ------
Total increase                             7,048        2,299       9,347
                                          ------       ------      ------

Increase in interest expense
   Interest-bearing transaction accounts     153          669         822
   Time deposits                             952        1,406       2,358
   Other borrowings                          541        1,820       2,361
                                          ------       ------      ------
Total increase                             1,646        3,895       5,541
                                          ------       ------      ------
Increase (decrease) in net
  interest income                         $5,402      $(1,596)     $3,806
                                          ======       ======      ======


Provision for Loan Losses

The provision for loan losses for the three and six months ended June 30,
2005, amounted to $525,000 and $1,050,000 compared to $325,000 and
$550,000 for the same time periods last year.  The provision was based
upon the overall growth in loans and 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,
SBA loan servicing and sales of other real estate owned. Other income
increased to $1,188,000 from $607,000 when comparing the second quarter of
2005 to the same period last year.  The majority of the increased results
come from increased volume in SBA loan sales during the second quarter as
compared to the second quarter of 2004.

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

(in thousands)                  Three months ended      Six months ended
                                      June 30,              June 30,
                                  2005        2004       2005       2004
                                  ----        ----       ----       ----
Gains on loan sales               $853        $248     $1,365       $700
Service charges on deposits        124         124        252        251
Other Service charges               69          56        125        105
Loan servicing fees                 91          90        195        187
Income on insurance policies        24          34         48         68
Gain on OREO sales                   -           -          -        183
Other                               27          55         46         88
                                ------       -----     ------     ------
Total Other Income              $1,188        $607     $2,031     $1,582
                                ======       =====     ======     ======


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 $8.1 million
and $12.5 million sold during the three and six month periods in 2005
compared to $2.2  million and $6.0 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 second quarter of 2005 equaled 10.5%
compared to 11.3% for the second quarter of 2004.  Premium on loan sales
are market driven based upon factors such as rate of prepayments of SBA
loans experienced throughout the country and 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 $56.8 million in the
second quarter of 2005 compared to $51.2million 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 six month periods.  During the
first six months of 2004 the Bank took possession of property as a result
of a loan foreclosure.  This property was sold at a gain of $183,000
during the first quarter of 2004.


Non-Interest Expenses

For the second quarter of 2005, non-interest expense totaled $4,996,000,
an increase of 33.6% from $3,740,000 for the second quarter last year.
The following table outlines the components of non-interest expense for
the periods indicated:


(In thousands)                 Three months Ended June 30,  Percentage
Expense Item                      2005            2004          Change
------------                      ----            ----      ----------
Salaries & Employee Benefits    $2,870          $2,362           21.5%
Occupancy                          479             337           42.1
Equipment                          315             215           46.5
Advertising/Business
 Development/Donations             249             161           54.7
Outside Customer Services           93              80           16.3
Director & Shareholder
 expenses                          125             105           19.0
Deposit and Other Insurance        132             112           17.9
Postage & courier expenses         101              79           27.8
Professional Fees                  201              89          125.8
Stationery & Supplies               89              76           17.1
Telephone expense                   60              48           25.0
Loan expenses                       67              (5)       (1440.0)
Other                              215              81          165.4
                                ------          ------          -----
TOTAL                           $4,996          $3,740           33.6%
                                ======          ======          =====


(In thousands)                  Six months Ended June 30,   Percentage
Expense Item                      2005            2004          Change
------------                      ----            ----      ----------
Salaries & Employee Benefits    $5,486          $4,775           14.9%
Occupancy                          902             643           40.3
Equipment                          568             416           36.5
Advertising/Business
 Development/Donations             440             303           45.2
Outside Customer Services          170             174           (2.3)
Director & Shareholder
 expenses                          240             163           47.2
Deposit and Other Insurance        262             224           17.0
Postage & courier expenses         203             160           26.9
Professional Fees                  413             194          112.9
Stationery & Supplies              163             144           13.2
Telephone expense                  111              89           24.7
Loan expenses                       86              49           75.5
Other                              339             158          114.6
                                ------          ------          -----
TOTAL                           $9,383          $7,492           25.2%
                                ======          ======          =====

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

The increase in salaries and employee benefits results primarily from an
increase in staffing levels, with the Bank's full time equivalent
employees (FTE) increasing to 167 at June 30, 2005 compared to 147 at
June 30, 2004.  The increase in staff is primarily caused by new 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 expenses increased due to the expansion discussed above.
Occupancy expenses will continue to increase as and if the Bank continues
to expand. Growth in equipment costs was also caused by Bank expansion.
The Bank continues to upgrade computer equipment, which will result in an
increase in these costs. In 2004, the Bank purchased equipment for imaging
of bank documents and customer checks which has resulted in operational
efficiencies and better service for our customers.

Advertising, business development and donations increased due to expansion
to new locations which required additional publicity.

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 significantly 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.  Professional fees were incurred
as part of the preparation and filing of the application with NASDAQ for
the listing of the Company's common stock on the NASDAQ National Market.
It is expected that the cost of professional services will continue to
increase with the expansion of the Bank.

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 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.  Loan expenses totaled $67,000 for the second quarter
of 2005 as compared to ($5,000) for the second quarter of 2004, of which
$21,000 relates to reimbursement of previously paid expenses.  During the
second quarter of 2005, the Bank incurred higher loan related expenses as
a result of increased loan production and an increase of $1,723,000 in the
level of non-accrual loans.  Additionally, during the second quarter of
2005, the Bank recorded $19,000 related to the allowance for unfunded loan
commitments, where there was no similar accrual during the second quarter
of 2004.

Other expenses increased during the second quarter of 2005 to $215,000
compared to $81,000 one year ago.  The increase in other expenses during
the second quarter of 2005 is primarily due to the one time application
fee of $95,000 associated with the listing of the Company's shares on the
NASDAQ National Market.   Costs related to publications and subscriptions,
business travel costs and operational losses are also included in this
category.


Income Taxes

The effective tax rate was 41.3% for the second quarter of 2005, compared
to 41.5% for the second quarter of last year.  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.

Cash and due from banks, federal funds sold and interest bearing deposits
totaled $135.8 million or 11.4% of total assets at June 30, 2005, compared
to $116.5 million or 10.8% of total assets at December 31, 2004.  The Bank
sold $8.1 million in SBA loans during the second quarter of 2005 which
increased the Bank's liquidity.  Bank deposits increased 6.2% to
$852.3 million during the second quarter of 2005.  The Bank has offered,
and continues to offer, special rates on time deposit promotions to
attract new deposits to contribute to projected loan growth. Management
used borrowing from the FHLB to fund loan growth at favorable rates as
compared with current rates offered on time deposits.

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 June 30, 2005, the Bank held $145.7 million in SBA guaranteed loans
which could be sold for additional liquidity.

At June 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 June 30, 2005, the Bank had collateral pledged which would
allow the Bank to borrow up to $295.3 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 June 30, 2005, the Bank had
borrowed $230.4 million, which left $64.9 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 June
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 second quarter of 2005, deposits increased to $852.3 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)                          June 30, 2005    December 31, 2004
                                        -------------    -----------------
Non-interest bearing demand deposits         $ 81,315             $ 72,156
Interest bearing transaction accounts         211,678              210,959
Time certificates, $100,000 and over          260,645              228,838
Other time certificates                       298,625              279,072
                                             --------             --------
                                             $852,263             $791,025
                                             ========             ========

Demand deposits and interest bearing transaction account balances vary
depending upon the activity of customers.  Approximately 47% 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 $61.2 million to
$852.3 million, an increase of 8% over $791.0 million at December 31,
2004.  Included in this deposit growth is $29.9 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 and the West Petaluma branch
opening in the second quarter of 2005.

Certificates of deposit totaled $559.3 million at June 30, 2005, an
increase of 10.1% over $507.9 million at December 31, 2004.  The Bank has
offered 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 $1,020.7 million at June 30,
2005 compared to $938.1 million at December 31, 2004, increasing 8.8% over
year end and 23.8% over the June 30, 2004 balance of $824.4 million.
While the Bank continues to benefit from strong loan demand, during the
second quarter of 2005, the Bank experienced $113.2 million in loan
payoffs.  The following is an analysis of the loan portfolio.


Type of Loan                                    June 30,     December 31,
(in thousands)                                    2005           2004
--------------                                ----------      -----------
Real estate - mortgage                        $  742,190         $663,620
Real estate - construction                        40,730           41,145
Commercial loans                                 242,288          236,718
Consumer installment loans                         6,015            6,193
                                              ----------         --------
                                               1,031,223          947,676
Deferred loan fees and discount                   (1,024)            (853)
Allowance for loan losses                         (9,549)          (8,719)
                                              ----------         --------
TOTAL                                         $1,020,650         $938,104
                                              ==========         ========

The SBA loan program continues to be a popular program; however,
competition remains very strong in our market areas. At June 30, 2005,
total SBA (7a) guaranteed loans equaled $216.3 million, net of $58.7
million in SBA loans sold and being serviced by the Bank. The majority of
the Bank's SBA loans are secured by real estate; however, 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 $145.7 million at June 30, 2005 compared to
$139.3 million at June 30, 2004.

The Bank continues to emphasize commercial and real estate lending.  At
June 30, 2005, 23.5% of the loans held for investment were commercial
loans and 75.9% 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
June 30, 2005, 97.6%, or $1,006.2 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 $40.7 million at June 30, 2005, compared to
$41.1 million at December 31, 2004. Despite $18.9 million in payoff
activity experienced during 2005, construction loan activity remains
strong.  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 June 30, 2005 and 0.8% at December 31, 2004.


Allowance for Loan Losses

The allowance for loan losses equaled $9,549,000 at June 30, 2005,
compared to $8,719,000 at December 31, 2004. At June 30, 2005, the
allowance for loan losses equaled 1.08% of loans (net of the guaranteed
portion of SBA loans). The allowance for loan losses is reviewed on a
monthly basis, based upon an allocation for each loan category, plus an
allocation for any outstanding loans which have been classified by
regulators or internally for the "Watch List".  Each loan that has been
classified is individually analyzed for the risk involved with a specific
reserve allocation assigned according to the risk assessment.

At June 30, 2005, there were four borrowers on non-accrual totaling
$2,015,000 with $2,007,000 of that amount collateralized by real estate
and $421,000 of it also guaranteed by the SBA. There were no loans past
due 90 days or more. Loans past due 30 to 89 days totaled $3,651,000, with
$3,582,000 of that amount collateralized by real estate.  At December 31,
2004, the Bank had $311,000 in non-accrual loans and $777,000 in loans
past due 90 or more days and still accruing interest. Past due 30 to 89
days totaled $5,368,000 at December 31, 2004.

During the second 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 during the quarter:

                                          Three months         Six months
(In thousands)                               ended                ended
                                         June 30, 2005        June 30, 2005
                                         -------------        -------------
Balance - Beginning of period                   $9,024               $8,719
   Reclassification to other
    liabilities                                      -                 (220)
   Provision for loan losses                       525                1,050
   Charge offs                                       -                    -
   Recoveries                                        -                    -
                                                ------               ------
Balance - End of period                         $9,549               $9,549
                                                ======               ======




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


                               Sonoma National         Northern Empire
                                    Bank                 Bancshares
                            ----------------------  ----------------------
                            June 30,  December 31,  June 30,  December 31,
                              2005         2004        2005        2004
                              ----         ----        ----        ----
Tier 1 leverage ratio         7.5%         7.6%        8.6%        8.6%
Tier 1 risk-based
  capital ratio               9.8%         9.7%       11.0%       11.1%
Total risk based
  capital ratio              10.9%        10.8%       12.1%       12.1%

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                      $42,008                       $ (48)
     +100                       42,305                         249
 Base Scenario                  42,056                           -
     -100                       41,542                        (514)
     -200                       41,317                        (739)

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
June 30, 2005 of assets, liabilities and shareholders' equity classified
by earliest possible repricing opportunity or maturity date.

<TABLE>
<CAPTION>
                                                           Over 3           Over        Non rate
                                                           months          1 year       Sensitive
          Balance Sheet              Through 3            through         through        or Over
         (in thousands)               months              1 year          5 years       5 years       Total
                                     ---------           ---------        --------      ---------     ------
<S>                                  <C>                  <C>             <C>            <C>         <C>
Assets

Fed funds sold & certificates of
 deposit                             $106,412                                                        $  106,412
Investment securities                                                     $  1,081       $ 11,805        12,886
Loans (net of discounts)              465,407             $200,181         363,526          1,085     1,030,199
Non interest-earning assets
(net of allowance for loan losses)                                                         37,803        37,803
                                     --------             --------        --------       --------    ----------
                                     $571,819             $200,181        $364,607       $ 50,693    $1,187,300
                                     ========             ========        ========       ========    ==========

Liabilities & Shareholders( Equity

Time Deposits $100,000 and over     $ 56,064             $193,097         $ 11,689                   $  260,645
All other interest-bearing
 liabilities                         499,106              217,841           23,556      $    194        740,697
Non interest bearing liabilities                                                          87,614         87,614
Other Liabilities & Shareholders'
 Equity                                                                                   98,344         98,344
                                   ---------             --------         --------      --------     ----------
                                    $555,170             $410,938         $ 35,040      $186,152     $1,187,300
                                    ========             ========         ========      ========     ==========
Interest Rate Sensitivity (1)       $ 16,649            ($210,757)        $329,567     ($135,459)
Cumulative Interest Rate
 Sensitivity                        $ 16,649            ($194,108)        $135,459            $0

     (1)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 June 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

         The Annual Meeting of Shareholders of the Corporation was held on
         May 17, 2005.

         Under Proposal 1, Election of Directors, the following candidates
         received the votes indicated:


                                                 For            Withheld
                                              ---------         --------
Clement C. Carinalli                          8,675,394           22,090
Patrick R. Gallaher                           8,660,999           36,485
William E. Geary                              8,670,954           26,530
Dennis R. Hunter                              8,675,394           22,090
James B. Keegan, Jr                           8,672,400           25,084

All candidates were re-elected, constituting the full board of directors
of the Corporation.

Under Proposal 2, Approval of the December 28, 2004 grant of a stock
option to each director of the Corporation, the grant of a stock option to
each director was approved as follows:

                                                               Abstained/
                             For           Against        Broker Non-Votes
                          ---------       ---------       ----------------
Clement C. Carinalli      4,724,553         435,588             3,537,343
Patrick R. Gallaher       4,733,586         444,100             3,519,798
William E. Geary          4,535,471         436,588             3,725,425
Dennis R. Hunter          4,603,053         436,588             3,657,843
James B. Keegan, Jr       4,716,962         436,588             3,543,934
Robert V. Pauley (former
 director, deceased on
 February 18, 2005)       4,512,821         529,174             3,655,489

 There were no other matters voted on at the meeting.

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).

  (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


Date:  August 08, 2005

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