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 March 31, 1997

                                       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 April 30,
1997: 1,538,728
          Transitional Small Business Disclosure Format (check one): Yes No X




<PAGE>



PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

<TABLE>
<CAPTION>


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

                                                                           March 31,               December 31,
                                                                              1997                      1996
<S>                                                                         <C>                       <C>                 
ASSETS
Cash and equivalents:

Cash and due from banks                                                     $                         $         $11,066
                                                                                       $6,960
Federal funds sold                                                                     22,323                    22,724
                                                                            - ----------------        - ----------------
Total cash and equivalents                                                             29,283                    33,790
Certificates of deposits in other financial institutions                                2,774                     3,368
Investment securities                                                                   8,558                    16,132
Loans receivable, net                                                                 175,815                   165,681
Leasehold improvements and equipment, net                                                 577                       620
Accrued interest receivable and other assets                                            5,165                     5,202
                                                                            - ----------------        - ----------------
Total assets                                                                $         222,172         $         224,793
                                                                            = ================        = ================

                   LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits                                                                    $         206,015         $         209,235
Accrued interest payable and other liabilities                                          1,115                     1,220
                                                                            - ----------------        - ----------------
Total liabilities                                                                     207,130                   210,455
                                                                            - ----------------        - ----------------
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, 1,538,728 in 1997 and 1,534,470 in 1996                         9,706                     9,607
Retained earnings                                                                       5,336                     4,731
                                                                            - ----------------        - ----------------
Total shareholders' equity                                                             15,042                    14,338
                                                                            - ----------------        - ----------------
Total liabilities and shareholders' equity                                  $         222,172         $         224,793
                                                                            = ================        = ================

</TABLE>


<PAGE>
<TABLE>
<CAPTION>


NORTHERN EMPIRE BANCSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
for the three months ended March 31, 1997 and 1996
(Unaudited)


(dollars in thousands, except per share data)                                      1997                      1996
<S>                                                                        <C>                       <C>              
Interest income:

Loans                                                                       $           4,319         $           3,476
Certificates of deposits in other financial institutions                                   41                        80
Federal funds sold and investment securities                                              352                       280
                                                                            - ----------------        - ----------------
Total interest income                                                                   4,712                     3,836
Interest expense                                                                        2,134                     1,675
                                                                            - ----------------        - ----------------
Net interest income before provision for loan losses                                    2,578                     2,161
Provision for loan losses                                                                 120                        90
                                                                            - ----------------        - ----------------
Net interest income after provision for loan losses                                     2,458                     2,071
                                                                            - ----------------        - ----------------
Other income:
Service charges on deposits                                                               119                       114
Gain on sale of loans                                                                       0                        13
Other                                                                                     155                       144
                                                                            - ----------------        - ----------------
Total other income                                                                        274                       271
                                                                            - ----------------        - ----------------
Other expenses:
Salaries and employee benefits                                                            862                       789
Occupancy                                                                                 166                       179
Equipment                                                                                  83                        76
Outside customer services                                                                  60                        61
Deposit and other insurance                                                                42                        32
Professional fees                                                                          40                        50
Advertising                                                                                73                        60
Other                                                                                     236                       213
                                                                            - ----------------        - ----------------
Total other expenses                                                                    1,562                     1,460
                                                                            - ----------------        - ----------------
Income before income taxes                                                              1,170                       882
Provision for income taxes                                                                496                       381
                                                                            - ----------------        - ----------------
Net income                                                                  $             674         $             501
                                                                            = ================        = ================
Common stock earnings per share                                             $            0.42         $            0.34
                                                                            = ================        = ================
Average common shares outstanding for net income per share calculation              1,599,619                 1,488,409
                                                                            = ================        = ================
</TABLE>
<PAGE>                                          
<TABLE>
<CAPTION>



NORTHERN EMPIRE BANCSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 1997 and 1996
(Unaudited)


(dollars in thousands)                                                                   1997                  1996
<S>                                                                                 <C>                    <C>         
Cash flows from operating activities:

Net income                                                                          $         674          $        501
Adjustments   to  reconcile  net  income  to  net  cash  provided  by  operating
activities:
Provision for loan losses                                                                     120                    90
Depreciation, amortization and accretion                                                       73                    40
Net increase in deferred loan fees and discounts                                            (125)                  (38)
Increase in interest receivable and other assets                                            (132)                 (122)
Increase in accrued interest payable and other liabilities                                  (104)                    76
                                                                                    - ------------          ------------
Net cash provided by in operating activities                                                  506                   547
                                                                                    - ------------          ------------
Cash flows from investing activities:
Purchase of investment securities                                                         (4,426)               (4,959)
Maturities of investment securities                                                        12,000                10,000
Net decrease in deposits in other financial institutions                                      594                 (207)
Net decrease (increase) in loans receivable                                               (9,959)               (3,155)
Purchase of leasehold improvements and equipment, net                                        (30)                  (99)
                                                                                    - ------------          ------------
Net cash used in investing activities                                                     (1,821)                 1,580
                                                                                    - ------------          ------------
Cash flows from financing activities:
Net increase in deposits                                                                  (3,220)                 6,147
Stock options exercised                                                                        28                     1
                                                                                    - ------------          ------------
Net cash provided by financing activities                                                 (3,192)                 6,148
                                                                                    - ------------          ------------
Net increase (decrease) in cash and cash equivalents                                      (4,507)                 8,275
Cash and cash equivalents at beginning of year                                             33,790                16,288
                                                                                    - ------------          ------------
Cash and cash equivalents at end of year                                            $      29,283          $     24,563
                                                                                    = ============          ============
Other cash flow information:
Interest paid                                                                       $       2,130          $      1,714
                                                                                    = ============          ============
Income taxes paid                                                                   $         250          $        190
                                                                                    = ============          ============
Additions to Other Real Estate Owned                                                $          90          $         77
                                                                                                            
                                                                                    = ============          ============

</TABLE>


<PAGE>



 Northern Empire Bancshares and Subsidiary
 Notes to Consolidated Financial Statements
March 31, 1997


 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  and  Subsidiary at March 31, 1997 and the results of operations  for
the three 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  1996 Annual Report on Form 10-KSB.  The results of operations for
the three  months  ended March 31, 1997 are not  necessarily  indicative  of the
operating results through December 31, 1997.

Note 2 - Net Income per Common and Common Equivalent Share Net income per common
and common  equivalent  share is calculated by using the weighted average number
of common shares outstanding, adjusted for stock dividends, during the period.

Note 3 - New and Pending Accounting Standards

See the  Corporation's  1996 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 OPERATION

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.

This report contains  "forward-looking  statements" as defined in section 27A of
the  Securities  Act of 1993,  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  $222,172,000  at March 31, 1997 compared to
$224,793,000 at December 31, 1996. At year end, the Bank's assets were increased
by a  temporary  deposit  of $16  million.  The  majority  of this  deposit  was
withdrawn by January 31, 1997.  At December 31, 1996,  those funds were invested
in liquid  assets  (Fed Funds and short term  investments).  Without  this large
deposit the Bank would have grown $13.4 million  during the first  quarter.  Net
loans,  including loans held for sale and bankers  acceptances,  increased $10.1
million.  Investments  declined $7.6 million and cash and equivalents  decreased
$4.5 million during the first quarter.
<PAGE>
Net Interest Income

The net income  after tax for the first three  months of 1997  equaled  $674,000
compared to $501,000 for the comparable  period of 1996, an increase of 35%. The
higher profit  resulted from increases in net interest income due to loan growth
(a larger volume of high yielding  earning assets) while  controlling the Bank's
operating costs.
               
Net interest  income of $2,578,000  for the first quarter of 1997  increased 24%
from  $2,161,000  for the  comparable  period  last year.  This  increase in net
interest  income  resulted  from volume  increases  of $45.1  million in average
earning  assets for the current  quarter  compared to the first quarter of 1996.
$42.1 million of that increase was in average loans  outstanding  which have the
highest  yields.  Average  interest  bearing  deposits  for  the  first  quarter
increased $39.4 million over the same period last year.

The net interest  margin equaled 5.09% during the first quarter of 1997 compared
to an average  margin  during 1996 of 5.30%.  The yield on average loans equaled
9.98% in the first quarter compared to 10.14% during 1996, while the Bank's cost
of funds was unchanged at 4.96%. The yield on loans has been negatively impacted
by a 50 basis point charge applied to the  guaranteed  portion of Small Business
Administration  (SBA) loans  booked since  October  1995.  Since the  guaranteed
portion of SBA loans subject to this fee has increased from $22 million at March
31,  1996 to $36 million as of March 31,  1997,  it  continues  to have a larger
impact on interest  income.  The mix of loans also impacts the overall  yield on
loans.  During the first quarter of 1997,  there was significant  growth in real
estate loans,  which have a lower yield than other types of loans.  In addition,
the Bank invested excess liquidity in Bankers  Acceptances  which had an average
yield of 5.43%  during  the  first  quarter  of 1997.  Bankers  Acceptances  are
classified as loans; and therefore, affect the yield calculation.  There were no
Banker Acceptances held during the first quarter of 1996.

Net interest margin is also affected by the level of loans relative to deposits.
The Bank's ratio of loans to deposits  declined from an average of 87.9% in 1996
to 86.5% during the first quarter of 1997.

The Bank is considered  asset  sensitive and benefits from rate increases  since
more of its assets  reprice at a faster rate than  deposits.  The Prime  lending
rate was  8.25%  until  March  26,1997  when it  increased  to 8.5%  which has a
positive impact on interest margin. Of the Bank's loan portfolio totaling $177.8
million at March 31, 1997,  $121.8  million or 68.5% of the loans are adjustable
rate loans which have not reached a floor or ceiling rate.  Approximately  $88.9
million are prime-based  loans,  of which $21.5 million reprice  immediately and
$64.3 million reprice on a quarterly basis.  Approximately  $30.1 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 4.98% in
March 1996 and equaled 4.76% in March 1997.

Interest  expense  increased  from  $1,675,000  in the first  quarter of 1996 to
$2,134,000  in 1997.  The major  factor  was the  increase  of $39.1  million in
average  interest  bearing  deposits when comparing the first quarter of 1996 to
1997. The average cost of interest  bearing  deposits was unchanged at 4.96% for
both periods.

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  increased  to
$274,000  from  $271,000  when  comparing  the first quarter of 1997 to the same
period last year.

Service  charges during the quarter  increased to $119,000 from $114,000  during
the first quarter last year.  This  increase  results  primarily  from growth in
transactions and analysis deposit customers.

There were no sales of SBA loans during the first  quarter of 1997,  compared to
sales of $132,000  resulting in a gain of $13,000  during the first quarter last
year.  The Bank has  recently  retained the  guaranteed  portion of SBA loans 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 the  anticipates  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.
<PAGE>
SBA servicing  fees,  which totaled  $93,000  during the quarter,  declined from
$100,000 for the same period of 1996.  Higher than expected SBA loan payoffs had
a negative impact on servicing fees, since the unamortized portion of the excess
servicing  fees  recorded when a loan is sold must be reversed  against  current
servicing  income.  In addition,  the pool of loans serviced,  on which the Bank
receives a servicing fee,  approximated  the balance during the first quarter of
last year.

In 1997,  the Bank sold a commercial  building  which had been recorded as other
real estate  owned  (OREO)  realizing a gain of $15,000.  There were no sales of
OREO in the first quarter of 1996.
         
Non-Interest Expenses

Deposits  and loans have grown 33% and 28%  respectively  from March 31, 1996 to
March 31, 1997;  however,  the Bank has  controlled  the growth of  non-interest
expenses to 7% during this period of time. The Bank's largest  expense  category
is salaries and  benefits.  There was an increased of 9% in this category due to
annual salary increases, three staff additions and increased benefit costs.

Occupancy  expenses  decreased  7%, which  resulted from reduced rent due to the
renegotiation  of the Oakmont  branch lease and the reduced level of repairs and
maintenance on Bank premises.  Equipment costs increased to $83,000 over $76,000
for the  comparable  quarter  last year.  This  increase  was due to  additional
computer equipment and associated maintenance.

Deposit and other insurance of $42,000  increased $10,000 over the first quarter
of last year. Regulatory assessments and FDIC insurance cost grew $6,000 due the
new Financing  Corporation  (FICO)  assessment which became effective January 1,
1997. The FDIC charged the minimum fee of $500 during the first quarter of 1997.
There is no assurance that the current FDIC  assessment  will continue at such a
low level. The cost of other insurance  increased due to growth and additions to
the Bank's insurance coverage which resulted in higher premiums.

Advertising and business  development costs increased to $73,000 up from $60,000
the first quarter of 1996.  Professional fees declined by $10,000 from the first
quarter of 1996 to $40,000.  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, increased due to Bank growth.

Total non-interest expenses for the SBA lending department for the first quarter
was approximately  $266,000  ($135,000 in personnel costs,  $35,000 in occupancy
and equipment expenses,  $17,000 in marketing/business  development) compared to
$273,000  for the first  quarter of 1996.  Since  March 31,  1996,  the SBA loan
portfolio  (serviced  portion  and Bank's  portion)  has  increased  24% to $117
million, of which $43 million has been sold and is being serviced.

Income Taxes

The effective tax rate of 42% for the first  quarter of 1997  approximated  last
year's rate.  The provision  for the first  quarter of 1996 was $496,000  versus
$381,000 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.
<PAGE>
Cash and due from banks,  federal funds sold and certificates of deposit totaled
$32.1  million or 14.4% of total  assets at March 31,  1997,  compared  to $37.2
million or 16.5% of total assets at December 31, 1996. Liquid assets were higher
than normal at year end due to a large  deposit which was received at the end of
the year.

The Bank has several ways of providing  additional  liquidity.  Special  deposit
campaigns,  which offer slightly higher than market rates,  have been successful
in attracting  new deposits to the Bank. The Bank also has the option of selling
SBA guaranteed  loans.  As of March 31, 1997, the Bank held $33.5 million in SBA
guaranteed loans which could be sold if liquidity was needed.

At March 31, 1997,  the Bank had unused  federal funds lines of credit  totaling
$9,000,000.  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 March 31, 1997, the Corporation had  non-interest  and interest  bearing cash
balances  of  $225,000,  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  first  quarter  of 1997,  deposits  decreased  2% to $206  million.
Deposits at 1996 year end included a large  deposit of $16 million  which was on
deposit for approximately 30 days in money market rate accounts.  Deposits would
have grown  approximately  7% if the Bank's deposits had not included this short
term deposit at year end.

Money market rate deposits, excluding the large deposit, grew from $55.1 million
at year  end to  $62.5  million  at the end of the  quarter.  This is a  limited
transaction  account with a floating  rate which is tied 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 $94 million at December 31, 1996 to $103
million as of March 31, 1997. During the first quarter, the Bank offered an
attractive  rate  on a nine  month  certificate,  which  accounts  for  the
majority of the growth in time deposits.

As of March 31, 1997,  non-interest  bearing deposits equaled $23.5 million
compared to $28.6  million at December 31, 1996 and $24.3  million on March
31, 1996. 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
balances of between $2 and $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 a period of high
loan growth.

<PAGE>

Loans

Loans,  net of discounts and reserves,  equaled $175.8 million  compared to
$165.7 million at December 31, 1996.  Included in loans, at the end of the first
quarter,  is $6 million in Bankers  Acceptances (BA) while the Bank did not have
an  investment  in BAs at year end. The Bank places its excess  liquidity in BAs
only when their yields exceed Fed Funds rates. BAs have short maturities and are
viewed as a short term investment by the Bank;  however,  they are classified as
loans for  accounting  purposes and by Bank  regulators.  Excluding  the BAs net
loans increased $4.2 million in the first quarter of 1997. During that time, the
Bank  experienced  a higher  volume of loan payoff which offset a portion of the
growth in the loan portfolio.

The SBA department  continued to experience strong loan demand,  especially
in the Arizona  market,  with SBA loans  growing $5.2  million  during the first
quarter.  During the first  quarter of 1996,  the Bank  experienced  higher than
expected SBA loan payoffs.  Many of the additional loan payoffs were of loans to
borrowers  in  Arizona,  where  property  values have been  increasing  enabling
borrowers to refinance for additional loan proceeds. In California,  the Bank is
competing  with bank and  non-bank  lenders  in a mature  market.  An  improving
California economy may increase local SBA production. The majority of the Bank's
SBA loans are secured by real estate; however, 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.
SBA loans  available for sale  increased 18% from $28.3 million to $33.5 million
during the first quarter of 1996.

The Bank  continues to emphasize  commercial  and real estate  lending.  At
March 31, 1997, 51.5% of the loans held for investment were commercial loans and
47.6%  were real  estate and  construction  loans,  compared  to 50.1% and 46.6%
respectively  at December 31, 1996.  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 which  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.

The  Bank  has  a  small  portfolio  of  consumer  loans  and  real  estate
construction  loans which equaled 0.9% of the total loan  portfolio at March 31,
1997 and 1.2% at March 31, 1996. The Bank offers  residential  mortgage services
on a limited basis.
         
Allowance for Loan Losses

The  allowance  for loan  losses  equaled  $1,989,000  at March  31,  1997,
compared to $1,767,000  at December 31, 1996.  At March 31, 1997,  the allowance
for loan  losses  equaled  1.5% of loans  (net of loans  available  for sale and
bankers  acceptances)  compared to 1.5% at December 31, 1996.  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 March 31, 1997, there were three loans on non-accrual  totaling $130,000
with all  nonaccrual  loans  collateralized  by real  estate  and  $106,000  was
guaranteed by the SBA.  There was one loan for $290,000 past due 90 days or more
and still  accruing  interest which was secured by real estate and guaranteed by
the SBA.  Loans past due 30 to 89 days totaled  $1,017,000  of which $973,00 was
secured  by real  estate.  On  December  31,  1996,  the  Bank had  $438,000  in
non-accrual  loans,  and there  were no loans past due 90 or more days and still
accruing interest.
<PAGE>
During the first quarter of 1997,  the Bank charged off unsecured  loans to
one borrower  which  totaled  $173,000 and has  subsequently  received a $30,000
recovery on that charge off. The Bank had reserved for this potential charge off
during 1996.  The Bank has had very low charge off  experience  and continues to
have a low charge off rate compared to industry standards.

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 March 31, 1997, the Bank
was considered " well  capitalized."  The Bank's total risk-based  capital ratio
was 10.57%.

The  Corporation  declared a 5% stock dividend  during the first quarter of
1996 with a record date of March 31, 1997.  The financial  statements  have been
adjusted to include the impact of this dividend.  In May 1996,  the  Corporation
declared a 5% stock dividend to shareholders of record on June 14, 1996.


<PAGE>
SCHEDULES
<TABLE>
<CAPTION>



LOANS HELD FOR INVESTMENT

                                       March 31,             December 31,
                                        1997                    1996
<S>                                  <C>                    <C>     
Type of Loan                           
(in thousands)                         
 
           Commercial                 $92,466                $84,969
Real Estate Construction                2,125                  1,533
    Real Estate Other                  83,377                 81,008
Installment Loans to Individuals        1,715                  2,218
                           

                TOTAL                $179,683               $169,728

</TABLE>

<TABLE>
<CAPTION>



ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

                                                           Quarter Ended
                                                           March 31, 1997
<S>                                                       <C>

     Balance - Beginning of Period                         $2,042,000
         Provision for Loan Losses                            120,000
         Charge Offs                                          173,000
         Recoveries                                                 0
     Balance - End of the Period                           $1,989,000
</TABLE>


There were three  loans on  non-accrual  at March 31,  1997,  amounting  to
$130,000, of which $130,000 were secured by real estate collateral, and $106,000
was guaranteed by the U.S. Government.








<PAGE>



                                  GAP ANALYSIS

The following schedule  represents  interest rate sensitivity profile as of
March 31, 1997 of assets,  liabilities and  shareholders'  equity  classified by
earliest possible repricing opportunity or maturity date.

<TABLE>
<CAPTION>


                                                               Over 3     Over 1 year     Non-rate
              Balance Sheet                   Through 3        months      through 5    Sensitive or      Total
              (in thousands)                    months        through        years      Over 5 years
                                                               1 year


<S>                                               <C>            <C>           <C>           <C>            <C>     
Assets
Time Deposits-other financial institutions          $2,279          $495                                      $2,774
                            Fed funds sold          22,323                                                    22,323
                     Investment securities           4,003         1,950                      $2,605           8,558
                  Loans (net of discounts)          95,859        35,928       $12,126        33,891         177,804
               Non-interest-earning assets                                                    10,713          10,713
        (net of allowance for loan losses)
                                            =============== ------------- ============= ------------- ===============
                                                  $124,464       $38,373       $12,126       $47,209        $222,172
                                            =============== ------------- ============= ------------- ===============
    Liabilities & Shareholders Equity
           Time Deposits $100,000 and over         $11,759       $15,219        $3,565                       $30,543
       All other interest-bearing deposits          98,045        42,470        11,484            $5         152,004
             Non-interest bearing deposits                                                    23,468          23,468
  Other Liabilities & Shareholders' Equity                                                    16,157          16,157
                                            =============== ------------- ============= ------------- ===============

                                                  $109,804       $57,689       $15,049       $39,630        $222,172
                                            =============== ------------- ============= ------------- ===============
             Interest Rate Sensitivity (1)         $14,660     $(19,316)      $(2,923)        $7,579
      Cumulative Interest Rate Sensitivity         $14,660      $(4,656)      $(7,579)             0
=========================================== =============== ------------- ============= ------------- ===============
<FN>

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





<PAGE>



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

None

Item 5.  Other Information

On February 19, 1997 a 5% stock dividend was declared to  shareholders of record
on March 31, 1997. The stock was distributed on April 15, 1997.

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).

(27)(a)  Financial Data Schedule

 b.  Reports on Form 8-K
    None




<PAGE>




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:  May 13, 1997


/s/James B. Keegan, Jr.                    /s/Patrick R. Gallaher
James B. Keegan, Jr.                        Patrick R. Gallaher
Director & President                        Director & Chief Accounting Officer