10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

OR

o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-51318

NORTHERN EMPIRE BANCSHARES

(Exact name of registrant as specified in its charter)

California	94-2830529
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definitions of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer £ Accelerated filer x Non-accelerated filer £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £   No x

APPLICABLE ONLY TO CORPORATE ISSUERS

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

Title of class: Common Stock, no par value. Outstanding shares as of October 31, 2006: 10,960,374

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NORTHERN EMPIRE BANCSHARES AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (unaudited)

(dollars in thousands)

ASSETS	September 30, 2006			December 31, 2005
Cash and equivalents:
Cash and due from banks	$	28,234		$	28,936
Federal funds sold		88,974			30,188
Total cash and equivalents		117,208			59,124
Investment securities available-for-sale		1,087			50,488
Federal Home Loan Bank (FHLB) stock, at cost		15,036			11,731
Federal Reserve Bank stock, at cost		166			166
Loans receivable, net		1,210,855			1,090,772
Leasehold improvements and equipment, net		2,923			3,292
Accrued interest receivable and other assets		18,081			16,161
Total assets	$	1,365,356		$	1,231,734
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits	$	962,121		$	888,027
FHLB Advances		274,351			230,379
Accrued interest payable and other liabilities		7,378			6,021
Total liabilities		1,243,850			1,124,427
Shareholders' equity:
Common stock, no par value; authorized, 40,000,000 shares; shares issued and outstanding, 10,950,697 at September 30, 2006 and 10,919,606 at December 31, 2005		73,855			60,655
Additional paid-in-capital		7,895			7,681
Accumulated other comprehensive loss		(7	)		(101	)
Retained earnings		39,763			39,072
Total shareholders' equity		121,506			107,307
Total liabilities and shareholders' equity	$	1,365,356		$	1,231,734

See Notes to Consolidated Financial Statements

2

NORTHERN EMPIRE BANCSHARES AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands, except per share data)	2006		2005		2006		2005
Interest income:
Loans	$	23,532	$	18,203	$	65,743	$	51,381
Federal funds sold and investment securities		1,463		1,093		3,824		2,720
Total interest income		24,995		19,296		69,567		54,101
Interest expense		12,806		7,772		33,293		20,120
Net interest income before provision for loan losses		12,189		11,524		36,274		33,981
Provision for loan losses		450		600		1,400		1,650
Net interest income after provision for loan losses		11,739		10,924		34,874		32,331
Other income:
Service charges on deposits		114		115		358		368
Gain on sale of loans		756		803		2,416		2,168
Other		288		248		776		662
Total other income		1,158		1,166		3,550		3,198
Other expenses:
Salaries and employee benefits		3,273		2,914		9,505		8,399
Occupancy		544		501		1,569		1,403
Equipment		290		287		867		855
Advertising and business development		198		202		590		642
Outside customer services		85		113		259		283
Director and shareholder expenses		83		141		314		476
Deposit and other insurance		149		130		414		392
Professional fees		436		43		764		456
Other		338		371		1,114		1,179
Total other expenses		5,396		4,702		15,396		14,085
Income before provision for income taxes		7,501		7,388		23,027		21,444
Provision for income taxes		3,080		3,026		9,346		8,806
Net income	$	4,421	$	4,362	$	13,681	$	12,638
Basic earnings per common share	$	0.40	$	0.40	$	1.25	$	1.16
Diluted earnings per common share	$	0.39	$	0.38	$	1.21	$	1.11

See notes to Consolidated Financial Statements

3

NORTHERN EMPIRE BANCSHARES AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Nine months ended September 30,
(dollars in thousands)	2006			2005
Cash flows from operating activities:
Net income	$	13,681		$	12,638
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,400			1,650
Depreciation and amortization		708			637
Accretion of investment securities		(443	)		(193	)
FHLB Stock dividends		(451	)		(304	)
Compensation expense of stock options		164			0
Gain on sale of loans		(2,416	)		(2,168	)
Change in deferred income taxes		287			471
Changes in operating assets and liabilities:
Change in deferred loan fees and discounts		404			599
Change in interest receivable and other assets		(2,271	)		(2,309	)
Change in accrued interest payable and other liabilities		1,357			(2,847	)
Net cash provided by operating activities		12,420			8,174
Cash flows from investing activities:
Purchases of investment securities		-			(49,122	)
Proceeds from maturities of investment securities		50,000			0
Purchase of restricted stock		(2,854	)		(2,435	)
Redemption of restricted stock		-			88
Net increase in loans receivable		(119,471	)		(113,233	)
Purchase of leasehold improvements and equipment		(339	)		(1,420	)
Net cash used by investing activities		(72,664	)		(166,122	)
Cash flows from financing activities:
Net change in deposits		74,094			107,529
Net change in FHLB advances		43,972			18,477
Payment of cash dividends		(8	)		(9	)
Tax benefit of stock options		51			0
Proceeds from exercise of stock options		219			245
Net cash from financing activities		118,328			126,242
Net change in cash and cash equivalents		58,084			(31,706	)
Cash and cash equivalents, at beginning of year		59,124			116,504
Cash and cash equivalents, at end of period	$	117,208		$	84,798
Supplemental cash-flow information:
Interest paid	$	32,568		$	19,750
Income taxes paid	$	9,340		$	11,720

See Notes to Consolidated Financial Statements

4

Northern Empire Bancshares and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2006

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 (the “Company”) and Subsidiary at September 30, 2006 and the results of operations for the three and nine months then ended. The results of operations reflect interim adjustments, all of which, except for expenses related to the proposed merger with Sterling Financial Corporation, are of a normal recurring nature and which, in the opinion of Management, are necessary for a fair presentation of the results for the interim periods presented. The results of operations for the three and nine months ended September 30, 2006, are not necessarily indicative of the operating results to be anticipated for the year ending December 31, 2006.

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 Company's annual consolidated financial statements are not included in these interim financial statements pursuant to SEC rules or regulations. Accordingly, the accompanying unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2005 Annual Report on Form 10-K.

Recently issued accounting pronouncements

In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)." This Statement improves financial reporting by requiring an employer to recognize the over funded or under funded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the employer's fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. SFAS No. 158 is not expected to have a material impact on the Company. 

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, this Statement does not require any new fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. SFAS No. 157 is not expected to have a material impact on the Company.

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 Company’s common stock throughout the period adjusted for the impact of the 5% stock dividends declared on March 28, 2006 and March 22, 2005. Earnings per share on a diluted basis are calculated based on the average number of shares outstanding including dilutive options at the time. The Company’s EPS data is as follows:

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	For the three months ended September 30, 2006						For the three months ended September, 2005
	Income/ Numerator		Shares/ Denominator		Per Share Amount		Income/ Numerator		Shares/ Denominator		Per Share Amount
Net Income	$	4,421,000					$	4,362,000
EPS - Income available to common stockholders	$	4,421,000		10,939,428	$	0.40	$	4,362,000		10,907,839	$	0.40
Effect of Dilutive Securities - Stock Options				376,017						486,887
EPS assuming dilution - Income available to common stockholders plus assumed conversion	$	4,421,000		11,315,445	$	0.39	$	4,362,000		11,394,726	$	0.38

	For the nine months ended September 30, 2006						For the nine months ended September 30, 2005
	Income/ Numerator		Shares/ Denominator		Per Share Amount		Income/ Numerator		Shares/ Denominator		Per Share Amount
Net Income	$	13,681,000					$	12,638,000
EPS - Income available to common stockholders	$	13,681,000		10,933,702	$	1.25	$	12,638,000		10,890,334	$	1.16
Effect of Dilutive Securities - Stock Options				377,074						475,751
EPS assuming dilution - Income available to common stockholders plus assumed conversion	$	13,681,000		11,310,776	$	1.21	$	12,638,000		11,366,085	$	1.11

Note 3 - Stock Based Compensation

Effective January 1, 2006, the Company adopted the Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment (SFAS 123R)”, using the modified prospective transition method and therefore has not restated results for the prior periods. The adoption of SFAS No. 123 (R) did not have a significant impact on our financial position or our results of operations. Prior to our adoption of SFAS No. 123 (R), benefits of tax deductions in excess of recognized compensation expense were reported as operating cash flows. SFAS No. 123 (R) requires excess tax benefits to be reported as a financing cash inflow.

The total compensation expense related to the Company’s stock plan was $128,000 for the three months ended September 30, 2006 and $164,000 for the nine months ended September 30, 2006. Prior to January 1, 2006, the Company accounted for the plan under the recognition and measurement provision of APB 25. Accordingly, the Company generally had not recognized compensation expense since all stock option grants were made at the fair market value on the date of grant. Prior to January 1, 2006, pro forma disclosure amounts had been applied to its stock-based compensation in accordance with SFAS No 148 “Accounting for Stock-Based Compensation-Transition and Disclosure” (SFAS 148), as the fair value method defined by SFAS 123 prior to revision.

The pro forma table below reflects net earnings and basic and diluted net earnings per share for the three and nine months ended September 30, 2005, had the Company applied the fair value recognition provisions of SFAS 123 prior to revision. The information in the following table has been adjusted for the impact of the 5% stock dividend declared on March 28, 2006.

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(In thousands)	For the three months ended September 30, 2005		For the nine months Ended September 30, 2005
Net Income for the period	$	4,362	$	12,638
Compensation expense, net of tax effect		281		349
Pro forma net income	$	4,081	$	12,289
Pro forma earnings per common share	$	0.37	$	1.13
Pro forma earnings per common share, assuming dilution	$	0.36	$	1.08

Nonqualified and incentive stock options have been granted to our directors, officers and employees under our stock option plan. Options vest either on the date of grant or over a period of 3 to 5 years from the grant date and have a term of up to 10 years.

No options were granted in the first nine months of 2006. During the third quarter of 2005, a total of 37,000 were granted to seven outside directors of the Bank. These options vested on the date of the grant and were issued at the fair market value at the date of grant.

A summary of option activity under the stock option plan for the nine months ended September 30, 2006 was as follows:

	Shares		Weighted Average Exercise price		Weighted Average remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2005		763,566	$	11.24
Options granted attributable to the stock dividend		37,385		10.79
Exercised		30,690	$	7.13
Forfeited		510	$	7.79
Outstanding at September 30, 2006		769,751	$	10.86		4.0	$	13,213,000
Vested and expected to vest at September 30, 2006		769,751	$	10.86		4.0	$	13,213,000
Vested and exercisable at September 30, 2006		761,778	$	10.77		4.0	$	13,141,000

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all options holders exercised their options on September 30, 2006. Total intrinsic value of options exercised for the nine months ended September 30, 2006 was $435,000.

Cash received from option exercises for the three months and nine months ended September 30, 2006 was $119,000 and $219,000 respectively. The actual tax benefit realized from option exercises for the nine months ended September 30, 2006 was $51,000.

As of September 30, 2006, the total of unrecognized stock-based compensation expense related to non-vested stock options was $17,000. That cost is expected to be recognized over a weighted-average period of 6 months. The non-vested stock options totaled 4,784 at September 30, 2006.

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Note 4 - Comprehensive Income

The Company’s total comprehensive income presentation is as follows:

	For the three months ended						For the nine months ended
(In thousands)	September 30, 2006			September 30, 2005			September 30, 2006			September30, 2005
Net Income	$	4,421		$	4,362		$	13,681		$	12,638
Other Comprehensive income (loss):
Change in unrealized holding gain (losses) arising during the period		21			(127	)		156			(128	)
Income tax benefit (expense)		(8	)		52			(63	)		52
Comprehensive income	$	4,434		$	4,287		$	13,774		$	12,562

Note 5 - Business Combination

On September 17, 2006, the Company announced that it had entered into an Agreement and Plan of Merger with Sterling Financial Corporation (Sterling), Spokane, Washington. Under the terms of the Agreement, the Company will be merged with and into Sterling with Sterling being the surviving corporation in the merger. Also under the terms of the Agreement, which has been unanimously approved by the Board of Directors of both companies, each share of the Company’s common stock will be converted into 0.805 shares of Sterling common stock and $2.71 in cash. The transaction is expected to close in the second quarter of 2007, subject to Northern Empire and Sterling shareholder and regulatory approval and the satisfaction of other customary closing conditions.

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

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

Critical Accounting Policies

The Company and Bank’s accounting policies are fundamental to understanding management’s discussion and analysis of financial condition and results of operations. 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 an 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.

8

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 Company 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. Actual results, amounts and events may differ significantly from those expected to occur, and many factors, risks and uncertainties might cause such a difference, including economic conditions, changes in interest rates, competition from other financial institutions and other factors discussed in this report. Such factors, risks and uncertainties include, but are not limited to the following:

— Proposed merger with Sterling Financial Corporation. As stated herein and announced on September 18, 2006, the Company entered into an Agreement and Plan of Merger on September 17, 2006 by which, if completed, the Company will merge into Sterling Financial Corporation, Spokane, Washington. While the Board of Directors of the Company believes that the proposed merger is in the best interests of the Company’s shareholders, there are risks associated with the proposed merger, including the following: (1) the businesses of the Company and Sterling may not be combined successfully, or such combination may take longer, be more difficult, time-consuming or costly to accomplish than expected; (2) the expected growth opportunities and cost savings from the merger may not be fully realized or may take longer to realize than expected; (3) operating costs, customer losses and business disruption following the merger, including adverse effects on relationships with employees, may be greater than expected; (4) governmental approvals of the merger may not be obtained, or adverse regulatory conditions may be imposed in connection with governmental approvals of the merger; (5) the shareholders of the Company or Sterling may fail to approve the merger; (6) adverse governmental or regulatory policies may be enacted; (7) the interest rate environment may further compress margins and adversely affect net interest income; (8) results may be adversely affected by continued diversification of assets and adverse changes to credit quality; (9) competition from other financial services companies in the Company's and Sterling's markets could adversely affect operations; and (10) an economic slowdown could adversely affect credit quality and loan originations.

If the proposed merger is not completed due to failure to obtain the required shareholder and/or regulatory approvals, or for other reasons, the expected benefits of the merger will not take place, and the Company will have incurred substantial expenses related to the merger. In addition, in the event that the merger is not completed due to certain actions by the Company, the Company may be required to pay substantial termination fees or damages to Sterling.

Further information regarding the proposed merger is contained in the Company's Current Report on Form 8-K filed on September 18, 2006.

— Changes in economic conditions and declines in the value of real estate collateral. At September 30, 2006, $1,202.9 million or 98.2% of the Bank’s loans, including real estate loans and a majority of the Bank’s SBA loans, were secured by real estate as the principal source of collateral. A worsening of economic conditions, a decline in real estate values and/or rising interest rates would have an adverse effect on the value of real estate securing these loans and would have an adverse effect on the financial condition of the Bank.

The banking authorities have recently proposed Guidance, entitled Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices, which if adopted, will apply to institutions like the Bank that have a high concentration of real estate and related loans in their portfolio. The proposed Guidance provides that such institutions may be required in the future to maintain higher capital ratios than other institutions with lower such concentrations. If the proposed Guidance is adopted, the Bank may be subject to increased regulatory oversight and guidance. While the Company and the Bank are well capitalized under current policies of the banking authorities, they could become subject to higher capital requirements under the proposed Guidance.

— Changes in Federal Home Loan Bank (FHLB) borrowing policies. The Bank relies upon advances from the FHLB for a large portion of the funding for the Bank’s loans. FHLB advances are 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, and changes in the rates or duration of advances could make them less advantageous to the Bank.

9

— 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 and specifically on its ability to generate income through the sale of SBA loans.

— Changes in market interest rates and the volatility of rate sensitive loans and deposits. Changes in interest rates impact: (1) the demand for new loans, (2) the volume of loan prepayments, (3) the rates received on loans and securities, (4) the debt service burden on the Bank’s loan customers and (5) 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 Company 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.

— 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 that collateralizes substantially all 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 Company 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 Company’s business and financial statements.

— 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.

— Operational risks including data processing system failures or fraud. Banks are dependent upon technology in the conduct of business. The Banking industry and the Bank have developed business continuity plans to address the various operational risks such as system failures. Depending upon the operational failure or fraud situation, the Bank could be adversely impacted by such an event.

— Terrorism and foreign hostilities. Uncertainty regarding the economic outlook resulting from the continuing war on terrorism and foreign hostilities, as well as actions taken, or to be taken, by the U.S. or other governments as a result of further acts or threats of terrorism could adversely impact the Bank’s business and financial statements.

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

The Company 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 $1,365,356,000 at September 30, 2006, grew $133.6 million during the first nine months of 2006, compared to $1,231,734,000 at December 31, 2005. Net loans increased $37.8 million in the third quarter of 2006. Cash and equivalents increased $11.7 million during the third quarter. Deposits increased by $51.0 million during the third quarter.

Net income after income taxes for the first nine months of 2006 equaled $13,681,000 compared to $12,638,000 for the comparable period in 2005, an increase of 8.3%. Net income for the third quarter of 2006 equaled $4,421,000, an increase of 1.4% when compared to net income of $4,362,000 for the third quarter of 2005. Increased profit resulted primarily from growth in net interest income due to loan growth. The Company has incurred $645,000 in expenses related to the proposed merger with Sterling ($629,000 was expensed in the third quarter). This had an after tax impact of $383,000 for the year to date and $374,000 for the third quarter. Income excluding these expenses would have increased 11.3% for the year to date and 9.9% for the third quarter in comparison to the same periods of 2005.

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Net Interest Income

Net interest income (before the provision for loan losses) of $12,189,000 for the third quarter of 2006 increased 5.8% from $11,524,000 for the comparable period last year. This increase in net interest income resulted primarily from volume increases of $154.4 million in average earning assets for the current quarter compared to the third quarter of 2005. Average loans outstanding increased $161.0 million for the current quarter compared to the third quarter of 2005. Average interest bearing deposits for the third quarter increased $38.8 million over the same period last year and average borrowings with the Federal Home Loan Bank increased $85.0 million.

The net interest margin equaled 3.64% during the third quarter of 2006, compared to net interest margin for the third quarter of 2005 of 3.89% and 3.99% for the year ended December 31, 2005. The yield on average loans equaled 7.67% in the third quarter compared to 6.84% for the same period last year, while the Bank’s cost of funds increased to 4.50% for the third quarter of 2006 from 3.07% for the third quarter of 2005.

Several factors affected the Bank’s net interest margin. These factors include changes in market interest rates, the level of loans relative to deposits, the 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 since loan pricing is tied to various indices (prime rate, CMT, Eleventh District Cost of Funds, etc), which generally move in response to the Federal Reserve Board’s actions.

The full impact of rate changes on the Bank's earnings is not realized for several months, since not all loans, deposits, or wholesale borrowings reprice immediately. The majority of SBA loans is tied to the prime rate and reprice on a calendar quarter basis. During the third quarter of 2006 the prime rate equaled 8.25%, compared to 6.75% on September 30, 2005. During 2005 the prime rate increased 200 basis points to 7.25% at December 31, 2005 and has increased 100 basis points during 2006 to its current level of 8.25%. 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 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 reacts 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 as a result of increasing funding costs, and benefits net interest margin as rates decline as a result of decreasing funding costs.

Of the Bank's loan portfolio totaling $1,224.9 million at September 30, 2006, $748.9 million or 61.1% of total loans were adjustable rate loans which had not reached a floor or ceiling rate. Of that total, approximately $274.9 million were prime-based loans, of which $66.3 million reprice when prime changes and $199.2 million reprice on a quarterly basis.

Changing market rates also impact borrower behavior. The Bank has experienced an increasing rate of loan payoffs as borrowers have refinanced their existing loans with loans at more attractive rates and terms.

Market rates also impact the Bank’s ability to attract deposits and grow the loan portfolio. In a rising rate environment, it is necessary to remain competitively priced in order to retain existing and acquire new deposit balances. Even though deposit rates have been increasing, they remain at historically relatively low levels making them less attractive to depositors. The Bank has responded to the highly competitive rate environment by adding new deposit products such as the high yield money market account and initiating marketing campaigns designed to attract additional certificate of deposit balances.

The Bank had $667.3 million in time deposits at September 30, 2006. 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 its area. The cost of time deposits equaled 4.80% for the third quarter of 2006, compared to 3.37% for the third quarter of last year.

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— Level of Loans Relative to Deposits

The Bank’s ratio of loans-to-deposits increased to an average of 131.1% in the third quarter of 2006, compared to 119.3.0% for the same period last year. An increase in the loan-to-deposit ratio generally has a positive impact on net interest margin; however, other factors explained in this section have offset this benefit.

— Mix of Loans and Earning Assets

Changes in the mix of loans also impact the Bank’s net interest margin. Real estate mortgage loans grew to $971.5 million at the end of this quarter from $825.2 million at December 31, 2005. The yield on this category was 7.32%, while the yield on the entire loan portfolio for the quarter was 7.67%. The Bank has developed loan products tied to the US Treasury yield curve and LIBOR indices, with other favorable terms to attract new loan volume. Management continues to focus on loan growth. The Bank’s competitive environment and rate structure, along with several other factors discussed in this section, have resulted in downward pressure on net interest margin.

Construction loans continued to grow, totaling $49.1 million at the end of this quarter, compared to $37.2 million at December 31, 2005. Construction loans typically have short maturity dates (approximately one year). During the third quarter construction lending activity remained strong. The Bank’s construction loans yielded 8.47% in the third quarter of 2006, compared to 7.32% for the third 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.

Commercial loan yields (the majority of the Bank’s commercial loans are SBA loans) increased to 8.89% in the third quarter of 2006 from 7.35% for the same period last year. The majority of these loans reprice on a quarterly schedule based upon the current prime rate. Average commercial loan yields were positively impacted by the quarterly repricing of SBA loans to reflect the 150 basis point increase in prime rate since September 30, 2005. SBA loans have prepayment penalties (remitted to the SBA) during the first three years of the loan. Even with the prepayment penalties the Bank has experienced higher prepayment rates on SBA loans as a result of the increase in the prime rate. SBA borrowers have been refinancing to loans with more favorable terms.

Economic conditions and competition have impacted the mix of loans. The rising short term interest rate environment has contributed to an increasing yield on many of the Bank’s variable rate loans. The underlying index and structure of the variable interest rate loan determines the frequency of rate changes and how responsive loan yields are to changes in market rates. With rising shorter term interest rates, the yield curve has flattened, which narrows the difference between short term rates and long term rates. As the difference between short and long term interest rates diminishes, it becomes more attractive for borrowers to seek longer term, fixed rate loans, which has resulted in increased refinancing activity. 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, impacting the Bank’s offering rates on new loans and negatively impacting the Bank’s net interest margin.

— Non-Accrual Loan Balances

Loans which have been placed on non-accrual status also impact the net interest margin. At the time a loan is placed on non-accrual, the unpaid interest is reversed and interest accruals are discontinued until the credit quality of the loan justifies returning it to accrual status. As of September 30, 2006, the Bank had $600,000 in non-accrual loans or 0.05% of total loans compared to $618,000 at December 31, 2005. 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

In the third quarter of 2006, interest expense increased to $12.8 million from $7.8 million for the same period last year. The increase in interest expense, resulted from an increase in the amount of interest bearing deposits, an increase in the average interest rate paid for deposits, an increase in the amount of borrowings from the FHLB and an increase in their interest cost. Average interest bearing deposits equaled $834.2 million for the third quarter of 2006 compared to $795.4 million in the same quarter last year. The average cost of interest bearing deposits equaled 4.22% this quarter compared to 2.93% in the same quarter of 2005.

Certificates of deposit reprice at the time the certificate matures, which delays the impact to the Bank’s cost of funds in an upward interest rate market. Money market and other interest bearing transactions accounts reprice weekly at the discretion of the Bank. The impact of repricing money market and other interest bearing transactions accounts is more immediate since all balances will earn at the new 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.

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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. Borrowings with the FHLB are generally for a term of one to three years and are at fixed rates or variable prime based rates. The average cost of FHLB advances was 5.30% for this quarter compared to 3.58% for the same period last year. The increase is the result of the increase in prime rate (150 basis points since September 30, 2005). Average borrowings increased to $294.5 million for the current quarter compared to $209.5 million for the same period last year.

The following is an analysis of the net interest margin:

	Three months ended September 30, 2006							Three months ended September 30, 2005
(dollars in thousands)	Average  Balance		Interest		Yield/ Cost			Average  Balance		Interest		Yield/ Cost
Earning assets (1)	$	1,328,629	$	24,995		7.46	%	$	1,174,180	$	19,296		6.52	%
Interest bearing liabilities		1,128,714		12,806		4.50	%		1,004,839		7,772		3.07	%
Net interest income			$	12,189						$	11,524
Net Interest income to earning assets						3.64	%						3.89	%

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

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	Nine months ended September 30, 2006							Nine months ended September 30, 2005
(dollars in thousands)	Average  Balance		Interest		Yield/ Cost			Average Balance		Interest		Yield/ Cost
Earning assets (1)	$	1,279,669	$	69,567		7.27	%	$	1,133,503	$	54,101		6.38	%
Interest bearing liabilities		1,090,000		33,293		4.08	%		973,873		20,120		2.76	%
Net interest income			$	36,274						$	33,981
Net Interest income to earning assets						3.79	%						4.01	%

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

The following table sets forth changes in interest income and interest expense for each major category of interest-earning asset and interest-bearing liability, and the amount of change attributable to volume and rate changes for the three and nine months ended September 30, 2006 and 2005. Changes not solely attributable to rate or volume have been allocated to rate.

	For the three months ended September 30, 2006 over September 30, 2005
(dollars in thousands)	Volume			Rate			Total
Increase (decrease) in interest income:
Loans	$	2,682		$	2,647		$	5,329
Investment securities and other interest bearing investments		(227	)		92			(135	)
Federal funds sold		123			382			505
Total increase		2,578			3,121			5,699
Increase in interest expense:
Interest-bearing transaction accounts		(50	)		354			304
Time deposits		423			2,266			2,689
Other borrowings		768			1,273			2,041
Total increase		1,141			3,893			5,034
Increase (decrease) in net interest income	$	1,437		$	(772	)	$	665

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	For the nine months ended September 30, 2006 over September 30, 2005
(dollars in thousands)	Volume			Rate			Total
Increase (decrease) in interest income:
Loans	$	7,608		$	6,754		$	14,362
Investment securities and other interest bearing investments		793			116			909
Federal funds sold		(692	)		887			195
Total increase		7,709			7,757			15,466
Increase in interest expense:
Interest-bearing transaction accounts		(11	)		842			831
Time deposits		152			7,308			7,460
Other borrowings		1,127			3,755			4,882
Total increase		1,268			11,905			13,173
Increase (decrease) in net interest income	$	6,441		$	(4,148	)	$	2,293

Provision for Loan Losses

The provision for loan losses for the three and nine months ended September 30, 2006, amounted to $450,000 and $1,400,000,respectively, compared to $600,000 and $1,650,000 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 and SBA loan servicing. Other income decreased 0.7% to $1,158,000 from $1,166,000 when comparing the third quarter of 2006 to the same period last year. The majority of the decrease results from decreased income from gains on sale of SBA loans during the third quarter of 2006 as compared to the third quarter of 2005.

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

(in thousands)	Three months ended September 30,				Nine months ended September 30,
	2006		2005		2006		2005
Gains on loan sales	$	756	$	803	$	2,416	$	2,168
Service charges on deposits		114		115		358		368
Other Service charges		84		52		230		176
Loan servicing fees		130		113		372		308
Income on insurance policies		30		24		86		72
Other		44		59		88		106
Total Other Income	$	1,158	$	1,166	$	3,550	$	3,198

The change in gains on the sale of the guaranteed portion of SBA loans results primarily from the lower premiums received on SBA loan sales. The average percent gain on sales in the third quarter of 2006 equaled 7.5% compared to 9.5% for the third quarter of 2005. The decline in the average percent gain was adversely impacted by the sale of more seasoned loans. In addition, market premiums have been adversely affected by the increase in the SBA loan prepayment speed. Premiums on loan sales are market driven based upon factors such as rate of prepayments of SBA loans experienced throughout the country, age of the loan, term of the loan, loan amount, and loan interest rate. The Bank sold $10.1 million and $29.2 million during the three and nine month periods in 2006 compared to $8.5 million and $21.0 million during the same periods in 2005. The Bank continues to retain a portion of the SBA loans it originates, 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. There is no guarantee that premiums will continue at the current level.

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SBA servicing fees, which increased 15.0% in the third quarter of 2006 compared to the third quarter of 2005, 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 $87.0 million in the third quarter of 2006 compared to $59.4 million for the same period last year. The serviced portfolio reflects SBA loan payoffs and volume of new sales during the period.

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

Non-Interest Expenses

For the third quarter of 2006, total non-interest expense of $5,396,000 increased 14.8% from $4,702,000 for the third quarter last year. The operating expenses in the third quarter were impacted by $629,000 of expenses which were associated with the Company’s proposed merger with Sterling Financial Corporation. The Company expects additional expenses to be incurred related to the proposed merger. The following table outlines the components of non-interest expense for the periods indicated:

(In thousands)	Three months Ended September 30,				Percentage
Expense Item	2006		2005		Change
Salaries & Employee Benefits	$	3,273	$	2,914		12.3	%
Occupancy		544		501		8.6
Equipment		290		287		1.0
Advertising/Business Development/Donations		198		202		(2.0	)
Outside Customer Services		85		113		(24.8	)
Director & Shareholder expenses		83		141		(41.1	)
Deposit and Other Insurance		149		130		14.6
Postage & courier expenses		82		96		(14.6	)
Professional Fees		436		43		914.0
Stationery & Supplies		79		92		(14.1	)
Telephone expense		53		62		(14.5	)
Loan expenses		37		26		42.3
Other		87		95		(8.4	)
TOTAL	$	5,396	$	4,702		14.8	%

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(In thousands)	Nine months Ended September 30,				Percentage
Expense Item	2006		2005		Change
Salaries & Employee Benefits	$	9,505	$	8,399		13.2	%
Occupancy		1,569		1,403		11.8
Equipment		867		855		1.4
Advertising/Business Development/Donations		590		642		(8.1	)
Outside Customer Services		259		283		(8.5	)
Director & Shareholder expenses		314		476		(34.0	)
Deposit and Other Insurance		414		392		5.6
Postage & courier expenses		292		299		(2.3	)
Professional Fees		764		456		67.5
Stationery & Supplies		228		256		(10.9	)
Telephone expense		160		173		(7.5	)
Loan expenses		100		112		(10.7	)
Other		334		339		(1.5	)
TOTAL	$	15,396	$	14,085		9.3	%

Certain categories of Bank expenses have increased as a result of Bank expansion and loan origination volumes. In May 2006, the Healdsburg branch opened and the Bank is currently working on a new branch in Novato, California.

The increase in salaries and employee benefits was impacted by an agreement to compensate Mr. Larry Sorensen, a former executive officer, $240,000 as severance upon his termination and to modify his stock option agreement to accelerate the vesting of his options, which resulted in an additional charge of $120,000. In the fourth quarter of 2005 the Bank implemented new cost recovery allocations based upon an updated study. This increased allocation reduced salaries when comparing to the third quarter of 2005. This benefit was offset by increased staff level, with the Bank’s full time equivalent employees (FTE) increasing to 184 at September 30, 2006, from 166 at September 30, 2005. New staff was hired for the new Healdsburg branch, and the Bank has also deployed additional staff to loan review and appraisal functions. The balance of the growth in staff occurred in IT and branch operations support staff. Personnel costs are also impacted by annual salary increases, incentives based upon production goals and changes in insurance and benefit costs. The salary continuation agreement between the Bank and Mr. David Titus, the Bank’s Senior Loan Officer, was modified in February 2006. The impact of the modification, which totaled $365,000, was recorded in the first and second quarters of 2006. In addition, the adoption of FASB 123(R) added $9,000 to compensation expense during this quarter for the cost of stock-based compensation to directors, officers and employees under the Company’s stock option plan.

Occupancy expenses increased due to the branch office expansion with the new office in Healdsburg. Occupancy expenses will continue to increase as and if the Bank continues to expand. Equipment costs were relatively unchanged when comparing this quarter to the third quarter of 2005.

Advertising, business development and donations decreased 2.0% as a result of changes implemented in an effort to control costs. Advertising activity varies depending upon the need to attract new deposits or the promotion of new branch locations. In 2005, the Bank opened two branches in Contra Costa County, a new geographic market for the Bank, which required additional promotional and business development activities. The new branch in Healdsburg which opened in May 2006 is in an existing market and benefits from existing marketing promotions.

Professional fees increased significantly to $436,000 for the quarter and $764,000 for the first nine months of 2006 compared to $43,000 and $456,000 for the same periods of 2005. This quarter the Company paid $269,000 in professional fees related to the proposed merger with Sterling Financial Corporation, including $204,000 to Sandler O”Neil & partners, L.P (Sandler) for financial advisory services rendered in connection with the proposed merger. Under the terms of its engagement letter with Sandler, the Company has also agreed to pay Sandler a fee equal to 1% of the aggregate consideration to be paid by Sterling upon consummation of the proposed merger. 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 half of the year. The Company expects that audit, legal and consulting fees will continue to increase as we comply with SEC regulations and incur expenses related to the proposed merger.

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Outside customer services vary depending upon the costs incurred by analysis account 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. These expenses vary depending upon the cost of services incurred by the analysis customers and the average account balances they keep with the Bank.

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 Company’s annual report, transfer agent fees and other costs of communicating with shareholders are also included in this expense category. During the third quarter there was a one time adjustment to reduce an accrual for director expenses to agree with updated estimates.

Loan expenses include the adjustment to the allowance for unfunded loan commitments. In the third quarter, the allowance was increased by $3,000 since the level of unfunded commitments was higher than previous periods. This allowance can vary rather significantly from period to period. Also included in this category are costs associated with problem loans and the use of contracted loan services to assist staff during periods of high loan production. During the third quarter of 2006, the Bank experienced higher loan origination and appraisal expenses than in the third quarter of 2005.

Other expenses decreased during the third quarter of 2006 to $87,000, compared to $95,000 for the same period last year. The decrease in other expenses during the third quarter of 2006 is primarily due to the reduction of the reserve for operating losses, since the Bank’s has historically had very few operating losses. Costs related to publications and subscriptions, business travel and operational losses are also included in this category.

Income Taxes

The effective tax rate was 41.1% for the third quarter of 2006, and 40.6% for the nine months ended September 30, 2006, compared to 41.0% and 41.1%, for comparable periods of 2005. This decrease in the effective tax rate largely results from the increased tax benefit associated with the “California enterprise zones” deduction. California’s taxable income is reduced by the net interest received on loans made to businesses located in designated enterprise zones. The enterprise zone deduction has benefited from the increasing interest rate environment, which has resulted in higher loan rates. The higher rate during the third quarter includes adjustments resulting from the true-up calculation of the 2005 estimated tax provision to the final numbers used in the 2005 tax returns which were filed in September 2006.

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 $117.2 million or 8.6% of total assets at September 30, 2006, compared to $59.1 million or 4.8% of total assets at December 31, 2005. From December 31, 2005 to September 30, 2006 there was a substantial decrease in investment securities held for sale and a corresponding increase in federal funds sold. This reflects Asset and Liability Committee’s (ALCO) decision to invest the maturing investments in federal funds sold overnight. During the third quarter of 2006, the net cash provided by operating activities was $13.2 million. Net cash flows devoted to investing activities totaled $73.4 million (mainly in loans) and net cash flows received from financing activities totaled $118.3 million, which included borrowing from the FHLB and increased Bank deposits.

The Bank sold $10.1 million in SBA loans during the third quarter of 2006. The Bank also reduced borrowings from the Federal Home Loan Bank by $20.0 million. During the third quarter Bank deposits increased $51.0 million as a result of deposit campaigns. As a result of the inflow of deposits the Bank was able to fund the current loan growth and reduce its dependency on borrowings from the FHLB during this quarter.

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The Bank considers the unsold guaranteed portion of 7(a) SBA loans as a secondary source of liquidity. Although we are not holding these for sale, there is an established market for these loans and a sale transaction can typically be completed within 30 days. As of September 30, 2006, the Bank held $105.9 million in SBA guaranteed loans, which could be sold for additional liquidity.

At September 30, 2006, the Bank had unused federal funds lines of credit totaling $26,000,000. The Bank also has a credit line with the Federal Home Loan Bank which is based upon the value of pledged collateral (investments and loans). At September 30, 2006, the Bank had collateral pledged that would allow the Bank to borrow up to $402.0 million. The FHLB will permit the Bank to borrow up to 35% of the Bank’s total assets provided that adequate collateral has been pledged to the FHLB. At September 30, 2006, the Bank had borrowed $274.4 million, which left $127.6 million available to borrow. Management believes this amount of secondary liquidity provides an important supplemental cushion for cash demands that may arise.

At present, the Company's primary sources of liquidity are from cash balances, interest on deposits, exercise of stock options and dividends from the Bank. The Bank's ability to pay dividends to the Company is subject to the restrictions of the national banking laws and, under certain circumstances, the approval of the Comptroller of the Currency. At September 30, 2006, the Company had non-interest and interest bearing cash balances of $11.0 million, which management believes are adequate to meet the Company's foreseeable operational expenses.

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

Deposits

During the third quarter of 2006, deposits increased $51.1 million to $962.1 million at September 30, 2006. The majority of this change occurred in time deposits. During the first nine months of 2006, deposit totals increased $74.1 million to $962.1 million, an increase of 8.3% over $888.0 million at December 31, 2005. The deposit growth generated by the new branches located in Walnut Creek, West Petaluma, Concord and Healdsburg in the third quarter provided $10.7 million in additional deposits. As the cost of wholesale deposits became competitive with local pricing the Bank also brought in $18.0 million in deposits.

The following table outlines the components of the Bank’s deposit portfolio on the dates indicated:

(in thousands)	September 30, 2006		December 31, 2005
Non-interest bearing demand deposits	$	27,129	$	80,808
Non-interest bearing savings deposits		67,175		0
Interest bearing transaction accounts		200,548		214,488
Time certificates, $100,000 and over		318,763		278,681
Other time certificates		348,506		314,050
Total	$	962,121	$	888,027

During the first quarter, the Bank began reclassifying interest and non-interest bearing demand deposits with certain transaction characteristics to a savings classification. This reclassification explains the significant differences shown above in non-interest bearing demand deposits and non-interest bearing savings deposits, when comparing December 31, 2005 to September 30, 2006. This reclassification of deposits was implemented to reduce the required reserves held at the Federal Reserve Bank on a daily basis. This change reduced our reserve requirement by approximately $6 million dollars and allowed the Bank to invest those funds that had previously been restricted due to the reserve requirement.

Demand deposits and interest bearing transaction account balances vary depending upon the activity of customers. Approximately 57.2% of these accounts are business accounts, the balances of which tend to be more volatile than consumer deposits balances. 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 increased. Many depositors continue to retain funds in transaction accounts rather than locking in time certificate rates even though rates on time certificates have improved. These funds are also more volatile and fluctuate during various business cycles.

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Certificates of deposit totaled $667.3 million at September 30, 2006, an increase of 12.6% over $592.7 million at December 31, 2005. During the third quarter of 2006, certificate of deposit balances increased 10.9% from the $601.8 million reported at June 30, 2006. In an effort to control the increasing cost of deposits, time deposit pricing was targeted at retaining the majority of maturities during the second quarter, a period when 46.5% of the Bank’s time deposits matured. During the third quarter the Bank was more competitive in pricing time certificates. The Bank increased deposits by $18.0 million from an internet listing service during the third quarter when the cost of these deposit dropped to levels equal to or below rates offered in our current market area.

Competition continues to increase as more community banks establish branches in the Sonoma County market and other financial service companies offer similar rates and products. The current increasing interest rate environment and 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 offers attractive time deposit rates to raise funds during periods of high loan growth.

Loans

Loans, net of discounts and reserves, equaled $1,210.9 million at September 30, 2006 compared to $1,090.8 million at December 31, 2005, increasing 11.0% since December 31, 2005.

The following is an analysis of the loan portfolio.

Type of Loan (in thousands)	September 30, 2006			December 31, 2005
Real estate - mortgage	$	971,505		$	825,151
Real estate - construction		49,136			37,219
Commercial loans		203,181			234,841
Consumer installment loans		1,106			5,831
		1,224,928			1,103,042
Deferred loan fees and discount		(1,924	)		(1,521	)
Allowance for loan losses		(12,149	)		(10,749	)
TOTAL	$	1,210,855		$	1,090,772

The table above illustrates the Bank’s emphasis on commercial and real estate lending. At September 30, 2006, and December 31, 2005, commercial loans comprised 16.6% and 21.3%, respectively, of the Bank’s total loan portfolio. Construction and other real estate loans (combined) comprised 83.4% and 78.2% on those same dates. Management is aware of the risk factors in making commercial and real estate loans and is continuously monitoring the local marketplace as well as performing annual reviews of this portfolio.

Commercial real estate mortgage and construction lending contains potential risks that are not inherent in other types of portfolio loans. With respect to construction lending, the potential risks include declines in market values of underlying real property collateral and delays or cost overruns, which could expose the Bank to loss. Risks in commercial real estate lending include declines in commercial real estate values, increasing interest rates for variable rate loan customers, general economic conditions surrounding the commercial real estate properties and vacancy rates. Management attempts to mitigate lending risks through established underwriting procedures, periodic reviews of the underlying collateral and monitoring of real estate values and vacancy rates in our market areas.

The Bank makes commercial loans primarily to small and medium sized businesses and to professionals located within Northern California and Arizona. While the Bank emphasizes commercial lending, management does not believe that there is any significant concentration of commercial loans to any specific type of business or industry.

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. 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.

20

At September 30, 2006, 98.2% or $1,202.9 million of the Bank’s loans, including real estate, commercial and a majority of the Bank’s SBA loans were secured by real estate as the principal source of collateral. The majority of commercial real estate term loans are amortized over 30 years with higher quality loans amortized for up to 40 years. Both 30 and 40 year amortizing loans typically reflect a 15 year maturity. Worsening of economic conditions, increasing vacancy rates, excessive new construction, and/or rising interest rates could have an adverse effect on the value of real estate securing these loans and could have an adverse impact on the financial condition of the Bank.

The SBA loan program has been a less popular loan product in the current competitive market. Most SBA loans are floating rate loans tied to the prime rate which has been increasing. In an effort to remain competitive with SBA loans, the Bank has offered prime based fixed rate SBA loans for a fixed period, which moves to a variable loan at a stated date. This has made SBA loans more competitive, but also less attractive for purchase in the secondary market until they move to a floating rate. At September 30, 2006 total SBA (7a) guaranteed loans equaled $172.8 million, of which $105.9 million was guaranteed by the SBA. 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. If a default on a SBA loan occurs the Bank shares proportionally in the collateral supporting the loan with the SBA, which guarantees the loan. The 7(a) program is now operating at a zero subsidy which should resolve the budget considerations at the Federal government level that previously disrupted the program. With a $16.5 billion dollar authorization level, the program is not expected to be disrupted by governmental limitations on funding. Major changes to the default rates and subsequent subsidy calculation could affect the Bank’s profitability and future SBA loan growth.

Construction loans totaled $49.1 million at September 30, 2006, up from $37.2 million at December 31, 2005. 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 areas. 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 0.1% of the total loan portfolio at September 30, 2006 and 0.5% of the total loan portfolio at December 31, 2005.

Allowance for Loan Losses

The allowance for loan losses equaled $12,149,000 at September 30, 2006, compared to $10,749,000 at December 31, 2005. At September 30, 2006, the allowance for loan losses equaled 1.09% of loans (net of the guaranteed portion of SBA loans). The allowance for loan losses is reviewed on a monthly basis, based upon an allocation for each loan category, plus an allocation for any outstanding loans which have been classified by regulators or internally for the "Watch List". Each loan that has been classified is individually analyzed for the risk involved with a specific reserve allocation assigned according to the risk assessment.

At September 30, 2006, there was one borrower on non-accrual totaling $600,000 which are collateralized by real estate and $450,000 of the total guaranteed by the SBA. There were no loans past due 90 days or more which were still on accrual status. Loans past due 30 to 89 days totaled $4,224,000, all of which are collateralized by real estate. At December 31, 2005, the Bank had $618,000 in non-accrual loans and no loans past due 90 or more days and still accruing interest. Loans past due 30 to 89 days totaled $5,172,000 at December 31, 2005.

During the third quarter of 2006, 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 and nine months ended September 30, 2006:

21

(In thousands)	Three months ended September 30, 2006		Nine months ended September 30, 2006
Balance - Beginning of period	$	11,699	$	10,749
Provision for loan losses		450		1,400
Charge offs		-		-
Recoveries		-		-
Balance - End of period	$	12,149	$	12,149

Capital Resources

Pursuant to regulations under the FDIC Improvement Act of 1991 (FDICIA), five capital levels were prescribed as applicable for banks, ranging from well-capitalized to critically under-capitalized. At September 30, 2006, the Bank was considered "well capitalized."

The capital ratios for the Bank and the Company are presented in the following table.

	Sonoma National Bank		Northern Empire Bancshares
	September 30, 2006	December 31, 2005	September 30, 2006	December 31, 2005
Tier 1 leverage ratio	8.2%	7.9%	9.0%	8.8%
Tier 1 risk-based capital ratio	9.8%	9.9%	10.8%	11.0%
Total risk based capital ratio	10.9%	11.1%	11.9%	12.2%

The Company declared a 5% stock dividend on March 28, 2006, with a record date of May 1, 2006.

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 does not use derivatives to mitigate its credit risk, relying instead on underwriting standards, loan review and adequate loan loss reserves. See Allowance for Loan Losses. The Bank does not use derivatives to mitigate its interest rate risk. Interest rate risk is managed at the product level by structuring loan and deposit product offerings and pricing and structuring wholesale borrowings, such as Federal Home Loan Bank Advances, in a way that minimizes interest rate risk.

Interest rate risk is the risk of loss in value due to changes in interest rates. Since virtually all of the Company’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 Company’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 at different speeds and different magnitudes than its interest-bearing liabilities, impacting the quantity of interest income earned and interest expense incurred.

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 present value of asset cash flows minus the present value of liability cash flows, with adjustments made for off-balance sheet items. This analysis assesses the risk of loss in interest rate sensitive assets, liabilities and 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.

22

On a monthly basis, management prepares an analysis of interest rate 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 assuming a stable rate environment. Additionally, the analysis calculates the change in the value of the Bank’s equity 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 Interest Rate (basis points)	Estimated Net Interest Income (in thousands)	Estimated Change in Net Interest Income (in thousands)
+200	$44,618	($1,461)
+100	45,637	(443)
Base Scenario	46,080	-
-100	46,481	401
-200	46,948	868

The model used 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, nor does the model consider the impact of growth. Actual results could differ significantly from those estimates, which would result in significant differences in the calculated projected change.

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

The following schedule represents interest rate sensitivity profile as of September 30, 2006, of assets, liabilities and shareholders' equity classified by earliest possible repricing opportunity or maturity date.

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Balance Sheet (in thousands)	Through 3 months		Over 3 months through 1 year			Over 1 year through 5 years			Non-rate Sensitive or Over 5 years		Total
Assets
Fed funds sold & certificates of deposit	$	95,008	$	1,773		$	297				$	97,078
Investment securities				1,087					$	15,202		16,289
Loans (net of discounts)		471,256		252,034			103,187			396,527		1,223,004
Non-interest-earning assets (net of allowance for loan losses)										28,985		28,985
	$	566,264	$	254,894		$	103,484		$	440,714	$	1,365,356
Liabilities & Shareholders’ Equity
Time Deposits $100,000 and over	$	63,709	$	226,176		$	28,878				$	318,763
All other interest-bearing liabilities		499,203		325,853			65,391		$	190		890,637
Non-interest bearing liabilities										34,450		34,450
Shareholders' Equity										121,506		121,506
	$	562,912	$	552,029		$	94,269		$	156,146	$	1,365,356
Interest Rate Sensitivity (1)	$	3,352		($297,135	)	$	9,215		$	284,568
Cumulative Interest Rate Sensitivity	$	3,352		($293,783	)		($284,568	)	$	0

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

ITEM 4. Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including its Chief Executive Officer and Chief Accounting Officer, of the effectiveness of the design and operation of the Company'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 Accounting Officer concluded that the Company's disclosure controls and procedures are effective in a timely manner to alert them to material information relating to the Company, which is required to be included in the Company's periodic Securities and Exchange Commission filings. No change in internal control over financial reporting, as defined in Securities and Exchange Act Rule 13a-15(f), occurred during the fiscal quarter ended September 30, 2006, that has materially affected or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

24

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

None other than in the ordinary course of business.

Item 1A. Risk Factors

Management has reviewed the risk factors disclosed in its 2005 Form 10K filed on March 16, 2006. We do not believe that there have been any material changes in the risk factors previously disclosed in our 2005 Form 10-K. Please refer to the risk factors included under the section “Forward-looking statements” in Part 1, Item 2 above.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

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

None

Item 5. Other Information

None

Item 6. Exhibits

a. Exhibits:

(3) (i) 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).

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

(10) (a) Severance Agreement between Northern Empire Bancshares and Larry V. Sorensen dated September 29, 2006.

(10) (b) Amended Executive Salary Continuation Agreement between Sonoma National Bank and Deborah A. Meekins dated February 14, 2006.

(10) (c) Amended Executive Salary Continuation Agreement between Sonoma National Bank and David Titus dated February 14, 2006.

(10) (d) Engagement Letter between Sandler O’Neill and Northern Empire Bancshares dated January 6, 2006.

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

(32) Section 1350 Certification

25

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:	November 7, 2006
/s/ Deborah A. Meekins		/s/ Jane M. Baker
Deborah A. Meekins		Jane M. Baker
President and Chief Executive Officer		Chief Accounting Officer

EX-10.(A)

Exhibit 10 (a)

SEVERANCE AGREEMENT

AND RELEASE OF ALL CLAIMS

This Severance Agreement and Release of All Claims (“Agreement”) is made and entered into by and between Larry V. Sorensen, Executive Vice President of Sonoma National Bank (referred to herein as the “Bank”) and Chief Financial Officer (referred to herein as “Officer”) of Northern Empire Bancshares, a California Corporation (referred to herein as the “Company”) and the Company and the Bank.

RECITALS

WHEREAS, Officer’s employment with the Company and the Bank shall cease by mutual agreement of the parties, effective September 29, 2006 (the “Separation Date”);

WHEREAS, Officer does not have pending against the Company or any of its affiliated, related, parent or subsidiary corporations (including, without limitation, the Bank) or any of its or their directors, officers, employees, shareholders or agents (collectively referred to herein as the “Released Parties”) and the Company does not have pending against Officer any claim, charge or action in or with any federal, state or local court or administrative agency; and

WHEREAS, Officer understands that Officer may have at least 21 days from the Separation Date in which to consider the Agreement, and that after executing the Agreement, Officer has an additional 7 days after signing to revoke the Agreement. Officer further understands that this Agreement shall not become effective or enforceable until the revocation period has expired.

WHEREAS, Officer and the Company and the Bank desire to settle fully and finally all existing and/or potential differences between them;

NOW, THEREFORE, in consideration of the mutual covenants and promises herein and other good and valuable consideration, receipt of which is hereby acknowledged, it is agreed by and between the parties as follows:

AGREEMENT

1. Severance Sum.

a. As consideration supporting this Agreement, the Company agrees to pay Officer the gross sum of Two Hundred Forty Thousand Dollars (“Severance Sum”), which Officer otherwise would not be entitled to receive. The Severance Sum will be paid in one lump sum payment. The Severance Sum shall be subject to all applicable withholdings and deductions required by federal and state law. Payment of the Severance Sum shall be made within 5 calendar days after the 7-day revocation period has expired.

b. Officer agrees that payment of the Severance Sum and the accelerated vesting of stock options under Paragraph 19 below shall constitute the entire amount of economic consideration provided to Officer under this Agreement and that Officer will not seek any further compensation for any claimed damage, costs or attorneys’ fees in connection with the matters encompassed in this Agreement.

c. Conditional Nature of Severance Payment. Officer’s right to payment of the Severance Sum set forth in 1(a) above (to the extent Officer is otherwise entitled to such payment) and right to accelerated vesting under Paragraph 19 below, shall be conditioned upon the return of all Company and Bank property by September 29, 2006, and upon Officer not directly or indirectly engaging in (whether as an officer, consultant, agent, proprietor, principal, partner, stockholder, corporate officer, director or otherwise), any of the following: (1) the disclosure of any Company or Bank trade secrets, including but not limited to, any formula, pattern, compilation, program, device, method, technique, or process of the Company or Bank that is not generally known to the public to any person, and particularly not to any firm, corporation or business that competes with Company or Bank or is a customer of the Company or Bank (2) divulging any confidential information of the Company or Bank to any person or any such entity; (3) any act or conduct that would have the intended or reasonably foreseeable effect of wrongfully interfering with or disrupting any contractual or economic relationship(s) that the Company or Bank has with any other person or entity.

Officer agrees that breach of any of the above conditions shall constitute a material violation and breach of this Agreement.

2. Non-admission. This agreement and compliance with this Agreement shall not be construed as an admission by either party of any liability whatsoever, or as an admission by any Released Party of any violation of the rights of Officer or any person, or a violation of any order, law, statute, duty or contract.

3. Professional References. Any verbal or written request(s) for professional references regarding Officer shall be directed to the Human Resources Department of the Company, and only the following information will be provided by the Company: (1) Officer’ employment dates, (2) title, and (3) salary. Officer hereby authorizes the Company to provide such information upon request.

4. Non-disparagement. Officer shall not disparage any of the Released Parties, or any representative, customer or supplier of the Company or the Bank, or any affiliate of the Company or the Bank. Similarly, the Bank and Company agree that its officers and directors will not disparage Officer. Notwithstanding the foregoing, any party may respond accurately and fully to any question, inquiry or request for information when required by legal process.

5. Confidentiality. Officer understands and agrees that this Agreement and each of its terms, and the negotiations surrounding it, are confidential and shall not be disclosed by Officer to any entity or person, for any reason, at any time, without prior written consent of the Company, unless required by law. Notwithstanding the foregoing, Officer may disclose the terms of this Agreement to Officer’s spouse, and for legitimate business reasons, to legal, financial, and tax advisors, who shall also be bound to maintain the confidentiality of this Agreement and its terms.

6. Confidential Information. Officer shall not, for the benefit of any person or entity other than the Company or the Bank, disclose or use any information regarding the Company’s or the Bank’s business, officers, employees or customers, which was produced by any officer of the Company or the Bank in the course of employment with the Company or the Bank or otherwise produced or acquired by or on behalf of the Company or the Bank, and which is not properly in the public domain.

7. Releases.

a. In exchange for the benefits described in Paragraph 1, Officer and Officer’s successors and assigns, release and absolutely discharge the Released Parties of and from any and all claims, demands, actions and causes of action, which Officer now has, or at any other time had, or shall or may have against any of the Released Parties, whether now known or unknown, including, but not limited to, any and all claims for breach of contract; breach of the implied covenant of good faith and fair dealing; inducement of breach; interference with contract or prospective economic advantage; wrongful or unlawful demotion; violation of public policy; invasion of privacy; intentional or negligent infliction of emotional distress; intentional or negligent misrepresentation; conspiracy; failure to pay wages, commissions, bonuses, benefits, vacation pay, severance pay, attorneys' fees, or any other compensation of any sort; defamation; discrimination or harassment on the basis of race, color, sex, sexual orientation, religion, national origin, ancestry, age, disability, medical condition or any other protected class or status; any claim under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. §2000e et. seq., the Age Discrimination in Employment Act of 1967, as amended; the California Fair Employment and Housing Act, as amended; violation of the Occupational Safety and Health Act, or any other health/safety laws, statutes or regulations; violation of the Employee Retirement Income Security Act of 1974; violation of the Internal Revenue Code; violation of the federal Americans with Disabilities Act; violation of the federal Family and Medical Leave Act or California’s Family Rights Act; violation of Department of Labor regulations; violation of California’s Labor Code or Business and Professions Code; violation of any other applicable state, federal or local law; or any other alleged wrongful conduct by the Released Parties, including any claim related in any way to Officer’s employment or termination of employment with the Company or the Bank; provided, however, that the release contained herein shall not be construed in any way to release the Company or the Bank from any obligation to indemnify Officer pursuant to agreement or applicable law, including, but not limited to, any obligation regarding the advancement of costs.

b. In addition, Officer expressly waives the provisions of Section 1542 of the Civil Code of the State of California, which provides:

A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.

c. The Officer understands and agrees that Officer:

i. Has had at least a full twenty-one (21) days within which to consider this Agreement before executing it, or if Officer has executed this Agreement within less than twenty-one (21) days of the date of delivery to Officer, Officeracknowledges that such decision was entirely voluntary and that Officer had the opportunity to consider this Agreement for the entire twenty-one (21)-day period.

ii. Has carefully read and fully understands all of the provisions of this Agreement.

iii. Is, through this Agreement, releasing the Released Parties from any and all claims Officer may have against the Released Parties.

iv. Knowingly and voluntarily agrees to all of the terms set forth in this Agreement.

v. Knowingly and voluntarily intends to be legally bound by the same.

vi. Was advised and hereby is advised in writing to consider the terms of this Agreement and consult with an attorney of Officer’s choice prior to executing this Agreement.

vii. Has a full seven (7) days following the execution of this Agreement to revoke this Agreement and has been and hereby is advised in writing that this Agreement shall not become effective or enforceable until the revocation period has expired.

viii. Understands that any rights or claims under the Age Discrimination in Employment Act of 1967 (29 U.S.C. § 621, et seq.) that may arise after the date this Agreement is executed are not waived.

d. The Bank and the Company hereby release and absolutely discharge Officer of and from any and all claims, demands, actions and causes of action, which the Bank or Company now has, or at any other time had against Officer, whether now known or unknown, that arise out of or are related to events, acts, conduct or omissions occurring prior to its signing this Agreement, including, but not limited to, all claims related to Officer’s employment with the Bank or Company or the termination of that employment; provided however, that this release shall not extend to: any claims that may arise after this Agreement is executed, including (without limitation) any claims for breach of this Agreement; and any claims arising at any time out of Officer’s obligations to protect the Company’s or the Bank’s proprietary or confidential information pursuant to agreement or applicable law.

8. Acknowledgments and Representations. Officer acknowledges and represents that he has not suffered any discrimination or harassment by any of the Released Parties on account of his race, gender, national origin, religion, marital status, age, or any disability, medical condition or other characteristic protected by law. Officer acknowledges and represents that he has not been denied any leave to which he may have been entitled by law, and that he has not suffered any job-related wrongs or injuries for which he might still be entitled to compensation or relief. He further acknowledges and represents that, except as expressly provided in this Agreement, he has been paid all wages, bonuses, compensation, benefits and other amounts that any of the Released Parties has ever owed to him. He represents and warrants that all of the factual representations he makes herein, all of which induce the Company to enter into this Agreement, are true in all material respects.

9. No Voluntary Assistance. Officer agrees that Officer will not in any manner encourage or willingly assist any person, including any past, present, or prospective employees or applicants for employment with the Company or the Bank, in filing or pursuing any lawsuit, claim or action against any of the Released Parties, in any state or federal court or before any state, federal, or governmental agency, except as Officer may be required by statutorily authorized process to give testimony or to provide documents at a legal proceeding, or to cooperate in any agency or legal proceeding as authorized by law.

9. Assignment. Officer agrees that Officer will not assign, sell, transfer, delegate, or otherwise dispose of, whether voluntarily or involuntarily, or by operation of law, any rights or obligations under this Agreement. Any such purported assignment, transfer, or delegation shall be null and void. Officer represents that Officer has not previously assigned or transferred any claims or rights released by Officer pursuant to this Agreement. Subject to the foregoing, this Agreement shall be binding upon and shall inure to the benefit of the parties and their respective heirs, successors, attorneys, and permitted assigns. This Agreement shall also inure to the benefit of any Released Party. This Agreement shall not benefit any other person or entity as except as specifically enumerated in this Agreement.

10. Integration. This Agreement, including Exhibits A, B and C, sets forth the entire agreement between the parties hereto and fully supersedes any and all prior or contemporaneous agreements or understandings, written or oral, between the parties hereto pertaining to the subject matter hereof.

11. Modification. This Agreement may be modified, restated or otherwise changed only by a writing signed by Officer and the President of the Company. No oral representations or other acts shall give rise to an implied modification of this Agreement.

12. Choice of Law. The validity, performance and all other matters pertaining to this Agreement shall be governed by the laws of the State of California, without regard to the conflict of laws rules of said state.

13. Waiver. The failure or delay of any party to enforce at any time any of the provisions hereof shall not be construed to be a waiver of the right of such party thereafter to enforce any such provision. No waiver shall be valid unless in writing and signed by the party providing such waiver.

14. Severability. If any provision of this Agreement or the application thereof to any situation or circumstance shall be invalid or unenforceable, the remainder of this Agreement or the application of such covenant, agreement, term or provision to situations or circumstances other than those as to which it is invalid or unenforceable shall not be affected; and each covenant, agreement, term or provision of this Agreement shall be valid and enforceable to the fullest extend permitted by applicable law. In such event, the parties shall negotiate in good faith to substitute for any such invalid or unenforceable provision a valid and enforceable provision which most nearly effects the parties’ original intent in entering into this Agreement.

15. Consultation of Counsel. Each of the parties acknowledges that they have had the full opportunity to seek independent legal advice in respect to the contents of this Agreement and that they sign this Agreement voluntarily after having been offered such opportunity.

16. Notice. Any notice required or desired to be given under this Agreement shall be deemed given if in writing sent by registered mail to Officer’s last known residence or to the Company’s principal office, to the attention of the President of the Company, as the case may be.

17. Arbitration. The parties agree that any dispute, controversy, or claim arising out of or relating to this Agreement shall be resolved by binding arbitration in accordance with the Rules of the American Arbitration Association (the “AAA”) governing employment dispute resolution, which shall apply except as modified below. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction. There shall be a single arbitrator agreed upon mutually by the parties; but if they cannot agree upon the selection within forty-five (45) days after demand for arbitration is given by one party to the other, an arbitrator having reasonable experience in employment dispute resolution matters shall be selected in accordance with the applicable rules of the AAA. The arbitration shall be conducted in Sonoma County, California, or at the AAA facility closest to Sonoma County, unless otherwise mutually agreed by the parties. Each party shall pay its own attorneys’ fees and costs, except that the Company shall pay the fees and expenses related to the arbitration that the Officer would not generally be required to bear if Officer brought the same action in a court otherwise having jurisdiction. The arbitrator shall prepare a written decision and shall have the power to grant damages, remedies or relief that would be available in a court otherwise having jurisdiction of the matter, but no other damages, remedies or relief. Subject to the foregoing, the arbitrator shall have the power to determine if any issue is arbitrable under this Agreement. BY SIGNING BELOW, EACH PARTY ACKNOWLEDGES THAT THE ARBITRATION PROVISION OF THIS AGREEMENT REQUIRES THE PARTY TO GIVE UP RIGHT TO HAVE THE DISPUTE LITIGATED IN A COURT AND/OR THE RIGHT TO A JURY TRIAL. Nothing in this Agreement is intended to prevent either Officer or the Company or the Bank from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.

18. Voluntary Agreement. Officer has fully reviewed the terms of this Agreement, acknowledges that Officer understands the terms of this Agreement, and states that Officer is entering into this Agreement knowingly, voluntarily and in full settlement of any and all claims that Officer may have as a result of Officer’s employment with Company or the Bank.

19. Vesting of Stock Options. Upon the effective date of this Agreement, following all periods within which Officer may revoke this Agreement, all stock options held by Officer shall become fully vested and exercisable by the Officer, subject to (a) compliance with the Company’s Trading Policy (a copy of which is attached as Exhibit A), including applicable ‘blackout periods’; (b) securities laws and regulations applicable to Officer as an ‘affiliate’ of the Company; and (c) the Company’s 1997 Stock Option Plan (a copy of which is attached as Exhibit B) and Officer’s Stock Option Agreement(s) (a copy of which is attached as Exhibit C), including any applicable exercise periods. It is further understood and agreed that the Company is not providing any representations or assurances as to any tax treatment with respect to the exercise of any of Officer’s stock options or the sale of any shares received upon exercise. Officer acknowledges that he has the opportunity to seek the advice of his own tax advisor with respect to the tax effects and/or treatment of any exercise of his stock options and/or sale of stock received upon exercise.

20. Counterparts. This Agreement may be signed in counterparts, each of which shall be an original.

Dated:	September 26, 2006	/s/ Larry V. Sorensen
		Larry V. Sorensen
Dated:	September 29 ,2006	SONOMA NATIONAL BANK and NORTHERN EMPIRE BANCSHARES
		By:	/s/ Deborah Meekins
		Deborah Meekins
		President and Chief Executive Officer

EX-10.(B)

Exhibit 10 (b)

SONOMA NATIONAL BANK

AMENDED EXECUTIVE SALARY CONTINUATION AGREEMENT

This Agreement is made and entered into as of February 14, 2006 (the “Effective Date”) by and between Sonoma National Bank, a national banking association, (the "Bank"), and Deborah A. Meekins, (the "Executive").

WITNESSETH:

WHEREAS, the Bank employs the Executive to serve as its President and Chief Executive Officer;

WHEREAS, the Bank and the Executive entered into an Executive Salary Continuation Agreement (“the Agreement”), effective July 27, 1993, providing for certain benefits to the Executive upon her death, disability or retirement;

WHEREAS, as of the Effective Date, the parties desire to make certain amendments and changes to the Agreement to clarify their original intent and to provide and set forth in one document, to be effective upon the date set forth below until termination of this Amended Agreement, those benefits herein specified to be provided to the Executive upon her death, disability or retirement;

WHEREAS, the parties continue to agree that the Executive's experience, knowledge of the affairs of the Bank, reputation and contacts in the industry are so valuable that assurance of her continued service is essential for the future growth and profits of the Bank, and it is in the best interest of the Bank to arrange terms of continued employment for the Executive so as to reasonably assure her remaining in the Bank’s employment during her lifetime or until the age of retirement;

WHEREAS, the Bank desires that the Executive's services be retained as herein provided, and

WHEREAS, the Executive will continue in the employ of the Bank provided the Bank agrees to pay her or her beneficiary certain benefits in accordance with the terms and conditions hereinafter set forth;

WHEREAS, this Amended Agreement is not part of any salary reduction plan or nonqualified deferred compensation plan under Section 409A of the Code and the Executive has no option to elect to accelerate or defer the payment of any benefit provided hereunder.

NOW, THEREFORE, in consideration of the services to be performed in the future as well as the mutual promises and covenants herein contained, it is agreed as follows:

ARTICLE 1

Definitions

1.1 “Bank” shall mean Sonoma National Bank, a wholly owned subsidiary of Northern Empire Bancshares (the “Company”), or any successors thereto.

1.2  “Beneficiary” shall mean the person or persons designated in writing by Executive to receive the benefits provided hereunder in the event of her death. Such designation shall be valid only if made on a form provided by the Bank, and the Bank receives the form prior to the Executive's death.

1.3  “Cause” shall mean a failure by Executive to conform with high standards of diligence, competence, skill, judgment, and efficiency in the execution of her duties on behalf of the Bank; provided, however, that Executive shall be entitled to thirty (30) days written notice and opportunity to cure prior to any termination for Cause. In addition, for purposes of this Amended Agreement, "Cause" shall include dishonesty, fraud, conviction or plea of nolo contender to a felony or of a crime involving moral turpitude, willful destruction, or theft of Bank property, willful malfeasance or gross negligence by the Executive in the performance of her duties.

1.4  “Change in Control” shall mean the occurrence of any of the following events: (a)any reorganization (as defined in Section 181 of the California Corporations Code), merger or consolidation of the Bank in which the Bank is not the surviving organization; (b)any reorganization (as defined in Section 181 of the California Corporations Code), merger or consolidation of the Company in which the Company is not the surviving organization; (c)any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) of any assets of the Bank or of the Company, having an aggregate fair market value of fifty percent (50%) of the total value of the assets of the Bank or the Company and its consolidated subsidiaries, reflected in the most recent balance sheet of the Bank or the Company; or (d) any person (as such term used in Sections 13(d) and 14 (d) (2) of the Securities Exchange Act or 1934), other than the Company, becomes a beneficial owner directly or indirectly of securities of the Bank representing twenty-five percent (25%) of the combined voting power of the Bank's then-outstanding securities.

1.5 “Code” shall mean the Internal Revenue Code of 1986, as amended.

1.6  “Disability” shall mean any disability that would meet the definition of a permissible payment event pursuant to Section 409A(2)(C) of the Code.

1.7 “Retirement” shall mean any termination of employment (other than for Cause) that occurs after Executive has attained Retirement Age. “Retirement Age” shall be age fifty-five (55).

ARTICLE 2

Conditions to Receipt Benefits

2.1 Minimum Service Requirement. Executive shall be eligible to receive benefits under this Amended Agreement after thirteen (13) years of service with the Bank, with such service credited from January 1, 1993 (i.e., as of January 1, 2006).

2.2 Distribution Schedule. Distributions under this Amended Agreement shall be in accordance with the schedule described herein for the applicable distribution event. Executive shall have no discretion to accelerate or defer any of the scheduled payments other than in accordance with Section 409A of the Code and its applicable regulations.

2.3 Maximum Benefit. The maximum benefit payable under this Amended Agreement shall be One Million Five Hundred Thousand Dollars ($1,500,000).

2.4 Payment Period. Except as otherwise indicated below, payments in accordance with this Amended Agreement shall be made monthly for a period of fifteen (15) years (one hundred eighty (180) months).

ARTICLE 3

Retirement

3.1 Retirement. Beginning no later than March 15 of the year immediately following her Retirement from the Bank, Executive shall be entitled to receive the annual sum of One Hundred Thousand Dollars ($100,000) for the duration of the Payment Period, payable in equal monthly installments.

3.2 Early Retirement. In the event Executive retires from employment with the Bank after achieving the Minimum Service Requirement but prior to reaching Retirement Age, she shall be entitled to receive annual payments during the Payment Period as follows:

13 years of service:	$	81,264
14	$	89,775
15 and thereafter	$	100,000

Notwithstanding the date of early retirement, the Payment Period shall begin no later than March 15 of the year immediately following the year in which Executive reaches Retirement Age.

3.3 Death After Retirement. If the Executive dies after Retirement but prior to receiving the full amount of monthly payments to which she is entitled under this Article 3, the Bank will continue to make such monthly payments to her Beneficiary.

ARTICLE 4

Death or Disability

4.1 Death Prior to Retirement. In the event that the Executive should die while actively employed by the Bank at any time after Effective Date, the Bank will pay the annual sum of One Hundred Thousand dollars ($100,000) to the Beneficiary for the duration of the Payment Period. The Payment Period shall commence no later than six (6) months after the date of death.

4.2 Disability. In the event that Executive employment is terminated as a result of Disability prior to attaining Retirement Age, her benefits shall be calculated in accordance with Section 3.2 above; provided, however, that regardless of Executive’s age at the time the disability, the Payment Period shall begin no later than March 15 of the year immediately following her termination.

ARTICLE 5

Termination other than for Retirement

5.1 Termination for Cause. If the Executive is Terminated for Cause prior to Retirement, then she shall be entitled to the benefits payable with respect to early retirement under Section 3.2 above; provided, however, that the Payment Period shall be for one year (12 months) only.

5.2 Vesting on a Change in Control. Notwithstanding anything to the contrary contained herein, in the event of a Change in Control, the early benefits schedule described in 3.2 above shall become fully vested and annual benefits payable as a result of any termination hereunder (including for early retirement, Disability and Cause) shall be $100,000, subject to the applicable Payment Period and timing conditions described herein. If such vesting results in any payment that would be an “Excess Parachute Payment” under Section 280G of the Code, the Bank shall take whatever steps are necessary to ensure that Executive receives the full benefit to which she is entitled hereunder, including (by way of example only), extending the Payment Period and/or grossing up the payment to cover any additional excise taxes.

ARTICLE 6

Miscellaneous

6.1 Funding of Amended Agreement. The Bank may, but is not required to, voluntarily invest in a life insurance policy, insuring the life of the Executive, to help fulfill its obligations to pay benefits to the Beneficiary of Executive pursuant to this Amended Agreement. The specified benefits are payable to the Executive or her beneficiaries pursuant to the terms of this Amended Agreement, whether or not such life insurance is purchased by or payable to the Bank. In the event the Bank purchases life insurance, insuring the life of the Executive, the cash surrender value of such life insurance shall belong to and be a general asset of the Bank.

6.2  Termination orModification. This Amended Agreement is the entire agreement between the parties on this subject matter and may not be modified or abrogated orally or by course of dealing, but only by another instrument in writing duly executed by the parties.

6.2  Prohibition Against Assignment by Executive. Neither Executive nor her Beneficiary shall have the right to assign the benefits payable under this Amended Agreement without the written permission of the Bank.

6.3 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the state of California, without regard to any applicable conflicts of law rules.

6.4 Titles and Headings. The titles, captions and headings of this Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Agreement.

6.5 Counterparts. This Agreement may be executed in counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

6.6 Compliance with Section 409A of the Code . This Agreement is intended to constitute an enforceable contract for the payment of certain retirement and death benefits. This Amended Agreement is not intended to be a funded pension plan under the Employee Retirement Income Security Act of 1974, nor is it intended to constitute a "nonqualified deferred compensation plan" within the meaning of Section 409A of the Code. Notwithstanding the foregoing, in the event this Agreement and/or any benefit paid to the Employee hereunder is deemed to be subject to Section 409A of the Code, this Agreement shall be amended as reasonably necessary to bring this Agreement and/or any such benefit into compliance with Section 409A of the Code, without reducing the amounts of any benefits due to the Employee hereunder.

6.7 Participation in Other Plans. Nothing contained in this Agreement shall be construed to alter, abridge or in any manner affect the rights and privileges of the Executive to participate in and be covered by any pension, profit sharing, group insurance, bonus or similar employee plans which the Bank may now or hereafter have.

6.8 Not a Contract of Employment. This Agreement shall not be deemed to constitute a contract of employment between the parties hereto, nor shall any provision hereof restrict the right of the Bank to discharge the Executive, or restrict the right of the Executive to terminate her employment.

IN WITNESS WHEREOF, the Bank has caused this to be duly executed by its Chairman of the Board and its corporate seal affixed, duly attested by its Secretary, and the Executive has hereunto set her hand at Santa Rosa, California.

EXECUTIVE:	SONOMA NATIONAL BANK
/s/ Deborah A. Meekins	/s/ James B. Keegan, Jr.
DEBORAH A. MEEKINS	By: James B. Keegan, Jr.
	Title: Chairman of the Board

EX-10.(C)

Exhibit 10 (c)

SONOMA NATIONAL BANK

AMENDED EXECUTIVE SALARY CONTINUATION AGREEMENT

This Agreement is made and entered into as of February 14, 2006 (the “Effective Date”) by and between Sonoma National Bank, a national banking association, (the "Bank"), and David F. Titus, (the "Executive").

WITNESSETH:

WHEREAS, the Bank employs the Executive to serve as its Senior Lending Officer;

WHEREAS, the Bank and the Executive entered into an Executive Salary Continuation Agreement (“the Agreement”), effective June 1, 1993, providing for certain benefits to the Executive upon his death, disability or retirement;

WHEREAS, as of the Effective Date, the parties desire to make certain amendments and changes to the Agreement to clarify their original intent and to provide and set forth in one document, to be effective upon the date set forth below until termination of this Amended Agreement, those benefits herein specified to be provided to the Executive upon his death, disability or retirement;

WHEREAS, the parties continue to agree that the Executive's experience, knowledge of the affairs of the Bank, reputation and contacts in the industry are so valuable that assurance of his continued service is essential for the future growth and profits of the Bank, and it is in the best interest of the Bank to arrange terms of continued employment for the Executive so as to reasonably assure his remaining in the Bank’s employment during his lifetime or until the age of retirement;

WHEREAS, the Bank desires that the Executive's services be retained as herein provided, and

WHEREAS, the Executive will continue in the employ of the Bank provided the Bank agrees to pay him or his beneficiary certain benefits in accordance with the terms and conditions hereinafter set forth;

WHEREAS, this Amended Agreement is not part of any salary reduction plan or nonqualified deferred compensation plan under Section 409A of the Code and the Executive has no option to elect to accelerate or defer the payment of any benefit provided hereunder.

NOW, THEREFORE, in consideration of the services to be performed in the future as well as the mutual promises and covenants herein contained, it is agreed as follows:

ARTICLE 1

Definitions

1.1 “Bank” shall mean Sonoma National Bank, a wholly owned subsidiary of Northern Empire Bancshares (the “Company”), or any successors thereto.

1.2  “Beneficiary” shall mean the person or persons designated in writing by Executive to receive the benefits provided hereunder in the event of his death. Such designation shall be valid only if made on a form provided by the Bank, and the Bank receives the form prior to the Executive's death.

1.3  “Cause” shall mean a failure by Executive to conform with high standards of diligence, competence, skill, judgment, and efficiency in the execution of his duties on behalf of the Bank; provided, however, that Executive shall be entitled to thirty (30) days written notice and opportunity to cure prior to any termination for Cause. In addition, for purposes of this Amended Agreement, "Cause" shall include dishonesty, fraud, conviction or plea of nolo contender to a felony or of a crime involving moral turpitude, willful destruction, or theft of Bank property, willful malfeasance or gross negligence by the Executive in the performance of his duties.

1.4 “Change in Control” shall mean the occurrence of any of the following events: (a)any reorganization (as defined in Section 181 of the California Corporations Code), merger or consolidation of the Bank in which the Bank is not the surviving organization; (b)any reorganization (as defined in Section 181 of the California Corporations Code), merger or consolidation of the Company in which the Company is not the surviving organization; (c)any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) of any assets of the Bank or of the Company, having an aggregate fair market value of fifty percent (50%) of the total value of the assets of the Bank or the Company and its consolidated subsidiaries, reflected in the most recent balance sheet of the Bank or the Company; or (d) any person (as such term used in Sections 13(d) and 14 (d) (2) of the Securities Exchange Act or 1934), other than the Company, becomes a beneficial owner directly or indirectly of securities of the Bank representing twenty-five percent (25%) of the combined voting power of the Bank's then-outstanding securities.

1.5 “Code” shall mean the Internal Revenue Code of 1986, as amended.

1.6  “Disability” shall mean any disability that would meet the definition of a permissible payment event pursuant to Section 409A(2)(C) of the Code.

1.7 “Retirement” shall mean any termination of employment (other than for Cause) that occurs after Executive has attained Retirement Age. “Retirement Age” shall be age fifty-eight (58).

ARTICLE 2

Conditions to Receipt Benefits

2.1 Minimum Service Requirement. Executive shall be eligible to receive benefits under this Amended Agreement after thirteen (13) years of service with the Bank, with such service credited from January 1, 1993 (i.e., as of January 1, 2006).

2.2 Distribution Schedule. Distributions under this Amended Agreement shall be in accordance with the schedule described herein for the applicable distribution event. Executive shall have no discretion to accelerate or defer any of the scheduled payments other than in accordance with Section 409A of the Code and its applicable regulations.

2.3 Maximum Benefit. The maximum benefit payable under this Amended Agreement shall be Two Million Four Hundred Thousand Dollars ($2,400,000).

2.4 Payment Period. Except as otherwise indicated below, payments in accordance with this Amended Agreement shall be made monthly for a period of twenty (20) years (two hundred forty (240) months).

ARTICLE 3

Retirement

3.1 Retirement. Beginning no later than March 15 of the year immediately following his Retirement from the Bank, Executive shall be entitled to receive the annual sum of One Hundred Thousand Dollars ($100,000) for the duration of the Payment Period, payable in equal monthly installments.

3.2 Early Retirement. In the event Executive retires from employment with the Bank after achieving the Minimum Service Requirement but prior to reaching Retirement Age, he shall be entitled to receive annual payments during the Payment Period as follows:

13 years of service:	$	75,000
14	$	80,000
15	$	85,000
16	$	90,000
17	$	95,000
18 and thereafter	$	100,000

Notwithstanding the date of early retirement, the Payment Period shall begin no later than March 15 of the year immediately following the year in which Executive reaches Retirement Age.

3.3 Death After Retirement. If the Executive dies after Retirement but prior to receiving the full amount of monthly payments to which he is entitled under this Article 3, the Bank will continue to make such monthly payments to his Beneficiary.

ARTICLE 4

Death or Disability

4.1 Death Prior to Retirement. In the event that the Executive should die while actively employed by the Bank at any time after Effective Date, the Bank will pay the annual sum of One Hundred Thousand dollars ($100,000) to the Beneficiary for the duration of the Payment Period. The Payment Period shall commence no later than six (6) months after the date of death.

4.2 Disability. In the event that Executive employment is terminated as a result of Disability prior to attaining Retirement Age, the Bank will pay the annual sum of One Hundred Thousand dollars ($100,000) to the Beneficiary for the duration of the Payment Period. The Payment Period shall begin no later than March 15, of the year immedicately following his termination

ARTICLE 5

Termination other than for Retirement

5.1 Termination for Cause. If the Executive is Terminated for Cause prior to Retirement, then he shall be entitled to the benefits payable with respect to early retirement under Section 3.2 above; provided, however, that the Payment Period shall be for one year (12 months) only.

5.2 Vesting on a Change in Control. Notwithstanding anything to the contrary contained herein, in the event of a Change in Control, the early benefits schedule described in 3.2 above shall become fully vested and annual benefits payable as a result of any termination hereunder (including for early retirement, Disability and Cause) shall be $100,000, subject to the applicable Payment Period and timing conditions described herein. If such vesting results in any payment that would be an “Excess Parachute Payment” under Section 280G of the Code, the Bank shall take whatever steps are necessary to ensure that Executive receives the full benefit to which he is entitled hereunder, including (by way of example only), extending the Payment Period and/or grossing up the payment to cover any additional excise taxes.

ARTICLE 6

Miscellaneous

6.1 Funding of Amended Agreement. The Bank may, but is not required to, voluntarily invest in a life insurance policy, insuring the life of the Executive, to help fulfill its obligations to pay benefits to the Beneficiary of Executive pursuant to this Amended Agreement. The specified benefits are payable to the Executive or his beneficiaries pursuant to the terms of this Amended Agreement, whether or not such life insurance is purchased by or payable to the Bank. In the event the Bank purchases life insurance, insuring the life of the Executive, the cash surrender value of such life insurance shall belong to and be a general asset of the Bank.

6.2 Termination orModification. This Amended Agreement is the entire agreement between the parties on this subject matter and may not be modified or abrogated orally or by course of dealing, but only by another instrument in writing duly executed by the parties.

6.2 Prohibition Against Assignment by Executive. Neither Executive nor his Beneficiary shall have the right to assign the benefits payable under this Amended Agreement without the written permission of the Bank.

6.3 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the state of California, without regard to any applicable conflicts of law rules.

6.4 Titles and Headings. The titles, captions and headings of this Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Agreement.

6.5 Counterparts. This Agreement may be executed in counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

6.6 Compliance with Section 409A of the Code . This Agreement is intended to constitute an enforceable contract for the payment of certain retirement and death benefits. This Amended Agreement is not intended to be a funded pension plan under the Employee Retirement Income Security Act of 1974, nor is it intended to constitute a "nonqualified deferred compensation plan" within the meaning of Section 409A of the Code. Notwithstanding the foregoing, in the event this Agreement and/or any benefit paid to the Employee hereunder is deemed to be subject to Section 409A of the Code, this Agreement shall be amended as reasonably necessary to bring this Agreement and/or any such benefit into compliance with Section 409A of the Code, without reducing the amounts of any benefits due to the Employee hereunder.

6.7 Participation in Other Plans. Nothing contained in this Agreement shall be construed to alter, abridge or in any manner affect the rights and privileges of the Executive to participate in and be covered by any pension, profit sharing, group insurance, bonus or similar employee plans which the Bank may now or hereafter have.

6.8 Not a Contract of Employment. This Agreement shall not be deemed to constitute a contract of employment between the parties hereto, nor shall any provision hereof restrict the right of the Bank to discharge the Executive, or restrict the right of the Executive to terminate his employment.

IN WITNESS WHEREOF, the Bank has caused this to be duly executed by its Chairman of the Board and its corporate seal affixed, duly attested by its Secretary, and the Executive has hereunto set his hand at Santa Rosa, California.

EXECUTIVE:	SONOMA NATIONAL BANK
/s/ David F. Titus	/s/ James B. Keegan, Jr.
David F. Titus	Title: Chairman of the Board

EX-10.(D)

Exhibit 10 (d)

AMENDED Engagement Letter Between Sandler O’Neill & Partners, L.P and Northern Empire Bancshares

January 6, 2006

Board of Directors

Northern Empire Bancshares

801 Fourth Street

Santa Rosa, CA 95404

Attention: Mr. Dennis Hunter

Chairman

Ladies and Gentlemen:

This letter agreement, executed by the parties on the date(s) set forth below, (1) is effective as of January 6, 2006, and (2) amends the letter agreement, executed by Sandler O’Neill & Partners, L.P. and executed by Northern Empire Bancshares, on January 6, 2006, to read in full as follows:

Sandler O‘Neill & Partners, L.P. ("Sandler O’Neill") is pleased to act as an independent financial advisor to the Board of Directors of Northern Empire Bancshares and its subsidiaries (together, the "Company") in connection with the Company’s consideration of a possible Business Combination involving the Company and a second party (whether an individual, partnership, company or other entity, and together with its affiliates, the "Second Party"). This letter is to confirm the terms and conditions of our engagement.

SPECIFIC ADVISORY SERVICES

Sandler O’Neill will assist the Company in analyzing, structuring, negotiating and effecting a Business Combination or other strategic alternative which may involve one or more Second Parties. In this regard, we anticipate that our activities would include, as appropriate, the following:

1. Performing financial analyses of the Company and the Second Party in the context of a possible Business Combination or alternative transaction;

2. Assisting the Company in its determination of appropriate and desirable values to be exchanged in a Business Combination or alternative transaction;

3. Advising the Company as to the structure and form of any proposed Business Combination or alternative transaction;

4. Advising and assisting the Company’s management in making presentations to the Company’s Board of Directors about any proposed Business Combination or alternative transaction;

5. Using its best efforts to assist the Company in identifying suitable Second Parties and counseling and participating with the Company in any approaches to, or discussions or negotiations with, such Second Party;

6. Assuming an agreement in principle is reached for a Business Combination or alternative transaction, assisting the Company in negotiating the financial terms of a definitive agreement;

7. If requested by the Company and agreed to by Sandler O’Neill, rendering an Opinion, as defined herein, to the Board (the "Opinion") as to whether the consideration to be exchanged in a proposed Business Combination with the Second Party is fair, from a financial point of view, to the Company’s shareholders, it being understood that the Company would not intend to proceed with a proposed Business Combination unless Sandler O’Neill advises the Company that Sandler O’Neill is or will be prepared to issue an Opinion; and

8. Rendering such other financial advisory and investment banking services as may from time to time be agreed upon by Sandler O’Neill and the Company.

The Company hereby acknowledges and agrees that the financial models and presentations used by Sandler O’Neill in performing its services hereunder have been developed by and are proprietary to Sandler O’Neill and are protected under applicable copyright laws. The Company agrees that it will not reproduce or distribute all or any portion of such models or presentations without the prior written consent of Sandler O’Neill.

FEES

1. If during the period Sandler O’Neill is retained by the Company hereunder or within 12 months following termination of the engagement of Sandler O’Neill, as provided below under the caption “Termination of Engagement” (a) a Business Combination is consummated with any Second Party contacted by Sandler O’Neill on behalf of the Company during the term of this engagement letter and such Second Party is included on the agreed upon list of “Contacted Second Parties” to be updated during the course of the engagement by Sandler O’Neill, with each update to the list to be agreed to by the Company and such list will be included as Addendum A hereto or (b) the Company enters into a definitive agreement with any Second Party contacted by Sandler O’Neill on behalf of the Company during the term of this engagement letter and such Second Party is included on the agreed upon list of “Contacted Second Parties” to be updated during the course of the engagement by Sandler O’Neill, with each update to the list to be agreed to by the Company and such list will be included as Addendum A hereto, to engage in a Business Combination, and such Business Combination is ultimately consummated, it being understood that such consummation need not occur during the 12 month period above, the Company shall pay Sandler O’Neill a fee in an amount equal to 1.00% of the Aggregate Purchase Price, less the amount of any fee paid to Sandler O’Neill pursuant to paragraph 2 below, due and payable in cash on the day of closing of the Business Combination.

2. If Sandler O’Neill is asked by the Company to render an Opinion in connection with a Business Combination, the Company agrees to pay Sandler O’Neill a fee of $200,000, payable in cash at the time such Opinion is rendered, which shall be credited against any fee that may become due and payable pursuant to paragraph (1) above.

EXPENSE REIMBURSEMENT

In addition to any fees that may be payable to Sandler O’Neill under this letter, the Company agrees to reimburse Sandler O’Neill, upon request made from time to time, for its reasonable out-of-pocket expenses incurred in connection with Sandler O’Neill’s activities under this letter, including the reasonable fees and disbursements of its legal counsel; provided, however, that the Company shall not be required to reimburse any expenses exceeding $20,000 in the aggregate unless Sandler O’Neill has obtained the Company’s prior approval of such expenses (such approval not to be unreasonably withheld); and provided further that such expense limitation and approval is not intended to apply to or in any way impair or limit the indemnification or contribution provisions hereof.

FAIRNESS OPINION

The Fairness Opinion referred to above is a written opinion of Sandler O’Neill provided to the Company stating in effect that, in the sole opinion of Sandler O’Neill and subject to the terms and conditions contained therein, the consideration to be received in the proposed Business Combination with a Second Party is fair to the Company’s shareholders from a financial point of view.

It is understood that any Opinion will be dated as of a date reasonably proximate to the date of any definitive agreement entered into by the Company and the Second Party and, at the request of the Company, shall be updated as of a date reasonably proximate to the date of any proxy statement or any offer to purchase to be mailed to the shareholders of the Company in connection with the Business Combination. It is further understood that if the Opinion is included in any such proxy statement or offer to purchase, the Opinion will be reproduced in such proxy statement or offer to purchase in full, and any description of or reference to Sandler O’Neill or the analyses performed by Sandler O’Neill or any summary of the Opinion in such proxy statement or offer to purchase will be in a form acceptable to Sandler O’Neill and its counsel in the exercise of their reasonable judgment. Except as provided in this letter or as required by law, neither the Opinion nor any other advice delivered to the Board of Directors or senior management of the Company by Sandler O’Neill may be reproduced, summarized, described or referred to without Sandler O’Neill’s prior written consent; provided, however, the Company may reproduce, and Sandler O’Neill will assist the Company in summarizing, the Opinion in the proxy statement to be furnished to shareholders and/or the registration statement to be filed with the SEC in connection with the Business Combination, and Sandler O’Neill will assist the Company in providing to its shareholders and the SEC all information required by the SEC, including SEC Schedule 14A and Regulation M-A.

CONFIDENTIAL INFORMATION

The Company will furnish Sandler O’Neill (and will request that any of the Company’s representatives furnish Sandler O’Neill) with such information as Sandler O’Neill reasonably believes appropriate to its assignment (all such information so furnished being the "Information") and hereby represents and warrants to Sandler O’Neill that the Information will be true and correct in all material respects and not misleading. The Company recognizes and confirms that Sandler O’Neill (a) will use and rely primarily on the Information and on information available from generally recognized public sources in performing the services contemplated by this letter and in rendering the Opinion without having independently verified the same, (b) does not assume responsibility for the accuracy or completeness of the Information and such other information, (c) will not make an appraisal of any assets, collateral securing assets or liabilities of the Company or any Second Party and (d) will not perform any analysis on the effect of AICPA Statement of Position 03-3 on the value of any loan portfolio to be sold as part of any Business Combination (an “SOP 03-3 Review”). Sandler O’Neill agrees to use all reasonable efforts to keep confidential Information confidential.

It is agreed that prior to distributing any materials related to the Company, including, but not limited to the Information, to a Second Party, Sandler O’Neill will provide a copy of such materials to the Company and its counsel for its review and written approval, such approval not to be unreasonably withheld. The parties agree that the foregoing provision for the Company’s prior approval, among other provisions herein, is a material inducement for the Company to enter into this engagement letter, and agree that a breach of this provision, resulting in loss or damage to the Company, would constitute a material breach of this engagement letter.

CERTAIN ACKNOWLEDGMENTS

The Company acknowledges that Sandler O’Neill has been retained hereunder solely as an adviser to the Board of Directors of the Company, and not as an adviser to or agent of any other person, and that the Company’s engagement of Sandler O’Neill is as an independent contractor and not in any other capacity. Sandler O’Neill may, to the extent it deems appropriate, render the services hereunder through one or more of its affiliates. Neither this engagement, nor the delivery of any advice in connection with this engagement, is intended to confer rights upon any persons not a party hereto (including security holders, employees or creditors of the Company) as against Sandler O’Neill or its affiliates or its or their respective partners, directors, officers, agents or employees. Following consummation of a Business Combination, Sandler O’Neill may, at its own expense, place announcements or advertisements in financial newspapers, journals and marketing materials describing our services hereunder.

The Company acknowledges that it is not relying on the advice of Sandler O’Neill for tax, legal or accounting matters, it is seeking and will rely on the advice of its own professionals and advisors for such matters and it will make an independent analysis and decision regarding any Business Combination or alternative transaction based upon such advice.

INDEMNIFICATION; CONTRIBUTION

The Company agrees to indemnify and hold Sandler O’Neill and its affiliates and their respective partners, directors, officers, employees, agents and controlling persons (Sandler O’Neill and each such person being an "Indemnified Party") harmless from and against any and all losses, claims, damages and liabilities, joint or several, to which such Indemnified Party may become subject under applicable federal or state law, or otherwise, related to or arising out of any actual or proposed Business Combination or alternative transaction or the engagement of Sandler O’Neill pursuant to, or the performance by Sandler O’Neill of the services contemplated by, this letter (collectively, the “Losses”), and will reimburse any Indemnified Party for all expenses (including reasonable counsel fees and expenses) as they are incurred, including expenses incurred in connection with the investigation of, preparation for or defense of any pending or threatened claim or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party (collectively, the “Expenses”). The Company will not be liable under the foregoing indemnification provision to the extent that any Loss is found in a final judgment by a court of competent jurisdiction to have resulted proximately from (1) the bad faith of or (2) a material breach of this Agreement or (3) gross negligence or (4) or reckless or willful misconduct or (5) violation of law or regulation by the Indemnified Party.The Company further agrees that no Indemnified Party shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Company or any of its affiliates, creditors or security holders for or in connection with the engagement of Sandler O’Neill pursuant to, or the performance by Sandler O’Neill of the services contemplated by, this letter or any actual or proposed Business Combination, alternative transaction or other conduct in connection therewith except with respect to those losses, claims, damages and liabilities, joint and several, incurred by the Company that are found in a final judgment by a court of competent jurisdiction to have resulted proximately from the (1) bad faith of or (2) a breach of this Agreement or (3) gross negligence or (4) or reckless or willful misconduct or (5) violation of law or regulation by the Indemnified Party. In the event a court finds that any losses, claims damages and liabilities of the Company resulted from any of the acts of Sandler O’Neil enumerated in the preceding sentence, the Company, in addition to any other rights it may have under this agreement, expressly reserves its rights to pursue any remedy in law or equity against Sandler O’Neill for breach of contract, for indemnification and otherwise to the fullest extent provided by California law.

In the event Sandler O’Neill appears as a witness in any action brought against the Company in which an Indemnified Party is not named as a defendant, the Company agrees to reimburse Sandler O’Neill for all reasonable expenses incurred and time expended by it in connection with its appearing as a witness.

The Company agrees to notify Sandler O’Neill promptly of the assertion against it or any other person of any claim or the commencement of any action or proceeding relating to any transaction contemplated by this agreement.

CERTAIN DEFINITIONS

As used in this letter, the term:

1. "Business Combination" means (a) any merger, consolidation, reorganization or other business combination pursuant to which the business of the Company is combined with or comes under common control with that of a Second Party, or (b) the acquisition, directly or indirectly, by a Second Party of more than 24.9% of the capital stock, or all or a substantial portion of the assets, of the Company, by way of tender or exchange offer, negotiated purchase or otherwise, whether effected, in any such case, in one transaction or a series of transactions.

2. "Aggregate Purchase Price" means an amount equal to the sum of (a) the product of (1) the consideration agreed to be paid or exchanged for each share of each class of stock of the Company, and (2) the number of such shares outstanding immediately preceding the effective time of the Business Combination, plus (b) the product of (1) the number of such shares issuable upon the exercise of any options, warrants or other rights to purchase shares of any class of the Company’s securities, all as outstanding on or after the date of an agreement to effect a Business Combination, and, without duplication, that are cashed out, as the case may be, as part of the Business Combination and (2) the consideration to be paid with respect to such underlying shares minus any applicable exercise or strike price plus (c) the amount of any debt assumed (directly or indirectly) or repaid in connection with the Business Combination, (d) the net present value of any contingent payments (whether or not related to future earnings or operations and including payments to executive personnel in respect of retention agreements) calculated based upon the assumption that the maximum aggregate amount of any consideration pursuant to the contingent payment provisions is received, plus (e) any extraordinary dividends or distributions paid on or prior to the closing in connection with the Business Combination.

 For purposes of this agreement, if all or any portion of the consideration to be paid consists of securities, (i) the fair market value of any such securities will be the value as the parties hereto shall mutually agree on the day prior to the consummation of such transaction; provided, however, that if such securities consist of securities with an existing public trading market, the value thereof shall be determined by the average of the last sales prices for such securities on the five trading days ending five calendar days prior to such date and (ii) the amount of the fee payable pursuant to paragraph 1 under the caption “Fees” above shall be calculated as if the date on which the payment is due were the date of consummation of the Business Combination. In the event a particular transaction structure makes the calculation of the Aggregate Purchase Price as set forth above impractical, the parties hereto shall use their best efforts to determine an Aggregate Purchase Price that would approximate the Aggregate Purchase Price had the relevant Business Combination been structured as a purchase of the Company’s shares.

GOVERNING LAW

This Agreement, and the rights of the parties’ hereunder, shall be governed, interpreted and enforced pursuant to the laws of the State of California.

TERMINATION OF ENGAGEMENT

Sandler O’Neill’s engagement hereunder may be terminated by the Company or by Sandler O’Neill at any time upon 30 days written notice to that effect, it being understood that the provisions relating to the payment of fees and expenses and indemnification and contribution and those contained under the caption “Certain Acknowledgements” will survive any such termination for a period of 12 months following such 30 days written notice.

Please confirm that the foregoing correctly sets forth our agreement by signing and returning to Sandler O’Neill the duplicate copy of this letter enclosed herewith.

  Very truly yours,

Sandler O’Neill & Partners, L.P.
By:	Sandler O’Neill & Partners Corp.,
	the sole general partner
By:	/s/ Murray G. Bodine
	Murray G. Bodine
	An Officer of the Corporation
Dated:	January 6, 2006

Accepted and agreed to:

Northern Empire Bancshares
By:	/s/ Dennis R. Hunter
Name:	Dennis R. Hunter
Its:	Chairman of the Board

Dated:

EX-31.1

Exhibit 31

Rule 13a-14(a)/15d-14(a) Certification

I, Deborah A. Meekins, certify that:

1. I have reviewed this quarterly report on Form 10-Q Northern Empire Bancshares;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 3, 2006	Signature	/s/ Deborah A. Meekins
		Deborah A. Meekins, President and Chief Executive Officer

EX-31.2

Exhibit 31

Rule 13a-14(a)/15d-14(a) Certification

I, Jane M. Baker, certify that:

1. I have reviewed this report on Form 10-Q Northern Empire Bancshares;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 3, 2006	Signature	/s/ Jane M. Baker
		Jane M. Baker, Chief Accounting Officer

EX-32

Exhibit 32

SECTION 1350 CERTIFICATION

The undersigned each certify that:

1. They are the duly appointed Chief Executive Officer and Chief Accounting Officer, respectively, of Northern Empire Bancshares, a California Corporation (“the Company”); and

2. To their best knowledge and belief, the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, and to which the Certification is attached as Exhibit 32, fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Northern Empire Bancshares.

Date: November 3, 2006

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