AGREEMENT AND PLAN OF MERGER

BY AND BETWEEN

STERLING FINANCIAL CORPORATION

AND

NORTHERN EMPIRE BANCSHARES

AGREEMENT AND PLAN OF MERGER

BY AND BETWEEN

STERLING FINANCIAL CORPORATION

AND

NORTHERN EMPIRE BANCSHARES

TABLE OF CONTENTS

		Page
ARTICLE I			2
THE MERGER			2
1.1 THE MERGER			2
1.2 EFFECTIVE TIME			2
1.3 EFFECTS OF THE MERGER			2
1.4 CONVERSION OF NORTHERN EMPIRE COMMON STOCK			2
1.5 STERLING COMMON STOCK			4
1.6 OPTIONS			4
1.7 RESERVATION OF SHARES AND SECURITIES FILINGS			5
1.8 ARTICLES OF INCORPORATION			5
1.9 BYLAWS			5
1.10 DIRECTORS AND OFFICERS			5
1.11 TAX CONSEQUENCES			5
1.12 ACCOUNTING TREATMENT			5
ARTICLE II			5
EXCHANGE OF SHARES			5
2.1 STERLING TO MAKE SHARES AVAILABLE			5
2.2 EXCHANGE OF SHARES; CONVERSION OF OPTIONS			6
ARTICLE III			7
REPRESENTATIONS AND WARRANTIES OF NORTHERN EMPIRE			7
3.1 CORPORATE ORGANIZATION			7
3.2 CAPITALIZATION			9
3.3 AUTHORITY; NO VIOLATION			10
3.4 CONSENTS AND APPROVALS			11
3.5 REPORTS			12
3.6 FINANCIAL STATEMENTS; EXCHANGE ACT FILINGS; BOOKS AND RECORDS			12
3.7 BROKERS FEES			13
3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS			13
3.9 LEGAL PROCEEDINGS			14
3.10 TAXES AND TAX RETURNS			14
3.11 EMPLOYEE PLANS			15
3.12 CERTAIN CONTRACTS			17
3.13 REGULATORY AGREEMENTS			18

		Page
3.14 STATE TAKEOVER LAWS			18
3.15 ENVIRONMENTAL MATTERS			18
3.16 ALLOWANCES FOR LOSSES			19
3.17 PROPERTIES AND ASSETS			19
3.18 INSURANCE			20
3.19 COMPLIANCE WITH APPLICABLE LAWS			20
3.20 LOANS			21
3.21 UNDISCLOSED LIABILITIES			22
3.22 INTELLECTUAL PROPERTY RIGHTS			22
3.23 INDEMNIFICATION			22
3.24 INSIDER INTERESTS			22
3.25 FAIRNESS OPINION			23
3.26 TAX TREATMENT OF MERGER			23
3.27 NORTHERN EMPIRE INFORMATION			23
ARTICLE IV			23
REPRESENTATIONS AND WARRANTIES OF STERLING			23
4.1 CORPORATE ORGANIZATION			24
4.2 CAPITALIZATION			25
4.3 AUTHORITY; NO VIOLATION			25
4.4 CONSENTS AND APPROVALS			27
4.5 REPORTS			27
4.6 FINANCIAL STATEMENTS; EXCHANGE ACT FILINGS; BOOKS AND RECORDS			27
4.7 BROKERS FEES			28
4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS			28
4.9 LEGAL PROCEEDINGS			29
4.10 TAXES AND TAX RETURNS			29
4.11 REGULATORY AGREEMENTS			30
4.12 STATE TAKEOVER LAWS			30
4.13 ENVIRONMENTAL MATTERS			30
4.14 ALLOWANCES FOR LOSSES			31
4.15 COMPLIANCE WITH APPLICABLE LAWS			31
4.16 LOANS			31
4.17 UNDISCLOSED LIABILITIES			32
4.18 TAX TREATMENT OF MERGER			32
4.19 STERLING INFORMATION			32
ARTICLE V			33
COVENANTS RELATING TO CONDUCT OF BUSINESS			33
5.1 COVENANTS OF NORTHERN EMPIRE			33
5.2 COVENANTS OF STERLING			38
5.3 MERGER COVENANTS			40
ARTICLE VI			40
ADDITIONAL AGREEMENTS			40
6.1 REGULATORY MATTERS			40
6.2 ACCESS TO INFORMATION			42
6.3 SHAREHOLDERS MEETINGS			42
6.4 LEGAL CONDITIONS TO MERGER			43
6.5 STOCK EXCHANGE LISTING			44

		Page
6.6 EMPLOYEES			44
6.7 INDEMNIFICATION			44
6.8 ADDITIONAL AGREEMENTS			46
6.9 ADVICE OF CHANGES			46
6.10 CURRENT INFORMATION			46
6.11 INSTITUTION MERGER AGREEMENT			47
6.12 CHANGE IN STRUCTURE			47
6.13 TRANSACTION EXPENSES OF NORTHERN EMPIRE			47
6.14 AFFILIATE AGREEMENTS			47
6.15 BOARD OF DIRECTORS			48
ARTICLE VII			48
CONDITIONS PRECEDENT			48
7.1 CONDITIONS TO EACH PARTYS OBLIGATION TO EFFECT THE MERGER			48
7.2 CONDITIONS TO OBLIGATIONS OF STERLING			49
7.3 CONDITIONS TO OBLIGATIONS OF NORTHERN EMPIRE			51
ARTICLE VIII			52
TERMINATION AND AMENDMENT			52
8.1 TERMINATION			52
8.2 EFFECT OF TERMINATION			55
8.3 AMENDMENT			56
8.4 EXTENSION; WAIVER			57
8.5 DETERMINATION OF BREACH OF AGREEMENT			57
ARTICLE IX			57
GENERAL PROVISIONS			57
9.1 CLOSING			57
9.2 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS			58
9.3 EXPENSES			58
9.4 NOTICES			58
9.5 INTERPRETATION			59
9.6 COUNTERPARTS			59
9.7 ENTIRE AGREEMENT			60
9.8 GOVERNING LAW			60
9.9 ENFORCEMENT OF AGREEMENT			60
9.10 SEVERABILITY			60
9.11 PUBLICITY			60
9.12 ASSIGNMENT; LIMITATION OF BENEFITS			61

EXHIBITS
A		Institution Merger Agreement
B		Articles of Merger
C		Form of Voting Agreement
D		Form of Noncompetition Agreement
E		Form of Affiliate Agreement
F		Index Group

AGREEMENT AND PLAN OF MERGER

     This AGREEMENT AND PLAN OF MERGER, dated as of September 17, 2006 (this Agreement), is entered into by and between Sterling Financial Corporation, a Washington corporation (Sterling), and Northern Empire Bancshares, a California corporation (Northern Empire).

     WHEREAS, the Boards of Directors of Sterling and Northern Empire have determined that it is in the best interests of their respective companies and shareholders to consummate the business combination transaction provided for herein in which Northern Empire will, subject to the terms and conditions set forth herein, merge with and into Sterling, with Sterling being the surviving corporation in such merger (the Merger).

     WHEREAS, prior to the consummation of the Merger, if Sterling so elects, Sterling and Northern Empire will respectively cause Sterling Savings Bank, a Washington-chartered bank and wholly owned subsidiary of Sterling (Sterling Savings Bank), and Sonoma National Bank, a national banking association and wholly owned subsidiary of Northern Empire (Sonoma), to enter into a merger agreement, in the form attached hereto as Exhibit A (the Institution Merger Agreement), providing for the merger (the Institution Merger) of Sonoma with and into Sterling Savings Bank, with Sterling Savings Bank being the Surviving Institution of the Institution Merger.

     WHEREAS, the Merger is intended to be treated as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the Code).

     WHEREAS, the parties desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe certain conditions to the Merger.

     WHEREAS, concurrently with the execution of this Agreement and as a material inducement to the willingness of Sterling to enter into this Agreement, (a) each of the Northern Empire shareholders identified on Schedule 7.2(d) hereto is executing and delivering to Sterling a voting agreement in the form attached hereto as Exhibit C (the Voting Agreement), (b) each of the Northern Empire employees identified on Schedule 7.2(e) hereto is executing and delivering to Sterling an employment agreement, to be effective at the Effective Time (as defined in Section 1.2 hereof), and (c) each of the Northern Empire shareholders identified on Schedule 7.2(f) hereto is executing and delivering to Sterling a noncompetition agreement in the form attached hereto as Exhibit D (the Noncompetition Agreement), to be effective at the Effective Time.

     NOW, THEREFORE, in consideration of the foregoing, the representations, warranties, covenants and agreements contained herein, and intending to be legally bound hereby, the parties agree as follows.

ARTICLE I
THE MERGER

     1.1 THE MERGER.

     Subject to the terms and conditions of this Agreement, at the Effective Time, Northern Empire shall merge with and into Sterling, with Sterling being the surviving corporation (hereinafter sometimes called the Surviving Corporation) in the Merger. Upon consummation of the Merger, the corporate existence of Northern Empire shall cease and the Surviving Corporation shall continue to exist as a Washington corporation.