Press Release

North Valley Bancorp Reports Results
for the Fourth Quarter

January 29, 2008 - REDDING, CA - North Valley Bancorp (NASDAQ:NOVB), a bank holding company with $949 million in assets, today reported results for the quarter and year ended December 31, 2007. North Valley Bancorp ("the Company") is the parent company for North Valley Bank ("NVB").

During 2007, total assets increased $43,346,000, or 4.8%, to $949,019,000 at December 31, 2007. The Company was successful in shifting more of its earning assets into the loan portfolio as loans increased $86,460,000, or 13.1%, totaling $746,253,000 at December 31, 2007. The increase in loans was funded primarily from paydowns, maturities and calls of investment securities. The loan to deposit ratio at year end 2007 was 101.3% as compared to 87.9% at year end 2006. Total deposits decreased $13,549,000, or 1.8%, to total $736,739,000 at December 31, 2007, resulting from a decrease in noninterest bearing and interest bearing demand and savings deposits of $56,751,000 offset by increases in time deposits of $43,202,000.

On a GAAP basis, the Company reported net income for the year ended December 31, 2007 of $6,534,000, or $0.86 per diluted share, compared to $10,396,000, or $1.36 per diluted share, for the year ended December 31, 2006. This represents a decrease in net income $3,862,000, or 37.1%, and $0.50 per diluted share, or 36.8%, compared to the year ended December 31, 2006. For the year ended December 31, 2007, the Company realized a return on average stockholders' equity of 8.31% and a return on average assets of 0.72%, as compared to 14.48% and 1.15%, respectively, for 2006. On a GAAP basis, the Company reported net income for the fourth quarter ended December 31, 2007 of $390,000, or $0.05 per diluted share, compared to $3,054,000, or $0.40 per diluted share, for the same period in 2006. This represents a decrease in net income of $2,664,000, or 87.2%, compared to the fourth quarter of 2006. For the fourth quarter of 2007, the Company realized an annualized return on average shareholders' equity of 1.91% and an annualized return on average assets of 0.17%, as compared to 16.48% and 1.33%, respectively, for the fourth quarter of 2006. For the quarter and year ended December 31, 2007, the Company recorded $156,000 and $1,242,000, respectively, of pre-tax merger related expenses resulting from the expected merger with Sterling Financial Corporation, which was terminated on December 1, 2007, as well as a $1,716,000 pre-tax write-down of a FNMA Preferred Stock investment identified as impaired, which are not included in the following non-GAAP net income calculations. On a non-GAAP basis, the Company reported net income for the fourth quarter ended December 31, 2007 of $1,663,000, or $0.22 per diluted share, and $8,546,000, or $1.12 per diluted share, for the year ended December 31, 2007.

2007 Financial Performance

Net interest income, which represents the Company’s largest component of revenues and is the difference between interest earned on loans and investments and interest paid on deposits and borrowings, decreased $1,608,000, or 3.8%, for the year ended December 31, 2007 compared to 2006. This was due to an increase in interest expense of $3,953,000 which was partially offset by an increase in interest income of $2,345,000. The increase in interest income was mostly due to an increase in average total loans of $42,339,000. This increase was primarily funded by the decrease in average investments of $30,788,000. Average yields on earning assets increased 15 basis points to 7.38% for 2007 while the average rate paid on interest-bearing liabilities increased by 59 basis points to 2.91%. The increase in asset yields was primarily due to the growth and change in the mix of earning assets consisting of a higher proportion of loans for 2007 compared to 2006. The Company’s net interest margin in 2007 was 5.09%, a decrease from 5.22% in 2006. During the fourth quarter of 2007, the Company’s net interest margin was 4.89%, a decrease from the 5.40% net interest margin in the fourth quarter of 2006, and a decrease from the 5.06% net interest margin for the linked quarter. The decrease in the net interest margin was primarily due to the increase in rates paid and the change in the mix of deposits. “We continue to feel pressure on our net interest margin due to the increase in our cost of funds as a result of a highly competitive deposit pricing environment” commented Kevin Watson, Chief Financial Officer.

Noninterest income for the quarter ended December 31, 2007 was $1,505,000 compared to $3,239,000 for the same quarter in 2006. Other fees and charges increased by $81,000 to $933,000 for the fourth quarter of 2007 compared to $852,000 for the fourth quarter of 2006, while service charges on deposits increased by $117,000 to $1,748,000 for the quarter compared to $1,631,000 for the same period in 2006. Other noninterest income for the quarter ended December 31, 2007 decreased by $1,932,000. During the fourth quarter of 2007, the Company recognized impairment on its FNMA Preferred Stock of $1,716,000. The Company had purchased 100,000 shares of this security in June 2003 at par, $50.00 per share, and took a write-down to its December 31, 2007 market value of $32.84. This impairment was the primary reason for the decrease in noninterest income for the quarter ended December 31, 2007.

Noninterest income decreased to $11,159,000 for the year ended December 31, 2007 compared to $12,650,000 for the year ended December 31, 2006. Service charges on deposits increased by $433,000 in 2007 while other fees and charges increased $544,000 in 2007 compared to 2006 due to increased servicing fees. Earnings on the cash surrender value of life insurance policies increased from $1,211,000 in 2006 to $1,276,000 in 2007 due to higher market rates associated with those policies. Other noninterest income decreased $2,533,000 compared to 2006 due primarily to the write-down of the security mentioned in the preceding paragraph, and secondarily due to decreases in the amount of gain on loan sales, decreases in income from sales of annuity and security products, and a gain on the sale of Bank property in 2006.

Noninterest expense increased $83,000 to $9,943,000 for the fourth quarter of 2007 from $9,860,000 for the fourth quarter of 2006. In the fourth quarter of 2007, salaries and employee benefits increased $17,000, furniture and equipment expense decreased $66,000, and other expenses increased $121,000, while occupancy expense increased $11,000. The Company had $156,000 of merger and acquisition expense in the fourth quarter of 2007 associated with the terminated merger with Sterling Financial Corporation.

Noninterest expense totaled $40,386,000 for the year 2007 compared to $39,615,000 for the year 2006 which is an increase of $771,000 or 1.9%. Salaries and benefits decreased by $101,000, or 0.5%, from 2006 levels. Equipment expense decreased from $2,153,000 in 2006 to $2,029,000 in 2007. Occupancy expense increased from $3,023,000 in 2006 to $3,075,000 in 2007. Other expenses, which include professional services, data processing, and marketing expenses, increased by $944,000 in 2007 compared to 2006 due primarily to the merger and acquisition expenses of $1,242,000 associated with the terminated merger with Sterling Financial Corporation.

The Company recorded a provision for loan and lease losses for the quarter ended December 31, 2007 of $1,200,000, an increase of $1,150,000 compared to the $50,000 recorded for the quarter ended December 31, 2006. A provision for loan and lease losses of $2,050,000 was recorded for the year ended December 31, 2007, a $1,075,000 increase from the $975,000 recorded for 2006. The increase in provision for loan and lease losses for the year 2007 compared to 2006 reflected continued growth in the Company’s loan portfolio and the inherent risks and uncertainties in the current economic environment.

The provision for income taxes for the year ended December 31, 2007 was $3,075,000, resulting in an effective tax rate of 32%, compared to $4,158,000, or an effective tax rate of 29%, for the year ended December 31, 2006. The increase in the effective tax rate is due to a change in the estimated tax rate applied to 2006 net income to reflect greater California jobs credits and a lowering of the expected Federal statutory rate on the Company’s taxable income for the year 2006.

Credit Quality

Nonperforming loans (defined as nonaccrual loans and loans 90 days or more past due and still accruing interest) increased $1,289,000 to $1,764,000, or 0.24%, of total loans at December 31, 2007 from $475,000, or 0.07%, of total loans at December 31, 2006. Other real estate owned at December 31, 2007 was $902,000, consisting of land originally purchased for bank expansion, which management has listed for sale as the land is no longer needed. The allowance for loan and lease losses at December 31, 2007 was $10,755,000, or 1.44% of total loans, compared to $8,831,000, or 1.34% of total loans, at December 31, 2006. The Company had net charge-offs for the twelve months ended December 31, 2007 of $126,000 compared to net charge-offs of $9,000 for the year 2006.

Summary

“Our management team has done an excellent job preserving our franchise value under difficult circumstances. The team is stronger and our business is secure as we look forward to the future. We are focused intently on the need for strong underwriting and close monitoring of real estate loan activity. We can’t change the market, but we can mitigate our risks in the business we produce. Our commitment is to recognize problems early, manage them expertly, and maintain ALLL and capital levels that support the safety and soundness of the Company and the long-term value of our franchise,” stated Michael J. Cushman, President & CEO.


North Valley Bancorp is a bank holding company headquartered in Redding, California. Its subsidiary, North Valley Bank ("NVB"), operates twenty-six commercial banking offices in Shasta, Humboldt, Del Norte, Mendocino, Yolo, Solano, Sonoma, Placer and Trinity Counties in Northern California, including two in-store supermarket branches and seven Business Banking Centers. North Valley Bancorp, through NVB, offers a wide range of consumer and business banking deposit products and services including internet banking and cash management services. In addition to these depository services, NVB engages in a full complement of lending activities including consumer, commercial and real estate loans. Additionally, NVB has SBA Preferred Lender status and provides investment services to its customers. Visit the Company's website address at www.novb.com for more information.

Cautionary Statement: This release contains certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those stated herein. Management's assumptions and projections are based on their anticipation of future events and actual performance may differ materially from those projected. Risks and uncertainties which could impact future financial performance include, among others, (a) competitive pressures in the banking industry; (b) changes in the interest rate environment; (c) general economic conditions, either nationally, regionally or locally, including fluctuations in real estate values; (d) changes in the regulatory environment; (e) changes in business conditions or the securities markets and inflation; (f) possible shortages of gas and electricity at utility companies operating in the State of California, and (g) the effects of terrorism, including the events of September 11, 2001, and thereafter, and the conduct of the war on terrorism by the United States and its allies. Therefore, the information set forth herein, together with other information contained in the periodic reports filed by the Company with the Securities and Exchange Commission, should be carefully considered when evaluating the business prospects of the Company. North Valley Bancorp undertakes no obligation to update any forward-looking statements contained in this release, except as required by law.

For further information contact:

Michael J. Cushman
President & Chief Executive Officer
(530) 226-2900 Fax: (530) 221-4877

or

Kevin R. Watson
Executive Vice President & Chief Financial Officer
(530) 226-2900 Fax: (530) 221-4877