UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 ~~(Amendment No. )~~

Filed by the Registrant ~~[X]~~ x
Filed by a Party other than the Registrant ~~[ ]~~ o

Check the appropriate box: ~~[ ]~~
o     Preliminary Proxy Statement ~~[ ]~~
oConfidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) ~~[X]~~
x     Definitive Proxy Statement ~~[ ]~~
o     Definitive Additional Materials ~~[ ]~~
o     Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 NORTH VALLEY BANCORP ------------------------------------------------ (Name of Registrant as Specified In Its Charter) ------------------------------------------------------------------------ (Name of Person(s) Filing Proxy Statement, if other than the Registrant) §240.14a-12

NORTH VALLEY BANCORP

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box): ~~[X]~~
x No fee required. ~~[ ]~~
o Fee computed on table below per Exchange Act Rules 14a-6(i)~~(4)~~(1) and 0-11. (1) Title of each class of securities to which transaction applies: NA (2) Aggregate number of securities to which transaction applies: NA (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): NA (4) Proposed maximum aggregate value of transaction: NA (5) Total fee paid: NA [ ]


	1)	Title of each class of securities to which transaction applies: N/A

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	3)	Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): N/A

	4)	Proposed maximum aggregate value of transaction: N/A

	5)	Total fee paid: N/A

oFee paid previously with preliminary materials. ~~[ ]~~
oCheck box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. ~~(1) Amount Previously Paid: NA (2) Form, Schedule or Registration Statement No.: NA (3) Filing Party: NA (4) Date Filed: NA~~


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	2)	Form, Schedule or Registration Statement No.: N/A

	3)	Filing Party: N/A

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[GRAPHIC OMITTED] NVB North Valley Bancorp November 26, 2007 Dear Fellow Shareholder: This year, the Annual Meeting of shareholders was delayed due to the anticipated merger of North Valley Bancorp with and into Sterling Financial Corporation and related merger of North Valley Bank with and into Sterling Savings Bank. A special meeting of shareholders was held on July 31, 2007 and the proposed mergers were approved by a majority vote of the outstanding shares of North Valley Bancorp common stock. Since the mergers were expected to be finalized not later than November 30, 2007, the Proxy Statement/Prospectus sent to the shareholders for that special meeting did not include an election of directors or the ratification of the appointment of Perry-Smith LLP as independent auditor for North Valley Bancorp for the 2007 fiscal year. Consummation of the Sterling transactions requires the receipt of all necessary regulatory approvals and the satisfaction of other closing conditions that are customary for such transactions. As of this date, Sterling has not received the necessary regulatory approvals. Therefore, in order to maintain compliance with California law and the listing standards of the Nasdaq Global Select Market, the Board of Directors has determined to bring the election of directors and the ratification of the appointment of Perry-Smith LLP before the shareholders at an Annual Meeting to be held on December 20, 2007. We encourage your support of the Bank and the Board's proposals as described in the Proxy Statement for the Annual Meeting. North Valley Bank continues to be a strong, progressive and independent banking institution. The Bank values its customers, shareholders and employees and maintains the goals of providing solid growth and returns. The key to its continuing success is in recruiting the best employees possible and providing the best service possible to its customers. The growth of the Bank in recent years into newer markets and expanded products for businesses and consumers alike has positioned the Bank as a financial institution with a major presence in Northern California. North Valley Bank continues to believe that this strategy will bring strong rewards to its shareholders in the long term. As a result of the changing market conditions, North Valley Bank continues to react in positive ways to ensure strength and stability for the benefit of its shareholders and customers. On behalf of our staff and the Board of Directors we thank you for your continued support and look forward to seeing many of our shareholders at the Annual Meeting on December 20, 2007, in Redding, California. Cordially, /s/ J.M. Wells, Jr. /s/ Michael J. Cushman - ---------------------------------- -------------------------------------- J.M. ("Mike") Wells, Jr. Michael J. Cushman Chairman of the Board President and Chief Executive Officer

NORTH VALLEY BANCORP
300 Park Marina Circle
Redding, California 96001

Dear Shareholders:

The ~~2007~~2008 Annual Meeting of Shareholders of North Valley Bancorp will be held at ~~4:00~~5:30 p.m. on Thursday, ~~December 20, 2007,~~May 22, 2008, in the Administrative Offices of North Valley Bancorp, 300 Park Marina Circle, Redding, California. In connection with the Annual Meeting, we are enclosing the following: 1. Notice of Annual Meeting of Shareholders 2 Proxy Statement 3. Proxy 4. 2006 Annual Report (Annual Report for the fiscal year ended December 31, 2006 on Form 10-K and Amendment No. 1 to Annual Report for the fiscal year ended December 31, 2006 on Form 10-K/A, as they were filed with the Securities and Exchange Commission) 5. Quarterly Report for the period ended September 30, 2007 on Form 10-Q, as filed with the Securities and Exchange Commission.


	1.	Notice of Annual Meeting of Shareholders

	2	Proxy Statement

	3.	Proxy

	4.	2007 Annual Report to Shareholders

We hope that you will attend the Annual ~~Meeting. We~~Meeting and encourage you to read all of the enclosed materials carefully.

Whether or not you plan to attend the Annual Meeting in person, please return the Proxy, properly completed and executed, as promptly as possible so that your shares may be represented at the Annual Meeting.

As an added convenience, a shareholder can choose to vote by telephone or by using the Internet as indicated on the Proxy. If you vote by telephone or electronically through the Internet, you do not need to return the Proxy. Please refer to the Proxy Statement for a more complete description of the procedures for telephone and Internet voting.

We appreciate your support and look forward to seeing you at the Annual Meeting on Thursday, December 20, 2007. Cordially, /s/ J. M. Wells, Jr. - ------------------------------------- J. M. ("Mike") Wells, Jr. Chairman of the Board /s/ Michael J. Cushman - ------------------------------------- Michael J. Cushman President and Chief Executive Officer May 22, 2008.


	Cordially,

	/s/ J. M. (“Mike”) Wells, Jr.

	J. M. (“Mike”) Wells, Jr.
	Chairman of the Board

	/s/ Michael J. Cushman

	Michael J. Cushman
	President and Chief Executive Officer

NORTH VALLEY BANCORP

Notice of Annual Meeting of Shareholders
Thursday, ~~December 20, 2007 4:00~~May 22, 2008
5:30 p.m.

TO THE SHAREHOLDERS:

The Annual Meeting of Shareholders of North Valley Bancorp, a California corporation (the ~~"Corporation"~~“Corporation”), will be held in the Administrative Offices of North Valley Bancorp, 300 Park Marina Circle, Redding, California, on Thursday, ~~December 20, 2007,~~May 22, 2008, at ~~4:00~~5:30 p.m., for the following purposes: 1. To elect the following nominees as directors for a term of one year: Michael J. Cushman William W. Cox Dante W. Ghidinelli Dolores M. Vellutini Roger B. Kohlmeier Kevin D. Hartwick 2. To ratify the appointment of Perry-Smith LLP as Independent Auditor for 2007. 3.


	1.	To elect the following nominees as directors for a term of one year:


			Michael J. Cushman	William W. Cox
			Royce L. Friesen	Dante W. Ghidinelli
			Kevin D. Hartwick	Roger B. Kohlmeier
			Martin A. Mariani	Dolores M. Vellutini
			J. M. “Mike” Wells, Jr.


	2.	To ratify and approve the 2008 Stock Incentive Plan.

	3.	To ratify the appointment of Perry-Smith LLP as the Corporation’s Independent Registered Public Accounting Firm for 2008.

	4.	To consider such other business as may properly come before the Annual Meeting and any adjournment or postponement thereof.

Section 15 of the ~~By-laws~~Bylaws of the Corporation provides for the nomination of Directors, as follows:

Nomination for election of members of the Board of Directors may be made by the Board of Directors or by any shareholder of any outstanding class of capital stock of the Corporation entitled to vote for the election of directors. Notice of intention to make any nominations shall be made in writing and shall be delivered or mailed to the President of the Corporation not less than 21 days nor more than 60 days prior to any meeting of shareholders called for election of directors; provided however, that if less than 21 days notice of the meeting is given to shareholders, such notice of intention to nominate shall be mailed or delivered to the President of the Corporation not later than the close of business on the tenth day following the day on which the notice of meeting was mailed; provided further, that if notice of such meeting is sent by third-class mail as permitted by Section 6 of these ~~By-laws,~~Bylaws, no notice of intention to make nominations shall be required. Such notification shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the number of shares of capital stock of the corporation owned by each proposed nominee; (d) the name and residence address of the notifying shareholder; and (e) the number of shares of capital stock of the Corporation owned by the notifying shareholder. Nominations not made in accordance herewith may, in the discretion of the Chairman of the meeting, be disregarded and upon the ~~Chairman's~~Chairman’s instructions, the inspectors of election can disregard all votes cast for each such nominee. 2

Only shareholders of record at the close of business on ~~November 9, 2007,~~April 11, 2008, are entitled to notice of and to vote at the Annual Meeting or any adjournment thereof. By Order of the Board of Directors, /s/ Leo J. Graham ---------------------------- Leo J. Graham Corporate Secretary Redding, California November 26, 2007


	By Order of the Board of Directors,

	/s/ Leo J. Graham

	Leo J. Graham
	Corporate Secretary

Redding, California April 22, 2008

WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE. IF YOU VOTE BY TELEPHONE OR ELECTRONICALLY THROUGH THE INTERNET, AS DESCRIBED IN THE PROXY STATEMENT ACCOMPANYING THIS NOTICE, YOU DO NOT NEED TO RETURN THE PROXY. 3

NORTH VALLEY BANCORP
300 Park Marina Circle
Redding, California 96001
(530) 226-2900

PROXY STATEMENT

The enclosed proxy card (the ~~"Proxy"~~“Proxy”) is solicited on behalf of the Board of Directors of North Valley Bancorp, a California corporation (the ~~"Corporation"~~“Corporation”), for use at the Annual Meeting of Shareholders to be held in the Administrative Offices of North Valley Bancorp, 300 Park Marina Circle, Redding, California, at ~~4:00~~5:30 p.m., on Thursday, ~~December 20, 2007,~~May 22, 2008, and any adjournment or postponement thereof (the ~~"Meeting"~~“Meeting”). Only shareholders of record at the close of business on ~~November 9, 2007,~~April 11, 2008, (the ~~"Record Date"~~“Record Date”) will be entitled to notice of and to vote at the Meeting. At the close of ~~business~~business on the Record Date, the Corporation had outstanding ~~7,374,884~~7,422,366 shares of its common stock, no par value (the ~~"Common Stock"~~“Common Stock”). These proxy materials are first being mailed to shareholders on or about ~~November 26, 2007.~~April 22, 2008.

On each matter submitted to a shareholder vote, each holder of Common Stock will be entitled to one vote, in person or by proxy, for each share of Common Stock outstanding in the ~~holder's~~holder’s name on the books of the Corporation as of the Record Date. At the 1998 Annual Meeting of Shareholders, the ~~Corporation's~~Corporation’s Articles of Incorporation were amended to provide that no holder of any class of stock of the Corporation shall be entitled to cumulate votes in connection with any election of Directors of the Corporation. Therefore, in the election of Directors, each outstanding share of Common Stock is entitled to cast one vote for as many separate nominees as there are Directors to be elected. The nominees who receive the most votes for the number of positions to be filled are elected Directors.

Shareholders may vote without attending the Meeting, whether their shares of Common Stock are held in their names or through a broker, bank or other nominee. Shareholders of record may vote by submitting a Proxy and the instructions for voting by mail, by telephone or by using the Internet are set forth on the Proxy. For shares held through a broker, bank or other nominee, shareholders may vote by submitting their voting instructions to the broker, bank or other nominee. Voting instructions may be given by telephone or by using the Internet, if the broker, bank or other nominee makes those methods available to the shareholder, in which case the procedures will be enclosed with the Proxy Statement forwarded by the broker, bank or other nominee.

Any person submitting a Proxy in the form accompanying this Proxy Statement has the power to revoke or suspend such Proxy prior to its exercise. A Proxy is revocable prior to the Meeting by a written direction to the Corporation, by a duly executed Proxy bearing a later date, delivered to the Corporate Secretary of the Corporation, or by voting on a later date by telephone or by using the Internet. A Proxy may also be revoked if the shareholder is present and elects to vote in person at the Meeting.

Any shareholder may choose to vote shares of Common Stock by telephone by calling the toll-free number (at no cost to the shareholder) indicated on the Proxy. Telephone voting is available 24 hours per day. Easy to follow voice prompts allow a shareholder to vote shares and to confirm that instructions have been properly recorded. The ~~Corporation's~~Corporation’s telephone voting procedures are designed to authenticate the identity of shareholders by utilizing individual control numbers.If a shareholder votes by telephone, there is no need to return the ~~Proxy.~~Proxy.

Any shareholder may also choose to vote shares of Common Stock electronically by using the Internet, as indicated on the Proxy. Internet voting procedures are designed to authenticate the identity of a shareholder and to 4 confirm that instructions have been properly recorded. The Corporation believes these procedures are consistent with the requirements of applicable law.If a shareholder votes electronically by using the Internet, there is no need to return the Proxy.

The Corporation will bear the entire cost of preparing, assembling, printing and mailing proxy materials furnished by the Board of Directors to shareholders. Copies of proxy materials will be furnished to brokerage houses, fiduciaries and custodians to be forwarded to the beneficial owners of the Common Stock. The Corporation will reimburse brokerage houses, fiduciaries, custodians and others holding shares in their names or names of nominees or otherwise for reasonable out-of-pocket expenses incurred in sending proxy materials to the beneficial owners of such shares. In addition to the solicitation of proxies by use of the mail, some of the officers, directors and employees of the Corporation may (without additional compensation) solicit proxies by telephone, Internet or personal interview, the costs of which the Corporation will bear. The Corporation may, at its discretion, engage the services of a proxy solicitation firm to assist in the solicitation of proxies. The total expense of this solicitation will be borne by the Corporation and will include reimbursement paid to brokerage firms and others for their expenses in forwarding soliciting material and such expenses as may be paid to any proxy solicitation firm engaged by the Corporation.

Shares of Common Stock will be voted as directed by the shareholder submitting the Proxy, and, if no instructions are given on the Proxy, it will be voted ~~"FOR"~~“FOR” the election of the nominees for Director recommended by the Board of Directors, “FOR” ratification and ~~"FOR"~~approval of the 2008 Stock Incentive Plan, and “FOR” ratification of the appointment of Perry-Smith LLP as Independent ~~Auditor~~Registered Public Accounting Firm for the Corporation for the ~~2007~~2008 fiscal year, all as described in the Proxy Statement; and, at the Proxy ~~holders'~~holders’ discretion, on such other matters, if any, which may properly come before the Meeting (including any proposal to adjourn the Meeting). A majority of the shares entitled to vote, represented either in person or by a properly executed Proxy, will constitute a quorum at the Meeting. Abstentions and broker non-votes are each included in the determination of the number of shares present and voting for purposes of determining the presence of a quorum. Abstentions will be included in tabulations of the votes cast on proposals presented to the shareholders and, therefore, will have the effect of a negative vote. Broker non-votes will not be counted for purposes of determining the number of votes cast for a proposal.

A COPY OF THE ANNUAL REPORT OF THE CORPORATION FOR THE FISCAL YEAR ENDED DECEMBER 31, ~~2006,~~2007, INCLUDING AUDITED FINANCIAL STATEMENTS (the ~~"ANNUAL REPORT"~~“ANNUAL REPORT”), IS ENCLOSED WITH THESE PROXY MATERIALS. ADDITIONAL COPIES OF THE ANNUAL REPORT ~~CONSISTS~~ARE AVAILABLE UPON REQUEST TO THE CORPORATE SECRETARY. THE ANNUAL REPORT INCLUDES A COPY OF THE CORPORATION’S ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, ~~2006~~2007 ON FORM 10-K, ~~AND AMENDMENT NO. 1 TO ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006 ON FORM 10-K/A,~~ AS ~~THEY WERE~~ FILED ~~BY THE CORPORATION~~ WITH THE SECURITIES AND EXCHANGE COMMISSION. ALSO ENCLOSED WITH THESE PROXY MATERIALS IS A COPY OF THE QUARTERLY REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 2007 ON FORM 10-Q, AS FILED BY THE CORPORATION WITH THE SECURITIES AND EXCHANGE COMMISSION. ADDITIONAL COPIES OF THESE REPORTS ARE VAILABLE WITHOUT CHARGE UPON REQUEST TO THE CORPORATE SECRETARY. THE CORPORATE SECRETARY MAY BE CONTACTED AT NORTH VALLEY BANCORP, ~~300 PARK MARINA CIRCLE,~~P.O. BOX 994630, REDDING, CALIFORNIA ~~96001. 5~~ 96099-4630.

PROPOSAL NO. 1
ELECTION OF DIRECTORS

The ~~By-laws~~Bylaws of the Corporation provide a procedure for nomination for election of members of the Board of Directors, which procedure is printed in full on the Notice of Annual Meeting of Shareholders accompanying this Proxy Statement. Nominations not made in accordance therewith may, in the discretion of the Chairman of the Meeting, be disregarded, and, upon his instruction, the inspectors of election shall disregard all votes cast for such nominee(s).

Section 16 of the Bylaws of the Corporation provides as follows: ~~"The~~

“The directors shall be elected annually by the shareholders at the annual meeting of the shareholders; provided, that if for any reason, the annual meeting or an adjournment thereof is not held or the directors are not elected thereat, then the directors may be elected at any special meeting of the shareholders called and held for that purpose. The term of office of the directors shall, except as provided in Section 17, begin immediately after their election and shall continue until their respective successors are elected and qualified. Notwithstanding the rule stated herein that directors shall be elected annually, each director continuing to serve as such at the time of an annual or special meeting of the shareholders shall nevertheless continue as a director until the expiration of the term to which he or she was previously elected by the shareholders, or until his or her prior death, resignation or removal."”

At the 2005 Annual Meeting of Shareholders of North Valley Bancorp held on May 26, 2005, the ~~Shareholders~~shareholders of the ~~Company~~Corporation approved the 2005 Proxy Statement Proposal No. 3, which amended the Articles of Incorporation and the Bylaws of the Corporation so as to declassify the Board of Directors as described in the 2005 Proxy Statement. As a result of those ~~Shareholder approved~~ changes to the Articles and Bylaws of the Corporation, the following members of the Board of Directors will stand for election at the ~~2007~~2008 Annual Meeting of Shareholders for a one (1) year term, namely: Michael J. Cushman, William W. Cox, Royce L. Friesen, Dante W. Ghidinelli, Kevin D. Hartwick, Roger B. Kohlmeier, ~~William W. Cox and~~Martin A. Mariani, Dolores M. ~~Vellutini.~~Vellutini, and J. M. (Mike) Wells, Jr.

The ~~current~~authorized number of directors has been fixed by resolution of the Board of Directors at nine (9). At the 2008 Annual Meeting of Shareholders, all Directors of the Company will stand for election for a one (1) year term. Thereafter, there will be no classification of Directors and all Directors will stand for election each year. Accordingly, ~~six (6)~~nine (9) Directors will be elected at the Meeting. All Proxies will be voted for the election of the following nominees recommended by the Board of Directors, unless authority to vote for the election of any Director or all Directors is withheld. All of the nominees are incumbent Directors. ~~Michael J. Cushman Kevin D. Hartwick William W. Cox Dante W. Ghidinelli Roger B. Kohlmeier~~


Michael J. Cushman	William W. Cox	Royce L. Friesen
Dante W. Ghidinelli	Kevin D. Hartwick	Roger B. Kohlmeier
Martin A. Mariani	Dolores M. Vellutini	J. M. (Mike) Wells, Jr.

If any of the nominees should unexpectedly decline or be unable to act as a Director, the Proxies may be voted for a substitute nominee to be designated by the Board of Directors. The Board of Directors has no reason to believe that any nominee will become unavailable and has no present intention to nominate persons in addition to or in lieu of those named above. The ~~six (6)~~nine (9) candidates receiving the highest number of votes will be elected. 6

The Board of Directors recommends a vote ~~"FOR"~~“FOR” each of the ~~six (6)~~nine (9) nominees listed above: Michael J. Cushman, William W. Cox, Royce L. Friesen, Dante W. Ghidinelli, Kevin D. Hartwick, Roger B. Kohlmeier, ~~William W. Cox, and~~Martin A. Mariani, Dolores M. ~~Vellutini. Security~~Vellutini, and J. M. (Mike) Wells, Jr.

Stock Ownership of Certain Beneficial Owners and Management ~~- --------------------------------------------------------------~~

To the knowledge of the ~~Company,~~Corporation, as of the Record Date, no person or entity ~~as of November 1, 2007,~~ was the beneficial owner of more than five percent (5%) of the outstanding shares of the ~~Company's Common Stock. Ownership Table - --------------- The following table sets forth certain information regarding ownership of the Company's~~Corporation’s Common Stock, with respect to each Director of the Company and North Valley Bank, and each current executive officer named in the Summary Compensation Table on page 19, as well as for all other Executive Officers of the Company and North Valley Bank and for all current Directors and Executive Officers as a group. All of the shares of Common Stock of the Company shown in the following table are owned both of record and beneficially, except as indicated in the notes to the table, as of November 9, 2007. The table should be read with the understanding that more than one person may be the beneficial owner or possess certain attributes of beneficial ownership with respect to the same securities. Therefore, careful attention should be given to the footnote references set forth in the column "Percent of Class."described below. For the purpose of this disclosure and the disclosure of ownership of shares by management, shares are considered to be ~~"beneficially"~~“beneficially” owned if the person has or shares the power to vote or direct the voting of the shares, the power to dispose of or direct the disposition of the shares, or the right to acquire beneficial ownership (as so defined) within 60 days of ~~November 9, 2007. 7~~ the Record Date.

BENEFICIAL PERCENT OF BENEFICIAL OWNER POSITION OWNERSHIP(1) CLASS(2) - ---------------- -------- ----------- ---------- William W. Cox(6) Director, 61,793 * North Valley Bancorp North Valley Bank Michael J. Cushman(5) President

Title of Class	Name and ~~Chief 185,738 2.47% Executive Officer~~Address of Beneficial Owner	Amount and Director, North Valley Bancorp North Valley Bank Royce L. Friesen (3) Director, 227,217 3.07% North Valley Bancorp North Valley Bank Dante W. Ghidinelli(3)(7) Director, 272,163 3.67% North Valley Bancorp North Valley Bank Leo J. Graham(5) General Counsel and 9,443 * Corporate Secretary North Valley Bancorp North Valley Bank Kevin D. Hartwick(3)(8) Director, 241,328 3.25% North Valley Bancorp North Valley Bank Roger B. Kohlmeier (3) Director, 207,562 2.81% North Valley Bancorp North Valley Bank Gary S. Litzsinger(5) Executive Vice President 6,522 * and Chief Risk Officer North Valley Bancorp North Valley Bank Scott R. Louis(5) Executive Vice President 2,797 * and Chief Operating Officer North Valley Bancorp North Valley Bank Martin A. Mariani Director, 15,633 * North Valley Bancorp North Valley Bank Roger D. Nash(5) Executive Vice President 7,120 * and Chief Credit Officer North Valley Bancorp North Valley Bank Dolores M. Vellutini Director, 291,787 3.93% (3)(9) North Valley Bancorp North Valley Bank Kevin R. Watson(5) Executive Vice President 5,440 * and Chief Financial Officer North Valley Bancorp North Valley Bank J.M.("Mike") Wells, Jr. (10) Chairman, 168,597 2.27% North Valley Bancorp North Valley Bank ---------------------------------- All Directors and Executive 846,505 10.80% Officers as a group (14 persons) (12) (13) (14) Nature of Beneficial Ownership	Percent of Class⁽¹⁾


Common Stock	Westport Asset	373,388 shares	5.04%
	Management, Inc.
	253 Riverside Avenue
	Westport, CT 06880

^{(1) Includes}Number of shares and percentage are based on information contained in Schedule 13G, as filed by Westport Asset Management, Inc. with the Securities and Exchange Commission on February 13, 2008.

Stock Ownership Table

The following table sets forth certain information regarding ownership of the Corporation’s Common Stock with respect to each Director of the Corporation and North Valley Bank, and each current executive officer named in the Summary Compensation Table on page 17, as well as for all Directors and executive officers of the Corporation and North Valley Bank as a group. All of the shares of Common Stock of the Corporation shown in the following table are owned both of record and beneficially, ~~owned, directly and indirectly, together~~except as indicated in the notes to the table, as of April 11, 2008. The table should be read with ~~associates. Subject to applicable community property laws and shared voting and investment power with a spouse, sole investment and voting power is held by~~the understanding that more than one person may be the beneficial owner or possess certain attributes of all shares unless noted otherwise. Includes stock options granted pursuant to the North Valley Bancorp 1989 Director Stock Option Plan, the North Valley Bancorp 1998 Employee Stock Incentive Plan and the North Valley Bancorp 1999 Director Stock Option Plan with: 49,200 shares exercisable within 60 days of November 9, 2007 by Mr. Cox, 158,201 shares exercisable within 60 days of November 9, 2007 by Mr. Cushman; 27,000 shares exercisable within 60 days of November 9, 2007 by Mr. Friesen; 49,500 shares exercisable within 60 days of November 9, 2007 by Mr. Ghidinelli; 8,791 shares exercisable within 60 days of November 9, 2007 by Mr. Graham; 53,801 shares exercisable within 60 days of November 9, 2007 by Mr. Hartwick; 6,380 shares exercisable within 60 days of November 9, 2007 by Mr. Litzsinger; 2,620 shares exercisable within 60 days of November 9, 2007 by Mr. Louis; 7,120 shares exercisable within 60 days of November 9, 2007 by Mr. Nash; 53,801 shares exercisable within 60 days of November 9, 2007 by Ms. Vellutini; 5,440 shares exercisable within 60 days of November 9, 2007 by Mr. Watson; and 43,000 shares exercisable within 60 days of November 9, 2007 by Mr. Wells;. Includes shares allocated under the North Valley Bancorp Employee Stock Ownership Plan through December 31, 2006, with: 2,880 shares allocated to Mr. Cushman, 502 shares allocated to Mr. Graham, 142 shares allocated to Mr. Litzsinger and 177 shares allocated to Mr. Louis. (2) Includes stock options exercisable within 60 days of November 9, 2007. An "*" indicates less than one percent. (3) Includes 171,327 shares representing 2.32% of the total shares outstanding as of November 9, 2007 for each of Messrs. Friesen, Ghidinelli, Hartwick, Kohlmeier and Ms. Vellutini relative to the North Valley Bancorp Employee Stock Ownership Plan. Messrs. Friesen, Ghidinelli, Hartwick, Kohlmeier and Ms. Vellutini constitute the ESOP Administrative Committee and have authority to instruct the ESOP Trustee, Delaware Charter Guarantee & Trust Company, conducting business as Principal Trust Company, with regard to voting of these shares. Messrs. Friesen, Ghidinelli, Hartwick, Kohlmeier and Ms. Vellutini, as members of the Administrative Committee, disclaim beneficial ownership with respect to ~~all of those shares. Mr. Cushman, Mr. Graham, Mr. Litzsinger, and Mr. Louis are participants~~the same securities. Therefore, careful attention should be given to the footnote references set forth in the ~~ESOP. (4) Intentionally omitted. (5) Michael J. Cushman is President~~column “Percent of Class.” For the purpose of this disclosure and ~~Chief Executive Officer~~the disclosure of ~~North Valley Bancorp and North Valley Bank; Kevin R. Watson is Executive Vice President and Chief Financial officer~~ownership of North Valley Bancorp and North Valley Bank; Scott R. Louis is Executive Vice President and Chief Operating Officer of North Valley Bancorp and North Valley Bank; Roger D. Nash is Executive Vice President and Chief Credit Officer of North Valley Bancorp and North Valley Bank; Gary S. Litzsinger is Executive Vice President and Chief Risk Officer of North Valley Bancorp and North Valley Bank; Leo J. Graham is General Counsel and Corporate Secretary of North Valley Bancorp and North Valley Bank. (6) Includes 915 shares ~~held~~ by ~~Mr. Cox's spouse and as~~management, shares are considered to ~~which Mr. Cox disclaims beneficial ownership. (7) Includes 20,861~~be “beneficially” owned if the person has or shares ~~held by Mr. Ghidinelli as trustee for~~ the ~~Balma Grandchildren Trust. (8) Includes 420 shares held in custodian accounts for Mr. Hartwick's children. 9~~ ~~(9) Includes 210 shares held by Ms. Vellutini's spouse and 12,695 shares held by Ms. Vellutini's son and as~~power to which Ms. Vellutini disclaims beneficial ownership. (10) Includes 115,795 shares held by The Wells Family Trust, of which Mr. Wells is trustee. Includes 1,750 shares held by Mr. Wells' spouse and as to which Mr. Wells disclaims beneficial ownership. Includes 8,052 shares held byvote or direct the ~~Estate of Jean M. Wells, of which Mr. Wells is the executor. (11) Intentionally omitted. (12) This group includes all current Executive Officers and Directors~~voting of the ~~Company and its subsidiary, North Valley Bank. (13) See footnotes 5, 6, 8, 9 and 10. Excludes 171,327~~ shares, ~~representing 2.32%~~the power to dispose of ~~total shares outstanding relative to Messrs. Friesen, Ghidinelli, Hartwick, Kohlmeier and Ms. Vellutini as~~or direct the ~~Administrative Committee~~disposition of the ~~ESOP. Includes 11,700~~ shares, ~~subject~~or the right to ~~options exercisable~~acquire beneficial ownership (as so defined) within 60 days of November 9, 2007 by the Directors under the 1989 Director Stock Option Plan; 264,602 shares subject to options exercisable within 60 days of November 9, 2007 by the Directors under the 1999 Director Stock Option Plan; and 188,552 shares subject to options exercisable within 60 days of November 9, 2007 by Messrs. Cushman, Graham, Litzsinger, Louis, Nash and Watson under the 1998 Employee Stock Incentive Plan. (14) April 11, 2008.


Beneficial Owner	Position	Beneficial Ownership⁽¹⁾		Percent of Class⁽²⁾


William W. Cox⁽⁶⁾	Director,		62,918	*
	North Valley Bancorp
	North Valley Bank
Michael J. Cushman⁽⁵⁾	President and Chief Executive		200,728	2.64%
	Officer and Director,
	North Valley Bancorp
	North Valley Bank
Royce L. Friesen	Director,		57,015	*
	North Valley Bancorp
	North Valley Bank
Dante W. Ghidinelli⁽⁷⁾	Director,		101,961	1.37%
	North Valley Bancorp
	North Valley Bank
Leo J. Graham⁽⁵⁾	General Counsel and		14,901	*
	Corporate Secretary
	North Valley Bancorp
	North Valley Bank
Kevin D. Hartwick⁽⁸⁾	Director,		71,126	*
	North Valley Bancorp
	North Valley Bank
Roger B. Kohlmeier	Director,		39,160	*
	North Valley Bancorp
	North Valley Bank
Gary S. Litzsinger⁽⁵⁾	Executive Vice President and		9,442	*
	Chief Risk Officer
	North Valley Bancorp
	North Valley Bank
Scott R. Louis⁽⁵⁾	Executive Vice President and		5,957	*
	Chief Operating Officer
	North Valley Bancorp
	North Valley Bank
Martin A. Mariani	Director,		18,558	*
	North Valley Bancorp
	North Valley Bank
Roger D. Nash⁽⁵⁾	Executive Vice President and		9,780	*
	Chief Credit Officer
	North Valley Bancorp
	North Valley Bank
Dolores M. Vellutini⁽⁹⁾	Director,		121,585	1.64%
	North Valley Bancorp
	North Valley Bank
Kevin R. Watson⁽⁵⁾	Executive Vice President and		10,752	*
	Chief Financial Officer
	North Valley Bancorp
	North Valley Bank
J.M. (“Mike”) Wells, Jr. (10)	Chairman,		169,722	2.29%
	North Valley Bancorp North Valley Bank

All Directors and Executive			893,605	12.04%
Officers as a group (14
persons)^{(12) (13) (14)}


(1)	Includes shares beneficially owned, directly and indirectly, together with associates. Subject to applicable community property laws and shared voting and investment power with a spouse, sole investment and voting power is held by the beneficial owner of all shares unless noted otherwise. Includes stock options granted pursuant to the North Valley Bancorp 1989 Director Stock Option Plan, the North Valley Bancorp 1998 Employee Stock Incentive Plan and the North Valley Bancorp 1999 Director Stock Option Plan with: 46,800 shares exercisable within 60 days of April 11, 2008 by Mr. Cox, 173,190 shares exercisable within 60 days of April 11, 2008 by Mr. Cushman; 18,600 shares exercisable within 60 days of April 11, 2008 by Mr. Friesen; 45,600 shares exercisable within 60 days of April 11, 2008 by Mr. Ghidinelli; 14,248 shares exercisable within 60 days of April 11, 2008 by Mr. Graham; 45,600 shares exercisable within 60 days of April 11, 2008 by Mr. Hartwick; 2,400 shares exercisable within 60 days of April 11, 2008 by Mr. Kohlmeier, 9,300 shares exercisable within 60 days of April 11, 2008 by Mr. Litzsinger; 5,780 shares exercisable within 60 days of April 11, 2008 by Mr. Louis; 2,400 shares exercisable within 60 days of April 11, 2008 by Mr. Mariani; 9,780 shares exercisable within 60 days of April 11, 2008 by Mr. Nash; 49,151 shares exercisable within 60 days of April 11, 2008 by Ms. Vellutini; 10,752 shares exercisable within 60 days of April 11, 2008 by Mr. Watson; and 35,600 shares exercisable within 60 days of April 11, 2008 by Mr. Wells;. Includes shares allocated under the North Valley Bancorp Employee Stock Ownership Plan through December 31, 2007, with: 2,880 shares allocated to Mr. Cushman, 502 shares allocated to Mr. Graham, 142 shares allocated to Mr. Litzsinger and 177 shares allocated to Mr. Louis.

(2)	Includes stock options exercisable within 60 days of April 11, 2008. An “*” indicates less than one percent.

(3)	Intentionally omitted.

(4)	Intentionally omitted.

(5)	Michael J. Cushman is President and Chief Executive Officer of North Valley Bancorp and North Valley Bank; Kevin R. Watson is Executive Vice President and Chief Financial officer of North Valley Bancorp and North Valley Bank; Scott R. Louis is Executive Vice President and Chief Operating Officer of North Valley Bancorp and North Valley Bank; Roger D. Nash is Executive Vice President and Chief Credit Officer of North Valley Bancorp and North Valley Bank; Gary S. Litzsinger is Executive Vice President and Chief Risk Officer of North Valley Bancorp and North Valley Bank; Leo J. Graham is General Counsel and Corporate Secretary of North Valley Bancorp and North Valley Bank.

(6)	Includes 915 shares held by Mr. Cox’s spouse and as to which Mr. Cox disclaims beneficial ownership.

(7)	Includes 20,861 shares held by Mr. Ghidinelli as trustee for the Balma Grandchildren Trust.

(8)	Includes 420 shares held in custodian accounts for Mr. Hartwick’s children.

(9)	Includes 210 shares held by Ms. Vellutini’s spouse and 12,695 shares held by Ms. Vellutini’s son and as to which Ms. Vellutini disclaims beneficial ownership.

(10)	Includes 124,320 shares held by The Wells Family Trust, of which Mr. Wells is trustee. Includes 1,750 shares held by Mr. Wells’ spouse and as to which Mr. Wells disclaims beneficial ownership. Includes 8,052 shares held by the Estate of Jean M. Wells, of which Mr. Wells is the executor.

(11)	Intentionally omitted.


(12)	This group includes all current Executive Officers and Directors of the Corporation and its subsidiary, North Valley Bank.

(13)	See footnotes 5, 6, 8, 9 and 10. Includes 1,200 shares subject to options exercisable within 60 days of April 11, 2008 by the Directors under the 1989 Director Stock Option Plan, 244,951 shares subject to options exercisable within 60 days of April 11, 2008 by the Directors under the 1999 Director Stock Option Plan and 223,050 shares subject to options exercisable within 60 days of April 11, 2008 by Messrs. Cushman, Graham, Litzsinger, Louis, Nash and Watson under the 1998 Employee Stock Incentive Plan.

(14)	In calculating the percentage of ownership, all shares which the identified person has the right to acquire by the exercise of options are deemed to be outstanding for the purpose of computing the percentage of class owned by such person, but are not deemed to be outstanding for the purpose of computing the percentage of the class owned by any other person.

Certain information with respect to the ~~six (6)~~nine (9) nominees for Director of the Corporation is provided below:

William W. Cox, CRE, CCI, (age 60), a Director of the Corporation since February 1997, has been owner and President of Cox Real Estate Consultants, Inc., since April 1996. From October 1987 to August 1996, he was President and 50% owner of Haedrich & Cox, Inc., a real estate brokerage company.

Michael J. Cushman (age ~~52)~~53), a Director of the Corporation since February 1999, is President and Chief Executive Officer of the Corporation and its subsidiary, North Valley Bank. Mr. Cushman served as Senior Vice President and Chief Business Banking Officer of North Valley Bank from March 1998 to February 1999. From March 1995 through March 1998, he was a self-employed investor. From November of 1994 through March of 1995, Mr. Cushman served as Vice President of Tri-Counties Bank, which acquired Country National Bank in November of 1994 where Mr. Cushman had served as President and Chief Executive Officer since September of 1992.

Royce L. Friesen, RPh. (age 69), a Director of the Corporation since May 1999, is Chairman of the Board of Owens Healthcare in Redding, California, having previously served as President, Chief Executive Officer and owner since 1968. Owens Healthcare, a management company, was formed to provide support and coordination among ten retail and home care pharmacies located throughout Northern California.

Dante W. Ghidinelli (age ~~59)~~60), a Director of the Corporation since 1993, has been a Certified Public Accountant and partner with Nystrom & Company LLP since 1974.

Kevin D. Hartwick (age 46), a Director of the Corporation since October 2000, has been a Certified Public Accountant and managing partner with Cholwell Benz & Hartwick in Crescent City, California, since 1989. 10

Roger B. Kohlmeier (age ~~67)~~68), a Director of the Corporation since August 2004, was founding President and Chief Executive Officer of Bank of Woodland which changed its name to Business & Professional Bank at which time he retired but continued on as Director until its sale to U.S. Bank of California in 1997. He is a graduate of California Polytechnic University of San Luis Obispo and is actively involved with the Economic Development Council and Woodland Health Care.

Martin A. Mariani(age 51), a Director of the Corporation since August 2004, is a partner in Mariani Nut Company of Winters, California. He graduated from the University of California, Davis in 1978.

Dolores M. Vellutini ~~(age~~(age 70), a Director of the Corporation since October 2000, has been owner and President of Eureka Baking Company in Eureka, California, since 1988. In addition, she is a developer and the owner of Vellutini Properties in Eureka, California. Certain information with respect to the continuing Directors and the current Executive Officers of the Corporation and its subsidiary, North Valley Bank, is provided below: Royce L. Friesen, RPh. (age 68), a Director of the Corporation since May 1999, is Chairman of the Board of Owens Healthcare in Redding, California, having previously served as President, Chief Executive Officer and owner since 1968. Owens Healthcare, a management company, was formed to provide support and coordination among ten retail and home care pharmacies located throughout Northern California. Martin A. Mariani (age 51), a Director of the Corporation since August 2004, is a partner in Mariani Nut Company of Winters, California. He graduated from the University of California, Davis in 1978.

J. M. ~~("Mike"~~(“Mike”) Wells, Jr. (age 67), is Chairman and a founding member of the Board of Directors of the Corporation. Mr. Wells was formerly a member of the law firm of Wells, Small & Selke, a Law Corporation, located in Redding, California. Mr. Wells had practiced law with that firm starting in 1972.

Certain information with respect to the current Executive Officers ~~- ------------------~~of the Corporation and North Valley Bank is provided below:

Kevin R. Watson (age 42), has served as Executive Vice President and Chief Financial Officer of the Corporation and its subsidiary since March 2006. Prior to that, he served as Chief Financial Officer at Calnet Business Bank in Sacramento from January 2004 to March 2006. Prior to Calnet Business Bank, his experience includes serving as the Chief Financial Officer of California Independent Bancorp and Feather River State Bank from April 2001 to January 2004.

Scott R. Louis (age ~~57)~~58), has served as Executive Vice President and Chief Operations Officer of the Corporation and its subsidiary since October 2005. Prior to that, he served as Senior Vice President and Chief Operating Officer since joining the Corporation in April 2005. Prior to joining the Corporation, Mr. Louis served as First Vice President for Farmers and Merchants Bank in Lodi, California. Mr. Louis began his financial services career with Bank of America in 1971.

Roger D. Nash (age 59), has served as Executive Vice President and Chief Credit Officer of the Corporation and its subsidiary since September 2006. Prior to that, he served as Chief Lending Officer of the Corporation and its subsidiary since joining the Corporation in October 2005. Prior to that, he served 35 years at Bank of America, most recently as Senior Vice President/Senior Client Manager in Visalia, California. While at Bank of America, he also served as Senior Vice President/Credit Risk Manager and as Senior Vice President in Business Lending. 11

Gary S. Litzsinger (age ~~51)~~52), has served as Executive Vice President and Chief Risk Officer of the Corporation and its subsidiary since October 2005. Prior to that, he served as Senior Vice President and Chief Risk Officer since joining the Corporation in July, 2004. Prior to joining the Corporation, Mr. Litzsinger served as Director of Audit and Risk Management for Humboldt Bancorp and Audit Manager for California Federal Savings Bank in Sacramento. He began his audit career in 1990 and obtained his California CPA license in 1994.

Leo J. Graham ~~(age 56)~~(age 57), has served as the Corporate Secretary and General Counsel of the Corporation and its subsidiary since January 2004. Mr. Graham was formerly a member of the law firm of Wells, Small & Selke, a Law Corporation, located in Redding, California. Mr. Graham had practiced law with that firm starting in 1978.

None of the ~~Corporation's~~Corporation’s Directors is a director of any other company that is subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended. There are no family relationships between any of the Directors and Executive Officers of the Corporation. 12

GOVERNANCE OF THE CORPORATION

Code of Business Conduct and Ethics ~~- -----------------------------------~~

The Board of Directors of North Valley Bancorp believes the cornerstones of our business are honesty, truthfulness, integrity and ethics.

In keeping with this belief, the Board of Directors has adopted a Code of Business Conduct and Ethics, which applies to the Board of Directors and the officers and employees of the Corporation and ~~its subsidiary.~~North Valley Bank. The North Valley Bancorp Code of Business Conduct and Ethics is available through the Shareholders Relations link on the ~~Corporation's~~Corporation’s website at www.novb.com. A copy of the Code of Business Conduct and Ethics may be obtained without charge by submitting a request to the Corporate Secretary, P.O. Box 994630, Redding, CA 96099-4630.

Director Independence ~~- ---------------------~~

The Board of Directors of the Corporation has evaluated the independence of each of the members of the Board of Directors in accordance with applicable laws and regulations including the provisions of the Sarbanes-Oxley Act of 2002 ~~("SOX"~~(“SOX”), the rules and regulations of the Securities and Exchange Commission (the ~~"SEC"~~“SEC”) and the corporate governance listing standards of ~~the NASDAQ National~~The Nasdaq Stock Market ~~("NASDAQ"~~(“NASDAQ”).

The Board of Directors has determined that a majority of the Board of Directors is comprised of ~~"Independent Directors"~~“Independent Directors” within the requirements of SOX, SEC and NASDAQ regulations. The Board of Directors has further determined that Director Michael J. Cushman, who is employed as the President and Chief Executive Officer of the Corporation, is not independent.

Committees of the Board of Directors ~~- ------------------------------------~~

The Board of Directors of the Corporation has established the following committees of the Board: Audit, Nominating, Compensation and Executive/Corporate Governance.

On the date of this Proxy Statement, the members of the Board and the Committees of the Board on which they serve are as follows:

EXECUTIVE/ AUDIT NOMINATING COMPENSATION CORPORATE GOVERNANCE DIRECTOR COMMITTEE COMMITTEE COMMITTEE COMMITTEE - ------------------------------ -------------- --------------- ------------- -----------------------

Director	Audit Committee		Nominating Committee		Compensation Committee		Executive/ Corporate Governance Committee

William W. Cox⁽¹⁾				*		*		*
Michael J. Cushman								*
Royce L. Friesen		* ~~ ~~		**		**		*
Dante W. Ghidinelli^{(2) **}		**						*
Kevin D. Hartwick⁽²⁾		*
Roger B. Kohlmeier		*
Martin A. Mariani				*		*
Dolores M. Vellutini⁽²⁾		*
J. M. ~~("Mike"~~(“Mike”) Wells, Jr. ~~* * * **~~ ⁽²⁾⁽³⁾		*		*		*		**

* Member **

** Chairman 13

(1) Mr. Cox is the Chairman of the Director's Loan Committee of North Valley Bank. (2) Mr. Ghidinelli, Mr. Hartwick and Mr. Wells also serve on the Director's Loan Committee of North Valley Bank. (3) Mr. Wells as Chairman of the Corporation sits on all Board Committees.


(1)	Mr. Cox is the Chairman of the Director’s Loan Committee of North Valley Bank.

(2)	Mr. Ghidinelli, Mr. Hartwick, Ms. Vellutini, and Mr. Wells also serve on the Director’s Loan Committee of North Valley Bank.

(3)	Mr. Wells as Chairman of the Corporation serves on all Board Committees.

Audit Committee ~~- ---------------~~

The functions of the Audit Committee are more particularly described in the Audit Committee Charter, which is attached to this Proxy Statement as Appendix A. The Board of Directors has determined that Chairman Dante W. Ghidinelli and Director Kevin D. Hartwick each qualify as a result of their accounting backgrounds as an Audit Committee Financial Expert as defined under the SOX, ~~the~~ SEC rules and regulations and ~~the~~ NASDAQ listing standards. The Audit Committee met six (6) times in ~~2006 and has met five (5) times through November 9,~~ 2007. For more information, see the ~~"Audit~~“Audit Committee ~~Report"~~Report” on page ~~40.~~ 38.

Nominating Committee ~~- --------------------~~

In 2004, the Board of Directors adopted a Nominating Committee Charter and appointed the initial members of the Nominating Committee. All of the members are ~~"independent"~~“independent” within the requirements of SOX, SEC and NASDAQ. The Nominating Committee held one meeting in 2007. The functions of the Nominating Committee are more particularly described in the Nominating Committee Charter, which is attached to this Proxy Statement as Appendix B.

The Nominating Committee Charter includes a policy for consideration of candidates proposed by shareholders. Any recommendations by shareholders will be evaluated by the Nominating Committee in the same manner as any other recommendation and in each case in accordance with the Nominating Committee Charter. Shareholders that desire to recommend candidates for consideration by the Nominating Committee should mail or deliver written recommendations to the Nominating Committee addressed as follows: North Valley Bancorp Nominating Committee, P.O. Box 994630, Redding, CA 96099-4630. Each recommendation should include the experience of the candidate that qualifies the candidate for consideration as a potential director for evaluation by the Nominating Committee. Shareholders who wish to nominate a candidate for election to the ~~Corporation's~~Corporation’s Board of Directors, as opposed to recommending a potential nominee for consideration by the Nominating Committee, are required to comply with the advance notice and any other requirements of the ~~Corporation's~~Corporation’s Bylaws, applicable laws and regulations.

Compensation Committee ~~- ----------------------~~

In 2004, the Board of Directors formed a Compensation Committee comprised solely of independent directors. This Committee reviews and recommends to the Board of Directors salaries, performance-based incentives, both annual and long term, and other matters relating to Compensation of the Executive Officers.

The Compensation Committee also reviews and approves various other compensation policies and matters. The Compensation Committee held two (2) meetings in ~~2006 and has held one (1) meeting through November 9,~~ 2007. For more information, see the ~~"Report~~“Report of the Compensation ~~Committee"~~Committee” on page ~~36.~~ 32.

Compensation Committee Interlocks and Insider Participation ~~- -----------------------------------------------------------~~

During the fiscal year ~~2006, Mr.~~2007, Michael J. Cushman participated in deliberations of the ~~Corporation's~~Corporation’s Board of Directors concerning executive officer compensation for all Executive Officers, excluding himself. 14

Executive/Corporate Governance Committee ~~- ----------------------------------------~~

The Corporation has an Executive/Corporate Governance Committee which functions to review, evaluate and make decisions on actions that are required between the regular meetings of the Board of Directors. In addition, this Committee functions to review and recommend to the Board of Directors principles, policies and procedures affecting the Board of Directors and its operation and effectiveness. The Committee further oversees the evaluation of the Board of Directors and its effectiveness. The Committee met ~~three (3) times~~one (1) time in ~~2006 and has not held a meeting through November 9,~~ 2007.

Meetings of the Board of Directors ~~- ----------------------------------~~

During ~~2006,~~2007, the Board of Directors held four (4) regularly scheduled meetings and ~~six (6)~~eleven (11) special ~~meetings and has held four (4) regularly scheduled meetings and nine (9) special meetings through November 9, 2007.~~meetings. In ~~2006,~~2007, each Director attended at least 75% of the aggregate of the total number of meetings of the Board of Directors (held during the period for which he or she was a Director) and the total number of meetings of Committees of the Board of Directors on which such Director served (during the periods that he or she served).

The Corporation encourages the members of its Board of Directors to attend the ~~Corporation's~~Corporation’s annual meeting of shareholders each year. All ~~but two~~ of the Directors attended the ~~Corporation's~~Corporation’s annual meeting of shareholders held in ~~2006. All of the Directors of the Corporation attended the special meeting of shareholders held in July~~ 2007.

Shareholder Communications with Directors ~~- -----------------------------------------~~

A shareholder who wishes to communicate directly with the Board of Directors, a Committee of the Board or an individual Director should send itcorrespondence to: ~~Board of Directors (or Committee Name or Director's Name) c/o Corporate Secretary North Valley Bancorp P.O. Box 994630~~


	Board of Directors(or Committee Name or Director’s Name)
	c/o Corporate Secretary
	North Valley Bancorp
	P.O. Box 994630
	Redding, California 96099-4630

The Corporate Secretary has been instructed to forward such correspondence to the Board Committee or individual as addressed as soon as practicable. If it is marked ~~"Personal~~“Personal and ~~Confidential"~~Confidential”, it will only be forwarded to the addressee. The Board has instructed the Corporate Secretary, prior to forwarding any correspondence, to review such correspondence and, in his discretion, not to forward certain items if they are deemed of a commercial or frivolous nature or otherwise inappropriate for the ~~Board's~~Board’s consideration.

Section 16(a) Beneficial Ownership Reporting Compliance ~~- -------------------------------------------------------~~

Section 16(a) of the Securities Exchange Act of 1934, as amended (the ~~"Exchange Act"~~“Exchange Act”), requires the ~~Corporation's~~Corporation’s Directors and Executive Officers and persons who own more than 10% of a registered class of the ~~Corporation's~~Corporation’s equity securities to file with the Securities and Exchange Commission (the ~~"SEC"~~“SEC”) initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Corporation. Officers, Directors and greater than 10% shareholders are required by the SEC to furnish the Corporation with copies of all Section 16(a) forms they file. 15

To the ~~Corporation's~~Corporation’s knowledge, based solely on a review of such reports furnished to the Corporation and written representations that no other reports were required, during the fiscal year ended December 31, ~~2006,~~2007, all Section 16(a) filing requirements applicable to its officers, Directors and 10% shareholders were complied with on a timely ~~basis except for Ms. Vellutini and Mr. Watson who each failed to file one Form 4 on a timely~~ basis. ~~All Section 16(a) filing requirements in 2007 were complied with on a timely basis. 16~~

COMPENSATION DISCUSSION AND ANALYSIS

Introduction ~~- ------------~~

The Board of Directors of North Valley Bancorp strives to ensure that its compensation plan is consistent with the strategic goals and objectives of the ~~Company~~Corporation and maintains the standards of good corporate governance.

Philosophy ~~- ----------~~

All of the ~~Company's~~Corporation’s compensation programs are designed to attract and retain key employees, motivating them to achieve and rewarding them for superior performance. Different programs are geared to short and longer-term performance with the goal of increasing stockholder value over the long term. Executive compensation programs impact all employees by setting general levels of compensation and helping to create an environment of goals, rewards and expectations. North Valley Bancorp believes the performance of every employee is important to its success and recognizes the importance of executive compensation and incentive programs to achieve improved performance.

North Valley Bancorp believes that the compensation of its executives should reflect their success as a management team, rather than individuals, in attaining key operating objectives, such as growth of deposits, loans, maintaining credit quality, growth of operating earnings and earnings per share and growth or maintenance of market share and long-term competitive advantage, and ultimately, in attaining an increased market price for its stock. North Valley Bancorp believes that the performance of the executives in managing the ~~Company,~~Corporation, considered in light of general economic and specific company, industry and competitive conditions, should be the basis for determining their overall compensation. North Valley Bancorp also believes that their compensation should not be based on the short-term performance of the ~~Company~~Corporation stock, whether favorable or unfavorable, but rather that the price of the ~~Company~~Corporation stock will, in the long-term, reflect its operating performance, and ultimately, the management of the ~~Company~~Corporation by its executives. North Valley Bancorp seeks to have the long-term performance of the ~~Company~~Corporation stock reflected in executive compensation through stock option awards.

Overview of Compensation and Process ~~- ------------------------------------~~

Elements of compensation for ~~our~~corporate executives include: salary, bonus, stock option awards, deferred compensation plans, salary continuation plan, health, disability and life insurance, and perquisites. Base salaries are set for our Executive Officers at the regularly scheduled winter meeting of the Compensation Committee. At this meeting, the Compensation Committee also reviews and recommends the management incentive plan for the new fiscal year (the ~~"Executive~~“Executive Discretionary Incentive ~~Plan"~~Plan”) and recommends stock option awards for the ~~Company's~~Corporation’s Executive Officers and certain other eligible employees.

At the beginning of each fiscal year, it has been the practice of the Compensation Committee to review the history of all the elements of each Executive ~~Officer's~~Officer’s total compensation over previous years and compare the compensation of the Executive Officers with that of the executive officers in an appropriate market place and industry comparison group. Typically, the Chief Executive Officer makes compensation recommendations to the Compensation Committee with respect to the Executive Officers who report to him. Such Executive Officers are not present at the time of these deliberations. The Chairman of the Board then makes compensation recommendations to the Compensation Committee with respect to the Chief Executive Officer, who is absent from that meeting. The Compensation Committee may accept or adjust such recommendations. 17

North Valley Bancorp chooses to pay each element of compensation in order to attract and retain the necessary executive talent, reward annual performance and provide incentive for their balanced focus on long-term strategic goals as well as short-term performance. The amount of each element of compensation is determined by or under the direction of the Compensation Committee, which uses the following factors to determine the amount of salary and other benefits to pay each Executive Officer: o Performance against corporate and individual objectives for the previous year; o Value of their unique skills and capabilities to support long-term performance of the Company; o Achievement of strategic objectives; o Earnings per share; o Deposits and/or loan growth; and o


	·	Performance against corporate and individual objectives for the previous year;

	·	Value of their unique skills and capabilities to support long-term performance of the Corporation;

	·	Achievement of strategic objectives;

	·	Earnings per share;

	·	Deposits and/or loan growth; and

	·	Any of the above measures compared to peer or other companies.

These elements fit into our overall compensation objectives by helping to secure the future potential of our operations, facilitating our strategic plan, providing proper compliance and regulatory compliance, and helping to create a cohesive team. Actual performance measures for the Executive Officers will be chosen by the Compensation Committee. During ~~2006, a~~2007, an outside benefits attorney was engaged to review non-qualified deferred compensation plans and to recommend changes to those plans to make them conform with IRS regulations and regulatory requirements and, further, to advise with regard to best practices concerning the structure and implementation of those plans.

In 2007, the Corporation entered into an Agreement and Plan of Merger with Sterling Financial Corporation. The Agreement was terminated on December 1, 2007, because Sterling Financial Corporation failed to obtain the necessary regulatory approvals. The Corporation experienced significant challenges and non-core expenses during 2007. The Compensation Committee took into consideration the effects of this transaction when reviewing and recommending compensation and benefits based on the 2007 performance. In particular, the Compensation Committee noted the manner in which the Chief Executive Officer and other executive officers responded to the challenges created by this failed merger and were able to maintain the overall fiscal and operational integrity of the Corporation throughout 2007.

EXECUTIVE COMPENSATION

Base Salary ~~- -----------~~

It is the goal of the ~~Company's~~Corporation’s Compensation Committee to establish salary compensation for its Executive Officers based on the ~~Company's~~Corporation’s operating performance relative to comparable peer companies over a three-year to five-year period. North Valley Bancorp believes this gives it the opportunity to attract and retain talented managerial employees, both at the senior executive level and below.

Bonus ~~- -----~~

The Executive Discretionary Incentive Plan is designed to reward the ~~Company's Executives~~Corporation’s executives for the achievement of short-term financial goals, including increases in performance against peer banks, the achievement of short-term and long-term strategic goals, and overall financial performance of the ~~Company.~~Corporation. It is the ~~Company's~~Corporation’s general philosophy that management be rewarded for their performance as a team in the attainment of these goals, rather than individually. North Valley Bancorp believes that this is important to aligning our Executive Officers and promoting teamwork among them. Bonus percentages for Executive Officers were initially proposed by a compensation consultant based on an analysis of peer banks and industry sector considerations. Those basic percentages, which are discretionary with the Compensation Committee, have generally been ~~followed.~~followed in recent years, including 2007. Those percentages are as follows: for Executive Officers other than the Chief Executive Officer, the range is 10% - 40% of base salary; and for the Chief Executive Officer, the range is 10% - 50% of base salary. Similarly, Executive Officers are eligible for discretionary incentive stock option awards based on the following percentages: for Executive Officers other than the Chief Executive Officer, the range is 0% - 5% of base salary as the number of options considered for award; and for the Chief Executive Officer, the range is 0% - 6% of base salary as the number of options considered for award. 18

Although each Executive Officer is eligible to receive an award at the discretion of the Compensation Committee, the granting of the award as to any individual, officer or ~~officer~~ as a group, is first at the discretion of the Chief Executive Officer and then, based on his recommendation, at the discretion of the Compensation Committee and ~~full Board.~~the entire Board of Directors. The Compensation Committee may choose whether to award ~~the~~a bonus and decides on the actual level of the award in light of all relevant factors after completion of the applicable fiscal year.

The following Summary Compensation Table sets forth the compensation of the President and Chief Executive Officer (Principal Executive Officer) and the Executive Vice President and Chief Financial Officer (Principal Financial Officer) of the ~~Company~~Corporation and all of the other ~~most highly compensated~~ Executive Officers for services in all capacities provided to the ~~Company~~Corporation and ~~its subsidiary~~North Valley Bank during ~~2006:~~ 2006 and 2007:

SUMMARY COMPENSATION TABLE


			Salary		Bonus		Stock Awards		Option Awards		Non-Equity Incentive Plan Compensation		Change in Pension Value and Nonqualified Deferred Compensation Earnings			All Other Compensation			Total
Name and Principal Position	Year		(1)($)		(2)($)		($)		(3)($)		($)		(4)($)			(5)($)			($)


Michael J. Cushman President and Chief Executive Officer		2007	$	286,650	$	124,000		—	$	74,161		—		$	254,744		$	13,508	$	753,063
		2006	$	275,625	$	124,000		—	$	65,065		—		$	285,059		$	16,704	$	766,453


Kevin R. Watson (6) Executive Vice President and Chief Financial Officer		2007	$	187,200	$	63,648		—	$	24,010		—		$	80,821		$	16,140	$	371,819
		2006	$	150,000	$	63,000		—	$	16,362		—			—		$	8,230	$	237,592


Scott R. Louis Executive Vice President and Chief Operating Officer		2007	$	154,000	$	52,360		—	$	13,637		—		$	27,094		$	14,137	$	261,228
		2006	$	140,000	$	49,000		—	$	2,531		—		$	17,391		$	10,082	$	219,004


Roger D. Nash Executive Vice President and Chief Credit Officer		2007	$	154,000	$	52,360		—	$	21,159		—		$	29,980		$	11,100	$	268,599
		2006	$	140,000	$	49,000		—	$	10,054		—		$	24,777		$	7,030	$	230,861


Gary S. Litzsinger Executive Vice President and Chief Risk Officer		2007	$	111,100	$	35,885		—	$	17,415		—		$	18,670		$	6,480	$	189,550
		2006	$	104,800	$	36,380		—	$	11,839		—		$	13,741		$	5,182	$	171,942


Leo J. Graham General Counsel and Corporate Secretary		2007	$	170,500	$	57,382		—	$	25,525		—		$	143,658		$	13,522	$	410,587
		2006	$	163,950	$	57,382		—	$	16,535		—		$	142,294		$	10,833	$	390,994

SUMMARY COMPENSATION TABLE CHANGE IN PENSION VALUE AND NON-EQUITY NONQUALIFIED INCENTIVE DEFERRED STOCK OPTION PLAN COMPENSATION ALL OTHER SALARY BONUS AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL NAME AND PRINCIPAL POSITION YEAR

(1)($	Base salary includes 401(k) Plan and Executive Deferred Compensation Plan (“EDCP”) contributions made by the named officers.

(2)($) ($) (3)($) ($) (4)($) (5)($) ($) - --------------------------------- ---- --------- -------- ------ -------- ------------ ------------ ------------ --------- ~~Michael J. Cushman~~	These bonus amounts were paid in 2007 and 2008 attributable to 2006 ~~$ 275,625 $124,000 - $ 65,065 - $ 285,059 $ 16,704 $ 766,453 President~~ and ~~Chief Executive Officer Kevin R.~~2007 performance, respectively.

(3)	The amount reported in this column is the dollar amount recognized for financial statement reporting purposes for 2006 and 2007 in accordance with FAS 123(R). The assumptions used to calculate FAS 123(R) fair value are described in Footnote 1 to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2007.

(4)	The amounts in this column represent the increase in the actuarial net present value of all future retirement benefits under the individual’s salary continuation plan and the above-market or preferential earnings on any nonqualified deferred compensation. The above-market rate is determined by using the amount above 120% of the Federal long-term rate. For 2006, the interest rate paid was 9.30% and the above-market rate was determined to be 5.98%. For 2007, the interest rate paid was 10.40%, and the above-market rate was determined to be 5.80%.

(5)	Included in this column are perquisites described below in the table under the heading “Perquisites.”

(6)	Mr. Watson ~~(6)~~joined the Corporation in March 2006. His annual base salary for 2006 $ 150,000 $ 63,000 - $ 16,362 - - $ 8,230 $ 237,592 Executive Vice President and Chief Financial Officer Scott R. Louis 2006 $ 140,000 $ 49,000 - $ 2,531 - $ 17,391 $ 10,082 $ 219,004 Executive Vice President and Chief Operating Officer Roger D. Nash 2006 $ 140,000 $ 49,000 - $ 10,054 - $ 24,777 $ 7,030 $ 230,861 Executive Vice President and Chief Credit Officer Gary S. Litzsinger 2006 $ 104,800 $ 36,380 - $ 11,839 - $ 13,741 $ 5,182 $ 171,942 Executive Vice President and Chief Risk Officer Leo J. Graham 2006 $ 163,950 $ 57,382 - $ 16,535 - $ 142,294 $ 10,833 $ 390,994 General Counsel and Corporate Secretary Eric J. Woodstrom (7) 2006 $ 116,028 $ 40,000 - $ 24,529 - $ 124,246 $ 131,802 $ 436,605 Former Executive Vice President and Chief Credit Officer was set at $180,000. The amount shown reflects base salary paid in 2006.

(1) Base salary includes 401(k) Plan and Executive Deferred Compensation Plan ("EDCP") contributions made by the officers. (2) These bonus amounts were paid in 2007 attributable to 2006 performance. (3) The amount reported in this column is the dollar amount recognized for financial statement reporting purposes for 2006 in accordance with FAS 123(R). The assumptions used to calculate FAS 123(R) fair value are described in footnote 1 to our consolidated financial statements included in our Annual Report on Form 10-K. 19 (4) The amounts in this column represent the increase in the actuarial net present value of all future retirement benefits under the individual's salary continuation plan and the above-market or preferential earnings on any nonqualified deferred compensation. The above-market rate is determined by using the amount above 120% of the Federal long-term rate. For 2006, the interest rate paid was 9.30%, and the above-market rate was determined to be 5.98%. (5) Included in this column are perquisites described hereafter in the table under the heading "Perquisites." (6) Mr. Watson joined the Company in March 2006. His annual base salary for 2006 was set at $180,000. The amount shown reflects base salary paid in 2006. (7) Eric Woodstrom's employment contract dated January 2001 ended on October 6, 2007. He received $113,147 for severance, pro-rata bonus, and vacation pay pursuant to his employment contract. The amount is included in the "All Other Compensation" column.

Perquisites

Executive Officers who participated in the North Valley Bancorp 401(k) Plan received matching funds, as did all employees of the ~~Company~~Corporation who participated in the Plan. All of the ~~Company's~~Corporation’s employees and ~~named~~ Executive Officers named in the Summary Compensation Table above are eligible to participate in the ~~Company's~~Corporation’s ESOP Plan. Named Executive Officers, in addition, are eligible to receive the same health and insurance benefits ~~the same~~ as made available to all other employees of the ~~Company.~~Corporation. In addition, the named Executive Officers are eligible to participate in executive and key employee deferred compensation plans as discussed hereafter. Named Executive Officers also have certain 2006 and 2007 perquisites as follows: 20


Name and Principal Position	Year		Auto Allowance ($)			Club Memberships & Dues ($)			401K Matching Contribution ($)			ESOP ($)		Total ($)


Michael J. Cushman		2007		$	2,350		$	3,600		$	3,850	$	3,708	$	13,508
President and Chief		2006		$	2,350		$	3,540		$	3,850	$	6,964	$	16,704
Executive Officer

Kevin R. Watson		2007		$	6,000		$	3,540		$	6,600		—	$	16,140
Executive Vice President		2006		$	4,750		$	3,480			—		—	$	8,230
and Chief Financial Officer

Scott R. Louis		2007		$	1,850		$	3,590		$	6,058	$	2,639	$	14,137
Executive Vice President		2006		$	1,850		$	3,540		$	4,692		—	$	10,082
and Chief Operating Officer

Roger D. Nash		2007		$	1,450		$	3,595		$	6,055		—	$	11,100
Executive Vice President		2006		$	1,450		$	3,480		$	2,100		—	$	7,030
and Chief Credit Officer

Gary S. Litzsinger		2007		$	1,450			—		$	2,916	$	2,114	$	6,480
Executive Vice President		2006		$	1,450			—		$	3,732		—	$	5,182
and Chief Risk Officer

Leo J. Graham		2007			—		$	3,540		$	6,600	$	3,382	$	13,522
General Counsel and		2006			—		$	3,480		$	2,459	$	4,894	$	10,833
Corporate Secretary

Stock Option ~~Plan - -----------------~~Awards

North Valley Bancorp intends that its stock option award program isbe the primary vehicle for offering long-term incentives and rewarding its Executive Officers and key employees. The ~~Company~~Corporation also regards its stock option award program as a key retention tool. This is a very important factor in its determination of the type of option award to grant and the number of underlying shares that are granted in connection with that award. Because of the direct relationship between the value of an option and the market price of the ~~Company's common stock,~~Corporation’s Common Stock, North Valley Bancorp has always believed that granting stock options is the best method of motivating the Executive Officers to manage the ~~Company~~Corporation in a manner that is consistent with the interests of the ~~Company~~Corporation and its shareholders.

Timing of Grants ~~- ----------------~~

Stock options to the ~~Company's~~Corporation’s Executive Officers and other key employees are typically granted annually in conjunction with ~~the~~a review of the individual performance of its Executive Officers. This review takes place at the regularly scheduled meeting of the Compensation Committee, which is held in conjunction with the quarterly meeting of the Board in January following the fiscal year under consideration. Grants to newly hired employees are effective 21 on the date of grant as consideration for the hiring of the new employee. The exercise price of all stock options is set at the closing price of the day of Common Stock as reported on the Nasdaq Global Select Market on the date of grant. ~~2006~~

2007 GRANTS OF PLAN-BASED AWARDS TABLE


														All Other Stock Awards: Number of Shares of Stock or		All Other Option Awards: Number of Securities Underlying

																	Exercise or Base Price of Option			Grant Date Fair Value of Stock and Option
		Estimated Future Payouts Under						Estimated Future Payouts Under
		Non-Equity Incentive Plan Awards						Equity Incentive Plan Awards

Name	Grant Date	Threshold ($)		Target ($)		Maximum ($)		Threshold (#)		Target (#)		Maximum (#)		Units (#)		Options (1)(#)	Awards (2)($ / Sh)			Awards (3)($)


Michael J. Cushman	01/25/07		—		—		—		—		—		—		—	14,963		$	20.03		$	76,851
Kevin R. Watson	01/25/07		—		—		—		—		—		—		—	7,200		$	20.03		$	36,980
Scott R. Louis	01/25/07		—		—		—		—		—		—		—	5,600		$	20.03		$	28,762
Roger D. Nash	01/25/07		—		—		—		—		—		—		—	5,600		$	20.03		$	28,762
Gary S. Litzsinger	01/25/07		—		—		—		—		—		—		—	4,192		$	20.03		$	21,530
Leo J. Graham	01/25/07		—		—		—		—		—		—		—	6,558		$	20.03		$	33,682

ALL OTHER ALL OTHER STOCK OPTION GRANT DATE ESTIMATED FUTURE PAYOUTS ESTIMATED FUTURE PAYOUTS AWARDS: AWARDS: EXERCISE FAIR UNDER NON-EQUITY UNDER EQUITY NUMBER OF NUMBER OF OR BASE VALUE OF INCENTIVE PLAN AWARDS INCENTIVE PLAN AWARDS SHARES OF SECURITIES PRICE OF STOCK AND -------------------------- -------------------------- STOCK OR UNDERLYING OPTION OPTION GRANT THRESHOLD TARGET MAXIMUM THRESHOLD TARGET MAXIMUM UNITS OPTIONS AWARDS AWARDS NAME DATE ($

(1)	Options granted under the 1998 Employee Stock Incentive Plan (the “1998 Plan”) ~~($) ($) (#) (#) (#) (#) (1)(#)~~ are either incentive options or non-statutory options and became exercisable in accordance with a vesting schedule established at the time of grant. Vesting cannot extend beyond ten years from the date of grant. Upon a change in control of North Valley Bancorp, all outstanding options under the 1998 Plan will become fully vested and exercisable. Options granted under the 1998 Plan are adjusted to protect against dilution in the event of certain changes in North Valley Bancorp’s capitalization, including stock splits and stock dividends. All options granted to the named Executive Officers in 2007 are incentive stock options and have an exercise price equal to the fair market value of North Valley Bancorp Common Stock on the date of grant.

(2)~~($/SH)~~	The exercise price was determined based upon the closing price of North Valley Bancorp Common Stock as reported on The Nasdaq Global Select Market on the grant date.

(3)~~($) - ------------------ -------- --------- ------ ------- --------- ------ ------- ---------- ---------- --------- ----------~~ Michael J. Cushman 02/03/06 - - - - - - - 14,963 $ 17.95 $ 63,179 Kevin R. Watson 04/27/06 - - - - - - - 10,000 $ 16.38 $ 38,969 Scott R. Louis - - - - - - - - - - - Roger D. Nash - - - - - - - - - - - Gary S. Litzsinger 02/03/06 - - - - - - - 2,856 $ 17.95 $ 12,060 Leo J. Graham 02/03/06 - - - - - - - 4,200 $ 17.95 $ 17,733 Eric J. Woodstrom 02/03/06 - - - - - - - 6,078 $ 17.95 $ 25,663	The Black-Scholes option-pricing model was used to estimate the grant date fair value of the options in this column. Use of this model should not be construed as an endorsement of its accuracy. All stock option pricing models require predictions about the future movement of the stock price. Options awarded January 25, 2007 were valued at $5.14 per share in accordance with FAS 123(R). The assumptions used to develop the January 25, 2007 grant date valuations were: risk-free rate of return of 4.85%, dividend rate of 2.28%, volatility rate of 23.50%, and an average term of 6.25 years. The real value of the options in this table will depend on the actual performance of the Corporation’s Common Stock during the applicable period and the fair market value of the Corporation’s Common Stock on the date the options are exercised.

(1) Options granted under the 1998 Employee Stock Incentive Plan (the "1998 Plan") were either incentive options or non-statutory options and became exercisable in accordance with a vesting schedule established at the time of grant. Vesting cannot extend beyond ten years from the date of grant. Upon a change in control of North Valley Bancorp, all outstanding options under the 1998 Plan will become fully vested and exercisable. Options granted under the 1998 Plan are adjusted to protect against dilution in the event of certain changes in North Valley Bancorp's capitalization, including stock splits and stock dividends. All options granted to the named Executive Officers are incentive stock options and have an exercise price equal to the fair market value of North Valley Bancorp common stock on the date of grant. (2) The exercise price was determined based upon the closing price of North Valley Bancorp common stock as reported on the NASDAQ Global Select Market on the grant date. (3) The Black-Scholes option-pricing model was used to estimate the grant date fair value of the options in this column. Use of this model should not be construed as an endorsement of its accuracy. All stock option pricing models require predictions about the future movement of the stock price. Options awarded on February 3, 2006 were valued at $4.22/share in accordance with FAS 123(R), and options awarded on April 27, 2006 were valued at $3.90/share in accordance with FAS 123(R). The assumptions used to develop the February 3, 2006 grant date valuations were: risk-free rate of return of 4.5%, dividend rate of 2.3%, volatility rate of 29.6%, and an average term of 6.25 years. The assumptions used to develop the April 27, 2006 grant date valuations were: risk-free rate of return of 4.98%, dividend rate of 2.3%, volatility rate of 28.7%, and an average term of 6.25 years. The real value of the options in this table will depend on the actual performance of the Company's common stock during the applicable period and the fair market value of the Company's common stock on the date the options are exercised.

Outstanding Equity Awards At Fiscal Year-End ~~- --------------------------------------------~~

The following table summarizes information about the options, warrants and rights and other equity compensation under the ~~Company's~~Corporation’s equity plans as of December 31, ~~2006. 22~~ 2007, for each of the named Executive Officers.

~~OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE~~


OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE

	Option Awards								Stock Awards


												Equity
												Incentive
												Plan
											Equity	Awards:
											Incentive	Market or
					Equity						Plan	Payout
					Incentive						Awards:	Value of
					Plan						Number of	Unearned
			Number of		Awards:				Number of	Market	Unearned	Shares,
	Number of		Securities		Number of				Shares or	Value of	Shares,	Units or
	Securities		Underlying		Securities				Units of	Shares or	Units or	Other
	Underlying		Unexercised		Underlying				Stock	Units of	Other	Rights
	Unexercised		Options		Unexercised	Option			That	Stock That	Rights	That
	Options (#)		(#)		Unearned	Exercise		Option	Have Not	Have Not	that Have	Have Not
					Options	Price		Expiration	Vested	Vested	Not Vested	Vested
Name	Exercisable		Unexercisable		(#)	($)		Date	(#)	($)	(#)	($)


Michael J. Cushman	37,500	(1)	—		—	$	10.63	8/19/2008	—	—	—	—
	33,750	(2)	—		—	$	8.58	2/16/2009	—	—	—	—
	14,859	(3)	—		—	$	8.87	4/26/2011	—	—	—	—
	10,638	(4)	—		—	$	9.40	1/24/2012	—	—	—	—
	15,000	(5)	—		—	$	10.24	7/25/2012	—	—	—	—
	18,900	(6)	—		—	$	13.06	1/30/2013	—	—	—	—
	9,600	(7)	2,400	(7)	—	$	15.72	1/20/2014	—	—	—	—
	8,977	(8)	5,986	(8)	—	$	19.86	1/20/2015	—	—	—	—
	5,985	(9)	8,978	(9)	—	$	17.95	2/3/2016	—	—	—	—
	2,992	(14)	11,971	(14)	—	$	20.03	1/25/2017	—	—	—	—

Kevin R. Watson	4,000	(10)	6,000	(10)	—	$	16.38	4/27/2016	—	—	—	—
	1,440	(14)	5,760	(14)	—	$	20.03	1/25/2017	—	—	—	—

Scott R. Louis	1,500	(11)	1,000	(11)	—	$	17.63	4/28/2015	—	—	—	—
	1,120	(14)	4,480	(14)	—	$	20.03	1/25/2017	—	—	—	—

Roger D. Nash	6,000	(12)	4,000	(12)	—	$	17.00	10/20/2015	—	—	—	—
	1,120	(14)	4,480	(14)	—	$	20.03	1/25/2017	—	—	—	—

Gary S. Litzsinger	3,200	(13)	800	(13)	—	$	16.18	8/5/2014	—	—	—	—
	1,200	(8)	800	(8)	—	$	19.86	1/20/2015	—	—	—	—
	1,142	(9)	1,714	(9)	—	$	17.95	2/3/2016	—	—	—	—
	838	(14)	3,354	(14)	—	$	20.03	1/25/2017	—	—	—	—

Leo J. Graham	4,000	(7)	1,000	(7)	—	$	15.72	1/20/2014	—	—	—	—
	1,800	(8)	1,200	(8)	—	$	19.86	1/20/2015	—	—	—	—
	1,680	(9)	2,520	(9)	—	$	17.95	2/3/2016	—	—	—	—
	1,311	(14)	5,247	(14)	—	$	20.03	1/25/2017	—	—	—	—

OPTION AWARDS STOCK AWARDS --------------------------------------------------------------- --------------------------------------------- EQUITY INCENTIVE PLAN EQUITY AWARDS: INCENTIVE MARKET OR EQUITY PLAN PAYOUT INCENTIVE AWARDS: VALUE OF PLAN NUMBER OF UNEARNED NUMBER OF NUMBER OF AWARDS: MARKET UNEARNED SHARES, SECURITIES SECURITIES NUMBER OF NUMBER OF VALUE OF SHARES, UNITS OR UNDERLYING UNDERLYING SECURITIES SHARES OR SHARES OR UNITS OR OTHER UNEXERCISED UNEXERCISED UNDERLYING UNITS OF UNITS OF OTHER RIGHTS OPTIONS OPTIONS UNEXERCISED OPTION OPTION STOCK THAT STOCK THAT RIGHTS THAT (#) (#) UNEARNED EXERCISE EXPIRATION HAVE NOT HAVE NOT THAT HAVE HAVE NOT -------------------------- OPTIONS PRICE DATE VESTED VESTED NOT VESTED VESTED NAME EXERCISABLE UNEXERCISABLE (#) ($) (#) ($) (#) ($) - ------------------ ----------- ------------- ----------- -------- ---------- ---------- ---------- ---------- --------- ~~Michael J. Cushman 37,500(1) - - $ 10.63 8/19/~~

(1)	These stock options vest 20% at grant date and vest 20% per year over the next four years; 100% were vested at August 19, 2002.

(2)	These stock options vest 20% at grant date and vest 20% per year over the next four years; 100% were vested at February 16, 2003.

(3)	These stock options vest 20% at grant date and vest 20% per year over the next four years; 100% were vested at April 26, 2005.

(4)	These stock options vest 20% at grant date and vest 20% per year over the next four years; 100% were vested at January 24, 2006.

(5)	These stock options vest 20% at grant date and vest 20% per year over the next four years; 100% were vested at July 25, 2006.

(6)	These stock options vest 20% at grant date and vest 20% per year over the next four years; 100% were vested at January 30, 2007.

(7)	These stock options vest 20% at grant date and vest 20% per year over the next four years; 80% were vested at January 20, 2007 with the remaining vesting to occur on January 20, 2008.

(8)	These stock options vest 20% at grant date and vest 20% per year over the next four years; 60% were vested at January 20, 2007 with the remaining vesting to occur on January 20, 2008 ~~- - - - 33,750(2) - - $ 8.58 2/16/~~and 2009.

(9)	These stock options vest 20% at grant date and vest 20% per year over the next four years; 40% were vested at February 3, 2007 with the remaining vesting to occur on February 3, 2008, 2009 - - - - 14,859(3) - - $ 8.87 4/26/2011 - - - - 10,638(4) - - $ 9.40 1/24/2012 - - - - 15,000(5) - - $ 10.24 7/25/2012 - - - - 15,120(6) 3,780(6) - $ 13.06 1/30/2013 - - - - 7,200(7) 4,800(7) - $ 15.72 1/20/2014 - - - - 5,985(8) 8,978(8) - $ 19.86 1/20/2015 - - - - 2,992(9) 11,971(9) - $ 17.95 2/3/2016 - - - - Kevin R. Watson 2,000(10) 8,000(10) - $ 16.38 4/27/2016 - - - - Scott R. Louis 1,000(11) 1,500(11) - $ 17.63 4/28/2015 - - - - Roger D. Nash 4,000(12) 6,000(12) - $ 17.00 10/20/2015 - - - - Gary S. Litzsinger 2,400(13) 1,600(13) - $ 16.18 8/5/2014 - - - - 800(8) 1,200(8) - $ 19.86 1/20/2015 - - - - 571(9) 2,285(9) - $ 17.95 2/3/2016 - - - - Leo J. Graham 3,000(7) 2,000(7) - $ 15.72 1/20/2014 - - - - 1,200(8) 1,800(8) - $ 19.86 1/20/2015 - - - - 840(9) 3,360(9) - $ 17.95 2/3/2016 - - - - Eric J. Woodstrom 15,000(14) - - $ 7.25 1/4/and 2010.

(10)	These stock options vest 20% at grant date and vest 20% per year over the next four years; 40% were vested at April 27, 2007 ~~- - - - 4,527(3) - - $ 8.87 1/4/~~with the remaining vesting to occur on April 27, 2008, 2009 and 2010.

(11)	These stock options vest 20% at grant date and vest 20% per year over the next four years; 60% were vested at April 28, 2007 ~~- - - - 3,383(4) - - $ 9.40 1/4/~~with the remaining vesting to occur on April 28, 2008 and 2009.

(12)	These stock options vest 20% at grant date and vest 20% per year over the next four years; 60% were vested at October 20, 2007 ~~- - - - 15,000(5) - - $ 10.24 1/4/~~with the remaining vesting to occur on October 20, 2008 and 2009.

(13)	These stock options vest 20% at grant date and vest 20% per year over the next four years; 80% were vested at August 5, 2007 ~~- - - - 2,431(15) - - $ 19.86 1/4/~~with the remaining vesting to occur on August 5, 2008.

(14)	These stock options vest 20% at grant date and vest 20% per year over the next four years; 20% were vested at January 25, 2007 ~~- - - -~~ with the remaining vesting to occur on January 25, 2008, 2009, 2010 and 2011.

(1) These stock options vest 20% at grant date and vest 20% per year over the next four years; 100% were vested at August 19, 2002. (2) These stock options vest 20% at grant date and vest 20% per year over the next four years; 100% were vested at February 16, 2003. (3) These stock options vest 20% at grant date and vest 20% per year over the next four years; 100% were vested at April 26, 2005. (4) These stock options vest 20% at grant date and vest 20% per year over the next four years; 100% were vested at January 24, 2006. (5) These stock options vest 20% at grant date and vest 20% per year over the next four years; 100% were vested at July 25, 2006. (6) These stock options vest 20% at grant date and vest 20% per year over the next four years; 80% were vested at January 30, 2006 with the remaining vesting to occur on January 30, 2007. (7) These stock options vest 20% at grant date and vest 20% per year over the next four years; 60% were vested at January 20, 2006 with the remaining vesting to occur on January 20, 2007 and 2008. (8) These stock options vest 20% at grant date and vest 20% per year over the next four years; 40% were vested at January 20, 2006 with the remaining vesting to occur on January 20, 2007, 2008 and 2009. (9) These stock options vest 20% at grant date and vest 20% per year over the next four years; 20% were vested at February 3, 2006 with the remaining vesting to occur on February 3, 2007, 2008, 2009 and 2010. (10) These stock options vest 20% at grant date and vest 20% per year over the next four years; 20% were vested at April 27, 2006 with the remaining vesting to occur on April 27, 2007, 2008, 2009 and 2010. (11) These stock options vest 20% at grant date and vest 20% per year over the next four years; 40% were vested at April 28, 2006 with the remaining vesting to occur on April 28, 2007, 2008 and 2009. (12) These stock options vest 20% at grant date and vest 20% per year over the next four years; 40% were vested at October 20, 2006 with the remaining vesting to occur on October 20, 2007, 2008 and 2009. (13) These stock options vest 20% at grant date and vest 20% per year over the next four years; 60% were vested at August 5, 2006 with the remaining vesting to occur on August 5, 2007 and 2008. (14) These stock options vest 20% at grant date and vest 20% per year over the next four years; 100% were vested at October 18, 2003. (15) These stock options vest 20% at grant date and vest 20% per year over the next four years; 100% were vested at October 6, 2006. 23

Options Exercised and Stock Vested ~~- ----------------------------------~~

The following table summarizes information with respect to stock option awards exercised and restricted stock and restricted stock unit awards vested during fiscal year ~~2006~~2007 for each of the named ~~executive officers.~~ Executive Officers.

OPTION EXERCISES AND STOCK VESTED TABLE OPTION AWARDS STOCK AWARDS ------------------------- ------------------------- NUMBER OF NUMBER OF SHARES VALUE SHARES VALUE ACQUIRED ON REALIZED ON ACQUIRED ON REALIZED ON EXERCISE EXERCISE VESTING VESTING NAME (#) ($) (#) ($) - ------------------ ----------- ----------- ----------- ----------- Michael J. Cushman - - - - Kevin R. Watson - - - - Scott R. Louis - - - - Roger D. Nash - - - - Gary S. Litzsinger - - - - Leo J. Graham - - - - Eric J. Woodstrom 10,755 $ 40,256 - -

Option Awards

Stock Awards

Name

Number of Shares
Acquired on
Exercise
(#)

Value Realized On
Exercise
($)

Number of Shares
Acquired on Vesting
(#)

Value Realized On
Vesting
($)

Michael J. Cushman

—

Kevin R. Watson

—

Scott R. Louis

—

Roger D. Nash

—

Gary S. Litzsinger

—

Leo J. Graham

—

Equity Compensation Plan Information ~~- ------------------------------------~~

The following table summarizes information about the options, warrants, and rights and other equity compensation under the ~~Company's~~Corporation’s equity plans as of December 31, ~~2006.~~ 2007.

EQUITY COMPENSATION PLANS


Plan Category	Number of securities to be issued upon the exercise of outstanding options, warrants, and rights (#)	Weighted- average exercise price of outstanding options, warrants, and rights ($)			Number of securities remaining available for future issuance under equity compensation plans (#)


Equity Compensation Plans approved by security holders (1)	723,642		$	10.75	1,162,649

Equity Compensation Plans not approved by security holders	None			N/A	N/A


Total	723,642		$	10.75	1,162,649

NUMBER OF NUMBER OF SECURITIES TO BE WEIGHTED- SECURITIES ISSUED UPON THE AVERAGE REMAINING EXERCISE OF EXERCISE PRICE AVAILABLE FOR OUTSTANDING OF OUTSTANDING FUTURE ISSUANCE OPTIONS, OPTIONS, UNDER EQUITY WARRANTS, AND WARRANTS, AND COMPENSATION RIGHTS RIGHTS PLANS PLAN CATEGORY (#) ($) (#) - ------------------------------------- ---------------- ------------------ ------------------ ~~Equity Compensation Plans approved by security holders~~

(1) 778,712 $ 9.77 1,212,531 Equity Compensation Plans not approved by security holders None N/A N/A ---------------- ------------------ ------------------ Total 778,712 $ 9.77 1,212,531	Includes options to purchase shares of Corporation Common Stock under the following shareholder-approved plans: North Valley Bancorp 1989 Director Stock Option Plan, North Valley Bancorp 1998 Employee Stock Incentive Plan, and North Valley Bancorp 1999 Director Stock Option Plan.

(1) Includes options to purchase shares of Company common stock under the following shareholder-approved plans: North Valley Bancorp 1989 Director Stock Option Plan, North Valley Bancorp 1998 Employee Stock Incentive Plan, and North Valley Bancorp 1999 Director Stock Option Plan.

Employment Agreements ~~- ---------------------~~

The ~~Company~~Corporation entered into an Employment Agreement with Michael J. Cushman in 2001. The ~~Company~~Corporation entered into an Employment Agreement with Leo J. Graham in 2004, revised in 2006. The ~~Company~~Corporation entered into Employment Agreements with Gary S. Litzsinger, Scott R. Louis and Roger D. Nash during 2005. The ~~Company~~Corporation entered into an Employment Agreement with Kevin R. Watson in 2006.

The Employment Agreement entered into in 2001 with Mr. Cushman had an initial term of three years with annual renewals. The Employment ~~Agreement entered into~~Agreements with ~~Mr.~~Messrs. Watson, ~~in 2006 has~~Louis, Nash, Litzsinger, and Graham have an initial term of one ~~year. After the initial term, all Employment Agreements~~year and provide that they will be extended for additional one-year periods, or be at will, unless either the employee or the employer gives notice of non-renewal before the end of the term or extended term. All of the ~~above employment agreements~~Employment Agreements have been extended at their annual anniversary dates upon the same terms and conditions, except for Mr. Cushman, whose ~~agreement was~~Employment Agreement has been extended atannually since the end of its initial three year ~~anniversary~~term upon the same terms and conditions. The compensation paid to each of Messrs. Cushman, Watson, Louis, Nash, Litzsinger, and Graham for years 2006 and 2007 under the terms of their respective Employment Agreements is set forth in the Summary Compensation Table on page 17 of this Proxy Statement.

Under the terms of ~~the~~their respective Employment Agreements, all Executive Officers are eligible to participate in the Executive Deferred Compensation Plan and the Salary Continuation Agreements (see discussion below) and ~~other benefits available~~are entitled to all other benefits made available to employees of the ~~Company.~~Corporation generally.

All Executive Officers are entitled to severance pay upon termination by the ~~Company~~Corporation without cause in an amount ranging from six ~~month's~~months to 24 ~~month's~~months of current base salary, except Mr. Cushman who is also entitled to a pro rata share of the ~~prior year's~~ annual incentive ~~compensation.~~ compensation for the prior year.

POST-EMPLOYMENT COMPENSATION

Salary Continuation Agreements ~~- ------------------------------~~

The Corporation has entered into a Salary continuation Agreement with each of the Executive Officers. The Salary Continuation Agreements provide for five general classes of benefits for Executive Officers, which benefits vest over a period of eight (8) to ten (10) years with credit for prior service or as determined by the Chief Executive Officer and the Board of Directors:

(1) Normal Retirement Benefits. The normal retirement benefit is calculated to provide a target benefit in the amount equal to sixty percent (60%) of the ~~executive's~~executive’s compensation at the time of retirement (age 65) or a lesser amount as determined by the Chief Executive Officer and the Board of Directors.

(2) Early Termination Benefit. The early termination benefit is the vested portion of the target retirement benefit.

(3) Disability Benefit. The disability benefit is a Disability Lump Sum Benefit specified in the agreement for the plan year immediately preceding the disability, payable only upon total disability as defined in the agreement. 25

(4) Death Benefit. The death benefit is an amount determined by a formula that takes into account the number of years of service and the anticipated compensation level at the age of retirement.

(5) Change of Control Benefit. The change of control benefit is an amount determined as follows: ~~Executive's~~Executive Officer’s Fully Vested Present Value Benefit payable at age 65 for the current plan year plus two times the ~~Executive's~~Executive Officer’s current Plan Year Compensation ~~except as~~(except with respect to the Chief Executive Officer, which is 2.99 times plan year ~~compensation.~~compensation). This benefit is payable only in the event of a change in control as defined in the ~~agreement~~Salary Continuation Agreement and is limited by the provisions of Internal Revenue Code section 280(g).

In consulting with its compensation consultant, Clark Consulting, the ~~Company~~Corporation determined that it would be more cost effective for the ~~Company~~Corporation to acquire prepaid policies of insurance to fund these anticipated future obligations than to pay annual premiums. The ~~Company,~~Corporation, as a result of acquiring the prepaid policies, will have cash values in the policies in excess of the amount paid for those policies.

The ~~Company~~Corporation and the Executive Officers who have Salary Continuation Agreements have entered into split dollar life insurance agreements in connection with the life insurance policies obtained by the ~~Company~~Corporation on their lives.

The following table illustrates the approximate annual retirement income that may become payable to a key employee credited with the number of years of service shown, assuming that benefits commence at age 65 and are payable in the form of an annuity for the ~~employee's~~employee’s life or for 20 years (whichever is greater):

ANNUAL RETIREMENT INCOME YEARS OF CREDITED SERVICE FINAL AVERAGE COMPENSATION 1 2 3 4 5 - ------------- ---------- ---------- ---------- ---------- ---------- $ 100,000 $ 6,000 $ 12,000 $ 18,000 $ 24,000 $ 30,000 120,000 7,200 14,400 21,600 28,800 36,000 140,000 8,400 16,800 25,200 33,600 42,000 160,000 9,600 19,200 28,800 38,400 48,000 180,000 10,800 21,600 32,400 43,200 54,000 200,000 12,000 24,000 36,000 48,000 60,000 250,000 15,000 30,000 45,000 60,000 75,000 300,000 18,000 36,000 54,000 72,000 90,000 FINAL AVERAGE COMPENSATION 6 7 8 9 10 - ------------- ---------- ---------- ---------- ---------- ---------- $ 100,000 $ 36,000 $ 42,000 $ 48,000 $ 54,000 $ 60,000 120,000 43,200 50,400 57,600 64,800 72,000 140,000 50,400 58,800 67,200 75,600 84,000 160,000 57,600 67,200 76,800 86,400 96,000 180,000 64,800 75,600 86,400 97,200 108,000 200,000 72,000 84,000 96,000 109,000 121,000 250,000 90,000 105,000 120,000 135,000 150,000 300,000 108,000 126,000 144,000 162,000 180,000
Years of Credited Service


Final Average Compensation	1		2		3		4		5

$ 100,000	$	6,000	$	12,000	$	18,000	$	24,000	$	30,000
120,000		7,200		14,400		21,600		28,800		36,000
140,000		8,400		16,800		25,200		33,600		42,000
160,000		9,600		19,200		28,800		38,400		48,000
180,000		10,800		21,600		32,400		43,200		54,000
200,000		12,000		24,000		36,000		48,000		60,000
250,000		15,000		30,000		45,000		60,000		75,000
300,000		18,000		36,000		54,000		72,000		90,000

Final Average Compensation	6		7		8		9		10

$ 100,000	$	36,000	$	42,000	$	48,000	$	54,000	$	60,000
120,000		43,200		50,400		57,600		64,800		72,000
140,000		50,400		58,800		67,200		75,600		84,000
160,000		57,600		67,200		76,800		86,400		96,000
180,000		64,800		75,600		86,400		97,200		108,000
200,000		72,000		84,000		96,000		109,000		121,000
250,000		90,000		105,000		120,000		135,000		150,000
300,000		108,000		126,000		144,000		162,000		180,000

Mr. Cushman began accruing retirement benefits under his Salary Continuation Agreement effective January 1, 2001, and is fully vested. Messrs. Watson, Louis, Nash, Litzsinger, and Graham began accruing retirement benefits under their Salary Continuation Agreements ~~effective as shown on the Plan Participation Exhibit 1~~according to the Salary Continuation Plan as filed as Exhibit 99.136 to the Current Report filed on Form 8-K with the Securities Exchange Commission on June 15, 2007. 26 their respective hire dates.

As of December 31, ~~2006,~~2007, the ~~Company's~~Corporation’s aggregate accrued obligations under ~~the~~all Salary Continuation Agreements were ~~$4,403,000~~$4,633,000 (includes obligations to retirees under old plans).

The following table summarizes the retirement benefits payable to the named Executive Officers as of December 31, 2007.

PENSION BENEFITS TABLE
NUMBER OF YEARS PRESENT VALUE CREDITED OF ACCUMULATED PAYMENTS DURING NAME PLAN NAME SERVICE BENEFIT LAST FISCAL YEAR - ------------------ ------------------------ --------- -------------- ---------------- Michael J. Cushman Salary Continuation Plan 8 $ 327,041 - Kevin R. Watson Salary Continuation Plan 1 - - Scott R. Louis Salary Continuation Plan 1 $ 19,139 - Roger D. Nash Salary Continuation Plan 1 $ 23,817 - Gary S. Litzsinger Salary Continuation Plan 2 $ 29,512 - Leo J. Graham Salary Continuation Plan 3 $ 155,695 -


Name	Plan Name	Number of Years Credited Service	Present Value of Accumulated Benefit			Payments During Last Fiscal Year


Michael J. Cushman	Salary Continuation Plan	10		$	1,064,644		—
Kevin R. Watson	Salary Continuation Plan	1		$	32,858		—
Scott R. Louis	Salary Continuation Plan	2		$	68,899		—
Roger D. Nash	Salary Continuation Plan	2		$	83,358		—
Gary S. Litzsinger	Salary Continuation Plan	3		$	70,828		—
Leo J. Graham	Salary Continuation Plan	4		$	257,993		—

Executive Deferred Compensation Plan ~~- ------------------------------------~~

The Executive Deferred Compensation Plan ~~("EDCP"~~(“EDCP”), adopted by the Directors of the ~~Company~~Corporation and ~~its subsidiary~~North Valley Bank effective January 1, 2001 and restated effective January 1, 2006, is a nonqualified executive benefit plan in which the eligible executive voluntarily elects to defer some or all of his or her current compensation in exchange for the ~~Company's~~Corporation’s promise to pay a deferred benefit. The deferred compensation is credited with interest under the plan and the accrued liability is paid to the executive at retirement. Unlike a 401(k) plan or a pension plan, an EDCP is a nonqualified plan. Accordingly, this plan is selectively made available to certain highly compensated employees and executives without regard to the nondiscrimination requirements of qualified plans. The EDCP is also an unfunded plan, which means there are no specific assets set aside to fund the plan. The ~~Company~~Corporation has purchased life insurance policies in order to provide for payment of its obligations under the Executive Deferred Compensation Plan, but the executive has no rights under the plan beyond those of a general creditor of the plan sponsor. The deferred amount is not taxable income to the individual and is not a tax-deductible expense to the plan sponsor.

The EDCP is embodied in a written agreement between the plan sponsor and the executive selected to participate in the plan. The agreement includes provisions that indicate the benefits to be provided at retirement or in the event of death, disability, or termination of employment prior to retirement. The agreement provides for full vesting of deferred amounts since the executive is setting aside his or her current compensation. If the individual leaves, the account balance would be paid according to the terms specified in the agreement. If the individual were to die prior to or during retirement, the promised benefits would be paid to the ~~individual's~~individual’s beneficiary or estate. 27

As of December 31, ~~2006,~~2007, the ~~Company's~~Corporation’s aggregate accrued obligations under ~~the~~all executive deferred compensation plans were ~~$287,000.~~ $399,000.

The following table summarizes the nonqualified deferred compensation benefits payable to the named Executive Officers as of December 31, 2007.

NONQUALIFIED DEFERRED COMPENSATION TABLE


Name	Executive Contributions in Last Fiscal Year ($)			Registrant Contributions in Last Fiscal Year ($)		Aggregate Earnings in Last Fiscal Year (1)($)			Aggregate Withdrawals/ Distributions ($)		Aggregate Balance at Last Fiscal Year-End ($)


Michael J. Cushman			—		—		$	6,723		—		$	68,366
Kevin R. Watson		$	28,000		—		$	2,141		—		$	30,141
Scott R. Louis		$	69,524		—		$	11,243		—		$	128,277
Roger D. Nash			—		—		$	5,741		—		$	58,383
Gary S. Litzsinger		$	3,915		—		$	1,026		—		$	11,408
Leo J. Graham			—		—		$	752		—		$	7,649

EXECUTIVE REGISTRANT AGGREGATE AGGREGATE AGGREGATE CONTRIBUTIONS IN CONTRIBUTIONS IN EARNINGS IN LAST WITHDRAWALS/ BALANCE AT LAST LAST FISCAL YEAR LAST FISCAL YEAR FISCAL YEAR DISTRIBUTIONS FISCAL YEAR-END NAME ($) ($)

(1)~~($) ($) ($) - ------------------------------ ---------------- ---------------- ---------------- ---------------- ----------------~~ Michael J. Cushman - - $ 5,509 - $ 61,643 Kevin R. Watson - - - - - Scott R. Louis $ 44,605 - $ 2,905 - $ 47,510 Roger D. Nash $ 50,000 - $ 2,642 - $ 52,642 Gary S. Litzsinger $ 6,000 - $ 467 - $ 6,467 Leo J. Graham - - $ 621 - $ 6,897	Earnings credited to the accounts are based upon the terms of the Deferred Compensation Plan. The rate credited for 2007 was 10.40%.

~~(1) Earnings credited to the accounts are based upon the terms of the Deferred Compensation Plan. The rate credited for 2006 was 9.30%.~~

Change in Control Agreements ~~- ----------------------------~~

In the event of a sale, dissolution or liquidation of the ~~Company~~Corporation or a merger or a consolidation in which the ~~Company~~Corporation is not the surviving or resulting ~~Company, a "change in control" occurs. The Corporation entered into an Agreement and Plan of Merger dated April 10, 2007, pursuant to which the Corporation would merge with and into Sterling Financial~~ Corporation, a ~~Washington corporation, with Sterling being the surviving corporation. A special meeting~~“change in control” occurs.

All of the Corporation shareholders was held on July 31, 2007, and the principal terms of this proposed merger were approved by majority vote of the outstanding shares. However, consummation of the merger currently remains subject to certain other conditions, including the receipt of all necessary regulatory approvals. There can be no assurance as to when, or if, the proposed merger with Sterling Financial Corporation will occur, but if it does, it will constitute a "change of control" under the terms of the Employment Agreements entered into by and between the Corporation and the Executive Officers. Allnamed Executive Officers are, upon a change in control of the ~~Company,~~Corporation, entitled under their Employment Agreements to receive the ~~"change~~“change in ~~control"~~control” benefits described in their Salary Continuation Agreements (see discussion ~~below)~~of Salary Continuation Agreements above).

All options outstanding under the 1989 Director Stock Option Plan, the 1998 Employee Stock Incentive Plan and the 1999 Director Stock Option Plan which at the time are not fully vested may, nonetheless, under the terms of the relevant agreement of merger or consolidation or plan of sale, liquidation or dissolution, be entitled to be exercised as if they were fully (100 percent) vested. Summary information regarding each ~~Company~~Corporation stock option plan is set forth below.

The North Valley Bank Executive Deferred Compensation ~~Agreement~~Agreements and North Valley Bank Executive Salary Continuation ~~Agreement~~Agreements provide for the acceleration of the payment of benefits to Executive Officers thereunder upon a change in control of the ~~Company.~~Corporation. Summary information regarding ~~each~~ such ~~agreement~~agreements is set forth below, ~~(same~~ as ~~disclosed in Amendment No.~~of April 1, to Annual Report for the fiscal year ended December 31, 2006 on Form 10-K/A, as filed with the Securities and Exchange Commission). 28 2008.

POTENTIAL PAYMENTS UPON TERMINATION ~~RELATED TO A~~OR CHANGE IN CONTROL TABLE


Name		(1)


Michael J. Cushman	Payment of Three-times current Salary plus 3-year Average Bonus and Accelerated vesting of Salary Continuation Plan	$	2,278,281
Kevin R. Watson	Payment of Two-times current Salary plus 3-year Average Bonus and Accelerated vesting of Salary Continuation Plan	$	745,412
Scott R. Louis	Payment of Two-times current Salary plus 3-year Average Bonus and Accelerated vesting of Salary Continuation Plan	$	685,161
Roger D. Nash	Payment of Two-times current Salary plus 3-year Average Bonus and Accelerated vesting of Salary Continuation Plan	$	674,100
Gary S. Litzsinger	Payment of Two-times current Salary plus 3-year Average Bonus and Accelerated vesting of Salary Continuation Plan	$	469,947
Leo J. Graham	Payment of Two-times current Salary plus 3-year Average Bonus and Accelerated vesting of Salary Continuation Plan	$	1,025,999

~~AMOUNT PAYABLE NAME PAYMENT BASIS~~

(1) ~~- -------------------- -------------------------------------------------------------------------------------- ----------------~~ ~~Michael J. Cushman Payment~~	Each amount shown in this column is the maximum, as the individual Agreements limit the amount of ~~Three-times current Salary plus 3-year Average Bonus~~payment to any named Executive Officer as a result of a change in control, including the value of acceleration of any equity awards and ~~Accelerated vesting~~salary continuation plans, to the maximum amount permissible to avoid an “excess parachute payment” under Section 280(g) of Salary Continuation Plan $ 2,725,798 Kevin R. Watson Payment of Two-times current Salary plus 3-year Average Bonus and Accelerated vesting of Salary Continuation Plan $ 1,010,411 Scott R. Louis Payment of Two-times current Salary plus 3-year Average Bonus and Accelerated vesting of Salary Continuation Plan $ 541,772 Roger D. Nash Payment of Two-times current Salary plus 3-year Average Bonus and Accelerated vesting of Salary Continuation Plan $ 589,262 Gary S. Litzsinger Payment of Two-times current Salary plus 3-year Average Bonus and Accelerated vesting of Salary Continuation Plan $ 518,909 Leo J. Graham Payment of Two-times current Salary plus 3-year Average Bonus and Accelerated vesting of Salary Continuation Plan $ 1,369,487 the Internal Revenue Code.

(1) The amount payable is limited as the Agreements limit the amount of payment to any named executive officer as a result of a change in control, including the value of acceleration of any equity awards and salary continuation plans, to the maximum amount permissible to avoid an "excess parachute payment" under Section 280(g) of the Internal Revenue Code.

DIRECTOR COMPENSATION

Director Deferred Fee Plan ~~- --------------------------~~

The Director Deferred Fee Plan ~~("DDFP"~~(“DDFP”), adopted by the Directors of the ~~Company~~Corporation and ~~its subsidiary~~North Valley Bank effective January 1, 2001 and restated effective January 1, 2006, is a nonqualified director benefit plan in which the eligible director voluntarily elects to defer some or all of his or her current fees in exchange for the ~~Company's~~Corporation’s promise to pay a deferred benefit. The deferred fees are credited with interest under the plan and the accrued liability is paid to the director at retirement. Unlike a 401(k) plan or a pension plan, a DDFP is a nonqualified plan. Accordingly, this plan is only made available to outside directors without regard to the nondiscrimination requirements of qualified plans. The DDFP is also an unfunded plan, which means there are no specific assets set aside to fund the plan. The ~~Company~~Corporation has purchased life insurance policies in order to provide for payment of its obligations under the Director Deferred Fee Plan, but the director has no rights under the plan beyond those of a general creditor of the plan sponsor. The deferred amount is not taxable income to the individual and is not a tax-deductible expense to the plan sponsor.

The ~~Company~~Corporation and the Directors who have DDFP Agreements have also entered into split dollar life insurance agreements in connection with the life insurance policies obtained by the ~~Company~~Corporation and ~~its subsidiary~~North Valley Bank on their lives.

The DDFP is embodied in a written agreement between the plan sponsor and the ~~director~~Director selected to participate in the plan. The ~~agreement~~Agreement includes provisions that indicate the benefits to be provided at retirement or in the event of death, disability, or termination of Board membership prior to retirement. The ~~agreement~~Agreement provides for full vesting of deferred amounts since the ~~director~~Director is setting aside his or her current fees. If the individual leaves, the account balance would be paid according to the terms specified in the ~~agreement.~~Agreement. If the individual were to die prior to or during retirement, the promised benefits would be paid to the ~~individual's~~individual’s beneficiary or estate.

As of December 31, ~~2006,~~2007, the ~~Company's~~Corporation’s aggregate accrued obligations under the Directors Deferred Fee Plan were ~~$2,351,000. 29~~ $2,587,000.

Components of Director Compensation ~~- -----------------------------------~~

North Valley Bancorp reviews the level of compensation of ~~our~~its non-employee ~~directors~~Directors on an annual basis. To determine whether the current level of compensation for its non-employee ~~directors~~Directors is appropriate, North Valley Bancorp has historically obtained data from a number of different sources including: o Publicly available data describing director compensation in peer companies; o Data provided by the California Banker's Association with regard to director compensation; o


	·	Publicly available data describing director compensation in peer companies;

	·	Data provided by the California Banker’s Association with regard to director compensation;

	·	Information obtained directly from other companies.

During ~~2006 and~~ 2007, each Director (other than the Chairman) of North Valley Bancorp was paid $3,000 per quarterly meeting of the Board of Directors and each Director (other than the Chairman) of North Valley Bank was paid $500 per monthly meeting of the Board of Directors. Payments ~~per~~for attendance at Loan Committee ~~meeting~~meetings of North Valley Bank during ~~2006~~2007 were $250 per meeting. The Chairman of the Board of Directors of the ~~Company~~Corporation was paid $5,000 ~~per~~for each quarterly meeting of the Board of Directors and the Chairman of the Board of Directors of North Valley Bank was paid $850 ~~per~~for each Board of Directors meeting during ~~2006 and~~ 2007. The Chairman of the Loan Committee was paid $350 per meeting during ~~2006.~~2007. The Chairman of the Audit Committee was paid a quarterly fee of $1,000 during ~~2006 and~~ 2007. The Chairman of the Compensation Committee was paid a quarterly fee of $850 during ~~2006 and~~ 2007.

Commencing in 1998, each non-employee Director of the ~~Company~~Corporation has received an award of ~~900~~ shares of Common Stock as part of his or her annual retainer as a Director pursuant to the 1998 Employee Stock Incentive Plan. Each award is fully vested when granted to the outside Director. ~~The Directors~~Each Director of the Corporation received ~~a pro rata award of 375~~900 shares of Common Stock as ~~part of their~~his or her annual retainer in ~~2007. During 2006, cash compensation paid to Directors~~2007, in two separate awards, being: 375 shares on August 23, 2007, and the remaining award of ~~the Company totaled $49,100 and payment of additional Director Compensation of $157,100 was deferred under the DDFP.~~525 shares on December 20, 2007.

During 2007, cash compensation paid to Directors of the Corporation totaled ~~$18,700~~$19,700 and payment of additional Director Compensation of ~~$150,200~~$158,850 was deferred under the DDFP. In ~~2006, the Directors of the Company also received 900 annual retainer shares at $17.09 totaling $123,048. In~~ 2007, the Directors of the ~~Holding Company~~Corporation received a pro rata annual retainer of 375 shares of Common Stock valued at $22.03 per share and totaling ~~$66,090.~~$66,090 and 525 shares of Common Stock valued at $13.08 per share and totaling $54,936. Directors electing coverage under the group health insurance plan available to employees of the ~~Company~~Corporation have been required to pay 100% of their health insurance premiums since January 1989.

The following table sets forth information with regard to compensation earned by non-employee Directors in ~~2006.~~2007. Compensation earned by employee Directors is described in the ~~"Executive Compensation"~~“Executive Compensation” section above. 30

DIRECTOR COMPENSATION TABLE


Name (1)	Fees Earned or Paid in Cash (2)($)		Stock Awards ($)		Option Awards ($)		Non-Equity Incentive Plan Compensation ($)		Change in Pension Value and Nonqualified Deferred Compensation Earnings (3)($)		All Other Compensation ($)		Total ($)


William W. Cox	$	21,500	$	15,128		—		—	$	13,837		—	$	50,465
Royce L. Friesen	$	21,400	$	15,128		—		—	$	9,171		—	$	45,699
Dante W. Ghidinelli	$	24,250	$	15,128		—		—	$	7,606		—	$	46,984
Kevin D. Hartwick	$	20,500	$	15,128		—		—	$	7,049		—	$	42,677
Roger B. Kohlmeier	$	19,700	$	15,128		—		—		—		—	$	34,828
Martin A. Mariani	$	19,500	$	15,128		—		—	$	1,291		—	$	35,919
Dolores M. Vellutini	$	18,000	$	15,128		—		—	$	6,424		—	$	39,552
J.M. Wells, Jr.	$	33,700	$	15,128		—		—	$	30,012		—	$	78,840

DIRECTOR COMPENSATION TABLE CHANGE IN PENSION VALUE AND NON-EQUITY NONQUALIFIED FEES EARNED INCENTIVE DEFERRED OR PAID IN STOCK OPTION PLAN COMPENSATION ALL OTHER CASH AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL NAME
(1)	Includes only Directors who served during 2007.

(2)~~($) ($) ($) ($)~~	Includes cash payments made to Directors of North Valley Bancorp for meetings attended during 2007.

(3)~~($) ($) ($) - ------------------------------------------------------------------------------------------------------------------------------------~~ William W. Cox $ 21,500 $ 15,381 -- -- $ 8,406 -- $ 45,287 Royce L. Friesen $ 21,400 $ 15,381 -- -- $ 5,312 -- $ 42,093 Dante W. Ghidinelli $ 24,500 $ 15,381 -- -- $ 4,180 -- $ 44,061 Kevin D. Hartwick $ 20,250 $ 15,381 -- -- $ 3,950 -- $ 39,581 Roger B. Kohlmeier $ 21,850 $ 15,381 -- -- -- -- $ 37,231 Martin A. Mariani $ 19,000 $ 15,381 -- -- $ 197 -- $ 34,578 Dolores M. Vellutini $ 18,000 $ 15,381 -- -- $ 3,615 -- $ 36,996 J.M. Wells, Jr. $ 36,200 $ 15,381 -- -- $ 18,661 -- $ 70,242	The amounts in this column represent the above-market or preferential earnings on any nonqualified compensation. The above-market rate is determined by using the amount above 120% of the Federal long-term rate. For 2007, the interest rate paid was 10.40%, and the above-market rate was determined to be 5.80%.

(1) Includes only directors who served during 2006. (2) Includes cash payments made to directors of North Valley Bancorp for meetings attended during 2006. (3) The amounts in this column represent the above-market or preferential earnings on any nonqualified compensation. The above-market rate is determined by using the amount above 120% of the Federal long-term rate. For 2006, the interest rate paid was 9.30%, and the above-market rate was determined to be 5.98%.

The following table shows the aggregate number of stock awards and option awards outstanding for each non-employee ~~director~~Director as of December 31, ~~2006.~~2007. There were no stock awards or stock options granted to non-employee ~~directors~~Directors during ~~2006~~2007, except for the 900 shares of Common Stock as part of his or ~~2007.~~
AGGREGATE STOCK AGGREGATE OPTION GRANT DATE FAIR AWARDS AWARDS VALUE OF STOCK AND OUTSTANDING AS OF OUTSTANDING AS OPTION AWARDS MADE 12/31/06 OF 12/31/06 DURING 2006 NAME (#) (1)(#) ($) - ------------------------- ------------------ ------------------ ------------------ William W. Cox - 49,200 $ 15,381 Royce L. Friesen - 27,000 $ 15,381 Dante W. Ghidinelli - 49,500 $ 15,381 Kevin D. Hartwick - 53,801 $ 15,381 Roger B. Kohlmeier - - $ 15,381 Martin A. Mariani - - $ 15,381 Dolores M. Vellutini - 53,801 $ 15,381 J.M. Wells, Jr. - 43,000 $ 15,381
~~(1) All outstanding director~~her annual retainer for 2007 awarded pursuant to the 1998 Employee Stock Incentive Plan. On January 24, 2008, stock options ~~are 100% vested. 31~~ were granted to non-employee Directors. Directors William W. Cox, Royce L. Friesen, Dante W. Ghidinelli, Kevin D. Hartwick, Dolores M. Vellutini, and J. M. “Mike” Wells, Jr. each received stock options exercisable for 3,000 shares. On the same date, non-employee Directors Roger B. Kohlmeier and Martin A. Mariani were both granted stock options exercisable for 12,000 shares.


Name	Aggregate Stock Awards Outstanding as of 12/31/07 (1)(#)		Aggregate Option Awards Outstanding as of 12/31/07 (2)(#)		Grant Date Fair Value of Stock and Option Awards Made during 2007 ($)


William W. Cox		900		46,200		$ 15,128
Royce L. Friesen		900		18,000		$ 15,128
Dante W. Ghidinelli		900		45,000		$ 15,128
Kevin D. Hartwick		900		45,000		$ 15,128
Roger B. Kohlmeier		900		—		$ 15,128
Martin A. Mariani		900		—		$ 15,128
Dolores M. Vellutini		900		53,801		$ 15,128
J.M. Wells, Jr.		900		35,000		$ 15,128


(1)	The 900 shares of Common Stock represent the annual retainer grant pursuant to the 1998 Employee Stock Incentive Plan.

(2)	All outstanding Director stock options are 100% vested.

North Valley Bancorp 1989 Director Stock Option Plan ~~- ----------------------------------------------------~~

Under the North Valley Bancorp 1989 Director Stock Option Plan, as amended (the ~~"1989~~“1989 Director ~~Plan"~~Plan”), which was adopted by the Board of Directors in December 1989 and by the shareholders of the ~~Company~~Corporation at the 1990 Annual Meeting, each member of the Board of Directors, including employees who are Directors, automatically received every January a nonstatutory stock option to purchase 1,000 shares of the ~~Company's~~Corporation’s Common Stock. Effective upon adoption of the North Valley Bancorp 1999 Director Stock Option Plan, no further grants of options have been made or will be made under the 1989 Director Plan. Pursuant to the 1989 Director Plan, as of ~~November 9, 2007,~~April 11, 2008, there were outstanding options to purchase ~~11,700~~1,200 shares of Common Stock.

Options granted under the 1989 Director Plan vest immediately as to 20%, with an additional 20% vesting on each of the first four anniversary dates following the date of grant. Such options are exercisable for a period of 10 years from the date of grant at a price which shall be 85% of the fair market value of the ~~Company's~~Corporation’s Common Stock on the date of grant. The exercise price can be paid by cash, certified check, ~~official~~official bank check or the equivalent thereof acceptable to the ~~Company.~~Corporation. Options granted pursuant to the 1989 Director Plan automatically expire three months after termination of service as a Director for any reason other than cause, death or ~~disability.~~disability. In the case of termination of service due to death or disability, such options terminate one year from the date of such termination of service. In the event that service as a Director is terminated for cause, the options granted pursuant to the Director Plan expire 30 days after such termination.

The 1989 Director Plan is presently administered by the Board of Directors, which has the authority to delegate some or all of its duties to a committee of the Board of Directors appointed for this purpose, which committee must be composed of not less than three members of the Board of Directors. This committee is generally authorized to administer the 1989 Director Plan in all respects, subject to the express terms of the 1989 Director Plan.

The 1989 Director Plan provides for adjustment of and changes in the shares of Common Stock reserved for issuance in the event certain changes occur or in the event of the sale, dissolution or liquidation of the ~~Company~~Corporation or any reorganization, merger or consolidation of the ~~Company.~~ Corporation.

North Valley Bancorp 1998 Employee Stock Incentive Plan ~~- -------------------------------------------------------~~

The North Valley Bancorp 1998 Employee Stock Incentive Plan (the ~~"Stock~~“Stock Incentive ~~Plan"~~Plan”) was adopted by the Board of Directors in February 1998 and approved by the shareholders of the ~~Company~~Corporation at the 1998 Annual Meeting. The Stock Incentive Plan provides for awards in the form of options (which may constitute incentive stock options or non-statutory stock options to key employees) and also provides for the award of shares of Common Stock to outside directors. The shares of Common Stock authorized to be awarded as options under the Stock Incentive Plan consist of 600,000 shares increased in an amount equal to 2% of shares outstanding each year, commencing January 1, 1999. The Stock Incentive Plan defines ~~"key employee"~~“key employee” as a common-law employee of the ~~Company,~~Corporation, its parent or any subsidiary of the ~~Company,~~Corporation, an ~~"outside~~“outside director,"” or a consultant or advisor who provides services to the ~~Company,~~Corporation, its parent or any subsidiary of the ~~Company.~~Corporation. For purposes of the Stock Incentive Plan, an ~~"outside director"~~“outside director” is defined as a member of the Board who is not a common-law employee of the ~~Company,~~Corporation, its parent or any subsidiary of the ~~Company.~~Corporation.

Pursuant to the Stock Incentive Plan, as of ~~November 9, 2007,~~April 11, 2008, there were outstanding options to purchase ~~411,441~~538,540 shares of ~~Company~~Corporation Common Stock. As provided in the Stock ~~with 932,382 shares remaining available for grant. 32~~ Incentive Plan, the authorization to award incentive stock options terminated on February 19, 2008.

The award in ~~2006~~2007 of 900 shares ~~and 375 shares awarded in 2007~~ of Common Stock to each outside director as an annual retainer under the Plan is fully taxable at the time of the grant. The ~~Company~~Corporation receives a compensation expense deduction in the same amount. If the outside director disposes of the Common Stock prior to 12 months after the date of grant, any gain (or loss) will be a short-term capital gain. If the shares are held for longer than 12 months, any gain (or loss) will be taxed at long-term capital gain rates.

The Stock Incentive Plan is administered by a committee of the Board of Directors. As of ~~November 9, 2007,~~April 11, 2008, the Committee members are Royce L. Friesen, Dante W. Ghidinelli, Kevin D. Hartwick, Roger B. Kohlmeier and Dolores M. Vellutini. The Committee must have a membership composition which enables the Stock Incentive Plan to qualify under SEC Rule 16b-3 with regard to the grant of options or other rights under the Stock Incentive Plan to persons who are subject to Section 16 of the Securities Exchange Act of 1934, as amended (the ~~"Exchange Act"~~“Exchange Act”). Subject to the requirements of applicable law, the Committee may designate persons other than members of the Committee to carry out its responsibilities and may prescribe such conditions and limitations as it may deem appropriate, except that the Committee may not delegate its authority with regard to the selection for participation of or the granting of options or determining awards or other rights under the Stock Incentive Plan to persons subject to Section 16 of the Exchange Act.

In the event that the ~~Company~~Corporation is a party to a merger or other reorganization, outstanding options and stock awards shall be subject to the agreement of merger or reorganization. Such agreement may provide, without limitation, for the assumption of outstanding options by the surviving corporation or its parent, for their continuation by the ~~Company~~Corporation (if the ~~Company~~Corporation is a surviving corporation), for accelerated vesting and accelerated expiration, or for settlement in cash.

North Valley Bancorp 1999 Director Stock Option Plan ~~- ----------------------------------------------------~~

On April 1, 1999, the Board of Directors adopted the North Valley Bancorp 1999 Director Stock Option Plan (the ~~"1999~~“1999 Director Stock Option ~~Plan"~~Plan”), pursuant to which all members of the Board of Directors are eligible for the award of non-statutory stock options to purchase shares of the ~~Company's~~Corporation’s Common Stock. Non-statutory stock options are options not intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended.

The 1999 Director Stock Option Plan replaced the existing North Valley Bancorp 1989 Director Stock Option Plan, as amended (the ~~"1989~~“1989 Director ~~Plan"~~Plan”) and was approved by the shareholders at the 1999 Annual Meeting.

The 1999 Director Stock Option Plan is administered by the Board of Directors. All awards of options are at the discretion of the Board of Directors. The Board of Directors has the authority to delegate some or all of its duties in administering the 1999 Director Stock Option Plan to a committee of the Board of Directors appointed for this purpose, composed of not less than two members of the Board of Directors who qualify as non-employee directors. The body administering the 1999 Director Stock Option Plan is generally authorized to administer such Plan in all respects, subject to the express terms of such Plan, including the full power to make all determinations necessary or advisable for its administration.

All members of the Board of Directors of the ~~Company~~Corporation and ~~its subsidiary,~~North Valley Bank, including employees of the ~~Company~~Corporation who are directors, are eligible to participate in the 1999 Director Stock Option Plan. As of ~~November 9, 2007,~~April 11, 2008, there were nine ~~directors~~Directors eligible to participate in the 1999 Director Stock Option Plan. 33

Shares covered by options granted pursuant to the 1999 Director Stock Option Plan are authorized but unissued shares of the ~~Company's~~Corporation’s Common Stock. The maximum aggregate number of shares of Common Stock which may be optioned and sold under the 1999 Director Stock Option Plan is equal to ten percent of the total shares of the ~~Company's~~Corporation’s Common Stock issued and outstanding from time to time. As of ~~November 9, 2007,~~April 11, 2008, there were options outstanding under the 1999 Director Stock Option Plan for the purchase of ~~338,983~~307,251 shares of Common Stock. On the same date, there were ~~7,374,884~~7,422,366 shares of Common Stock issued and outstanding. Thus, as of ~~November 9, 2007,~~April 11, 2008, a total of 225,767 shares of Common Stock were available for the grant of additional options under the 1999 Director Stock Option Plan.

The 1999 Director Stock Option Plan includes provisions for adjustment of and changes in the shares reserved for issuance in the event that the shares of Common Stock of the ~~Company~~Corporation are changed into or exchanged for a different number of kind of shares of stock or other securities of the ~~Company~~Corporation or other corporation, whether by reason or reorganization, merger, consolidation, recapitalization, reclassification, stock dividend, stock split or other changes.

The 1999 Director Stock Option Plan also includes provisions regarding the sale, dissolution or liquidation of the ~~Company~~Corporation and any reorganization, merger or consolidation in which the ~~Company~~Corporation is not the surviving or resulting corporation. If the ~~Company~~Corporation is not the surviving or resulting corporation, the Board of Directors shall have the power to terminate all options under the 1999 Director Stock Option Plan, provided that each optionee shall have the right prior to the effective date of such sale, dissolution, liquidation, reorganization, merger or consolidation to exercise any outstanding option in full, without regard to the ~~option's~~option’s vesting schedule.

Options granted under the 1999 Director Stock Option Plan may only be non-statutory stock options. Each option will be 20 percent exercisable or ~~"vested"~~“vested” immediately upon the date of grant and will become further vested at the rate of 20 percent on each of the first four anniversary dates thereafter. Options are exercisable for a period of ten years after the date of grant. The exercise price for the options ~~will be~~is 85 percent of the fair market value of the shares on the date of grant, as determined by the Board of Directors. So long as the ~~Company's~~Corporation’s Common Stock is ~~traded~~listed on ~~the NASDAQ~~The Nasdaq Stock Market, such fair market value shall be equal to the last transaction price ~~quoted~~reported for such date on ~~the NASDAQ Stock~~The Nasdaq Global Select Market.

Each option granted under the 1999 Director Stock Option Plan has a termination date of ten years after the date of grant. In addition, each option automatically expires three months after termination of service as a director other than for cause, except that in the case of termination of service due to mandatory retirement, death or disability, an option will remain in effect unchanged. If a director is removed from the Board of Directors for cause, the option will expire 30 days after such termination of service.

The Board of Directors may amend, suspend or terminate the 1999 Director Stock Option Plan at any time and for any reason. Any amendment is subject to the approval of the shareholders of the ~~Company~~Corporation only to the extent required by applicable laws or regulations. No amendment or termination may adversely affect the rights of an optionee under a previously awarded option, without the ~~optionee's~~optionee’s consent.

No taxable income is recognized by an optionee upon the award of a non-statutory stock option under the 1999 Director Stock Option Plan. The exercise of a non-statutory stock option awarded under the 1999 Director Stock Option Plan results in the realization of ordinary income to the optionee in an amount equal to the difference between the exercise price and the fair market value of the shares on the date of exercise. For federal income tax purposes, the ~~Company~~Corporation will be entitled to a compensation expense deduction in the same amount. The 1999 Director Stock Option Plan allows an optionee to satisfy any withholding tax requirement in connection with the exercise of an option by the 34 withholding of shares from the total number of shares issuable upon exercise of the option or by the delivery to the ~~Company~~Corporation of shares of ~~Company~~Corporation Common Stock that have been held by the optionee for at least six months. Any such arrangement must be acceptable to the ~~Company. 35~~ Corporation.

REPORT OF THE COMPENSATION COMMITTEE

The Compensation Committee consists of the following members of the ~~Company's~~Corporation’s Board of Directors: Royce L. Friesen (Chairman), William W. Cox and Martin A. Mariani. All members of the Committee are independent as defined under the Sarbanes Oxley Act of 2002, the rules and regulations of the Securities and Exchange Commission and the corporate governance listing standards of ~~the NASDAQ~~The Nasdaq Stock Market.

The Compensation Committee reviews and recommends to the Board of Directors, salaries, performance based incentives, both annual and long-term, and other matters relating to the compensation of the Chief Executive Officer and the Chief Executive ~~Officer's~~Officer’s recommendations as to Executive Officers, taking into consideration non-salary based benefits in the form of ~~Company~~Corporation paid expenses for car allowances and club memberships. The Committee determines the base salary for the Chief Executive Officer by: (1) examining the ~~Company's~~Corporation’s performance against its preset goals, (2) examining the ~~Company's~~Corporation’s performance within the banking industry, (3) evaluating the overall performance of the Chief Executive Officer, and (4) comparing the base salary of the Chief Executive Officer to that of other chief executive officers in the banking industry in the ~~Company's~~Corporation’s market area. In January ~~2007,~~2008, the Committee recommended, and the Board approved, the following executive salaries effective February 1, ~~2007:~~2008: Mr. ~~Cushman's~~Cushman’s annual salary of ~~$286,650;~~$300,982; Mr. ~~Watson's~~Watson’s annual salary of ~~$187,200;~~$196,560; Mr. ~~Louis'~~Louis’ annual salary of ~~$154,000;~~$161,700; Mr. ~~Nash's~~Nash’s annual salary of ~~$154,000;~~$161,700; Mr. ~~Litzsinger's~~Litzsinger’s annual salary of ~~$111,100,~~$120,000, and Mr. ~~Graham's~~Graham’s annual salary of ~~$170,500.~~$179,008.

The members of the Compensation Committee have reviewed and discussed the foregoing Compensation Discussion and Analysis with management and, based on such review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and the North Valley Bancorp Annual Report on Form 10-K for the year ended December 31, 2006. Submitted by: Royce L. Friesen, Chairman William W. Cox Martin A. Mariani 2007.


	Submitted by:

	Royce L. Friesen, Chairman
	William W. Cox
	Martin A. Mariani

Compensation Committee Interlocks and Insider Participation ~~- -----------------------------------------------------------~~

During the fiscal year ~~2006,~~2007, Michael J. Cushman participated in deliberations of the ~~Company's~~Corporation’s Board of Directors concerning executive officer compensation for all Executive Officers, excluding himself. 36 Performance Graph - ----------------- The following graph compares our cumulative total stockholder return since December 31, 2001 with the NASDAQ Composite Index, the SNL $500 million - $1 billion Bank Index, and SNL Western Bank Index. The graph assumes that the value of the investment in our common stock and each index (including reinvestment of dividends) was $100.00 on December 31, 2001.
[GRAPHIC CHART OMITTED] PERIOD ENDING --------------------------------------------------------------------------- INDEX 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 - --------------------------- ---------- ---------- ---------- ---------- ---------- ---------- North Valley Bancorp $ 100.00 $ 135.75 $ 176.94 $ 230.52 $ 216.11 $ 229.28 NASDAQ Composite $ 100.00 $ 68.76 $ 103.67 $ 113.16 $ 115.57 $ 127.58 SNL $500M-$1B Bank Index $ 100.00 $ 127.67 $ 184.09 $ 208.62 $ 217.57 $ 247.44 SNL Western Bank Index $ 100.00 $ 109.41 $ 148.21 $ 168.43 $ 175.36 $ 197.86
Market Information - ------------------ The North Valley Bancorp common stock is listed and trades on the NASDAQ Global Select Market System under the symbol "NOVB." The shares were first listed with the NASDAQ Stock Market in April 1998. The table below summarizes the Common Stock high and low trading prices traded during the two year period ended December 31, 2006, and the first three quarters of 2007, as reported on the NASDAQ Stock Market, and the cash dividends declared on the common stock during the same period. 37 PRICE OF CASH COMMON STOCK DIVIDENDS ---------------------------- DECLARED HIGH LOW ------------ ------------ ------------ 2007 - ---- First Quarter $ 26.00 $ 17.57 $ 0.10 Second Quarter 25.65 21.51 0.10 Third Quarter 24.32 17.47 0.10 2006 - ---- First Quarter $ 18.03 $ 17.41 $ 0.10 Second Quarter 18.00 15.90 0.10 Third Quarter 17.71 15.75 0.10 Fourth Quarter 18.98 17.25 0.10 2005 - ---- First Quarter $ 19.96 $ 18.90 $ 0.10 Second Quarter 19.00 16.75 0.10 Third Quarter 19.52 17.08 0.10 Fourth Quarter 18.10 14.86 0.10 The Company had approximately 836 registered shareholders of record as of November 9, 2007. The Company's primary source of funds for payment of dividends to its shareholders is the receipt of dividends from NVB. The payment of dividends by a California State chartered bank is subject to various legal and regulatory restrictions. See Note 19 to the Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2006, for information related to dividend matters including information regarding certain limitations on payment of dividends. 38

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions with Related Persons ~~- ---------------------------------~~

The ~~Company~~Corporation has a policy that it does not enter into any transactions covered under Item 404 of Regulation S-K with the exception of loans made by North Valley Bank (see ~~"Indebtedness~~“Indebtedness of ~~Management"~~Management” below). There have been no transactions, or series of similar transactions, during ~~2006,~~2007, or any currently proposed transaction, or series of similar transactions, to which the ~~Company~~Corporation or North Valley Bank was or is to be a party, in which the amount involved exceeded or will exceed $120,000 and in which any director, director-nominee or executive officer of the ~~Company~~Corporation or North Valley Bank, or any shareholder owning of record or beneficially 5% or more of North Valley Bancorp ~~common stock,~~Common Stock, or any member of the immediate family of any of the foregoing persons, had, or will have, a direct or indirect material interest.

Indebtedness of Management ~~- --------------------------~~

Through its banking subsidiary, North Valley Bank, the ~~Company~~Corporation has had and expects in the future to have banking transactions, including loans and other extensions of credit, in the ordinary course of its business with many of the ~~Company's~~Corporation’s Directors, Executive Officers, holders of five percent or more of the ~~Company's~~Corporation’s Common Stock and members of the immediate family of any of the foregoing persons, including transactions with corporations or organizations of which such persons are directors, officers or controlling shareholders, on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with unrelated persons. Management believes that in ~~2006~~2007 such loan transactions did not involve more than the normal risk of collectibility or present other unfavorable features. All loans and other extensions of credit made by North Valley Bank to the Directors and Executive Officers of the ~~Company~~Corporation and North Valley Bank are made in compliance with the applicable restrictions of Section 22 of the Federal Reserve Act and Regulation O of the Board of Governors of the Federal Reserve System.

Director Independence ~~- ---------------------~~

The Board of Directors of the ~~Company~~Corporation has evaluated the independence of each of the members of the Board of Directors in accordance with applicable laws and regulations including the provisions of the Sarbanes-Oxley Act of 2002 ~~("SOX"~~(“SOX”), the rules and regulations of the Securities and Exchange Commission (the ~~"SEC"~~“SEC”) and the corporate governance listing standards of ~~the NASDAQ~~The Nasdaq Stock Market ~~("NASDAQ"~~(“NASDAQ”).

PROPOSAL NO. 2
APPROVAL OF THE NORTH VALLEY BANCORP
2008 STOCK INCENTIVE PLAN

The North Valley Bancorp 2008 Stock Incentive Plan (the “Stock Incentive Plan”) was adopted by the Corporation’s Board of Directors on February 27, 2008, and became effective as of that date, subject to the approval of the Corporation’s shareholders. The Board of Directors authorized 400,000 shares of Common Stock to be reserved for issuance pursuant to the terms of the Stock Incentive Plan.

The terms of the Stock Incentive Plan are substantially the same as the North Valley Bancorp 1998 Employee Stock Incentive Plan (the “1998 Plan”). The 1998 Plan provides that no incentive stock options may be granted after February 19, 2008 (ten years after being adopted by the Corporation’s Board of Directors). No options have been granted under the 1998 Plan since January 24, 2008, and no further options are expected to be granted under the 1998 Plan. As of April 11, 2008, under the 1998 Plan, there were no shares reserved for the grant of additional options, and 538,540 shares were reserved for issuance pursuant to the exercise of then outstanding and unexercised options.

The Stock Incentive Plan provides for the grant of stock options to key employees, to outside directors and to consultants and advisors who provide services to the Corporation as independent contractors. The exercise price for each option granted under the Stock Incentive Plan must be not less than 100% of the fair market value of the Common Stock on the date of grant. The North Valley Bancorp 1999 Director Stock Option Plan (the “1999 Plan”) provides for the grant of non-statutory stock options to members of the Corporation’s Board of Directors (including employee-directors) and the exercise price of each option is 85% of the fair market value of the Common stock on the date of grant. The 1999 Plan expires in 2009 (ten years after being adopted by the Corporation’s Board of Directors). No options have been granted under the 1999 Plan since January 25, 2001, and the Board of Directors has determined that no further options should be granted under the 1999 Plan (pending shareholder approval of the Stock Incentive Plan). That is, all options granted to members of the Board of Directors (after approval of the Stock Incentive Plan by the shareholders) will have an exercise price not less than 100% of fair market value, rather than 85% of fair market value as stipulated in the 1999 Plan. As of April 11, 2008, under the 1999 Plan, 225,767 shares were reserved for the grant of additional options, and 307,251 shares were reserved for issuance pursuant to the exercise of then outstanding and unexercised options.

The text of the Stock Incentive Plan is set forth in Appendix C to this Proxy Statement. Shareholders are urged to read the Stock Incentive Plan in its entirety. The following is only a summary of the material provisions of the Stock Incentive Plan and is qualified in its entirety by reference to the Stock Incentive Plan in Appendix C. Any capitalized terms which are used in this summary description but not defined have the meanings assigned to them in the Stock Incentive Plan.

Purpose

The Stock Incentive Plan provides for awards in the form of options (which may constitute incentive stock options (“ISOs”) or non-statutory stock options (“NSOs”) to key employees and also provides for the award of NSOs and shares of Common Stock to outside directors. The Stock Incentive Plan defines “key employee” as a common-law employee of the Corporation, its parent or any subsidiary of the Corporation, an “outside director”, or a consultant or advisor who provides services to the Corporation, its parent or any subsidiary of the Corporation (although no consultant or advisor was ever granted an option under the 1998 Plan and no such grant under the Stock Incentive Plan is presently contemplated by the Board of Directors). For purposes of the Stock Incentive Plan, an “outside director” is defined as a member of the Board who is not a common-law employee of the Corporation, its parent or any subsidiary of the Corporation. The Stock Incentive Plan is intended to aid the Corporation in its efforts to attract and retain such individuals.

The Board believes that the Stock Incentive Plan will enable the Corporation to continue to attract and retain highly qualified individuals capable of implementing the Corporation’s long-term strategic goals and objectives. The Board further believes that the Stock Incentive Plan will provide the Corporation with the means to motivate high levels of performance by key employees and outside directors in order to increase shareholder value.

The Committee of the Board of Directors that will administer the Stock Incentive Plan (the “Committee”) expects to use option awards under the Stock Incentive Plan as its primary method of providing stock-based incentive compensation to key employees and outside directors over the next few years. The Stock Incentive Plan provides that ISOs under the Stock Incentive Plan may not be granted at less than 100% of fair market value of the Common Stock on the grant date, which means that a participant stands to gain nothing from an award unless the market value of the Corporation’s Common Stock increases over time. The Board believes that the Stock Incentive Plan directly ties management’s and directors’ interests to those of the shareholders and that approval of the Stock Incentive Plan is in the shareholders’ best interests.

Options

The Stock Incentive Plan provides for the grant to key employees of stock options, which may consist of NSOs and ISOs. The Stock Incentive Plan also provides for the grant to outside directors, and to consultants and advisers to the Corporation, of stock options, all of which must be NSOs. The shares of Common Stock authorized to be granted as options under the Stock Incentive Plan shall consist of 400,000 shares of the Corporation’s Common Stock. Effective January 1, 2009, and on each January 1 thereafter for the remaining term of the Stock Incentive Plan, the aggregate number of shares of Common Stock which may be issued under the terms of the Stock Incentive Plan shall be increased by a number of shares of Common Stock equal to 2% of the total number of the shares of Common Stock of the Corporation outstanding at the end of the most recently concluded calendar year. Any shares of Common Stock that have been reserved but not issued as options during any calendar year shall remain available for grant during any subsequent calendar year.

Stock Awards

Each outside director of the Corporation shall also be eligible to receive a stock award of 900 shares of Common Stock of the Corporation as part of his or her annual retainer paid by the Corporation for his or her services as a director. Such stock award shall be fully vested when granted to the outside director. The number of shares of Common Stock of the Corporation available as stock awards to outside directors shall equal the number of shares of Common Stock of the Corporation to be awarded to such outside directors.

Participants

Key employees, outside directors and consultants and advisers to the Corporation are eligible for the grant of options under the Stock Incentive Plan. However, eligibility for the grant of ISOs is limited to key employees of the Corporation or its parent or any subsidiaries of the Corporation who are common-law employees. Consultants and advisors and non-employee directors of the Corporation are not eligible for grants of ISOs under the Stock Incentive Plan. The exercise price of ISOs to key employees who are common-law employees and who own 10% or more of the total combined voting power of all classes of outstanding stock of the Corporation, its parent or any subsidiary of the Corporation must equal at least 110% of the fair market value of the Common Stock on the date of grant and the term of such an ISO may not be greater than 5 years. An outside director is eligible to receive the grant of NSOs, in addition to a stock award of 900 shares of Common Stock as part of his or her annual retainer payment from the Corporation.

Administration

The Stock Incentive Plan will be administered by a Committee appointed by the Board. The Committee shall have membership composition which enables the Stock Incentive Plan to qualify under Rule 16b-3 of the Securities and Exchange Commission with regard to the grant of Options or other rights under the Stock Incentive Plan to persons who are subject to Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Subject to the requirements of applicable law, the Committee may designate persons other than members of the Committee to carry out its responsibilities and may prescribe such conditions and limitations as it may deem appropriate, except that the Committee may not delegate its authority with regard to the selection for participation of or the granting of Options or determining awards or other rights under the Stock Incentive Plan to persons subject to Section 16 of the Exchange Act.

Termination

If approved by the shareholders, the Stock Incentive Plan shall continue in effect until all shares of stock available for grant or awards under the Stock Incentive Plan shall have been acquired through exercise of options or awards. However, no ISOs may be granted under the Stock Incentive Plan after February 26, 2018. The Stock Incentive Plan may be terminated at such earlier time as the Board of Directors may determine.

Terms of Stock Options

Options granted pursuant to the Stock Incentive Plan need not be identical. The exercise price under each option shall be established by the Committee, but in no event will the exercise price for ISOs be less than 100% of the fair market value of the stock on the date of grant; provided, however, that any ISO granted to a 10% owner shall comply with the limitations described above. The Stock Incentive Plan defines “fair market value” as the market price of shares of Common Stock, determined by the Board, which shall be equal to the last transaction price reported by the applicable composite transactions report for such date. Whenever possible, the determination of fair market value by the Board shall be based on the prices reported in the Western Edition of The Wall Street Journal. Such determination shall be conclusive and binding on all persons. The last sale price per share of the Corporation’s Common Stock as reported on The Nasdaq Global Select Market on April 11, 2008, was $10.26.

The exercise price of any option must be paid in full at the time of exercise. The exercise price may be paid in cash or, as acceptable to the Committee by arrangement with a broker where payment of the option price is guaranteed by the broker, by the surrender of shares of the Corporation owned by the participant exercising the option and having a fair market value on the date of exercise equal to the exercise price, or by any combination of the foregoing equal to the exercise price. The Board may, at its discretion, accept payment for all or any part of the exercise price of any option in the form of shares of Common Stock of the Corporation which have already been owned by the optionee for such duration as shall be specified by the Board; or accept payment for all or any part of the exercise price of any option by the delivery (on a form prescribed by the Board) of an irrevocable direction to pledge shares of Common Stock of the Corporation to a securities broker or lender approved by the Corporation, as security for a loan, and to deliver all or part of the loan proceeds to the Corporation in payment of all or part of the exercise price and any withholding taxes; or accept payment for the exercise price of any option in the form of a full-recourse promissory note, provided that to the extent required by applicable law, the par value of the Common Stock of the Corporation shall be paid in cash; or payment of the exercise price of any option may be made in any other form that is consistent with applicable laws, regulations and rules, including but not limited to a so-called “cashless exercise” by which the optionee elects to have the Corporation withhold shares having a value equal to the exercise price from the total number of shares of Common Stock that otherwise would be received by the optionee upon his or her exercise of the option.

Options shall have such terms and be exercisable in such manner and at such times as the Committee may determine. However, each ISO must expire within a period of not more than ten (10) years from the grant date. Unless otherwise provided in the option agreement, each option shall be transferable only by will or the law of descent and distribution and shall only be exercisable by the participant during his or her lifetime.

The Committee may, at any time prior to exercise and subject to consent of the optionee, amend, modify or cancel any options previously granted and may or may not substitute in their place options at a different price and of a different type under different terms or in different amounts.

Federal Income Tax Consequences

The following discussion of the federal income tax consequences of the Stock Incentive Plan is intended to be a summary of applicable federal law. State and local tax consequences may differ. Because the federal income tax rules governing options and related payments are complex and subject to frequent change, optionees are advised to consult their tax advisors prior to exercise of options or dispositions of stock acquired pursuant to option exercise.

ISOs and NSOs are treated differently for federal income tax purposes. ISOs are intended to comply with the requirements of Section 422 of the Internal Revenue Code. NSOs need not comply with such requirements.

An employee is not taxed on the grant or exercise of an ISO. The difference between the exercise price and the fair market value of the shares on the exercise date will, however, be a preference item for purposes of the alternative minimum tax. If an optionee holds the shares acquired upon exercise of an ISO for at least two years following grant and at least one year following exercise, the optionee’s gain, if any, upon a subsequent disposition of such shares is treated as long-term capital gain. The measure of the gain is the difference between the proceeds received on disposition and the optionee’s basis in the shares (which generally equals the exercise price). If an optionee disposes of stock acquired pursuant to exercise of an ISO before satisfying the one- and two-year holding periods described above, the optionee will recognize both ordinary income and capital gain in the year of disposition. The amount of the ordinary income will be the lesser of (i) the amount realized on disposition less the optionee’s adjusted basis in the stock (usually the option price) or (ii) the difference between the fair market value of the stock on the exercise date and the option price. The balance of the consideration received on such a disposition will be long-term capital gain if the stock had been held for at least one year following exercise of the ISO. The Corporation is not entitled to an income tax deduction on the grant or exercise of an ISO or on the optionee’s disposition of the shares after satisfying the holding period requirements described above. If the holding periods are not satisfied, the Corporation will be entitled to a deduction in the year the optionee disposes of the shares, in an amount equal to the ordinary income recognized by the optionee.

An employee is not taxed on the grant of a NSO. On exercise, however, the optionee recognizes ordinary income equal to the difference between the option price and the fair market value of the shares on the date of exercise. The Corporation is entitled to an income tax deduction in the year of exercise in the amount recognized by the optionee as ordinary income. Any gain on subsequent disposition of the shares is long-term capital gain if the shares are held for at least one year following exercise. The Corporation does not receive a deduction for this gain.

The award of Common Stock to an outside director will be fully taxable to the director at the time of the grant. The Corporation will be entitled to an income tax deduction in the amount recognized by the director as ordinary income. If the outside director disposes of the Common Stock prior to 12 months after the date of grant, any gain (or loss) will be a short-term capital gain. If the shares are held for longer than 12 months, any gain (or loss) will be taxable at long-term capital gain rates.

Plan Benefits

The Committee has full discretion to determine the number and amount of options to be granted under the Stock Incentive Plan. Therefore, the benefits and amounts that will be received by each of the executive officers named in the Summary Compensation Table, the executive officers as a group and all other key management employees under the Stock Incentive Plan are not presently determinable. Details on stock options granted during 2007 and outstanding as of December 31, 2007 to the executive officers named in the Summary Compensation Table are presented herein in the tables entitled “2007 Grants of Plan-Based Awards Table” and “Outstanding Equity Awards at Fiscal Year-End Table”.

Required Vote

Approval of the proposed Stock Incentive Plan requires the affirmative vote of the holders of a majority of the shares present or represented by proxy and voting at the Meeting.

Recommendation of Management

The Board of Directors believes that this proposal is in the best interests of the Corporation and its shareholders, and unanimously recommends a vote “FOR” its ratification and approval.

REPORT OF THE AUDIT COMMITTEE

The Audit Committee consists of the following members of the ~~Corporation's~~Corporation’s Board of Directors: Dante W. Ghidinelli (Chairman), Royce L. Friesen, Kevin D. Hartwick, Roger B. Kohlmeier and Dolores M. Vellutini. All members of the Committee are independent as defined under SOX, the SEC Regulations and NASDAQ listing standards. Both Chairman Dante W. Ghidinelli and Mr. Kevin D. Hartwick have been, as a result of their accounting backgrounds determined to be qualified as an Audit Committee Financial Expert as defined under SOX, the SEC Regulations and NASDAQ listing standards. The Committee operates under a written charter adopted by the Board of Directors, which is included in this Proxy Statement as Appendix A. The Audit Committee, in addition to its other functions, recommends to the Board of Directors, subject to shareholder ratification, the selection of the ~~Corporation's~~Corporation’s independent ~~accountants.~~registered public accounting firm.

Management is responsible for the ~~Corporation's~~Corporation’s internal controls and the financial reporting process. The independent ~~accountants are~~registered public accounting firm is responsible for performing an independent audit of the ~~Corporation's~~Corporation’s consolidated financial statements and internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States) and generally accepted accounting principles and to issue ~~a report~~reports thereon. The Audit ~~Committee's~~Committee’s responsibility is to monitor and oversee these processes.

The Committee assists the Board of Directors in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing, internal control and financial reporting practices of the Corporation. The ~~Committee's~~Committee’s primary responsibilities include the following: (1) serve as an independent and objective party to monitor the ~~Corporation's~~Corporation’s financial reporting process and internal control system; (2) review and evaluate the audit efforts of the ~~Corporation's~~Corporation’s independent ~~accountants~~registered public accounting firm and internal audit department; (3) evaluate the ~~Corporation's~~Corporation’s quarterly financial performance as well as its compliance with laws and regulations; (4) oversee ~~management's~~management’s establishment and enforcement of financial policies and business practices; and (5) facilitate communication among the independent ~~auditors,~~registered public accounting firm, financial and senior management, counsel, the internal audit department and the Board of Directors.

The Audit Committee has been updated quarterly on ~~management's~~management’s process to assess the adequacy of the ~~Corporation's~~Corporation’s system of internal control over financial reporting, the framework used to make the assessment and ~~management's~~management’s conclusions on the effectiveness of the Corporations internal control over financial reporting. The Audit Committee has also discussed with the independent ~~auditor~~registered public accounting firm the ~~Corporation's~~Corporation’s internal control assessment process, ~~management's~~management’s assessment with respect thereto and the independent ~~auditor's~~registered public accounting firm’s evaluation of the ~~Corporation's~~Corporation’s system of internal control over financial reporting.

It is not the duty or the responsibility of the Committee to conduct auditing or accounting reviews. Therefore, the Committee has relied, without further independent verification, on ~~management's~~management’s representation that the financial statements have been prepared with integrity and objectivity and in conformity with accounting principles generally accepted in the United States of America and on the representations of the independent ~~auditors~~registered public accounting firm included in their report on the ~~Corporation's~~Corporation’s financial ~~statements.~~statements and internal control over financial reporting. Furthermore, the ~~Committee's~~Committee’s discussions with management and the independent ~~auditors~~registered public accounting firm do not provide the Committee with any other independent basis to determine or assure that the ~~Corporation's~~Corporation’s financial statements are presented in accordance with generally accepted accounting principles, that the audit of the ~~Corporation's~~Corporation’s financial statements has been carried out in accordance with generally accepted auditing standards or that the ~~Corporation's~~Corporation’s independent ~~auditors~~registered public accounting firm are in fact ~~"independent."~~“independent.”

The Committee has reviewed and discussed the audited financial statements of the Corporation for the fiscal year ended December 31, ~~2006~~2007 with the ~~Corporation's~~Corporation’s management. The Committee has discussed with Perry-Smith LLP, 40 the ~~Corporation's~~Corporation’s Independent Registered Public Accounting Firm, the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees). The Committee has also received the written disclosures and the letter from Perry-Smith LLP required by Independence Standards Board Standard No. 1 (Independence Discussion with Audit Committees) and the Committee has discussed the independence of Perry-Smith LLP with that firm and based upon such information has determined that Perry-Smith LLP is independent.

The Committee has recommended to the Board of Directors that the ~~Corporation's~~Corporation’s audited financial statements be included in the ~~Corporation's~~Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2006,~~2007, for filing with the Securities and Exchange Commission and has recommended ratification of Perry-Smith LLP as the Independent ~~Auditor~~Registered Public Accounting Firm for the Corporation for the fiscal year 2007. Submitted by: Dante W. Ghidinelli (Chairman) Royce L. Friesen Kevin D. Hartwick Roger B. Kohlmeier Dolores M. Vellutini 41 2008.


	Submitted by:

	Dante W. Ghidinelli (Chairman)
	Royce L. Friesen
	Kevin D. Hartwick
	Roger B. Kohlmeier
	Dolores M. Vellutini

INDEPENDENT ~~AUDITOR~~REGISTERED PUBLIC ACCOUNTING FIRM

The firm of Perry-Smith LLP served the ~~Company~~Corporation as the Independent Registered Public Accounting Firm for the fiscal year ended December 31, ~~2006, continuing through~~ 2007. Perry-Smith LLP was recommended by the Audit Committee of the Board of Directors to serve as the Independent Registered Public Accounting Firm for the ~~2006~~2008 fiscal year, and the Board of Directors ~~and shareholders of the Company~~has approved the Audit Committee recommendation. The Audit Committee of the Board of Directors of the ~~Company~~Corporation approved each professional service rendered by Perry-Smith LLP during the fiscal year ~~2006.~~2007.

During the period covering the fiscal years ended December 31, ~~2006~~2007 and ~~2005,~~2006, Perry-Smith LLP performed the professional services described below. No other services were provided in ~~2006~~2007 and 2005. Description 2006 2005 - ----------- --------- --------- Audit Fees (1) $ 238,000 $ 208,000 Audit-Related Fees (2) $ 21,000 $ 21,100 Tax Fees (3) $ 51,800 $ 42,900 (1) Audit fees consist of fees for professional services rendered for the audit of the Company's consolidated financial statements, audit of internal control over financial reporting, review of consolidated financial statements included in the Company's quarterly reports and services normally provided by the independent auditor in connection with statutory and regulatory filings or engagements. (2) Audit-related fees represent fees for the audit of the Company's employee benefit plans. (3) 2006.


Description	2007		2006


Audit Fees (1)	$	285,000	$	238,000
Audit-Related Fees (2)	$	28,000	$	21,000
Tax Fees (3)	$	64,000	$	51,800
All Other Fees (4)	$	15,000		—


(1)	Audit fees consist of fees for professional services rendered for the audit of the Corporation’s consolidated financial statements, audit of internal control over financial reporting, review of consolidated financial statements included in the Corporation’s quarterly reports and services normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements.

(2)	Audit-related fees represent fees for the audit of the Corporation’s employee benefit plans.

(3)	Tax fees consist primarily of compliance fees for the preparation of tax returns.

(4)	All other fees include professional services in connection with the Agreement and Plan of Merger entered into on April 10, 2007, with Sterling Financial Corporation and terminated effective December 1, 2007.

The Audit Committee of the Board of Directors has reviewed and discussed the audited financial statements of the ~~Company~~Corporation for the fiscal year ended December 31, ~~2006.~~2007. The Audit Committee has discussed with Perry-Smith LLP, the ~~Company's~~Corporation’s Independent Registered Public Accounting Firm, the matters required to be discussed under Statement on Auditing Standards No. 61, as amended by Statement on Auditing Standards No. 90 (communications with audit committees). The Audit Committee has also received the written disclosures and the letter from Perry-Smith LLP required by Independence Standards Board Standard No. 1 (independence discussions with audit committees), and the Audit Committee has discussed the independence of Perry-Smith LLP with that firm and based upon such information has determined that Perry-Smith LLP is independent.

The Audit Committee consists of the following members of the ~~Company's~~Corporation’s Board of Directors: Dante W. Ghidinelli (Chairman), Royce L. Friesen, Kevin D. Hartwick, Roger B. Kohlmeier and Dolores M. Vellutini. All members of the Committee are independent as defined under SOX, the SEC Regulations and NASDAQ listing standards. Both Chairman Dante W. Ghidinelli and Mr. Kevin D. Hartwick have been, as a result of their accounting backgrounds determined to be qualified as an Audit Committee Financial Expert as defined under SOX, the SEC Regulations and NASDAQ listing standards. The Audit Committee has recommended to the Board of Directors that the ~~Company's~~Corporation’s audited financial statements be included in the ~~Company's~~Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2006~~2007, for filing with the Securities and Exchange Commission. 42

PROPOSAL NO. 2 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT ~~AUDITOR~~REGISTERED PUBLIC
ACCOUNTING FIRM

The firm of Perry-Smith LLP, which served the Corporation as Independent Registered Public Accounting Firm for the ~~2006~~2007 fiscal year, has been recommended by the Audit Committee of the Board of Directors of the Corporation as the ~~Corporation's~~Corporation’s Independent Registered Public Accounting Firm for the ~~2007~~2008 fiscal year. Perry-Smith LLP has no interest, financial or otherwise, in the Corporation. All Proxies will be voted for the ratification of the appointment of Perry-Smith LLP, unless authority to vote for the ratification of such selection is withheld or an abstention is noted. If Perry-Smith LLP should for any reason decline or be unable to act as Independent ~~Auditor,~~Registered Public Accounting Firm, the Proxies will be voted for a substitute independent registered public accounting firm to be designated by the Audit Committee.

The Audit Committee of the Board of Directors of the Corporation approved each professional service rendered by Perry-Smith LLP during the ~~2006~~2007 fiscal year and considered whether the provision of non-audit services is compatible with maintaining their independence.

Required ~~Approval - -----------------~~Vote

The approval of the ratification of the appointment of Perry-Smith LLP as the ~~Corporation's~~Corporation’s Independent Registered Public Accounting Firm for the ~~2007~~2008 fiscal year requires the affirmative vote of the holders of a majority of the shares present or represented by ~~Proxy~~proxy and voting at the Meeting.

Recommendation of Management ~~- ----------------------------~~

The Board of Directors has approved the recommendation of the Audit Committee of the Board of Directors that Perry-Smith LLP be appointed to serve as the ~~Corporation's~~Corporation’s Independent Registered Public Accounting Firm for the year ~~2007~~2008 and recommends a vote ~~"FOR"~~“FOR” ratification of the appointment of Perry-Smith LLP.

A representative of Perry-Smith LLP is expected to attend the Meeting and will have the opportunity to make a statement if he or she desires to do so and will respond to appropriate questions from shareholders present at the Meeting.

SHAREHOLDER PROPOSALS

The ~~Corporation's 2008~~Corporation’s 2009 Annual Meeting of Shareholders is scheduled for May ~~22, 2008.~~28, 2009. Shareholder proposals must be received by the Corporation no later than ~~March 1,~~December 31, 2008, to be considered for inclusion in the Proxy Statement and Proxy for the ~~2008~~2009 Annual Meeting of Shareholders. Management of the Corporation will have discretionary authority to vote proxies obtained by it in connection with any shareholder proposal not submitted on or before the ~~March 1,~~December 31, 2008, deadline. The Corporation has entered into an Agreement and Plan of Merger dated April 10, 2007, pursuant to which the Corporation would merge with and into Sterling Financial Corporation, a Washington corporation, with Sterling being the surviving corporation. If this proposed merger is consummated, no Annual Meeting of the Shareholders of North Valley Bancorp will be held in 2008. 43

OTHER MATTERS

The Board of Directors knows of no other matters which will be brought before the Meeting, but if such matters are properly presented to the Meeting, Proxies solicited hereby will be voted in accordance with the judgment of the persons holding such Proxies. All shares represented by duly executed Proxies will be voted at the Meeting. By Order of the Board of Directors, /s/ Leo J. Graham ----------------------------------- Leo J. Graham Corporate Secretary Redding, California November 26, 2007 44


	By Order of the Board of Directors,

	/s/ Leo J. Graham

	Leo J. Graham
	Corporate Secretary
Redding, California
April 22, 2008

APPENDIX A ~~----------~~

AUDIT COMMITTEE CHARTER

1. General Purpose:

The Audit Committee of North Valley Bancorp ~~("Bancorp"~~(“Bancorp”) is a committee comprised of at least three independent directors of North Valley Bancorp and will include an independent director from each of ~~Bancorp's~~Bancorp’s subsidiary banks. The Audit Committee will represent the Bancorp and all of its subsidiary banks, (the ~~"Company"~~“Corporation”), for purpose of Audit Committee functions. The purpose of the Audit Committee is to act on behalf of the Bancorp and ~~Banks'~~Banks’ Boards of Directors in fulfilling the ~~Boards'~~Boards’ oversight responsibilities with respect to:

1) The integrity of the ~~Company's~~Corporation’s financial statements, financial reporting processes and systems of internal control regarding finance, accounting, security, regulatory and legal compliance;

2) The independence, qualifications and performance of the ~~Company's~~Corporation’s independent auditors;

3) The performance of the ~~Company's~~Corporation’s internal audit function and internal auditor;

4) Communications among the independent auditors, management, the internal auditing department, and the Boards of Directors;

5) Procedures for (a) the receipt, retention and treatment of complaints received by the ~~Company~~Corporation regarding accounting, internal accounting controls or auditing matters and (b) the confidential, anonymous submission by the ~~Company's~~Corporation’s employees of concerns regarding accounting or auditing matters; and

6) Performance of Risk Management Program and of Chief Risk Officer.

2. Statement of Policy:

The Audit Committee shall provide assistance to the directors of the Boards in fulfilling their responsibilities to the shareholders, potential shareholders, and investment community related to accounting, reporting practices, and the quality and integrity of the financial reports of the ~~Company.~~Corporation. While the Audit Committee will not attempt to correct problems independently, they will function as an informed, vigilant and effective monitor of the ~~Company's~~Corporation’s reporting process and internal controls. In so doing, it is the responsibility of the Audit Committee to maintain free and open means of communication between the directors, the independent auditors, the internal auditors, and the management of the ~~Company.~~Corporation. In addition, the Audit Committee shall have the authority to engage independent counsel and other advisors, as it determines necessary to carry out these duties, and the ~~Company~~Corporation shall provide appropriate funding, as determined by the Audit Committee, for payment of compensation to such counsel or advisors. The Audit Committee representative shall report regularly to the Bancorp and ~~Banks'~~Banks’ Boards of Directors so as to keep the individual Bancorp and ~~Banks'~~Banks’ Boards up to date on the activities of the Audit Committee in assisting the ~~Boards'~~Boards’ with their oversight responsibilities.

3. Member Independence and Qualifications:

All members of the Audit Committee shall satisfy the independence and experience requirements of the Securities and Exchange Commission (SEC) and ~~the~~The Nasdaq National Market (NASDAQ) applicable to audit committee members as in effect from time to time, when and as required by the SEC and NASDAQ. All 45 members of the Audit Committee shall be able to read and understand fundamental financial statements, including a balance sheet, income statement and statement of cash flows and shall not have participated in the preparation of the financial statements of the Bancorp or any current subsidiary of the Bancorp at any time during the prior three years. At least one member of the Audit Committee shall have experience or background sufficient to meet ~~the NASDAQ~~The Nasdaq financial sophistication requirements and would also meet the definition of an audit committee financial expert under the Securities Exchange Act of 1934, as amended.

4. Member Compensation:

The members of the committee may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee (i) accept any consulting, advisory, or other compensatory fee from ~~Company~~Corporation or its affiliates or (ii) be an affiliated person of ~~Company~~Corporation or its subsidiary. Compensation for committee membership will be as set by the North Valley Bancorp Board of Directors.

5. Responsibilities Related to Registered Public Accounting Firms and Audit Firms:

The Audit Committee shall be directly responsible for the appointment, evaluation, termination, compensation, and oversight of the work of any registered public accounting firm ("(“Independent ~~Auditor"~~Auditor”), or any audit firm employed by the ~~Company~~Corporation and each such firm shall report directly to the Audit Committee. The Audit ~~Committee's~~Committee’s retention of any Independent Auditor firm shall be subject to the applicable vote of shareholders.

The Audit Committee shall explicitly approve the engagement of the Independent Auditor for all audit and permissible non-audit related services, including compensation to be paid therefore or the engagement for such services may be entered into pursuant to pre-approval policies and procedures established by the Audit Committee, provided such policies are detailed as to the particular service, the Audit Committee is informed of the particular service, and such polices and procedures do not include delegation of the Audit ~~Committee's~~Committee’s responsibilities under the Securities Exchange Act of 1934, as amended, to management, provided that with respect to services other than audit, review or attest services, no pre-approval is required if all of the following conditions are met: (i) the aggregate amount of all such services accounts for no more than 5% of the total revenues paid to the Independent Auditor during the fiscal year in which the services are provided; (ii) such services were not recognized by the ~~Company~~Corporation to be non-audit services at the time of engagement; and (iii) such services are promptly brought to the attention of the Audit Committee and approved prior to the completion of the audit by the Audit Committee (or one or more members delegated pursuant to the following sentence). The Audit Committee may delegate its authority to grant pre-approvals to one or more members of the Audit Committee, provided that the decisions of any Audit Committee member to whom authority is delegated to grant pre-approvals is presented to the full Audit Committee at its next meeting.

The Audit Committee shall obtain and review, at least annually, a formal written statement from the Independent Auditor delineating: (1) the internal quality control procedures of the Independent Auditor; (2) material issues raised by the Independent ~~Auditor's~~Auditor’s most recent quality-control review; (3) steps taken to deal with the material issues raised in the quality-control review; and (4) all relationships between the Independent Auditor, and Bancorp and/or its affiliates, consistent with the Financial Accounting Standards Board Standard No. 1. The Audit Committee will consider and discuss with the Independent Auditor any disclosed relationships or services that could affect the Independent ~~Auditor's~~Auditor’s objectivity and independence, and assess and otherwise take appropriate action to oversee the independence of the Independent Auditor. 46

The Audit Committee shall ensure the rotation of the lead audit partner and the ~~"concurring~~“concurring or reviewing ~~partner"~~partner” every five years, and consider the adoption of a policy of rotating the Independent Auditor on a regular basis.

The Audit Committee shall meet with the Independent Auditor prior to the commencement of an audit to discuss the scope, planning and staffing of the audit.

The Audit Committee shall consider and, if deemed appropriate, adopt a policy regarding Audit Committee pre-approval of employment by the ~~Company~~Corporation of individuals formerly employed by the Independent Auditor.

The Audit Committee shall evaluate the cooperation received by the Independent Auditor during their audit examination, including any significant difficulties with the audit or any restrictions on the scope of their activities or access to required records, data and information.

The Audit Committee shall discuss with the Independent Auditor and management any conflicts or disagreements between management and the Independent Auditor regarding financial reporting, accounting practices or policies and shall be responsible for resolving any conflicts regarding financial reporting.

The Audit Committee shall confer with the Independent Auditor and with senior management regarding the scope, adequacy and effectiveness of internal auditing and financial reporting controls in effect, and any special steps taken in the event of material control deficiencies.

6. Oversight of the Integrity of the Financial Statements:

Upon completion of the audit, the Audit Committee shall review and discuss with the Independent Auditor and management the annual audited financial statements and make related recommendations in connection with ~~Bancorp's~~Bancorp’s 10-K filings.

The Audit Committee shall review and discuss with the Independent Auditor and management the quarterly financial statements prior to ~~Bancorp's~~Bancorp’s 10-Q filings, and any other matters required to be communicated to the Audit Committee by the Independent Auditor under Statement on Auditing Standards No. 61. The Chairperson or a member of the Audit Committee may represent the entire Audit Committee for purposes of this discussion.

The Audit Committee shall discuss with management and the Independent Auditor significant issues that arise regarding accounting principles and financial statement presentation, including the adoption of new, or material changes to existing, critical accounting policies or to the application of those policies, the potential effect of alternative accounting polices available under GAAP, the potential impact of regulatory and accounting initiatives and any other significant reporting issues and judgments.

The Audit Committee shall discuss with the Independent Auditor and management significant financial reporting issues and judgments made in connection with the preparation of ~~Bancorp's~~Bancorp’s financial statements. 47

7. Oversight of Internal Audit Function and Internal Auditor / Risk Management Program and Chief Risk Officer:

The Audit Committee shall review the appointment, performance, and termination of the Chief Risk Officer and Internal Auditor, who shall meet with the Audit Committee on a regular basis, attend meetings of the Audit Committee, and report regularly on the activities of the Audit and Risk Management function.

The Audit Committee shall approve the annual Audit and Risk Management Plan to assure the comprehensive coverage of significant risk areas.

The Audit Committee shall discuss with management, and, as appropriate, the Independent Auditor, the ~~Company's~~Corporation’s major financial and other risk exposures and the steps management has taken to monitor and control such exposures, including the ~~Company's~~Corporation’s risk assessment and risk management policies.

The Audit Committee shall review significant Audit and Risk Review Reports ~~("Reports"~~(“Reports”) and/or recommendations prepared by Audit and Risk Management and review ~~management's~~management’s responses to the Reports and/or recommendations.

The Audit Committee shall discuss material legal matters with the General Counsel of the holding company and subsidiary banks, including matters reflected in the Quarterly Litigation Report.

The Audit Committee shall review and approve the quarterly allowances for loan and lease losses and reports of Internal Auditors and communicate said reports to Bancorp and Bank Boards of Directors.

The Audit Committee shall review with the Independent Auditor any management or internal control letter issued or, to the extent practicable, proposed to be issued by the Independent Auditor and ~~management's~~management’s response, if any, to such letter.

The Audit Committee shall review the results of ~~management's~~management’s efforts to monitor compliance with the programs and policies designed to ensure adherence to applicable laws and regulations, as well as to its Code of Ethics, including review and approval of insider and affiliated-party transactions.

The Audit Committee shall prepare the report required by the rules of the Securities and Exchange Commission to be included in ~~Bancorp's~~Bancorp’s annual proxy statement.

The Audit Committee shall review and assess the adequacy of this charter annually and recommend any proposed changes to the ~~Bancorp's~~Bancorp’s Board for approval.

8. Compliance Oversight Responsibilities:

Obtain from the Independent Auditor assurance that Section 10a(b) of the Exchange Act has not been implicated.

The Audit Committee shall have oversight responsibility for the ~~Banks'~~Banks’ compliance with the Community Reinvestment Act. The Audit Committee shall review and approve the ~~Banks'~~Banks’ performance under this Act and recommend appointment by the appropriate Bank Board of the Community Reinvestment Act Officer. 48

In the event that a Suspicious Activity Report ~~("SAR"~~(“SAR”) must be filed, in accordance with the Bank Secrecy Act and Bank policy, the SAR must be reviewed at the next scheduled meeting of the Audit Committee. In the event that the SAR involves an insider, or is of a significant dollar amount or impact to any of the Banks, a recommendation by the ~~Bank's~~Bank’s legal counsel will be presented to the Audit Committee, who will determine whether presentation to the full Board is necessary.

The Audit Committee shall have the authority to appoint the Bank Secrecy Act Officer and the Bank Security Officer.

9. Complaints:

The Audit Committee shall establish procedures for the receipt, retention and treatment of complaints received by the ~~Company~~Corporation regarding accounting, internal accounting controls or auditing matters, including the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. Specifically, employees of the ~~Company~~Corporation will be instructed that they may submit confidential, anonymous concerns regarding questionable accounting or auditing matters to the Chairperson of the Audit Committee without fear of retaliation, as outlined in the Code of Ethics / Code of Business Conduct and Ethics Policy.

10. Meetings:

Regular and special meetings of the Audit Committee will be held at the time and place as the Audit Committee deems necessary and appropriate and at least on a quarterly basis.

11. Minutes:

The Secretary of the Audit Committee will maintain minutes and other relevant records of the meetings and activities of the Audit Committee. The minutes will be available for review by the Board and any regulatory agency having jurisdiction over the affairs of Bancorp or the Banks. In the event of any meeting in Executive Session or otherwise where the Secretary is not present, the Chair will designate an Acting Secretary of the Audit Committee for the purpose of recording the minutes of actions taken at the meeting or Executive Session thereof.

12. Voting:

Every act consented to by a majority of the Audit Committee members present at a meeting (at which quorum is present) will be regarded as an act of the Audit Committee, unless other consent is required pursuant to this Charter, the Articles of Incorporation or ~~By-Laws~~Bylaws of Bancorp or Banks or applicable law.

13. Telephone Conference Meetings:

Members of the Audit Committee may participate in a meeting through use of conference telephone or similar communication equipment, so long as all members participating in the meetings can hear one another. Participation in a meeting pursuant to this paragraph constitutes presence in person at the meeting.

14. Amendments:

This Charter of the Audit Committee may be amended only by a resolution of ~~Bancorp's~~Bancorp’s Board. 49

APPENDIX B ~~----------~~

NOMINATING COMMITTEE CHARTER

PURPOSE

The purpose of the Nominating Committee is to assist the Board of Directors by (a) establishing criteria for candidates and identifying, evaluating and recommending candidates, including candidates proposed by shareholders, for election to the Board of Directors, and (b) periodically reviewing and making recommendations on the composition of the Board of Directors.

COMMITTEE MEMBERSHIP

The Nominating Committee shall be comprised of at least three independent directors appointed annually by the independent members of the Board of Directors, who shall appoint one member of the Committee to act as its Chairman. The independent members of the Board of Directors may remove members of the Committee, with or without cause. Director independence shall be determined in accordance with applicable rules of the Securities and Exchange Commission and ~~the NASDAQ~~The Nasdaq Marketplace Rules.

NOMINATION PROCESS 1. The Nominating Committee shall, as it deems appropriate, identify, evaluate and interview individuals who may be qualified to be members of the Board of Directors. 2. Each candidate evaluated by the Nominating Committee shall be required to complete one or more questionnaires and provide such additional information as the Nominating Committee shall deem necessary or appropriate. Such information shall include a personal financial statement and background information concerning the candidate. The Nominating Committee shall have the authority to retain independent advisors (including legal and accounting advisors) to assist the members of the committee in carrying out their responsibilities and duties. The Committee shall have the sole authority to approve the terms of any such engagement, including the payment of fees. 3. Candidates shall be evaluated based on the criteria established by the Nominating Committee which may include (a) satisfactory results of any background investigation, (b) experience and expertise, (c) financial resources, (d) time availability, (e) community involvement, and (f) such other criteria as the Nominating Committee may determine to be relevant. Candidates selected for consideration, as nominees must meet with the Nominating Committee and thereafter with the Board of Directors. 4. Any candidate nominated for election to the Board of Directors must (a) be recommended to the Board of Directors by the unanimous vote of approval of the members of the Nominating Committee and (b) receive a majority of votes in favor of nomination from the independent members of the Board of Directors. 5. Each existing member of the Board of Directors whose term is ending must be evaluated for nomination for re-election by the Nominating Committee. This review will include review of attendance, participation, continuing education, investment in shares, business development and community involvement. In lieu of the information 50


1.	The Nominating Committee shall, as it deems appropriate, identify, evaluate and interview individuals who may be qualified to be members of the Board of Directors.

2.	Each candidate evaluated by the Nominating Committee shall be required to complete one or more questionnaires and provide such additional information as the Nominating Committee shall deem necessary or appropriate. Such information shall include a personal financial statement and background information concerning the candidate. The Nominating Committee shall have the authority to retain independent advisors (including legal and accounting advisors) to assist the members of the committee in carrying out their responsibilities and duties. The Committee shall have the sole authority to approve the terms of any such engagement, including the payment of fees.

3.	Candidates shall be evaluated based on the criteria established by the Nominating Committee which may include (a) satisfactory results of any background investigation, (b) experience and expertise, (c) financial resources, (d) time availability, (e) community involvement, and (f) such other criteria as the Nominating Committee may determine to be relevant. Candidates selected for consideration, as nominees must meet with the Nominating Committee and thereafter with the Board of Directors.

4.	Any candidate nominated for election to the Board of Directors must (a) be recommended to the Board of Directors by the unanimous vote of approval of the members of the Nominating Committee and (b) receive a majority of votes in favor of nomination from the independent members of the Board of Directors.

5.	Each existing member of the Board of Directors whose term is ending must be evaluated for nomination for re-election by the Nominating Committee. This review will include review of attendance, participation, continuing education, investment in shares, business development and community involvement. In lieu of the information required to be provided by new candidates for election to the Board of Directors described above in paragraph 2, the Nominating Committee may rely upon the information contained in the most recent annual Directors and Officers Questionnaire completed by the existing member of the Board of Directors, subject to such additional updated information as the Nominating Committee may deem appropriate. Such existing member of the Board of Directors must receive a majority of votes in favor of nomination from the independent members of the Board of Directors (excluding such existing member).

required to be provided by new candidates for election to the Board of Directors described above in paragraph 2, the Nominating Committee may rely upon the information contained in the most recent annual Directors and Officers Questionnaire completed by the existing member of the Board of Directors, subject to such additional updated information as the Nominating Committee may deem appropriate. Such existing member of the Board of Directors must receive a majority of votes in favor of nomination from the independent members of the Board of Directors (excluding such existing member).

MEETINGS

The Nominating Committee shall meet at least annually and such other times as it may deem appropriate, to evaluate and recommend to the Board of Directors nominees for election at the Annual Meeting of Shareholders prior to distribution of the ~~Corporation's~~Corporation’s proxy solicitation materials or to fill vacancies in accordance with the ~~Corporation's~~Corporation’s bylaws.

MINUTES

The Nominating Committee shall maintain written minutes of each meeting of the committee and such minutes shall be distributed to each member of the committee and shall be distributed to the other members of the Board of Directors.

CONFLICTS

Any conflicts between the provisions of this Charter and the provisions of the ~~Corporation's~~Corporation’s bylaws shall be resolved in favor of the bylaw provisions and nothing contained herein shall be construed as an amendment of the ~~Corporation's~~Corporation’s bylaws. 51

~~To All Participants~~

APPENDIX C

NORTH VALLEY BANCORP

2008 STOCK INCENTIVE PLAN

ARTICLE 1.INTRODUCTION

The Plan was adopted by the Board on February 27, 2008, subject to approval by the Company’s shareholders.

The purpose of the Plan is to promote the long-term success of the Company and the creation of shareholder value by (a) encouraging Key Employees, including Outside Directors, to focus on critical long-range objectives, (b) encouraging the attraction and retention of Key Employees and Outside Directors with exceptional qualifications and (c) linking Key Employees and Outside Directors directly to shareholder interests through increased stock ownership. The Plan seeks to achieve this purpose by providing for Awards in the ~~North Valley Bancorp Employee~~form of Stock ~~Ownership~~Awards or Options (which may constitute incentive stock options or nonstatutory stock options).

The Plan regarding the Annual Meeting of Shareholders of North Valley Bancorp on December 20, 2007 The 2007 annual meeting of the shareholders of North Valley Bancorp willshall be held at 4:00 p.m., local time, on Thursday, December 20, 2007, at the Administrative Offices of North Valley Bancorp, 300 Park Marina Drive, Redding, California 96001. At the meeting, the shareholders will be asked to vote on the following matters: o To elect the following nominees as directors for a term of one year: Michael J. Cushman William W. Cox Dante W. Ghidinelli Dolores M. Vellutini Roger B. Kohlmeier Kevin D. Hartwick o To ratify the appointment of Perry-Smith LLP as Independent Auditor for 2007. o To consider such other business as may properly come before the Annual Meetinggoverned by, and any adjournment or postponement thereof. Along with this letter, you are receiving the Notice of Annual Meeting of Shareholders of North Valley Bancorp and the Proxy Statement dated November 26, 2007, being sent to all shareholders of record as of November 9, 2007 (the "Record Date" for the Annual Meeting). All shares of North Valley common stock held under the North Valley Bancorp Employee Stock Ownership Plan ("ESOP") will be voted at the annual meeting by the ESOP trustee,construed in accordance with, the ~~instructions~~laws of the ~~ESOP participants as described in this letter. Voting Instructions. Because shares~~State of ~~North Valley Bancorp common stock are credited to your ESOP account, you have~~California.

ARTICLE 2. ADMINISTRATION

2.1. Committee Composition. The Plan shall be administered by the right to instruct the trustee, Delaware Charter Guarantee and Trust Company, conducting business as Principal Trust Company (the "Trustee"), how to vote those shares at the annual meeting of shareholders. The Trustee is the owner of recordBoard or by one or more committees of the ~~shares held~~Board duly appointed for ~~your account in~~this purpose by the ~~ESOP. The Trustee is the person entitled~~Board. Discretionary grants of Awards to ~~vote your shares, but will vote them in accordance with your instructions. Voting Instructions Card. You are also receiving with this letter a voting instructions card, to~~Key Employees, including Outside Directors, may be ~~completed, signed~~made by, and sent to the Trustee in order to provide the Trustee with instructions regarding the voting of the shares in your ESOP account. A postage paid return envelope, addressed to the Trustee, is being provided for your convenience. The Trustee will tabulate the votes indicated by your instructions and the instructions of the other ESOP participants and will then vote your shares and the other ESOP shares as described in this letter. YOUR VOTE IS IMPORTANT. YOU SHOULD CAREFULLY REVIEW THE NOTICE OF ANNUAL MEETING AND THE PROXY STATEMENT BEING PROVIDED WITH THIS LETTER BEFORE COMPLETING, SIGNING AND SENDING YOUR VOTING INSTRUCTIONS CARD TO THE TRUSTEE. ~~Please note that this request for voting instructions is separate from any proxy request that you may receive~~all discretion with respect to ~~any other holdings~~the material terms of ~~North Valley Bancorp common stock that you~~such Awards may ~~have outside~~be exercised by, either (a) the ~~ESOP. If~~Board or (b) a duly appointed committee of the ~~voting instructions card is properly completed, signed and returned, the Trustee will vote the shares allocated~~Board composed solely of two (2) or more Outside Directors having full authority to ~~your ESOP account in accordance with your directions. Please note the following: o If your card is signed and returned without a voting instruction, the Trustee will vote your ESOP shares~~act in the ~~same proportion~~matter. Once appointed, a committee shall administer the Plan on behalf of the Board, subject to such terms and conditions as ~~all~~ the ~~shares held~~Board may prescribe, and shall continue to serve until otherwise directed by the ~~ESOP that are allocated~~Board.

2.2. Committee Responsibilities. The Committee shall:


	(a)	Select the Key Employees who are to receive Awards under the Plan;

	(b)	Determine the type, number, vesting requirements and other features and conditions of such Awards;

	(c) Establish the terms and conditions required or permitted to be included in each Stock Option Agreement, or any amendment thereto, including whether an Option to be granted thereunder shall be an ISO or a NSO;

	(d)	Interpret the Plan; and

	(e)	Make all other decisions relating to the operation of the Plan.

�� The Committee may adopt such rules or guidelines as it deems appropriate to ~~ESOP participant accounts~~implement the Plan. The Committee’s determinations under the Plan shall be final and binding on all persons.

ARTICLE 3.SHARES AVAILABLE FOR GRANTS

3.1. Basic Limitation. Common Shares issued pursuant to the Plan may be authorized but unissued shares or treasury shares. The aggregate number of Common Shares initially reserved for ~~which voting instructions have been received. o If your card is not returned or is returned unsigned,~~award as Options under the ~~Trustee will vote your ESOP shares in~~Plan shall be 400,000 shares. Effective January 1, 2009 and on each January 1 thereafter for the same proportion as all the shares held by the ESOP that are allocated to ESOP participant accounts for which voting instructions have been received. o The Trustee will vote all shares held by the ESOP which are not allocated to a participant's account in the same proportion as allocated shares for which instructions have been received. o If you instruct the Trustee to abstain from voting, the Trustee will abstain from voting your ESOP shares and your shares will not be voted. o With respect to fractional shares, the Trustee may pool the resultsremaining term of the voting instructions received from all ESOP participants to whom fractional shares have been allocated and vote such shares accordingly. o Participants may revoke their voting instructions by executing and delivering toPlan, the Trustee a revised duly executed card no later than December 18, 2007. Confidentiality. Your voting instructions card should be returned to the Trustee, as follows: Principal Trust Company, P.O. Box 8963, Wilmington, DE 19899-9737. If you have questions, you may contact the Trustee at telephone (800) 547-7754. Your voting instructions and other communications with the Trustee will be kept confidential and not disclosed to North Valley Bancorp except asaggregate number of Common Shares which may be ~~required~~issued as Options under the Plan to individuals shall be increased by ~~law. ERISA. The actions taken by~~a number of Common Shares equal to 2% of the ~~Trustee in regard to the voting~~total number of the shares of North Valley Bancorp common stock in your ESOP account are governed by the fiduciary duties and requirements of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The Trustee will vote the shares in accordance with your instructions and the procedures summarized in this letter unless, based on the advice of its legal counsel, the Trustee concludes that to do so would be improper or contrary to ERISA or applicable guidance of the United States Department of Labor. Deadline to Provide Instructions. The Trustee must have ample time to tabulate instructions and to deliver the aggregate votes on behalf of the ESOP participants on or before the date of the annual meeting of shareholders of North Valley Bancorp. The annual meeting is scheduled to be held on December 20, 2007. Thus, YOUR VOTING INSTRUCTIONS CARD SHOULD BE RECEIVED BY THE TRUSTEE NO LATER THAN DECEMBER 18, 2007. PROXY ----- NORTH VALLEY BANCORP ESOP Voting Instructions Solicited by the Trustee of the North Valley Bancorp Employee Stock Ownership Plan for the Annual Meeting of Shareholders of North Valley Bancorp to be held on December 20, 2007 The undersigned acknowledges receipt of the Notice of Annual Meeting of Shareholders of North Valley Bancorp and the accompanying Proxy Statement dated November 26, 2007, and hereby instructs Delaware Charter Guarantee and Trust Company, conducting business as Principal Trust Company ("Principal Trust Company"), as Trustee of the North Valley Bancorp Employee Stock Ownership Plan ("ESOP"), to vote in person or by proxy all of the shares of Common Stock of North Valley Bancorp credited to the ESOP account of the undersigned at the Annual Meeting of Shareholders of North Valley Bancorp to be held on Thursday, December 20, 2007, at the Administrative Offices of North Valley Bancorp, 300 Park Marina Circle, Redding, California 96001, at 4:00 p.m., or at any postponement or adjournment thereof, upon the matters set forth in the Notice of Annual Meeting of Shareholders of North Valley Bancorp and the accompanying Proxy Statement dated November 26, 2007, as indicated on the other side of this card. If this card is properly completed, signed and returned to the Trustee no later than December 18, 2007, the shares allocated to your ESOP account will be voted by the Trustee in accordance with your instructions. Your instructions may be amended or revoked at any time, provided that you deliver a later-dated, superseding, properly completed and signed voting instruction card to the Trustee not later than such date. Please note the following: o If your card is signed and returned without a voting instruction, the Trustee will vote your ESOP shares in the same proportion as all the shares held by the ESOP that are allocated to ESOP participant accounts for which voting instructions have been received. o If your card is not returned or is returned unsigned, the Trustee will vote your ESOP shares in the same proportion as all the shares held by the ESOP that are allocated to ESOP participant accounts for which voting instructions have been received. o If you instruct the Trustee to abstain from voting, the Trustee will abstain from voting your ESOP shares and your shares will not be voted. (continued and to be signed on the other side) 1. To elect as Directors the nominees set forth below: [ ] FOR [ ] WITHHOLD AUTHORITY 01 Michael J. Cushman 02 Dante W. Ghidinelli 03 Kevin D. Hartwick 04 Roger B. Kohlmeier 05 William W. Cox 06 Dolores M. Vellutini (Instruction: To withhold authority to vote for any nominee, strike a line through the nominee's name on the list above.) 2. To ratify the appointment of Perry-Smith LLP as Independent Auditor for 2007. [ ] FOR [ ] AGAINST [ ] ABSTAIN 3. In their discretion the proxy holders are authorized to vote upon such other business as may properly come before the meeting. PLEASE COMPLETE, SIGN AND RETURN THIS CARD TO PRINCIPAL TRUST COMPANY, TRUSTEE, IN THE ENCLOSED POSTAGE-PAID ENVELOPE NO LATER THAN DECEMBER 18, 2007. Dated:__________________________________ _________________________________________ Signature _________________________________________ Name of ESOP Participant ~~Exhibit 1~~ Copy - as this report was filed on November 9, 2007 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended September 30, 2007. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Transition Period From ___________ to ___________ Commission file number 0-10652 NORTH VALLEY BANCORP -------------------- (Exact name of registrant as specified in its charter) California 94-2751350 --------------------------------- ------------------------ (State or other jurisdiction (IRS Employer ID Number) of incorporation or organization) 300 Park Marina Circle, Redding, CA 96001 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (530) 226-2900 (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 Exchange Act of 1934 during the preceding 12 months (or for such shorter periods 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] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock - 7,374,884 shares as of November 7, 2007. ~~INDEX NORTH VALLEY BANCORP AND SUBSIDIARIES~~ PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets--September 30, 2007 and December 31, 2006 3 Condensed Consolidated Statements of Income--For the three and nine months ended September 30, 2007 and 2006 4 Condensed Consolidated Statements of Cash Flows--For the nine months ended September 30, 2007 and 2006 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures about Market Risk 27 Item 4. Controls and Procedures 27 PART II. OTHER INFORMATION Item 1. Legal Proceedings 27 Item 1A. Risk Factors 27 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27 Item 3. Defaults Upon Senior Securities 27 Item 4. Submission of Matters to a Vote of Security Holders 27 Item 5. Other Information 27 Item 6. Exhibits 28 SIGNATURES 29
2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) NORTH VALLEY BANCORP AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands except share data) - --------------------------------------------------------------------------------
September 30, December 31, 2007 2006 ------------- ------------ ASSETS Cash and cash equivalents: Cash and due from banks $ 28,333 $ 30,826 Federal funds sold - 10,670 ------------- ------------ Total cash and cash equivalents 28,333 41,496 Investment securities available for sale, at fair value 108,616 133,571 Investment securities held to maturity, at amortized cost 52 82 Loans and leases 717,436 659,793 Less: Allowance for loan and lease losses (9,602) (8,831) ------------- ------------ Net loans and leases 707,834 650,962 Premises and equipment, net 12,933 13,797 Accrued interest receivable 3,820 3,838 Other real estate owned 902 902 FHLB and FRB stock and other securities 5,635 5,495 Bank-owned life insurance policies 30,256 29,483 Core deposit intangibles, net 1,399 1,886 Goodwill 15,187 15,187 Other assets 9,937 8,974 ------------- ------------ TOTAL ASSETS $ 924,904 $ 905,673 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Deposits: Noninterest-bearing $ 170,457 $ 194,842 Interest-bearing 565,982 555,446 ------------- ------------ Total deposits 736,439 750,288 Other borrowed funds 65,590 37,500 Accrued interest payable and other liabilities 10,625 10,433 Subordinated debentures 31,961 31,961 ------------- ------------ Total liabilities 844,615 830,182 ------------- ------------ Commitments and Contingencies (Note H) STOCKHOLDERS' EQUITY: Preferred stock, no par value: authorized 5,000,000 shares; none outstanding - - Common stock, no par value: authorized 20,000,000 shares; outstanding 7,374,464 and 7,300,914 at September 30, 2007 and December 31, 2006 40,212 39,202 Retained earnings 42,562 38,626 Accumulated other comprehensive loss, net of tax (2,485) (2,337) ------------- ------------ Total stockholders' equity 80,289 75,491 ------------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 924,904 $ 905,673 ============= ============
~~The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited). 3~~ NORTH VALLEY BANCORP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands except per share data) - --------------------------------------------------------------------------------
For the three months ended September 30, 2007 2006 ---------- ---------- INTEREST INCOME: Interest and fees on loans and leases $ 13,790 $ 12,899 Interest on investments: Taxable interest income 1,045 1,330 Nontaxable interest income 236 257 Interest on Federal funds sold and repurchase agreements 12 20 ---------- ---------- Total interest income 15,083 14,506 ---------- ---------- INTEREST EXPENSE: Deposits 3,760 2,782 Subordinated debentures 611 611 Other borrowings 467 603 ---------- ---------- Total interest expense 4,838 3,996 ---------- ---------- NET INTEREST INCOME 10,245 10,510 PROVISION FOR LOAN AND LEASE LOSSES 850 555 ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES 9,395 9,955 ---------- ---------- NONINTEREST INCOME: Service charges on deposit accounts 1,791 1,723 Other fees and charges 939 902 Earnings on cash surrender value of life insurance policies 333 309 Gain on sale of loans 34 171 Other 253 493 ---------- ---------- Total noninterest income 3,350 3,598 ---------- ---------- NONINTEREST EXPENSES: Salaries and employee benefits 5,306 5,407 Occupancy expense 773 772 Furniture and equipment expense 499 533 Other 2,903 3,147 ---------- ---------- Total noninterest expenses 9,481 9,859 ---------- ---------- INCOME BEFORE PROVISION FOR INCOME TAXES 3,264 3,694 PROVISION FOR INCOME TAXES 1,044 775 ---------- ---------- NET INCOME $ 2,220 $ 2,919 ========== ========== Per Share Amounts Basic Earnings Per Share $ 0.30 $ 0.40 ========== ========== Diluted Earnings Per Share $ 0.29 $ 0.39 ========== ========== Cash Dividends Per Common Share $ 0.10 $ 0.10 ========== ==========
~~The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited). 4~~ NORTH VALLEY BANCORP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands except per share data) - --------------------------------------------------------------------------------
For the nine months ended September 30, 2007 2006 ---------- ---------- INTEREST INCOME: Interest and fees on loans and leases $ 39,622 $ 36,862 Interest on investments: Taxable interest income 3,437 4,285 Nontaxable interest income 729 800 Interest on Federal funds sold and repurchase agreements 391 196 ---------- ---------- Total interest income 44,179 42,143 ---------- ---------- INTEREST EXPENSE: Deposits 10,624 6,913 Subordinated debentures 1,829 1,843 Other borrowings 1,052 1,789 ---------- ---------- Total interest expense 13,505 10,545 ---------- ---------- NET INTEREST INCOME 30,674 31,598 PROVISION FOR LOAN AND LEASE LOSSES 850 925 ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES 29,824 30,673 ---------- ---------- NONINTEREST INCOME: Service charges on deposit accounts 5,122 4,806 Other fees and charges 2,797 2,334 Earnings on cash surrender value of life insurance policies 942 889 Gain on sale of loans 131 336 Loss on sale or calls on securities (36) (3) Other 698 1,049 ---------- ---------- Total noninterest income 9,654 9,411 ---------- ---------- NONINTEREST EXPENSES: Salaries and employee benefits 16,340 16,458 Occupancy expense 2,296 2,255 Furniture and equipment expense 1,552 1,610 Other 10,255 9,432 ---------- ---------- Total noninterest expenses 30,443 29,755 ---------- ---------- INCOME BEFORE PROVISION FOR INCOME TAXES 9,035 10,329 PROVISION FOR INCOME TAXES 2,891 2,987 ---------- ---------- NET INCOME $ 6,144 $ 7,342 ========== ========== Per Share Amounts Basic Earnings Per Share $ 0.84 $ 0.99 ========== ========== Diluted Earnings Per Share $ 0.80 $ 0.95 ========== ========== Cash Dividends Per Common Share $ 0.30 $ 0.30 ========== ==========
~~The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited). 5~~ ~~NORTH VALLEY BANCORP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) - --------------------------------------------------------------------------------~~
For the nine months ended September 30, 2007 2006 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 6,144 $ 7,342 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,668 1,753 Amortization of premium on securities 63 72 Amortization of core deposit intangible 487 488 Provision for loan and lease losses 850 925 Loss on sale or calls on securities 36 3 Gain on sale of loans (131) (336) Gain on sale of premises and equipment (3) (217) FHLB stock dividends (146) (169) Stock-based compensation expense 270 227 Excess tax benefit from exercise of stock options (92) (175) Effect of changes in: Accrued interest receivable 18 (165) Other assets (1,628) (391) Accrued interest payable and other liabilities 284 (505) ---------- ---------- Net cash provided by operating activities 7,820 8,852 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of available for sale securities - 62 Proceeds from maturities/calls of available for sale securities 24,635 26,406 Net change in FHLB and FRB stock and other securities - 338 Net increase in loans and leases (57,590) (41,236) Proceeds from sales of premises and equipment 3 329 Purchases of premises and equipment (804) (1,000) ---------- ---------- Net cash used in investing activities (33,756) (15,101) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) increase in deposits (13,849) 14,205 Net increase (decrease) in other borrowed funds 28,090 (18,400) Cash dividends paid (2,208) (2,204) Repurchase of common stock - (5,270) Exercise of stock options, including tax benefit 740 519 ---------- ---------- Net cash provided by (used in) financing activities 12,773 (11,150) ---------- ---------- NET DECREASE IN CASH AND CASH EQUIVALENTS (13,163) (17,399) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 41,496 56,094 ---------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 28,333 $ 38,695 ========== ========== Supplemental Disclosures of Cash Flow Information Cash Paid During the Year for: Interest $ 14,180 $ 10,922 Income taxes $ 2,865 $ 4,075
~~The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited). 6~~ NORTH VALLEY BANCORP AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of North Valley Bancorp and subsidiaries (the "Company") have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, certain information and notes required by accounting principles generally accepted in the United States of America for annual financial statements are not included herein. Management believes that the disclosures are adequate to make the information not misleading. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) considered necessary for a fair presentation of the results for the interim periods presented have been included. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2006. Operating results for the three and nine months ended September 30, 2007 are not necessarily indicative of the results that may be expected for any subsequent period or for the year ended December 31, 2007. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries North Valley Bank ("NVB"), North Valley Trading Company, which is inactive and North Valley Bank Scholarship Fund, Inc., which is also inactive. Significant intercompany items and transactions have been eliminated in consolidation. North Valley Capital Trust I, North Valley Capital Trust II, North Valley Capital Trust III and North Valley Capital Statutory Trust IV are unconsolidated subsidiaries formed solely for the purpose of issuing trust preferred securities. The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Management has determined that since all of the banking products and services offered by the Company are available in each branch of NVB, all branches are located within the same economic environment and management does not allocate resources based on the performance of different lending or transaction activities, it is appropriate to aggregate NVB branches and report them as a single operating segment. No single customer accounts for more than 10 percent of revenues for the Company or NVB. NOTE B - ANNOUNCED PLAN OF MERGER As reported on the Company's Current Report on Form 8-K, filed with the Commission on April 11, 2007 (the "April Current Report"), the Company has entered into an Agreement and Plan of Merger dated April 10, 2007 (the "Merger Agreement") pursuant to which the Company would merge with and into Sterling Financial Corporation, a Washington corporation ("Sterling"), with Sterling being the surviving corporation. A copy of the Merger Agreement (together with certain other information regarding the proposed merger) is provided in the April Current Report. Consummation of the merger requires approval of the Company's shareholders, and is subject to certain other conditions specified in the Merger Agreement, including the receipt of all necessary regulatory approvals and the satisfaction of other closing conditions that are customary for such transactions. A special meeting of the Company shareholders was held on July 31, 2007, and the principal terms of the Merger Agreement, including the proposed merger of the Company with and into Sterling, were approved by majority vote of the outstanding shares of the common stock of the ~~Company. On October 26, 2007, Sterling filed a Current Report on Form 8-K announcing~~Company outstanding at the end of the most recently concluded calendar year. Any Common Shares that ~~it appears unlikely that~~have been reserved but not issued as Options during any calendar year shall remain available for grant during any subsequent calendar year.

3.2. Additional Shares. If Options terminate for any other reason before being exercised, then the ~~pending merger will~~corresponding Common Shares shall again become available for Award under the Plan.

~~ARTICLE 4. ELIGIBILITY~~

4.1. General Rules. Only Key Employees (including, without limitation, independent contractors who are not members of the Board) shall be ~~completed during the fourth quarter of 2007. Sterling has revised its expectation~~eligible for ~~regulatory approval based upon recent conversations with the Federal Deposit Insurance Corporation (the "FDIC"). Sterling has been asked~~designation as Participants by the ~~FDIC~~Committee. All Outside Directors shall also be eligible to strengthen its internal regulatory compliance program to ensure that Sterling's infrastructure is keeping pace with its growth rate. The FDIC also informed Sterling that, at this time, it cannot advise Sterling when or if the pending application to merge Sterling Savings Bank with North Valley Bank will be approved. See "Announced Plan of Merger"receive Stock Awards described in ~~Item 2, on pages 15-16. 7~~ ~~NOTE C - INVESTMENT SECURITIES At September 30, 2007 and December 31, 2006, the amortized cost of securities and their approximate fair value were as follows (in thousands):~~
Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value --------- ---------- ---------- ---------- Available for sale securities: September 30, 2007 Obligations of U.S. government agencies $ 3,999 $ - $ (15) 3,984 Obligations of state and political subdivisions 20,683 466 (27) 21,122 Mortgage-backed securities 73,242 13 (2,173) 71,082 Corporate debt securities 6,001 - (439) 5,562 Equity securities 8,000 - (1,134) 6,866 --------- ---------- ---------- ---------- $ 111,925 $ 479 $ (3,788) $ 108,616 ========= ========== ========== ========== December 31, 2006 Obligations of U.S. government agencies $ 7,605 $ - $ (105) 7,500 Obligations of state and political subdivisions 21,957 643 (40) 22,560 Mortgage-backed securities 86,028 20 (2,824) 83,224 Corporate debt securities 5,998 7 (17) 5,988 Equity securities 15,040 26 (767) 14,299 --------- ---------- ---------- ---------- $ 136,628 $ 696 $ (3,753) $ 133,571 ========= ========== ========== ==========
Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value --------- ---------- ---------- ---------- Held to maturity securities: September 30, 2007 Mortgage-backed securities $ 52 $ (1) $ 51 ========= ========== ========== ========== December 31, 2006 Mortgage-backed securities $ 82 $ - $ (1) $ 81 ========= ========== ========== ==========
For the nine months ended September 30, 2007 and 2006, there were $17,000 and $16,000, respectively, in gross realized gains on sales or calls of available for sale securities. For the nine months ended September 30, 2007 and 2006, there were $53,000 and $19,000, respectively, in gross realized losses on sales or calls of available for sale securities. There were no sales or transfers of held to maturity securities for the three and nine months ended September 30, 2007 and 2006. At September 30, 2007 and December 31, 2006, securities having fair value amounts of approximately $67,555,000 and $81,258,000 were pledged to secure public deposits, short-term borrowings, treasury, tax and loan balances and for other purposes required by law or contract. Investment securitiesArticle 8.

4.2, Incentive Stock Options. Only Key Employees who are evaluated for other-than-temporary impairment on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in their value below amortized cost is other-than-temporary. Management utilizes criteria such as the magnitude and duration of the decline and the intent and abilitycommon-law employees of the Company, ~~to retain its investment in~~a Parent or a Subsidiary shall be eligible for the ~~issues for~~grant of ISOs. In addition, a period of time sufficient to allow for an anticipated recovery in fair value, in addition to the reasons underlying the decline, to determine whether the loss in value is other-than-temporary. The term "other-than-temporary" is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greaterKey Employee who owns more than ~~the carrying value~~ten percent (10%) of the ~~investment. Once a decline in value is determined to be other-than-temporary, the value~~total combined voting power of all classes of outstanding stock of the ~~security is reduced~~Company or any of its Parents or Subsidiaries shall not be eligible for the grant of an ISO unless the requirements set forth in section 422(c)(5) of the Code are satisfied.

~~ARTICLE 5.OPTIONS~~

5.1. Stock Option Agreement. Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and ~~a corresponding charge~~the Company. Such Option shall be subject to ~~earnings is recognized. At September 30, 2007,~~all applicable terms of the ~~Company held $89,478,000 of available for sale investment securities in an unrealized loss position of which $5,965,000 were in an unrealized loss position for less than twelve months~~Plan and ~~$83,513,000 were in an unrealized loss position and had been in an unrealized loss position for twelve months or 8~~ more. Management periodically evaluates each investment security for other-than-temporary impairment, relying primarily on industry analyst reports, observation of market conditions and interest rate fluctuations. Management has the ability and intent to hold securities with established maturity dates until recovery of fair value, which may be ~~at maturity, and believes it will be able~~subject to ~~collect all amounts due according to~~any other terms that are not inconsistent with the contractual terms for all of the underlying investment securities; therefore, management does not consider these investments to be other-than-temporarily impaired. Included in the above securities at September 30, 2007 are 100,000 shares of FNMA, Series M perpetual preferred stock. The coupon rate is fixed at 4.75% with a taxable-equivalent yield of 6.31%. The securities are owned at par, or $50.00 per share, for a total investment of $5,000,000 and an unrealized loss of $1,035,000 at September 30, 2007 as compared to $724,000 at December 31, 2006. The securities are callable at par on June 10, 2008. The market value per share as of September 30, 2007 was $39.65 compared to $42.76 per share at December 31, 2006. At September 30, 2007, these securities had been in a loss position for approximately 51 months. Management carefully evaluated the FNMA preferred stock to determine whether the decline in fair value below book value of these securities is other-than-temporary. Among other items, management reviewed relevant accounting literature which included Statement of Financial Accounting Standards ("SFAS") No. 115, Statement of Auditing Standard ("SAS") 92, and Staff Accounting Bulletin ("SAB") No. 59. In conducting this assessment, management evaluated a number of factorsPlan, including but not limited ~~to: o How far fair value has declined below book value o How long~~to rights of repurchase and rights of first refusal. The Stock Option Agreement shall specify whether the ~~decline in fair value has existed o~~Option is an ISO or NSO. The ~~financial condition~~provisions of the issuer o Rating agency changes on the issuer o Management's intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value Based on this evaluation, management concluded that these securities were not deemed to be other-than-temporarily impaired. Management's assessment weighed heavily on its intent and ability to hold the securities to recovery, normal market fluctuations during this holding period, FNMA's response to its weaker financial condition, and analysis of FNMA by rating agencies and investment bankers. NOTE D - STOCK-BASED COMPENSATIONvarious Stock Option ~~Plans At September 30, 2007,~~Agreements entered into under the ~~Company had three shareholder approved stock-based compensation plans: the North Valley Bancorp 1989 Director~~Plan need not be identical. A Stock Option ~~Plan,~~Agreement may provide that new Options will be granted automatically to the ~~1998 Employee Stock Incentive Plan and~~Optionee when he or she exercises the ~~1999 Director~~prior Options.

5.2. Number of Shares. Each Stock Option ~~Plan. The Plans do not~~Agreement shall specify the number of Common Shares subject to the Option and shall provide for the ~~settlement~~adjustment of ~~awards~~such number in ~~cash and new shares are issued upon exercise~~accordance with Article 7.

5.3. Exercise Price. Each Stock Option Agreement shall specify the Exercise Price; provided that the Exercise Price of an ISO shall in no event be less than one hundred percent (100%) of the ~~options. The shares available for grant may be granted to anyone eligible to participate in the plans. All options granted under the Employee plan had an exercise price equal to the market value~~Fair Market Value of ~~the underlying common stock~~a Common Share on the date ~~granted~~of grant. In the case of a NSO, a Stock Option Agreement may specify an Exercise Price that varies in accordance with a predetermined formula while the NSO is outstanding.

5.4. Exercisability and Term. Each Stock Option Agreement shall specify the ~~exercise price must be paid~~date when all or any installment of the Option is to become exercisable. The Stock Option Agreement shall also specify the term of the Option; provided that the term of an ISO shall in ~~full at the time the option is exercised. The options under the plans expire on dates determined by the Board of Directors, but not later than~~no event exceed ten (10) years from the date of grant. ~~The vesting period is generally four years; however~~A Stock Option Agreement may provide for accelerated exercisability in the ~~vesting period can be modified~~event of the Optionee’s death, disability or retirement or other events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee’s service, subject to compliance with section 422 of the Code in the case of a Stock Option Agreement for an ISO but solely at the discretion of the ~~Company's Board~~Committee in the case of ~~Directors. Outstanding~~a Stock Option Agreement for a NSO.

          5.5.          Effect of Change in Control. The Committee may determine, at the time of granting an Option or thereafter, that such Option shall become fully exercisable as to all Common Shares subject to such Option in the event that a Change in Control occurs with respect to the Company.
          5.6.          Modification or Assumption of Options. Within the limitations of the Plan, the Committee may modify, extend or assume outstanding options or may accept the cancellation of outstanding options (whether granted by the Company or by another issuer) in return for the grant of new options for the same or a different number of shares and at the same or a different exercise price. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, alter or impair his or her rights or obligations under such Option.
ARTICLE 6.PAYMENT FOR OPTION SHARES
          6.1.          General Rule. The entire Exercise Price for the Common Shares issued upon exercise of Options shall be payable in cash at the time when such Common Shares are purchased, except as follows:
(a)          In the case of an ISO granted under the Plan, payment shall be made only pursuant to the express provisions of the applicable Stock Option Agreement. The Stock Option Agreement may specify that payment may be made in any form(s) described in this Article 6.
(b)          In the case of a NSO, the Committee may at any time accept payment in any form(s) described in this Article 6.
          6.2.          Surrender of Stock. To the extent that this Section 6.2 is applicable, payment for all or any part of the Exercise Price may be made with Common Shares which have already been owned by the Optionee for such duration as shall be specified by the Committee. Such Common Shares shall be valued at their Fair Market Value on the date when the new Common Shares are purchased under the ~~plans are exercisable until their expiration. Total options~~Plan.
          6.3.          Exercise/Sale. To the extent that this Section 6.3 is applicable, payment may be made by the delivery (on a form prescribed by the Company) of ~~2,554,281 were authorized under~~an irrevocable direction to a securities broker approved by the Company to sell Common Shares and to deliver all ~~plans at September 30, 2007. Under the terms~~or part of the ~~Merger Agreement described~~sales proceeds to the Company in ~~Note B above,~~payment of all ~~outstanding options will become fully vested and exercisable upon consummation~~or part of the ~~proposed merger. Stock Option Compensation There were no options grants~~Exercise Price and any withholding taxes.
          6.4.          Exercise/Pledge. To the extent that this Section 6.4 is applicable, payment may be made by the delivery (on a form prescribed by the Company) of an irrevocable direction to pledge Common Shares to a securities broker or lender approved by the Company, as security for a loan, and to deliver all or part of the loan proceeds to the Company in payment of all or part of the ~~three month period ended September 30, 2007. For~~Exercise Price and any withholding taxes.
          6.5.          Cashless Exercise and Other Forms of Payment. To the ~~three month period ended September 30, 2006, 13,000 options were granted at~~extent that this Section 6.5 is applicable, payment may be made in any other form that is consistent with applicable laws, regulations and rules, including but not limited to an election by the Optionee (on a ~~weighted average grant date fair~~form prescribed by the Company) to exercise the Options by having the Company withhold Common Shares (having a value ~~of $2.96. For~~equal to the three month periods ended September 30, 2007 and 2006, the compensation expense recognized for stock option compensation was $43,000 and $41,000, respectively. Director stock grant expense for the three month periods ended September 30, 2007 and 2006 was $(23,000) and $28,000, respectively. The recognized tax benefit for stock option compensation expense was $6,000 for the three month period ended September 30, 2007. No tax benefit was recognized for stock option compensation expense for the three month period ended September 30, 2006. At September 30, 2007,Exercise Price) from the total ~~unrecognized compensation expense related to stock-based awards 9~~ ~~granted to employees under~~Common Shares that otherwise would be received by the Company's stock option plans was $424,000. This expense will be amortized on a straight-line basis over a weighted average period of approximately 1.5 years and will be adjusted for subsequent changes in estimated forfeitures. Stock Option Activity Under the Company's stock option plans as of September 30, 2007, 1,158,149 sharesOptionee upon exercise of the ~~Company's common stock are available for future grants to directors and employees~~Options.

ARTICLE 7.PROTECTION AGAINST DILUTION
          7.1.          Adjustments. In the event of a subdivision of the ~~Company. Under the Director Plan, options may not be granted at~~outstanding Common Shares, a ~~price less~~declaration of a dividend payable in Common Shares, a declaration of a dividend payable in a form other than 85% of fair market value at the date of the grant. Under the Employee Plan, options may not be granted at a price less than the fair market value at the date of the grant. Under both plans, options may be exercised over a ten year term and vest ratably over four years from the date of the grant. A summary of outstanding stock options follows:
Weighted Weighted Average Average Remaining Exercise Aggregate Exercise Contractual Price Intrinsic Shares Price Term Range Value ($000) ------------------------------------------------------------------- Outstanding at January 1, 2007 778,712 $ 9.77 3.8 years $5.36 - 19.86 Granted 63,613 20.41 N/A $20.03 - 24.75 Exercised (70,550) 8.83 N/A $5.36 - 20.62 Expired or Forfeited (9,231) 19.50 N/A $17.09 - 20.62 ------------------------------------------------------------------- Outstanding at September 30, 2007 762,544 $ 10.63 3.8 years $5.36 - 24.75 $ 9,283 ------------------------------------------------------------------- Fully vested and exercisable at September 30, 2007 658,181 $ 9.33 3.0 years $5.36 - 24.75 $ 8,866 =================================================================== Options expected to vest 104,363 $ 18.85 8.6 years $15.72 - 24.75 $ 417 ===================================================================
The aggregate intrinsic value of outstanding, fully vested and exercisable and expected to vest options are calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company's common stock as of September 30, 2007. The intrinsic value of exercised options is calculated as the difference between exercise price of the underlying awards and the quoted price of the Company's common stock at the date of exercise. The intrinsic value of options exercised during the three months ended September 30, 2007 and 2006 totaled $93,000 and $177,000, respectively. NOTE E - COMPREHENSIVE INCOME Comprehensive income includes net income and other comprehensive income or loss. The Company's only sources of other comprehensive income (loss) are unrealized gains and losses on available for sale investment securities and adjustments to the minimum pension liability. Reclassification adjustments resulting from gains or losses on investment securitiesCommon Shares in an amount that were realized and included in net income of the current period that also had been included in other comprehensive income (loss) as unrealized holding gains or losses in the period in which they arose are excluded from comprehensive income in the current period. The Company's total comprehensive income was as follows:
(in thousands) Three months ended September 30, Nine months ended September 30, 2007 2006 2007 2006 ------------- ------------ ------------- ------------ Net income $ 2,220 $ 2,919 $ 6,144 $ 7,342 Other comprehensive income (loss), net of tax: Holding gain (loss) arising during period 292 1,885 (127) 451 Reclassification adjustment - 9 (21) (2) ------------- ------------ ------------- ------------ Total comprehensive income $ 2,512 $ 4,813 $ 5,996 $ 7,791 ============= ============ ============= ============
10 NOTE F - EARNINGS PER SHARE Basic earnings per share are computed by dividing net income by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if options or other contracts to issue common stock were exercised and converted into common stock. There was no difference in the numerator, net income, used in the calculation of basic earnings per share and diluted earnings per share. The denominator used in the calculation of basic earnings per share and diluted earnings per share for the three and nine month periods ended September 30, 2007 and 2006 is reconciled as follows (in thousands, except per share amounts):
Three months ended September 30, Nine months ended September 30, 2007 2006 2007 2006 --------- --------- ----------- ----------- Calculation of basic earnings per share: Numerator - net income $ 2,220 $ 2,919 $ 6,144 $ 7,342 Denominator - weighted average common shares outstanding 7,366 7,277 7,355 7,411 --------- --------- ----------- ---------- Basic earnings per share $ 0.30 $ 0.40 $ 0.84 $ 0.99 ========= ========= =========== ========== Calculation of diluted earnings per share: Numerator - net income $ 2,220 $ 2,919 $ 6,144 $ 7,342 Denominator: Weighted average common shares outstanding 7,366 7,277 7,355 7,411 Dilutive effect of outstanding options 271 253 293 280 --------- --------- ----------- ---------- Weighted average common shares outstanding and common stock equivalents 7,637 7,530 7,648 7,691 --------- --------- ----------- ---------- Diluted earnings per share $ 0.29 $ 0.39 $ 0.80 $ 0.95 ========= ========= =========== ==========
~~NOTE G - PENSION PLAN BENEFITS The Company~~ has a supplemental retirement plan for key executives and a supplemental retirement plan for certain retired key executives and directors. These plans are nonqualified defined benefit plans and are unsecured. Total contributions paid for the three months ended September 30, 2007 and 2006 are $62,000 and $141,000, respectively. Components of net periodic benefit cost for the Company's supplemental nonqualified defined benefit plans for the three and nine months ended September 30, 2007 and 2006 are presented in the following table (in thousands):
Three months ended September 30, Nine months ended September 30, 2007 2006 2007 2006 --------- --------- ----------- ----------- Components of net periodic benefits cost: Service cost $ 118 $ 123 $ 351 $ 367 Interest cost 63 67 189 201 Amortization of net obligation at transition - - - - Prior service amortization 7 8 23 24 Recognized net actuarial loss 8 14 24 44 --------- --------- ----------- ---------- Total components of net periodic cost $ 196 $ 212 $ 587 $ 636 ========= ========= =========== ==========
NOTE H - COMMITMENTS AND CONTINGENCIES The Company is involved in legal actions arising from normal business activities. Management, based upon the advice of legal counsel, believes that the ultimate resolution of all pending legal actions will not have a material effect on the ~~Company's financial position~~price of Common Shares, a combination or ~~results~~consolidation of the outstanding Common Shares (by reclassification or otherwise) into a lesser number of Common Shares, a recapitalization, a spinoff or a similar occurrence, the Committee shall make such adjustments as it, in its ~~operations~~sole discretion, deems appropriate in one or more of:
(a)          The number of Options available for future Awards under Article 3;
(b)          The number of Common Shares covered by each outstanding Option; or
(c)          The Exercise Price under each outstanding Option.
          Except as provided in this Article 7, a Participant shall have no rights by reason of any issue by the Company of stock of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of stock of any class, the payment of any stock or other dividend or any other increase or decrease in the number of shares of stock of any class.
          7.2.          Reorganizations. In the event that the Company is a party to a merger or other reorganization, outstanding Options and Stock Awards shall be subject to the agreement of merger or reorganization. Such agreement may provide (by way of example) for the assumption of outstanding Awards by the surviving corporation or its parent, for their continuation by the Company (if the Company is a surviving corporation), for accelerated vesting, or for settlement in cash ~~flows. The~~or other consideration.
ARTICLE 8.PAYMENT OF DIRECTOR’S FEES IN SECURITIES
          8.1.          Effective Date. No provision of this Article 8 shall be effective unless and until the Board has determined to implement such provision.
          8.2.          Receipt of Stock Awards. An Outside Director shall be entitled to receive a Stock Award of nine hundred (900) shares of Common Stock as part of his or her annual retainer payment from the Company. Such Stock Awards shall be granted as prescribed by the Board under the Plan. Such an Award shall be fully vested when granted to the Outside Director. In the event the shares of Common Stock shall be changed into or exchanged for a different number or kind of shares of stock, or other securities of the Company ~~was contingently liable under standby letters~~or of ~~credit issued on behalf~~another corporation (whether by reason of ~~its customers in~~reorganization, merger, consolidation, recapitalization, reclassification, split-up, combination of shares, or otherwise), or if the ~~amount~~number of ~~$9,992,000 and $13,067,000 at September 30, 2007 and December 31, 2006. At September 30, 2007, commercial and consumer lines~~shares of credit and real estate loans of approximately $76,953,000 and $144,177,000 were undisbursed. At December 31, 2006, commercial and consumer lines of credit and real estate loans of approximately $88,061,000 and $145,034,000 were undisbursed. Loan commitments are typically contingent uponCommon Stock shall be increased through the ~~borrower meeting certain financial and other covenants and such commitments typically have fixed expiration dates and require~~ payment of a ~~fee. As many~~stock dividend, the Board shall substitute for or add to each share of ~~these commitments are expected~~Common Stock theretofore appropriated or thereafter subject or which may become subject to ~~expire~~a Stock Award under this Section 8.2, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed, or for which each share shall be exchanged, or to which each such share shall be entitled, as the case may be. Such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. No right to fractional shares of Common Stock shall result from any adjustment in Stock Awards pursuant to this Section 8.2. In case of any such adjustment, the shares will be rounded down to the nearest whole share.
          8.3.         Number of Stock Awards. The number of Common Shares available to be granted to Outside Directors as Stock Awards shall equal the number of Common Shares to be issued to such Outside Directors.

ARTICLE 9.LIMITATION ON RIGHTS
          9.1.          Retention Rights. Neither the Plan nor any Award granted under the Plan shall be deemed to give any individual a right to remain an employee, consultant or director of the Company, a Parent or a Subsidiary. The Company and its Parents and Subsidiaries reserve the right to terminate the service of any employee, consultant or director at any time, and for any reason, subject to applicable laws, the Company’s certificate of incorporation and Bylaws and a written employment agreement (if any).
          9.2.          Shareholders’ Rights. A Participant shall have no dividend rights, voting rights or other rights as a shareholder with respect to any Common Shares covered by his or her Award prior to the issuance of a stock certificate for such Common Shares.
          9.3.          Regulatory Requirements. Any other provision of the Plan notwithstanding, the obligation of the Company to issue Common Shares under the Plan shall be subject to all applicable laws, rules and regulations and such approval by any regulatory body as may be required. The Company reserves the right to restrict, in whole or in part, the delivery of Common Shares pursuant to any Award prior to the satisfaction of all legal requirements relating to the issuance of such Common Shares, to their registration, qualification or listing or to an exemption from registration, qualification or listing.
ARTICLE 10.LIMITATION ON PAYMENTS
          10.1.        Basic Rule. Any provision of the Plan to the contrary notwithstanding, in the event that the independent registered public accounting firm most recently selected by the Board (the “Registered Public Accounting Firm”) determine that any payment or transfer by the Company under the Plan to or for the benefit of a Participant (a “Payment”) would be nondeductible by the Company for federal income tax purposes because of the provisions concerning “excess parachute payments” in section 280G of the Code, then the aggregate present value of all Payments shall be reduced (but not below zero) to the Reduced Amount; provided that the Committee, at the time of making an Award under this Plan or at any time thereafter, may specify in writing that such Award shall not be so reduced and shall not be subject to this Article 10. For purposes of this Article 10, the “Reduced Amount” shall be the amount, expressed as a present value, which maximizes the aggregate present value of the Payments without ~~being drawn~~causing any Payment to be nondeductible by the Company because of section 280G of the Code.
          10.2.         Reduction of Payments. If the Registered Public Accounting Firm determine that any Payment would be nondeductible by the Company because of section 280G of the Code, then the Company shall promptly give the Participant notice to that effect and a copy of the detailed calculation thereof and of the Reduced Amount, and the Participant may then elect, in his or her sole discretion, which and how much of the Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount) and shall advise the Company in writing of his or her election within ten (10) days of receipt of notice. If no such election is made by the Participant within such ten (10) day period, then the Company may elect which and how much of the Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount) and shall notify the Participant promptly of such election. For purposes of this Article 10, present value shall be determined in accordance with section 280G(d)(4) of the Code. All determinations made by the Registered Public Accounting Firm under this Article 10 shall be binding upon the ~~total commitments do not necessarily 11~~ ~~represent future cash requirements. The~~ Company ~~evaluates each potential borrower~~ and the ~~necessary collateral on~~Participant and shall be made within sixty (60) days of the date when a Payment becomes payable or transferable. As promptly as practicable following such determination and the elections hereunder, the Company shall pay or transfer to or for the benefit of the Participant such amounts as are then due to him or her under the Plan and shall promptly pay or transfer to or for the benefit of the Participant in the future such amounts as become due to him or her under the Plan.

          10.3.         Overpayments and Underpayments. As a result of uncertainty in the application of section 280G of the Code at the time of an ~~individual basis. Collateral varies, but may include real property, bank deposits, debt securities, equity securities~~initial determination by the Registered Public Accounting Firm hereunder, it is possible that Payments will have been made by the Company which should not have been made (an “Overpayment”) or ~~business~~that additional Payments which will not have been made by the Company could have been made (an “Underpayment”), consistent in each case with the calculation of the Reduced Amount hereunder. In the event that the Registered Public Accounting Firm, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or ~~personal assets. Standby letters~~the Participant which the Registered Public Accounting Firm believe has a high probability of ~~credit are conditional commitments written~~success, determine that an Overpayment has been made, such Overpayment shall be treated for all purposes as a loan to the Participant which he or she shall repay to the Company, together with interest at the applicable federal rate provided in section 7872(f)(2) of the Code; provided, however, that no amount shall be payable by the Participant to the Company if and to the extent that such payment would not reduce the amount which is subject to taxation under section 4999 of the Code. In the event that the Registered Public Accounting Firm determine that an Underpayment has occurred, such Underpayment shall promptly be paid or transferred by the Company to ~~guarantee~~or for the ~~performance~~benefit of ~~a customer~~the Participant, together with interest at the applicable federal rate provided in section 7872(f)(2) of the Code.
          10.4.         Related Corporations. For purposes of this Article 10, the term “Company” shall include affiliated corporations to ~~a third party. These guarantees are issued primarily relating to inventory purchases~~the extent determined by the Company's commercial customers and such guarantees are typically short term. Credit risk is similar to that involved in extending loan commitments to customers and the Company, accordingly, uses evaluation and collateral requirements similar to those for loan commitments. Virtually all of such commitments are collateralized. The fair value of the liability related to these standby letters of credit, which represents the fees received for issuing the guarantees, was not significant at September 30, 2007 and December 31, 2006. The Company recognizes these fees as revenues over the term of the commitment or when the commitment is used. Loan commitments and standby letters of credit involve, to varying degrees, elements of credit and market risk in excess of the amounts recognized in the balance sheet and do not necessarily represent the actual amount subject to credit loss. However, at September 30, 2007, no losses are anticipated as a result of these commitments. In management's opinion, a concentration exists in real estate-related loans which represent approximately 77% at September 30, 2007 and 78% at December 31, 2006 of the Company's loan portfolio. Although management believes such concentrations to have no more than the normal risk of collectibility, a substantial decline in the economy in general, or a decline in real estate values in the Company's primary market areas in particular, could have an adverse impact on collectibility of these loans. However, personal and business income represents the primary source of repayment for a majority of these loans. NOTE I - INCOME TAXES In June 2006, the FinancialRegistered Public Accounting Standards Board (FASB) issued Financial Accounting Standards Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes--an Interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statementsFirm in accordance with ~~FASB Statement No. 109, Accounting for Income Taxes. FIN 48 also prescribes~~section 280G(d)(5) of the Code.
ARTICLE 11.WITHHOLDING TAXES
          11.1.         General. To the extent required by applicable federal, state, local or foreign law, a ~~recognition threshold and measurement standard~~Participant or his or her successor shall make arrangements satisfactory to the Company for the ~~financial statement recognition~~satisfaction of any withholding tax obligations that arise in connection with the Plan. The Company shall not be required to issue any Common Shares or make any cash payment under the Plan until such obligations are satisfied.
          11.2.         Share Withholding. A Participant may satisfy all or part of his or her withholding or income tax obligations by having the Company withhold all or a portion of any Common Shares that otherwise would be issued to him or her or by surrendering all or a portion of any Common Shares that he or she previously acquired. Such Common Shares shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash. Any payment of taxes by assigning Common Shares to the Company may be subject to restrictions.
ARTICLE 12.ASSIGNMENT OR TRANSFER OF AWARDS
          12.1.         General. Except as provided in Article 11 or the Award agreement, an Award granted under the Plan shall not be anticipated, assigned, attached, garnished, optioned, transferred or made subject to any creditor’s process, whether voluntarily, involuntarily or by operation of law. Except as provided in the Award agreement, an Option may be exercised during the lifetime of the Optionee only by him or her or by his or her guardian or legal representative. This Article 12 shall not preclude a Participant from designating a beneficiary who will receive any outstanding Awards in the event of the Participant’s death, nor shall it preclude a transfer of Awards by will or by the laws of descent and ~~measurement~~distribution.
ARTICLE 13.FUTURE OF THE PLAN
          13.1.         Term of the Plan. The Plan, as originally adopted, shall become effective on February 27, 2008. The Plan shall remain in effect until it is terminated under Section 13.2, except that no ISOs shall be granted after February 26, 2018.

          13.2.         Amendment or Termination. The Board may, at any time and for any reason, amend or terminate the Plan. An amendment of the Plan shall be subject to the approval of the Company’s shareholders only to the extent required by applicable laws, regulations or rules. No Awards shall be granted under the Plan after the termination thereof. The termination of the Plan, or any amendment thereof, shall not affect any Award previously granted under the Plan.
ARTICLE 14.DEFINITIONS
          14.1.          “Award” means any award of an ~~income tax position taken~~Option or ~~expected~~a Stock Award under the Plan.
          14.2.         “Board” means the Company’s Board of Directors, as constituted from time to ~~be taken~~time.
          14.3.          “Change in ~~a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions. The Company has adopted FIN 48 as~~Control” means the occurrence of January 1, 2007. The Company previously recognized income tax positions based on management's estimate of whether it is reasonably possible that a liability has been incurred for unrecognized income tax benefits by applying FASB Statement No. 5, Accounting for Contingencies. The provisions of FIN 48 have been applied to all tax positionsany of the Company as of January 1, 2007. There was no cumulative effect of applying the provisions of FIN 48 and there was no significant effect on the Company's provision for income taxes for the three and nine months ended September 30, 2007. The Company recognizes interest accrued relatedfollowing events with respect to unrecognized tax benefits and accruals for penalties in income tax expense. NOTE J - NEW ACCOUNTING PRONOUNCEMENTS Fair Value Option for Financial Assets and Financial Liabilities In February 2007, the FASB issued Statement No. 159 (SFAS 159), The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115. This standard permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. The entity will report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option: (a) may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; (b) is irrevocable (unless a new election date occurs); and (c) is applied only to entire instruments and not to portions of instruments. The provisions of SFAS 159 are effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. Management did not elect to early adopt SFAS 159 and has not yet completed its evaluation of the impact that SFAS 159 will have. 12 Accounting for Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance Arrangements In March 2007, the Emerging Issues Task Force (EITF) reached a final consensus on Issue No. 06-10 (EITF 06-10), Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements. EITF 06-10 requires employers to recognize a liability for the post-retirement benefit related to collateral assignment split-dollar life insurance arrangements in accordance with SFAS No. 106 or APB Opinion No. 12. EITF 06-10 also requires employers to recognize and measure an asset based on the nature and substance of the collateral assignment split-dollar life insurance arrangement. The provisions of EITF 06-10 are effective for the Company ~~on January 1, 2008, with earlier application permitted, and are to be applied as~~or North Valley Bank: (i) a change in ~~accounting principle either through~~control of a ~~cumulative-effect adjustment~~nature that would be required to ~~retained earnings or other components~~be reported in response to Item 6(e) of ~~equity or net assets in the statement~~Schedule 14A of financial position as of the beginning of the year of adoption; or as a change in accounting principle through retrospective application to all prior periods. The Company does not expect adoption of EITF 06-10 to have a significant impact on its consolidated financial statements, results of operations or liquidity. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Certain statements in this Form 10-Q (excluding statements of fact or historical financial information) involve forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E ofRegulation 14A promulgated under the Securities Exchange Act of 1934, as amended ~~and are subject~~(the “Exchange Act”), or in response to any other form or report to the ~~"safe harbor" created by those sections. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those~~regulatory agencies or governmental authorities having jurisdiction over the Company or any stock exchange on which the Company’s shares are listed which requires the reporting of a change in control; (ii) any merger, consolidation or reorganization of the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors: competitive pressure in banking industry increases significantly; changes in the interest rate environment reduce margins; general economic conditions, either nationallyCompany or regionally, are less favorable than expected, resulting in, among other things, a deterioration in credit quality and an increase in the provision for possible loan losses; changes in the regulatory environment; changes in business conditions, particularly in the Northern California region; volatility of rate sensitive deposits; operational risks including data processing system failures or fraud; asset/liability matching risks and liquidity risks; the California power crises; the U.S. "war on terrorism" and military action by the U.S. in the Middle East, and changes in the securities markets. Critical Accounting Policies General North Valley ~~Bancorp's financial statements are prepared~~Bank in ~~accordance with accounting principles generally accepted in~~which the ~~United States~~Company or North Valley Bank does not survive; (iii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of ~~America (GAAP). The financial information contained within our financial statements is, to a significant extent, financial information that is based on measures~~transactions) of any assets of the ~~financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing~~Company or North Valley Bank having an expense, recovering an asset or relieving a liability. We use historical loss factors as one factor in determining the inherent loss that may be present in our loan and lease portfolio. Actual losses could differ significantly from the historical factors that we use. Another estimate that we use is related to the expected useful lives of our depreciable assets. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would impact our transactions could change. Allowance for Loan and Lease Losses The allowance for loan and lease losses is based on the probable estimated losses in our loan and lease portfolio. The allowance is based on two basic principles of accounting: (1) Statement of Financial Accounting Standards (SFAS) No. 5 "Accounting for Contingencies," which requires that losses be accrued when they are probable of occurring and estimable; and (2) SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," which requires that losses be accrued on impaired loans (as defined) based on the differences between theaggregate fair market value of ~~collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance. 13~~ ~~The allowance for loan and lease losses is established through a provision for loan and lease losses based on management's evaluation~~fifty percent (50%) of the risks inherent in the loan and lease portfolio. In determining levels of risk, management considers a variety of factors, including, but not limited to, asset classifications, economic trends, industry experience and trends, geographic concentrations, estimated collateral values, historical loan and lease loss experience, and the Company's underwriting policies. The allowance for loan and lease losses is maintained at an amount management considers adequate to cover losses in loans and leases receivable which are considered probable and estimable. While management uses the best information available to make these estimates, future adjustments to allowances may be necessary due to economic, operating, regulatory, and other conditions that may be beyond the Company's control. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan and lease losses. Such agencies may require the Company to recognize additions to the allowance based on judgments different from those of management. Share Based Compensation On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123R). Under SFAS No.123R, compensation expense is recognized for options granted prior to the adoption date in an amount equal to the fairtotal value of the unvested amounts over their remaining vesting period, based on the grant date fair value estimated in accordance with SFAS No. 123, "Accounting for Stock Based Compensation" and compensation expense for all share based payments granted after adoption based on the grant date fair values estimated in accordance with SFAS No. 123R. The estimates of the grant date fair values are based on an option pricing model that uses assumptions based on the expected option life, the level of estimated forfeitures, expected stock volatility and the risk-free interest rate. The calculation of the fair value of share based payments is by nature inexact, and represents management's best estimate of the grant date fair value of the share based payments. Goodwill Business combinations involving the Company's acquisition of the equity interests or net assets of another enterprise may give rise to goodwill. Goodwill represents the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed in transactions accounted for under the purchase method of accounting. Goodwill of $15,187,000 was recorded in the Company's acquisition of Yolo Community Bank. The value of goodwill is ultimately derived from the Company's ability to generate net earnings. A decline in net earnings could be indicative of a decline in the fair value of goodwill and result in impairment. For that reason, goodwill will be assessed for impairment at a reporting unit level at least annually. Management will conduct its annual assessment of impairment during the fourth quarter of 2007. Impairment of Investment Securities Investment securities are evaluated for other-than-temporary impairment on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in their value below amortized cost is other-than-temporary. Management utilizes criteria such as the magnitude and duration of the decline, the financial condition of the issuer, rating agency changes related to the issuer's securities and the intent and ability of the Bank to retain its investment in the issues for a period of time sufficient to allow for an anticipated recovery in fair value, in addition to the reasons underlying the decline, to determine whether the loss in value is other-than-temporary. The term "other-than-temporary" is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized. See Note C to Unaudited Condensed Consolidated Financial Statements in Item 1 - Financial Statements. 14 Announced Plan of Merger As reported on the Company's Current Report on Form 8-K, filed with the Commission on April 11, 2007 (the "April Current Report"), the Company has entered into an Agreement and Plan of Merger dated April 10, 2007 (the "Merger Agreement") pursuant to which the Company would merge with and into Sterling Financial Corporation, a Washington corporation ("Sterling"), with Sterling being the surviving corporation. A copy of the Merger Agreement (together with certain other information regarding the proposed merger) is provided in the April Current Report. Consummation of the merger requires approval of the Company's shareholders, and is subject to certain other conditions specified in the Merger Agreement, including the receipt of all necessary regulatory approvals and the satisfaction of other closing conditions that are customary for such transactions. A special meeting of the Company ~~shareholders was held on July 31, 2007, and~~or North Valley Bank, reflected in the ~~principal terms of the Merger Agreement, including the proposed merger~~most recent balance sheet of the Company ~~with and into Sterling, were approved by majority vote~~or North Valley Bank; (iv) a transaction whereby any “person” (as such term is used in the Exchange Act or any individual, corporation, partnership, trust or any other entity) is or becomes the beneficial owner, directly or indirectly, of securities of the ~~outstanding shares~~Company representing fifty percent (50%) or more of the ~~common stock~~combined voting power of the ~~Company. Even though~~Company’s then outstanding securities; (v) if in any one year period, individuals who at the ~~Company shareholders have approved the principal terms~~beginning of the Merger Agreement, the Company and Sterling can agree at any time, by mutual consent, not to complete the proposed merger. Also, either the Company or Sterling can decide, without the consent of the other, not to complete the merger in a number of situations as described in the Merger Agreement. For example,such period constitute the Board of Directors of the Company ~~can decide,~~cease for any reason to constitute at ~~its discretion, to terminate~~least a majority thereof, unless the ~~Merger Agreement (without Sterling's consent) if~~election, or the ~~average closing price~~nomination for election by the Company’s shareholders, of ~~Sterling's common stock during~~each new director is approved by a vote of a least three-quarters of the ~~20-day period just~~directors then still in office who were directors at the beginning of the period; (iv) a majority of the members of the Board of Directors of the Company in office prior to the ~~closing date~~happening of any event determines in its sole discretion that as a result of such event there has been a change in control.
          14.4.          “Code” means the Internal Revenue Code of 1986, as amended.
          14.5.          “Committee” means a committee of the ~~proposed merger is less than $28.23 per~~Board, as described in Article 2.
          14.6.          “Common Share” means one share and the Sterling common stock price has also declined from a price of $33.21 per share by 15 percent or more relative to a weighted average index of a certain group of financial institution holding companies (the "Index Group"). A copy of Exhibit F to the Merger Agreement, listing the financial institution holding companies currently comprising the Index Group, was filed with the Company's Form 10-Q Quarterly Report for the period ended June 30, 2007 as Exhibit 99.140 and is incorporated here by this reference. In the example given above, Sterling would have the option to avoid termination of the Merger Agreement by increasing the consideration to be paid to the Company shareholders, as provided in Section 8.1(j). The Merger Agreement provides that each share of Company common stock will be converted into 0.7364 shares of Sterling common stock and $2.80 in cash (subject to certain conditions). An adjustment in such consideration could be effected by an increase in the cash portion, the stock portion, or a combination of cash and stock, at Sterling's discretion. In short, a "Sterling Determination Price" of less than $28.23 on the "Determination Date," combined with a "Sterling Change Ratio" which is less than the "Index Change Ratio, as such terms are defined in Section 8.1(j) of the Merger Agreement, would trigger the possibility of a decision by the Company Board of Directors to give Sterling a notice of termination (as summarized in the example given above). On the last trading date immediately preceding the filing of this report, the closing price per share of Sterling common stock on the Nasdaq Global Select Market was below $28.23. However, it should be noted that the "Determination Date" will be the date that is ten (10) business days before the "Closing Date" and the "Closing Date" is defined in Section 9.1 of the Merger Agreement as the last day of the month following the receipt of all regulatory approvals. Applications for the required regulatory approvals have been submitted by Sterling and remain pending as of the date of this report. On October 26, 2007, Sterling announced that it appears unlikely that the pending merger between Sterling and the Company will be completed during the fourth quarter of 2007. Sterling has revised its expectation for regulatory approval of the merger based upon recent conversations between Sterling and the Federal Deposit Insurance Corporation (the "FDIC"). Sterling has been asked by the FDIC to strengthen its internal regulatory compliance program to ensure that Sterling's infrastructure is keeping pace with its growth rate. The FDIC has also informed Sterling that, at this time, it cannot advise Sterling when or if the pending application to merge Sterling Savings Bank with North Valley Bank will be approved. Sterling and the Company are currently in discussions regarding an amendment to the Merger Agreement to extend the date after which either party may terminate the Merger Agreement if the merger has not been consummated, which is currently November 30, 2007; however, no ~~agreement to amend the Merger Agreement has yet been reached. Any change in the market price of Sterling common stock prior to the completion of the proposed merger will affect the~~par value of the merger consideration that Company shareholders will receive upon completion of the merger. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in the businesses, operations and prospects of Sterling or the Company, and regulatory considerations, and many of these factors are beyond the control of Sterling or the Company. Therefore, Company shareholders and investors in the common stock of the Company are urged to review and carefully consider the provisions regarding merger consideration set forth in the Merger Agreement, including Section 8.1(j) of the 15 Merger Agreement, and the potential consequences of the changes that may occur in the stock trading prices for shares of Sterling common stock and the financial institutions listed in the Index Group, after the date of this report and prior to the "Closing Date." OverviewCompany.
          14.7.          “Company” means North Valley Bancorp, ~~(the "Company") is a bank holding company headquartered in Redding, California. The Company's wholly owned subsidiary, North Valley Bank ("NVB"), a state-chartered bank, operates out of~~or its main office located at 300 Park Marina Circle, Redding, CA 96001, with twenty-six commercial banking offices, including two supermarket branches, in Northern California. The Company's principal business consists of attracting deposits from the general public and using the funds to originate commercial, real estate and installment loans to customers, who are predominately small and middle market businesses and middle income individuals. The Company's primary source of revenues is interest income from its loan and investment securities portfolios. The Company is not dependent on any single customer for more than ten percent of its revenues. Earnings Summary Earnings Summary
Three months ended September 30, Nine months ended September 30, (in thousands except per share amounts) 2007 2006 2007 2006 -------------- --------------- ------------- --------------- Net interest income $ 10,245 $ 10,510 $ 30,674 $ 31,598 Provision for loan and lease losses 850 555 850 925 Noninterest income 3,350 3,598 9,654 9,411 Noninterest expense 9,481 9,859 30,443 29,755 Provision for income taxes 1,044 775 2,891 2,987 -------------- --------------- ------------- --------------- Net income $ 2,220 $ 2,919 $ 6,144 $ 7,342 ============== =============== ============= =============== Earnings Per Share Basic $ 0.30 $ 0.40 $ 0.84 $ 0.99 Diluted $ 0.29 $ 0.39 $ 0.80 $ 0.95 Annualized Return on Average Assets 0.97% 1.28% 0.92% 1.09% Annualized Return on Average Equity 11.15% 16.49% 10.55% 13.75%
Net income for the three and nine months ended September 30, 2007 decreased by $699,000, or 23.9%, and $1,198,000, or 16.3%, respectively, compared to the same periods in 2006. Diluted earnings per share decreased $0.10, or 25.6%, for the three months ended September 30, 2007 compared to the same period in 2006. Diluted earnings per share decreased $0.15, or 15.8%, for the nine months ended September 30, 2007 compared to the same period in 2006. For the three and nine month periods ended September 30, 2007, the Company had $26,000 and $1,086,000, respectively, of merger related expenses resulting from the pending merger with and into Sterling Financial Corporation, announced on April 11, 2007. Results for the three and nine month periods ended September 30, 2007, on a non-GAAP basis, excluding these non-core merger related expenses were net income of $2,237,000, or $0.29 per diluted share and $6,882,000, or $0.90 per diluted share, respectively. Net Interest Income Net interest income is the principal source of the Company's operating earnings and represents the difference between interest earned on loans and leases and other investments and interest paid on deposits and other borrowings. The amount of interest income and expense is affected by changes in the volume and mix of earning assets and interest-bearing deposits and borrowings, along with changes in interest rates. 16 The following table is a summary of the Company's net interest income, presented on a fully taxable equivalent (FTE) basis for tax-exempt investments included in earning assets, for the periods indicated: Schedule of Average Daily Balance and Average Yields and Rates (Dollars in thousands)
Three months ended September 30, 2007 Three months ended September 30, 2006 ------------------------------------- -------------------------------------- Average Yield/ Interest Average Yield/ Interest Balance Rate Amount Balance Rate Amount ------------- ------- ----------- ------------- ------ ------------- Assets Earning assets: Federal funds sold $ 977 4.87% $ 12 $ 1,517 5.23% $ 20 Investment securities: Taxable 90,946 4.30% 986 111,624 4.04% 1,136 Non-taxable (1) 20,748 6.73% 352 22,504 6.77% 384 FNMA preferred stock (1) 5,000 6.19% 78 12,041 6.52% 198 ------------- ------- ----------- ------------- ------ ------------- Total investments 116,694 4.81% 1,416 146,169 4.66% 1,718 Loans and leases (2)(3) 696,861 7.85% 13,790 651,367 7.86% 12,899 ------------- ------- ----------- ------------- ------ ------------- Total earning assets 814,532 7.41% 15,218 799,053 7.27% 14,637 Non earning assets 99,286 111,818 Allowance for loan and lease losses (8,786) (8,498) ------------- ------------- Total non-earning assets 90,500 103,320 Total assets $ 905,032 $ 902,373 ============= ============= Liabilities and Shareholders' Equity Interest bearing liabilities: Transaction accounts $ 156,414 0.51% $ 200 $ 185,339 0.31% $ 144 Savings and money market 189,995 1.92% 918 180,273 1.84% 835 Time certificates 224,154 4.68% 2,642 183,363 3.90% 1,803 Other borrowed funds 71,269 6.00% 1,078 86,195 5.59% 1,214 ------------- ------- ----------- ------------- ------ ------------- Total interest bearing liabilities 641,832 2.99% 4,838 635,170 2.50% 3,996 ------- ----------- ------ ------------- Demand deposits 174,123 187,497 Other liabilities 10,098 9,496 ------------- ------------- Total liabilities 826,053 832,163 ------------- ------------- Shareholders' equity 78,979 70,210 ------------- ------------- Total liabilities and shareholders' equity $ 905,032 $ 902,373 ============= ============= Net interest income $ 10,380 $ 10,641 =========== ============= Net interest spread 4.42% 4.77% ======= ====== Net interest margin 5.06% 5.28% ======= ======
- -------------------------------------------------------------------------------- (1) Tax-equivalent basis; non-taxable securities are exempt from federal taxation. (2) Loans on nonaccrual status have been included in the computations of averages balances. (3) Includes loan fees of $351 and $228 for the three months ended September 30, 2007 and 2006, respectively. 17 ~~Schedule of Average Daily Balance and Average Yields and Rates (Dollars in thousands)~~
Nine months ended September 30, 2007 Nine months ended September 30, 2006 ------------------------------------- -------------------------------------- Average Yield/ Interest Average Yield/ Interest Balance Rate Amount Balance Rate Amount ------------- ------- ----------- ------------- ------ ------------- Assets Earning assets: Federal funds sold $ 9,933 5.26% $ 391 $ 5,398 4.85% $ 196 Investment securities: Taxable 96,972 4.38% 3,177 120,769 4.09% 3,697 Non-taxable (1) 21,007 6.82% 1,072 23,121 6.90% 1,194 FNMA preferred stock (1) 7,175 6.45% 346 12,061 6.57% 593 ------------- ------- ----------- ------------- ------ ------------- Total investments 125,154 4.91% 4,595 155,951 4.70% 5,484 Loans and leases (2)(3) 670,469 7.90% 39,622 634,837 7.76% 36,862 ------------- ------- ----------- ------------- ------ ------------- Total earning assets 805,556 7.40% 44,608 796,186 7.14% 42,542 Non earning assets 99,603 111,019 Allowance for loan and lease losses (8,809) (8,155) ------------- ------------- Total non-earning assets 90,794 102,864 Total assets $ 896,350 $ 899,050 ============= ============= Liabilities and Shareholders' Equity Interest bearing liabilities: Transaction accounts $ 158,883 0.48% $ 574 $ 191,011 0.30% $ 435 Savings and money market 195,453 1.88% 2,746 179,297 1.38% 1,848 Time certificates 214,403 4.55% 7,304 175,399 3.53% 4,631 Other borrowed funds 63,551 6.06% 2,881 88,839 5.46% 3,631 ------------- ------- ----------- ------------- ------ ------------- Total interest bearing liabilities 632,290 2.86% 13,505 634,546 2.22% 10,545 ------- ----------- ------ ------------- Demand deposits 175,200 182,976 Other liabilities 10,970 10,131 ------------- ------------- Total liabilities 818,460 827,653 ------------- ------------- Shareholders' equity 77,890 71,397 ------------- ------------- Total liabilities and shareholders' equity $ 896,350 $ 899,050 ============= ============= Net interest income $ 31,103 $ 31,997 =========== ============= Net interest spread 4.54% 4.92% ======= ====== Net interest margin 5.16% 5.37% ======= ======
- -------------------------------------------------------------------------------- (1) Tax-equivalent basis; non-taxable securities are exempt from federal taxation. (2) Loans on nonaccrual status have been included in the computations of averages balances. (3) Includes loan fees of $1,076 and $909 for the nine months ended September 30, 2007 and 2006, respectively. Net interest income has been adjusted to a fully taxable equivalent basis (FTE) for tax-exempt investments included in earning assets. The decrease in net interest income (FTE) for the three and nine month periods ended September 30, 2007 resulted primarily from the change in the mix of interest bearing liabilities with the most significant increase in time deposits and the increase in average rate paid on all types of interest bearing liabilities somewhat offset by a shift in earning asset composition to higher yielding loans. Management is proactive in attempting to manage the Company's net interest margin, that is, trying to maximize current net interest income without placing an undue risk on future earnings. Currently the Company is retaining fixed-rate 15-and 30-year conforming residential mortgages to better diversify the portfolio. The Company expects to continue to sell the fixed rate jumbo mortgage loans it originates. While the yield on average earning assets, for the three and nine months ended September 30, 2007, increased by 14 and 26 basis points, respectively, from the same period last year, the rates paid on average interest bearing liabilities increased by 49 and 64 basis points, respectively. As a result, the Company's net interest margin (FTE) contracted 22 basis points to 5.06% for the three months ended September 30, 2007 from the 5.28% for the same period in 2006, and decreased 5 basis points from 5.11% for the linked quarter. The net interest margin for the nine months ended September 30, 2007 contracted 21 basis points to 5.16% from 5.37% for the same period in 2006. 18 Provision for Loan and Lease Losses The Company recorded $850,000 in provision for loan and lease losses for the three months ended September 30, 2007 to total $850,000 for the nine months ended September 30, 2007. The Company recorded $555,000 for the three months ended September 30, 2006 to total $925,000 for the nine months ended September 30, 2006. The process for determining allowance adequacy includes a comprehensive analysis of the loan portfolio. Factors in the analysis include size and mix of the loan portfolio, nonperforming loan levels, charge-off/recovery activity and other qualitative factors including economic activity. The decision to record additional provision reflects the growth in the loan portfolio and management's assessment of the overall adequacy of the allowance for loan and lease losses. Management believes that the current level of allowance for loan and lease losses as of September 30, 2007 of $9,602,000, or 1.34% of total loans and leases, is adequate at this time. The allowance for loan and lease losses was $8,831,000, or 1.34% of total loans and leases, at December 31, 2006. For further information regarding our allowance for loan and lease losses, see "Allowance for Loan and Lease Losses" on page 22. Noninterest Income The following table is a summary of the Company's noninterest income for the periods indicated:
Three months ended September 30, Nine months ended September 30, (In thousands) 2007 2006 2007 2006 ---------- -------- --------- -------- Service charges on deposit accounts $ 1,791 $ 1,723 $ 5,122 $ 4,806 Other fees and charges 939 902 2,797 2,334 Earnings on cash surrender value of life insurance policies 333 309 942 889 Gain on sale of loans 34 171 131 336 Other 253 493 662 1,046 ---------- -------- --------- -------- Total noninterest income $ 3,350 $ 3,598 $ 9,654 $ 9,411 ========== ======== ========= ========
Noninterest income decreased from $3,598,000 for the three months ended September 30, 2006 to $3,350,000 for the same period in 2007. Service charges on deposits increased $68,000 from the three months ended September 30, 2006 compared to the same period in 2007, driven by growth in the number of demand accounts. Other fees and charges increased $37,000 from $902,000 for the three months ended September 30, 2006 to $939,000 for the same period in 2007. The increase in fees is attributable to the increase in debit card activity, specifically, point-of-sale and foreign ATM use. These increases in service charges and fees were more than offset by a decrease in the gain on sales of mortgages of $137,000 to $34,000 for the three months ended September 30, 2007 compared to $171,000 for the same period in 2006 and a decrease in other income of $240,000 due primarily to a gain from a one-time sale of Company property in the third quarter of 2006 of $198,000. Noninterest income increased $243,000 to $9,654,000 for the nine months ended September 30, 2007 from $9,411,000 for the same period in 2006. The increase was primarily driven by the increase in service charges on deposit accounts of $316,000 and the increase in other fees and charges of $463,000 as discussed above, partially offset by the decrease in gain on sale of loans of $205,000 and other noninterest income of $384,000. 19 ~~Noninterest Expense The following table is a summary of the Company's noninterest expense for the periods indicated:~~
Three months ended September 30, Nine months ended September 30, (In thousands) 2007 2006 2007 2006 ------------ ------------ ----------- ------------ Salaries & employee benefits $ 5,306 $ 5,407 $ 16,340 $ 16,458 Occupancy expense 773 772 2,296 2,255 Data processing expenses 552 658 1,674 1,752 Equipment expense 499 533 1,552 1,610 Professional services 161 383 971 1,099 Marketing 266 270 794 826 ATM expense 237 229 742 656 Printing & supplies 143 151 531 509 Operations expense 215 244 651 655 Director 92 139 407 440 Amortization of intangibles 163 163 488 488 Postage 141 90 395 390 Merger expense 5 - 761 - Other 928 820 2,841 2,617 ------------ ------------ ----------- ------------ Total noninterest expense $ 9,481 $ 9,859 $ 30,443 $ 29,755 ============ ============ =========== ============
Noninterest expense totaled $9,481,000 for the three months ended September 30, 2007, compared to $9,859,000 for the same period in 2006. This represents a decrease of $378,000, or 3.8%, for the three months ended September 30, 2007 from the comparable period in 2006 due primarily to decreases in salaries and employee benefit expenses, data processing expenses as well as professional services expense. Salaries and benefits decreased by $101,000, or 1.9%, to $5,306,000 for the three months ended September 30, 2007 compared to $5,407,000 for the same period in 2006. Data processing expense decreased $106,000 for the three months ended September 30, 2007 compared to the same period in 2006, while professional services expenses decreased by $222,000 during the same period. The Company's ratio of noninterest expense to average assets decreased to 4.19% for the three months ended September 30, 2007 compared to 4.37% for the same period in 2006. The Company's efficiency ratio decreased slightly to 69.74% for the three months ended September 30, 2007 from 69.88% for the same period in 2006. Noninterest expense totaled $30,443,000 for the nine months ended September 30, 2007, compared to $29,755,000 for the same period in 2006. This represents an increase of $688,000, or 2.3%, for the nine months ended September 30, 2007 from the comparable period in 2006 due primarily to expenses related to the pending merger with Sterling Financial Corporation of $1,086,000, for the nine months ended September 30, 2007, $761,000 of which is included in the merger expense category and $325,000 of which is legal fees and auditing fees for the merger included in the professional services category in the above table. The merger related expenses were partially offset by decreases in professional services expenses of $128,000, salaries and employee benefit expenses of $118,000 and data processing expenses of $78,000. The Company's ratio of noninterest expense to average assets increased slightly to 4.53% for the nine months ended September 30, 2007 compared to 4.41% for the same period in 2006. The Company's efficiency ratio increased slightly to 75.49% for the nine months ended September 30, 2007 from 72.56% for the same period in 2006. Income Taxes The provision for income taxes for the three months ended September 30, 2007 was $1,044,000 compared to $775,000 for the same period in 2006. The provision for income taxes for the nine months ended September 30, 2007 was $2,891,000 compared to $2,987,000 for the same period in 2006. The effective income tax rate for state and federal income taxes was 32.0% for both the three and nine month periods ended September 30, 2007 compared to 21.0% and 28.9%, respectively, for the same periods in 2006. The increase in the effective income tax rate for 2007 compared to the same periods in 2006 is due to management, following the filing of the Company's 2005 tax returns during the third quarter of 2006, determined that the Company's estimated tax rate that had been applied to previously reported net income was overstated as a result of an underestimate of California job credits (which are determined subsequent to year-end through a process employed by the State of California) and an overestimate of the federal statutory tax rate (resulting from the Company's pre-tax income falling between the federal statutory rates of 34% and 35%). As a result, the 2006 tax provision was adjusted on a cumulative basis to reflect this change in accounting estimate. The difference in the effective tax rate compared to the statutory tax rate (approximately 42.05%) is primarily the result of the Company's investment in municipal securities, FNMA Preferred Stock, and Bank-owned life insurance policies whose income is exempt from Federal taxes. In addition, the Company receives special tax benefits from the State of California Franchise Tax Board for operating and providing loans, as well as jobs, in designated 'Enterprise Zones'. 20 Financial Condition as of September 30, 2007 As Compared to December 31, 2006 Total assets at September 30, 2007 increased $19,231,000, or 2.2% to $924,904,000, compared to $905,673,000 at December 31, 2006. Loans and leases increased $57,643,000, or 8.7%, to $717,436,000 at September 30, 2007 from $659,793,000 at December 31, 2006. Investment securities and federal funds sold decreased $35,655,000, or 24.7%, to $108,668,000 at September 30, 2007, compared to $144,323,000 at December 31, 2006. On the liability side, deposits decreased $13,849,000, or 1.8%, from December 31, 2006 to $736,439,000 at September 30, 2007. Loan and Lease Portfolio Loans and leases, the Company's major component of earning assets, increased during the first nine months of 2007 to $717,436,000 at September 30, 2007 from $659,793,000 at December 31, 2006. Commercial loans increased by $3,977,000, commercial real estate loans increased by $20,165,000, real estate - construction loans increased by $16,851,000, real estate - mortgage loans increased by $3,556,000, installment loans increased by $10,439,000 and other loans increased by $3,158,000. Direct financing leases decreased by $530,000 from December 31, 2006. The Company's average loan to deposit ratio was 93.6% for the quarter ended September 30, 2007 compared to 88.4% for the same period in 2006. The increase in the Company's average loan to deposit ratio is driven by an increase in total average loans of $45,494,000 while total average deposits increased by $8,214,000. (Dollars in thousands) September 30, December 31, 2007 2006 --------------- -------------- Commercial $ 82,099 $ 78,122 Real estate - commercial 283,488 263,323 Real estate - construction 230,050 213,199 Real estate - mortgage 44,043 40,487 Installment 38,390 27,951 Direct financing leases 1,455 1,985 Other 38,986 35,828 --------------- -------------- 718,511 660,895 Deferred loan fees, net (1,075) (1,102) Allowance for loan and lease losses (9,602) (8,831) --------------- -------------- $ 707,834 $ 650,962 =============== ============== Impaired, Nonaccrual, Past Due and Restructured Loans and Leases and Other Nonperforming Assets The Company considers a loan or lease impaired if, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. The measurement of impaired loans and leases is generally based on the present value of expected future cash flows discounted at the historical effective interest rate, except that all collateral-dependent loans and leases are measured for impairment based on the fair value of the collateral. At September 30, 2007, the recorded investment in loans and leases for which impairment had been recognized was approximately $3,359,000 compared to $24,000 at September 30, 2006. The increase was primarily due to one credit, which is a commercial building and a notice of default was filed. The loan is well-secured and no loss is anticipated. Of the 2007 balance, there was a related valuation allowance of $538,000. During the portion of the year that the loans and leases were impaired, the Company recognized interest income of approximately $5,000 for cash payments received in 2007. At December 31, 2006, the recorded investment in loans and leases for which impairment had been recognized was approximately $72,000. Of the 2006 balance, there was a related valuation allowance of $36,000. 21 For the year ended December 31, 2006, the average recorded investment in loans and leases for which impairment had been recognized was approximately $63,000. During the portion of the year that the loans and leases were impaired, the Company recognized interest income of approximately $9,000 for cash payments received in 2006. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest on loans is discontinued either when reasonable doubt exists as to the full and timely collection of interest or principal, or when a loan becomes contractually past due by 90 days or more with respect to interest or principal (except that when management believes a loan is well secured and in the process of collection, interest accruals are continued on loans deemed by management to be fully collectible). When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is probable. Interest accruals are resumed on such loans when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest. Nonperforming assets at September 30, 2007, and December 31, 2006, are summarized as follows:
September 30, December 31, 2007 2006 ------------- ------------ Nonaccrual loans and leases $ 3,359 $ 72 Loans and leases past due 90 days and accruing interest 8 403 Other real estate owned 902 902 ------------- ------------ Total nonperforming assets $ 4,269 $ 1,377 ============= ============ Nonaccrual loans and leases to total gross loans and leases 0.47% 0.01% Nonperforming loans and leases to total gross loans and leases 0.47% 0.07% Total nonperforming assets to total assets 0.46% 0.15%
~~Allowance for Loan and Lease Losses A summary of the allowance for loan and lease losses at September 30, 2007 and September 30, 2006 is as follows:~~
Nine months ended September 30, 2007 2006 ------------- --------------- Balance beginning of period $ 8,831 $ 7,864 Provision for loan and lease losses 850 925 Net (charge-offs) recoveries (79) 64 ------------- --------------- Balance end of period $ 9,602 $ 8,853 ============= =============== Allowance for loan and lease losses to total loans and leases 1.34% 1.33%
The allowance for loan and lease losses is established through a provision for loan and lease losses based on management's evaluation of the risks inherent in the loan and lease portfolio. In determining levels of risk, management considers a variety of factors, including, but not limited to, asset classifications, economic trends, industry experience and trends, geographic concentrations, estimated collateral values, historical loan and lease loss experience, and the Company's underwriting policies. While management uses the best information available to make these estimates, future adjustments to allowances may be necessary due to economic, operating, regulatory, and other conditions that may be beyond the Company's control. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the adequacy of the Company's allowance for loan and lease losses. Such agencies may require the Company to recognize additions to the allowance based on judgments different from those of management. 22 The allowance for loan and lease losses is comprised of two primary types of allowances: 1. Formula Allowance Formula allowances are based upon loan and lease loss factors that reflect management's estimate of the inherent loss in various segments of pools within the loan and lease portfolio. The loss factor is multiplied by the portfolio segment (e.g. multifamily permanent mortgages) balance to derive the formula allowance amount. The loss factors are updated periodically by the Company to reflect current information that has an effect on the amount of loss inherent in each segment. The formula allowance is adjusted for qualitative factors that are based upon management's evaluation of conditions that are not directly measured in the determination of the formula and specific allowance. The evaluation of inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits or historical performance of loan and lease portfolio segments. The conditions evaluated to determine the adjustment to the formula allowance at September 30, 2007 included the following, which existed at the balance sheet date: o General business and economic conditions effecting the Company's key lending areas o Real estate values and market trends in Northern California o Loan volumes and concentrations o Seasoning of the loan portfolio, including trends in past due and nonperforming loans o Status of the current business cycle o Specific industry or market conditions within portfolio segments o Model imprecision 2. Specific Allowance Specific allowances are established in cases where management has identified significant conditions or circumstances related to an individually impaired credit. In other words, these allowances are specific to the loss inherent in a particular loan. The amount for a specific allowance is calculated in accordance with SFAS No. 114, "Accounting By Creditors For Impairment Of A Loan." The $9,602,000 in allowance at September 30, 2007 reflects management's estimate of the inherent loss in various pools or segments in the portfolio, and includes adjustments for general economic conditions, trends in the portfolio and changes in the mix of the portfolio. Future provisions may be required and the ratio of the allowance for loan and lease losses to loans outstanding may increase. Experience across the financial services industry indicates that commercial business and income property loans may present greater risks than residential real estate loans, and therefore should be accompanied by suitably higher levels of reserves. Deposits Total deposits decreased $13,849,000, or 1.8%, to $736,439,000 at September 30, 2007 compared to $750,288,000 at December 31, 2006. Noninterest-bearing demand deposits decreased $24,385,000 or 12.5% from December 31, 2006, interest-bearing demand deposits decreased $8,977,000 or 5.6%, money market accounts decreased $2,660,000 or 2.4%, and savings decreased $9,081,000 or 10.4%, while certificates of deposits increased $31,254,000 or 15.8% from December 31, 2006. The Company experienced a shift in deposits to time certificates as time deposit rates increased. 23 September 30, December 31, 2007 2006 ------------- ------------- Noninterest-bearing demand $ 170,457 $ 194,842 Interest-bearing demand 151,962 160,939 Money market and savings 185,092 196,833 Time certificates 228,928 197,674 ------------- ------------- Total deposits $ 736,439 $ 750,288 ============= ============= Liquidity The objective of liquidity management is to ensure the continuous availability of funds to meet the demands of depositors and borrowers. Collection of principal and interest on loans and leases, the liquidations and maturities of investment securities, deposits with other banks, customer deposits and short term borrowings, when needed, are primary sources of funds that contribute to liquidity. Unused lines of credit from correspondent banks to provide federal funds of $25,000,000 as of September 30, 2007 were also available to provide liquidity. In addition, NVB is a member of the Federal Home Loan Bank ("FHLB") providing additional unused borrowing capacity of $44,180,000 secured by certain loans and investment securities as of September 30, 2007. The Company also has a line of credit with Federal Reserve Bank of San Francisco ("FRB") of $2,311,000 secured by first deeds of trust on eligible commercial real estate loans and leases. As of September 30, 2007, borrowings consisted of term borrowings of $25,000,000 and overnight borrowings of $40,590,000 outstanding with the FHLB, and $31,961,000 was outstanding in the form of subordinated debt issued by the Company. The Company manages both assets and liabilities by monitoring asset and liability mixes, volumes, maturities, yields and rates in order to preserve liquidity and earnings stability. Total liquid assets (cash and due from banks, federal funds sold, and available for sale investment securities) totaled $136,949,000 and $175,067,000 (or 14.8% and 19.3% of total assets) at September 30, 2007 and December 31, 2006, respectively. Core deposits, defined as demand deposits, interest bearing demand deposits, regular savings, money market deposit accounts and time deposits of less than $100,000, continue to provide a relatively stable and low cost source of funds. Core deposits totaled $639,241,000 and $673,303,000 at September 30, 2007 and December 31, 2006, respectively. In assessing liquidity, historical information such as seasonal loan demand, local economic cycles and the economy in general are considered along with current ratios, management goals and unique characteristics of the Company. Management believes the Company is in compliance with its policies relating to liquidity. Interest Rate Sensitivity The Company constantly monitors earning asset and deposit levels, developments and trends in interest rates, liquidity, capital adequacy and marketplace opportunities. Management responds to all of these to protect and possibly enhance net interest income while managing risks within acceptable levels as set forth in the Company's policies. In addition, alternative business plans and contemplated transactions are also analyzed for their impact. This process, known as asset/liability management, is carried out by changing the maturities and relative proportions of the various types of loans, investments, deposits and other borrowings in the ways prescribed above. The tool used to manage and analyze the interest rate sensitivity of a financial institution is known as a simulation model and is performed with specialized software built for this specific purpose for financial institutions. This model allows management to analyze three specific types of risks: market risk, mismatch risk, and basis risk. Market Risk Market risk results from the fact that the market values of assets or liabilities on which the interest rate is fixed will increase or decrease with changes in market interest rates. If the Company invests in a fixed-rate, long term security and then interest rates rise, the security is worth less than a comparable security just issued because the older security pays less interest than the newly issued security. If the security had to be sold before maturity, 24 then the Company would incur a loss on the sale. Conversely, if interest rates fall after a fixed-rate security is purchased, its value increases, because it is paying at a higher rate than newly issued securities. The fixed rate liabilities of the Company, like certificates of deposit and fixed-rate borrowings, also change in value with changes in interest rates. As rates drop, they become more valuable to the depositor and hence more costly to the Company. As rates rise, they become more valuable to the Company. Therefore, while the value changes when rates move in either direction, the adverse impacts of market risk to the Company's fixed-rate assets are due to rising rates and for the Company's fixed-rate liabilities, they are due to falling rates. In general, the change in market value due to changes in interest rates is greater in financial instruments that have longer remaining maturities. Therefore, the exposure to market risk of assets is lessened by managing the amount of fixed-rate assets and by keeping maturities relatively short. These steps, however, must be balanced against the need for adequate interest income because variable-rate and shorter-term assets generally yield less interest than longer-term or fixed-rate assets. Mismatch Risk The second interest-related risk, mismatch risk, arises from the fact that when interest rates change, the changes do not occur equally in the rates of interest earned and paid because of differences in the contractual terms of the assets and liabilities held. A difference in the contractual terms, a mismatch, can cause adverse impacts on net interest income. The Company has a certain portion of its loan portfolio tied to the national prime rate. If these rates are lowered because of general market conditions, e.g., the prime rate decreases in response to a rate decrease by the Federal Reserve Open Market Committee ("FOMC"), these loans will be repriced. If the Company were at the same time to have a large proportion of its deposits in long-term fixed-rate certificates, interest earned on loans would decline while interest paid on the certificates would remain at higher levels for a period of time until they mature. Therefore net interest income would decrease immediately. A decrease in net interest income could also occur with rising interest rates if the Company had a large portfolio of fixed-rate loans and securities that was funded by deposit accounts on which the rate is steadily rising. This exposure to mismatch risk is managed by attempting to match the maturities and repricing opportunities of assets and liabilities. This may be done by varying the terms and conditions of the products that are offered to depositors and borrowers. For example, if many depositors want shorter-term certificates while most borrowers are requesting longer-term fixed rate loans, the Company will adjust the interest rates on the certificates and loans to try to match up demand for similar maturities. The Company can then partially fill in mismatches by purchasing securities or borrowing funds from the FHLB with the appropriate maturity or repricing characteristics. Basis Risk The third interest-related risk, basis risk, arises from the fact that interest rates rarely change in a parallel or equal manner. The interest rates associated with the various assets and liabilities differ in how often they change, the extent to which they change, and whether they change sooner or later than other interest rates. For example, while the repricing of a specific asset and a specific liability may occur at roughly the same time, the interest rate on the liability may rise one percent in response to rising market rates while the asset increases only one-half percent. While the Company would appear to be evenly matched with respect to mismatch risk, it would suffer a decrease in net interest income. This exposure to basis risk is the type of interest risk least able to be managed, but is also the least dramatic. Avoiding concentration in only a few types of assets or liabilities is the bestsuccessor.
          14.8.         “Exchange Act” means of increasing the chance that the average interest received and paid will move in tandem. The wider diversification means that many different rates, each with their own volatility characteristics, will come into play. Net Interest Income and Net Economic Value Simulations To quantify the extent of all of these risks both in its current position and in transactions it might make in the future, the Company uses computer modeling to simulate the impact of different interest rate scenarios on net interest income and on net economic value. Net economic value or the market value of portfolio equity is defined as the difference between the market value of financial assets and liabilities. These hypothetical scenarios include both sudden and gradual interest rate changes, and interest rate changes in both directions. This modeling is the primary means the Company uses for interest rate risk management decisions. The hypothetical impact of sudden interest rate shocks applied to the Company's asset and liability balances are modeled quarterly. The results of this modeling indicate how much of the Company's net interest income and net economic value are "at risk" (deviation from the base level) from various sudden rate changes. 25 This exercise is valuable in identifying risk exposures. The results for the Company's most recent simulation analysis indicate that the Company's net interest income at risk over a one-year period and net economic value at risk from 2% shocks are within normal expectations for sudden changes and do not materially differ from those of December 31, 2006. For this simulation analysis, the Company has made certain assumptions about the duration of its non-maturity deposits that are important to determining net economic value at risk. Capital Resources The Company maintains capital to support future growth and dividend payouts while trying to effectively manage the capital on hand. From the depositor standpoint, a greater amount of capital on hand relative to total assets is generally viewed as positive. At the same time, from the standpoint of the shareholder, a greater amount of capital on hand may not be viewed as positive because it limits the Company's ability to earn a high rate of return on stockholders' equity (ROE). Stockholders' equity increased to $80,289,000 as of September 30, 2007, as compared to $75,491,000 at December 31, 2006. The increase was due to net income of $6,144,000, stock based compensation of $240,000 and stock option exercises of $1,010,000, partially offset by the increase in unrealized loss on available for sale securities of $148,000, and the cash dividends paid out in the amount of $2,208,000. Under current regulations, management believes that the Company meets all capital adequacy requirements and North Valley Bank was considered well capitalized at September 30, 2007 and December 31, 2006. The Company's and North Valley Bank's capital amounts and risk-based capital ratios are presented below.
To be Well Capitalized For Capital Adequacy Under Prompt Corrective Actual Purposes Action Provisions --------------------------------------------------------------------- Minimum Minimum Minimum Minimum Amount Ratio Amount Ratio Amount Ratio --------------------------------------------------------------------- Company As of September 30, 2007 Total capital (to risk weighted assets) $ 106,049 11.95% $ 70,995 8.00% N/A N/A Tier 1 capital (to risk weighted assets) $ 92,815 10.46% $ 35,493 4.00% N/A N/A Tier 1 capital (to average assets) $ 92,815 10.45% $ 35,527 4.00% N/A N/A As of December 31, 2006 Total capital (to risk weighted assets) $ 100,065 11.88% $ 67,384 8.00% N/A N/A Tier 1 capital (to risk weighted assets) $ 86,032 10.21% $ 33,705 4.00% N/A N/A Tier 1 capital (to average assets) $ 86,032 9.66% $ 35,624 4.00% N/A N/A North Valley Bank As of September 30, 2007 Total capital (to risk weighted assets) $ 103,928 11.75% $ 70,759 8.00% $ 88,449 10.00% Tier 1 capital (to risk weighted assets) $ 94,326 10.66% $ 35,394 4.00% $ 53,092 6.00% Tier 1 capital (to average assets) $ 94,326 10.63% $ 35,494 4.00% $ 44,368 5.00% As of December 31, 2006 Total capital (to risk weighted assets) $ 97,642 11.61% $ 67,281 8.00% $ 84,102 10.00% Tier 1 capital (to risk weighted assets) $ 88,811 10.56% $ 33,641 4.00% $ 50,461 6.00% Tier 1 capital (to average assets) $ 88,811 9.97% $ 35,631 4.00% $ 44,539 5.00%
26 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In management's opinion there has not been a material change in the Company's market risk profile for the nine months ended September 30, 2007 compared to December 31, 2006. Please see discussion under the caption "Interest Rate Sensitivity" on page 24. ITEM 4. CONTROLS AND PROCEDURES Disclosure Controls and Procedures. Disclosure controls and procedures are designed with the objective of ensuring that information required to be disclosed in reports filed by the Company under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Evaluation of Disclosure Controls and Procedures and Internal Control over Financial Reporting. The Company's management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2007. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective. An evaluation of any changes in the Company's internal control over financial reporting that occurred during the Company's fiscal quarter ended September 30, 2007 was carried out under the supervision and with the participation of the Company's Chief Executive Officer, Chief Financial Officer and other members of the Company's senior management group. The Company's Chief Executive Officer and Chief Financial Officer concluded that no change identified in connection with such evaluation has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART II - OTHER INFORMATION Item 1. Legal Proceedings There are no material legal proceedings pending against the Company or against any of its property. The Company, because of the nature of its business, is generally subject to various legal actions, threatened or filed, which involve ordinary, routine litigation incidental to its business. Some of the pending cases seek punitive damages in addition to other relief. Although the amount of the ultimate exposure, if any, cannot be determined at this time, the Company does not expect that the final outcome of threatened or filed suits will have a materially adverse effect on its consolidated financial position. Item 1A. Risk Factors There have been no material changes from risk factors as previously disclosed by the Company in its response to Item 1A of Part 1 of Form 10-K for the fiscal year ended December 31, 2006. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders As previously reported under PART II- OTHER INFORMATION Item 4 of the Form 10-Q filed for the period ended June 30, 2007. Item 5. Other Information None 27 Item 6. Exhibits 31 Rule 13a-14(a) / 15d-14(a) Certifications 32 Section 1350 Certifications 99.143 Park Marina Lease Extension Agreement dated July 30, 2007, between The McConnell Foundation and North Valley Bank 28 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. NORTH VALLEY BANCORP - -------------------- (Registrant) Date November 8, 2007 By: /s/ Michael J. Cushman - -------------------------------------------------- Michael J. Cushman President & Chief Executive Officer (Principal Executive Officer) /s/ Kevin R. Watson - -------------------------------------------------- Kevin R. Watson Executive Vice President & Chief Financial Officer (Principal Financial Officer & Principal Accounting Officer) 29 Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certifications I, Michael J. Cushman, certify that: 1. I have reviewed this quarterly report on Form 10-Q of North Valley Bancorp; 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 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 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 the registrant's board of directors: (a) All significant deficiencies and material weaknesses in the design or operation of internal control 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 8, 2007 /s/ Michael J. Cushman ------------------------------------------------- Michael J. Cushman, President and Chief Executive Officer (Principal Executive Officer) 30 Exhibit 31.2 Rule 13a-14(a)/15d-14(a) Certifications I, Kevin R. Watson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of North Valley Bancorp; 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 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 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 the registrant's board of directors: (a) All significant deficiencies and material weaknesses in the design or operation of internal control 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 8, 2007 /s/ Kevin R. Watson ------------------------------------------------- Kevin R. Watson, Executive Vice President & Chief Financial Officer (Principal Financial Officer & Principal Accounting Officer) 31 Exhibit 32 Section 1350 Certifications Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 with Respect to the North Valley Bancorp Quarterly Report on Form 10-Q for the Quarter ended September 30, 2007 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of North Valley Bancorp, a California corporation (the "Company"), does hereby certify that: 1. The Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 (the "Form 10-Q") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as ~~amended; and 2. Information contained~~amended.
          14.9.          “Exercise Price,” in the ~~Form 10-Q fairly presents,~~case of an Option, means the amount for which one Common Share may be purchased upon exercise of such Option, as specified in the applicable Stock Option Agreement.

          14.10.        “Fair Market Value” means the market price of Common Shares, determined by the Committee as follows:
(a)          If the Common Shares were traded over-the-counter on the date in question but were not classified as a national market issue, then the Fair Market Value shall be equal to the mean between the last reported representative bid and asked prices quoted by the Nasdaq system for such date;
(b)          If the Common Shares were traded over-the-counter on the date in question and were classified as a national market issue, then the Fair Market Value shall be equal to the last-transaction price quoted by the Nasdaq system for such date;
(c)          If the Common Shares were traded on a stock exchange on the date in question, then the Fair Market Value shall be equal to the closing price reported by the applicable composite transactions report for such date; and
(d)          If none of the foregoing provisions is applicable, then the Fair Market Value shall be determined by independent appraisals or as otherwise determined by the Committee in good faith on such basis as it deems appropriate.
          Whenever possible, the determination of Fair Market Value by the Committee shall be based on the prices reported in the Western Edition of The Wall Street Journal. Such determination shall be conclusive and binding on all ~~material respects, the financial condition and results of operations~~persons.
          14.11.     “ISO” means an incentive stock option described in section 422(b) of the Company. Dated: November 8, 2007 /s/ Michael J. Cushman -------------------------------------------- Michael J. Cushman PresidentCode.
          14.12.     “Key Employee” means (a) a common-law employee of the Company, a Parent or a Subsidiary, (b) an Outside Director and Chief Executive Officer (Principal Executive Officer) Dated: November 8, 2007 /s/ Kevin R. Watson -------------------------------------------- Kevin R. Watson Executive Vice President & Chief Financial Officer (Principal Financial Officer & Principal Accounting Officer)(c) a consultant or adviser who provides services to the Company, a Parent or a Subsidiary as an independent contractor.
          14.13.     “NSO” means a stock option not described in sections 422 or 423 of the Code.
          14.14.     “Option” means an ISO or NSO granted under the Plan and entitling the holder to purchase one Common Share.
          14.15.     “Optionee” means an individual or estate who holds an Option.
          14.16.     “Outside Director” shall mean a member of the Board who is not a common-law employee of the Company, a Parent or a Subsidiary.
          14.17.     “Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A ~~signed original~~corporation that attains the status of ~~this written statement required by Section 906 has been provided to~~a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date.
          14.18.     “Participant” means an individual or estate who holds an Award.
          14.19.     “Plan” means the North Valley Bancorp 2008 Stock Incentive Plan, as amended from time to time.
          14.20.     “Stock Award” means the award of a Common Share to an Outside Director.

          14.21.     “Stock Option Agreement” means the agreement between the Company and ~~will be retained by North Valley Bancorp~~an Optionee which contains the terms, conditions and ~~furnished~~restrictions pertaining to his or her Option.
          14.22.     “Subsidiary” means any corporation (other than the ~~Securities and Exchange Commission or its staff upon request. 32~~ ~~PROXY NORTH VALLEY BANCORP PROXY Proxy Solicited on Behalf~~Company) in an unbroken chain of corporations beginning with the Company, if each of the ~~Board of Directors of North Valley Bancorp for~~corporations other than the ~~Annual Meeting of Shareholders, December 20, 2007 The undersigned holder of Common Stock acknowledges receipt~~last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the Notice of Annual Meeting of Shareholders of North Valley Bancorp and the accompanying Proxy Statement dated November 26, 2007, and revoking any proxy heretofore given, hereby constitutes and appoints Michael J. Cushman and Kevin R. Watson, and each of them, each with fulltotal combined voting power of ~~substitution, as attorneys and proxies to represent and vote, as designated on the reverse side,~~ all ~~shares~~classes of ~~Common Stock of North Valley Bancorp (the "Corporation"), which the undersigned would be entitled to vote at the Annual Meeting of Shareholders~~stock in one of the ~~Corporation~~other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.
ARTICLE 15.EXECUTION
          To record the adoption of the Plan by the Board, the Company has caused its duly authorized officer to ~~be held in~~affix the Administrative Offices of North Valley Bancorp, 300 Park Marina Circle, Redding, California, on Thursday, December 20, 2007 at 4:00 p.m., or at any postponement or adjournment thereof, upon the matters set forth in the Notice of Annual Meetingcorporate name and Proxy Statement and upon such other business as may properly come before the meeting or any postponement or adjournment thereof. All properly executed proxies will be voted as indicated. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE DIRECTORS NOMINATED BY THE BOARD OF DIRECTORS AND "FOR" THE RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITOR. WHEN THE PROXY IS PROPERLY EXECUTED, SHARES REPRESENTED BY THE PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS GIVEN IN THE PROXY, SHARES REPRESENTED BY THE PROXY WILL BE VOTED "FOR" THE ELECTION OF THE DIRECTORS NOMINATED BY THE BOARD OF DIRECTORS AND "FOR" THE RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITOR AND IN THE DISCRETION OF THE PROXY HOLDERS, ON ALL OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF. THIS PROXY IS SOLICITED BY, AND ON BEHALF OF, THE BOARD OF DIRECTORS OF THE CORPORATION AND MAY BE REVOKED PRIOR TO ITS EXERCISE. (Continued, and to be signed on the other side) -------------------------------------------------------------------------- Address Change/Comments (Mark the corresponding box on the reverse side) -------------------------------------------------------------------------- -------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ^ FOLD AND DETACH HERE ^ seal hereto.
NORTH VALLEY BANCORP
By
/s/ M. J. Cushman
M. J. Cushman, President/CEO

Please ~~[ ]~~
Mark Here
for Address
Change or
Comments
o
SEE REVERSE SIDE

1.
To elect as Directors the nominees set forth below:
WITHHOLD
FOR
AUTHORITY
FOR
AGAINST
ABSTAIN
01 Michael J. Cushman
02Dante W. Ghidinelli
03Kevin D. Hartwick
04Roger B. Kohlmeier
05William W. Cox
06Dolores M. Vellutini
07Royce L. Friesen
08Martin A. Mariani
09J.M. “Mike” Wells, Jr.
o
o
2.
To ratify and approve the 2008 Stock Incentive Plan.
o
o
o
FOR
AGAINST
ABSTAIN
3.
To ratify the appointment of Perry-Smith LLP as Independent Registered Public Accounting Firm for 2008.
o
o
o
(Instruction: To withhold authority to vote for any nominee, strike a line through the nominee’s name on the list above.)
4.
In their discretion the proxy holders are authorized to vote upon such other business as may properly come ~~WITHHOLD~~ before the meeting. ~~FOR AUTHORITY 01 Michael J. Cushman [ ] [ ]~~
I PLAN TO ATTEND THE MEETING [ ] 02 Dante W. Ghidinelli 03 Kevin D. Hartwick 04 Roger B. Kohlmeier 05 William W. Cox 06 Dolores M. Vellutini (Instruction: To withhold authority to vote for any nominee, strike a line through the nominee's name on the list above.) FOR AGAINST ABSTAIN
o
Dated: _______________________________, 2007 2. To ratify the appointment of Perry-Smith LLP [ ] [ ] [ ] as Independent Auditor for 2007. ____________________________________________
, 2008
Signature ~~____________________________________________~~
Signature if held jointly
Please mark, date and sign exactly as your name(s) appear(s) above. When signing as attorney, executor, administrator, trustee or guardian, please give full title. If ~~one or~~ more than one trustee, all should sign.
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE SIGN AND RETURN THIS PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE PAID ENVELOPE. ~~- ------------------------------------------------------------------------------------------------------------------------------------ ^~~
▲
FOLD AND DETACH HERE ^
▲
WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE ~~VOTING,~~ VOTING.
BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK.
Internet and telephone voting is available through 11:59 PM Eastern Time
the day prior to annual meeting day.
Your ~~Internet~~internet or telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card. ~~---------------------------------------- --------------------------------------~~
INTERNET
TELEPHONE
http://www.proxyvoting.com/novb
1-866-540-5760
Use the ~~internet~~Internet to vote your proxy. ~~OR Use any touch-tone telephone to~~ Have your proxy card in hand when you access the web site.

OR
Use any touch-tone telephone to vote your proxy. Have your proxy ~~when you access the web site.~~ card in hand when you call. ---------------------------------------- -------------------------------------- If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card.

If you vote your proxy by internet or by telephone, you do NOT need to mail back your proxy card.
To vote by mail, mark, sign and date your proxy card and return it in the enclosed postage-paid envelope.

PROXY
NORTH VALLEY BANCORP
PROXY
Proxy Solicited on Behalf of the Board of Directors of North Valley Bancorp
for the Annual Meeting of Shareholders, May 22, 2008
          The undersigned holder of Common Stock acknowledges receipt of the Notice of Annual Meeting of Shareholders of North Valley Bancorp and the accompanying Proxy Statement dated April 22, 2008, and revoking any proxy heretofore given, hereby constitutes and appoints Michael J. Cushman and Kevin R. Watson, and each of them, each with full power of substitution, as attorneys and proxies to represent and vote, as designated on the reverse side, all shares of Common Stock of North Valley Bancorp (the “Corporation”), which the undersigned would be entitled to vote at the Annual Meeting of Shareholders of the Corporation to be held in the ~~enclosed postage-paid envelope. --------------------------------------------------------------------------------------------------------- Choose MLinkSM for fast, easy~~Administrative Offices of North Valley Bancorp, 300 Park Marina Circle, Redding, California, on Thursday, May 22, 2008 at 5:30 p.m., or at any postponement or adjournment thereof, upon the matters set forth in the Notice of Annual Meeting and ~~secure 24/7 online access~~Proxy Statement and upon such other business as may properly come before the meeting or any postponement or adjournment thereof. All properly executed proxies will be voted as indicated.
          THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF THE DIRECTORS NOMINATED BY THE BOARD OF DIRECTORS, “FOR” RATIFICATION AND APPROVAL OF THE 2008 STOCK INCENTIVE PLAN, AND “FOR” THE RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. WHEN THE PROXY IS PROPERLY EXECUTED, SHARES REPRESENTED BY THE PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS GIVEN IN THE PROXY, SHARES REPRESENTED BY THE PROXY WILL BE VOTED “FOR” THE ELECTION OF THE DIRECTORS NOMINATED BY THE BOARD OF DIRECTORS, “FOR” RATIFICATION AND APPROVAL OF THE 2008 STOCK INCENTIVE PLAN, AND “FOR” THE RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND IN THE DISCRETION OF THE PROXY HOLDERS, ON ALL OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
          THIS PROXY IS SOLICITED BY, AND ON BEHALF OF, THE BOARD OF DIRECTORS OF THE CORPORATION AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
(Continued, and to ~~your future proxy materials, investment plan statements, tax documents and more. Simply log~~be signed on to Investor ServiceDirect(R) at www.bnymellon.com/shareowner/isd where step-by-step instructions will prompt you through enrollment. --------------------------------------------------------------------------------------------------------- the other side)


		(a) In the case of an ISO granted under the Plan, payment shall be made only pursuant to the express provisions of the applicable Stock Option Agreement. The Stock Option Agreement may specify that payment may be made in any form(s) described in this Article 6.

		(b) In the case of a NSO, the Committee may at any time accept payment in any form(s) described in this Article 6.


		(a) The number of Options available for future Awards under Article 3;

		(b) The number of Common Shares covered by each outstanding Option; or

		(c) The Exercise Price under each outstanding Option.


	(a) If the Common Shares were traded over-the-counter on the date in question but were not classified as a national market issue, then the Fair Market Value shall be equal to the mean between the last reported representative bid and asked prices quoted by the Nasdaq system for such date;

	(b) If the Common Shares were traded over-the-counter on the date in question and were classified as a national market issue, then the Fair Market Value shall be equal to the last-transaction price quoted by the Nasdaq system for such date;

	(c) If the Common Shares were traded on a stock exchange on the date in question, then the Fair Market Value shall be equal to the closing price reported by the applicable composite transactions report for such date; and

	(d) If none of the foregoing provisions is applicable, then the Fair Market Value shall be determined by independent appraisals or as otherwise determined by the Committee in good faith on such basis as it deems appropriate.


	NORTH VALLEY BANCORP

	By	/s/ M. J. Cushman

		M. J. Cushman, President/CEO


	Please ~~[ ]~~ Mark Here for Address Change or Comments	o
	SEE REVERSE SIDE


	▲	FOLD AND DETACH HERE ^	▲

WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE ~~VOTING,~~ VOTING. BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK.

Internet and telephone voting is available through 11:59 PM Eastern Time the day prior to annual meeting day.

Your ~~Internet~~internet or telephone vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card. ~~---------------------------------------- --------------------------------------~~


INTERNET		TELEPHONE

http://www.proxyvoting.com/novb		1-866-540-5760

Use the ~~internet~~Internet to vote your proxy. ~~OR Use any touch-tone telephone to~~ Have your proxy card in hand when you access the web site.	OR	Use any touch-tone telephone to vote your proxy. Have your proxy ~~when you access the web site.~~ card in hand when you call. ---------------------------------------- -------------------------------------- If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card.


				Address Change/Comments(Mark the corresponding box on the reverse side)