================================================================================

                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 March 31, 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 - 7,357,875 shares as of May 8, 2007.

================================================================================

<PAGE>

                                      INDEX

                      NORTH VALLEY BANCORP AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements (Unaudited)

           Condensed Consolidated Balance Sheets--March 31, 2007 and
           December 31, 2006

           Condensed Consolidated Statements of Income--For the three months
           ended March 31, 2007 and 2006

           Condensed Consolidated Statements of Cash Flows--For the three months
           ended March 31, 2007 and 2006

           Notes to Condensed Consolidated Financial Statements

Item 2.    Management's Discussion and Analysis of Financial Condition and
           Results of Operations

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

Item 4.    Controls and Procedures

PART II.  OTHER INFORMATION

Item 1.    Legal Proceedings

Item 1A.   Risk Factors

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

Item 3.    Defaults Upon Senior Securities

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

Item 5.    Other Information

Item 6.    Exhibits

SIGNATURES

                                        2
<PAGE>

PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements (Unaudited)

NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands except share data)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                MARCH 31,   DECEMBER 31,
                                                                  2007          2006
                                                              ------------  ------------
<S>                                                           <C>           <C>
ASSETS
Cash and cash equivalents:
 Cash and due from banks                                      $     27,593  $     30,826
 Federal funds sold                                                 33,295        10,670
                                                              ------------  ------------
     Total cash and cash equivalents                                60,888        41,496

Investment securities available for sale, at fair value            124,765       133,571
Investment securities held to maturity, at amortized cost               67            82

Loans and leases                                                   650,563       659,793
 Less: Allowance for loan and lease losses                          (8,815)       (8,831)
                                                              ------------  ------------
 Net loans and leases                                              641,748       650,962

Premises and equipment, net                                         13,838        13,797
Accrued interest receivable                                          3,493         3,838
Other real estate owned                                                902           902
FHLB and FRB stock and other securities                              5,549         5,495
Bank-owned life insurance policies                                  29,738        29,483
Core deposit intangibles, net                                        1,724         1,886
Goodwill                                                            15,187        15,187
Other assets                                                         8,845         8,974
                                                              ------------  ------------
 TOTAL ASSETS                                                 $    906,744  $    905,673
                                                              ============  ============
LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Deposits:
 Noninterest-bearing                                          $    186,209  $    194,842
 Interest-bearing                                                  574,490       555,446
                                                              ------------  ------------
   Total deposits                                                  760,699       750,288

Other borrowed funds                                                25,000        37,500
Accrued interest payable and other liabilities                      10,973        10,433
Subordinated debentures                                             31,961        31,961
                                                              ------------  ------------
   Total liabilities                                               828,633       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 7,352,625 and 7,300,914 at March 31, 2007 and
 December 31, 2006                                                  39,861        39,202
Retained earnings                                                   40,096        38,626
Accumulated other comprehensive loss, net of tax                    (1,846)       (2,337)
                                                              ------------  ------------
   Total stockholders' equity                                       78,111        75,491
                                                              ------------  ------------
   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                 $    906,744  $    905,673
                                                              ============  ============
</TABLE>

The  accompanying  notes are an integral  part of these  condensed  consolidated
financial statements (unaudited).

                                        3
<PAGE>

NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands except per share data)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                              FOR THE THREE MONTHS ENDED
                                                                      MARCH 31,
                                                              --------------------------
                                                                  2007          2006
                                                              ------------  ------------
<S>                                                           <C>           <C>
INTEREST INCOME:
Interest and fees on loans and leases                         $     12,824  $     11,746
Interest on investments:
 Taxable interest income                                             1,286         1,502
 Nontaxable interest income                                            249           274
Interest on Federal funds sold and repurchase agreements               137           105
                                                              ------------  ------------
  Total interest income                                             14,496        13,627
                                                              ------------  ------------

INTEREST EXPENSE:
Deposits                                                             3,256         2,010
Subordinated debentures                                                608           627
Other borrowings                                                       295           597
                                                              ------------  ------------
  Total interest expense                                             4,159         3,234
                                                              ------------  ------------

NET INTEREST INCOME                                                 10,337        10,393

PROVISION FOR LOAN AND LEASE LOSSES                                      -             -
                                                              ------------  ------------

NET INTEREST INCOME AFTER PROVISION
 FOR LOAN AND LEASE LOSSES                                          10,337        10,393
                                                              ------------  ------------

NONINTEREST INCOME:
Service charges on deposit accounts                                  1,644         1,477
Other fees and charges                                                 892           702
Earnings on cash surrender value of life insurance policies            311           293
Gain on sale of loans                                                   53            80
Other                                                                  234           246
                                                              ------------  ------------
  Total noninterest income                                           3,134         2,798
                                                              ------------  ------------

NONINTEREST EXPENSES:
Salaries and employee benefits                                       5,559         5,637
Occupancy expense                                                      769           707
Furniture and equipment expense                                        535           533
Other                                                                3,367         3,139
                                                              ------------  ------------
  Total noninterest expenses                                        10,230        10,016
                                                              ------------  ------------

INCOME BEFORE PROVISION FOR INCOME TAXES                             3,241         3,175
PROVISION FOR INCOME TAXES                                           1,037         1,046
                                                              ------------  ------------
NET INCOME                                                    $      2,204  $      2,129
                                                              ============  ============

Per Share Amounts
Basic Earnings Per Share                                      $       0.30  $       0.28
                                                              ============  ============
Diluted Earnings Per Share                                    $       0.29  $       0.27
                                                              ============  ============
Cash Dividends Per Common Share                               $       0.10  $       0.10
                                                              ============  ============
</TABLE>

The  accompanying  notes are an integral  part of these  condensed  consolidated
financial statements (unaudited).

                                        4
<PAGE>

NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                              For the three months ended
                                                                      March 31,
                                                              --------------------------
                                                                  2007          2006
                                                              ------------  ------------
<S>                                                           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income                                                    $      2,204  $      2,129
Adjustments to reconcile net income to net cash
 provided by operating activities:
    Depreciation and amortization                                      559           572
    Amortization of premium on securities                               29            37
    Amortization of core deposit intangible                            162           129
    Gain on sale of loans                                              (53)          (80)
    Gain on sale of premises and equipment                               -           (14)
    FHLB stock dividends                                               104            59
    Stock-based compensation expense                                   157            81
    Excess tax benefit from exercise of stock options                  (42)         (174)
Effect of changes in:
    Accrued interest receivable                                        345           438
    Other assets                                                      (467)        1,481
    Accrued interest payable and other liabilities                     582        (1,621)
                                                              ------------  ------------
       Net cash provided by operating activities                     3,580         3,037
                                                              ------------  ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Proceeds from maturities/calls of available for
     sale securities                                                 9,623         7,273
    Net change in FHLB and FRB stock and other securities             (158)          (54)
    Net decrease (increase) in loans and leases                      9,268        (2,987)
    Proceeds from sales of premises and equipment                        -            14
    Purchases of premises and equipment                               (600)         (619)
                                                              ------------  ------------
       Net cash provided by investing activities                    18,133         3,627
                                                              ------------  ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Net increase in deposits                                        10,411           400
    Net decrease in other borrowed funds                           (12,500)      (13,000)
    Cash dividends paid                                               (734)         (751)
    Exercise of stock options, including tax benefit                   502           240
                                                              ------------  ------------
       Net cash used in financing activities                        (2,321)      (13,111)
                                                              ------------  ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                19,392        (6,447)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                        41,496        56,094
                                                              ------------  ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                      $     60,888  $     49,647
                                                              ============  ============

Supplemental Disclosures of Cash Flow Information
Cash Paid During the Year for:
    Interest                                                  $      5,148  $      3,652
    Income taxes                                              $          -  $      2,313
</TABLE>

The  accompanying  notes are an integral  part of these  condensed  consolidated
financial statements (unaudited).

                                        5
<PAGE>

                      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
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  months  ended  March 31,  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") and
North Valley Trading Company, which is 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.

NOTE B - ANNOUNCED PLAN OF MERGER

         As  announced  by the  Company on April 11,  2007 and  reported  on the
Company's  Current  Report on Form 8-K,  filed with the  Securities and Exchange
Commission  on April 11, 2007 (the  "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  will merge with and into  Sterling
Financial  Corporation,  a Washington  corporation  ("Sterling"),  with Sterling
being the surviving corporation.

         Under the terms of the  Merger  Agreement,  which has been  unanimously
approved  by the  Boards of  Directors  of both  companies,  each share of North
Valley  common stock will be  converted  into 0.7364  shares of Sterling  common
stock and $2.80 in cash, subject to certain  conditions.  Based upon the closing
price for  Sterling's  common  stock on April 10, 2007 of $30.33 per share,  the
consideration  is  equivalent  to $25.14 per share of North Valley common stock.
Outstanding  options to purchase  shares of North  Valley  common  stock will be
assumed and  converted  into  options to purchase  Sterling  common  stock.  The
transaction,  which is valued at  approximately  $196.2 million,  is expected to
close in the third quarter of 2007, pending North Valley  shareholder  approval,
receipt of all regulatory approvals, and satisfaction of other customary closing
conditions.

                                        6
<PAGE>

NOTE C - INVESTMENT SECURITIES

At March 31, 2007 and December 31, 2006,  the amortized  cost of securities  and
their approximate fair value were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                  GROSS       GROSS
                                                     AMORTIZED  UNREALIZED  UNREALIZED  ESTIMATED
                                                       COST       GAINS       LOSSES    FAIR VALUE
                                                    ----------  ----------  ----------  ----------
<S>                                                 <C>         <C>         <C>         <C>
AVAILABLE FOR SALE SECURITIES:

MARCH 31, 2007
 Obligations of U.S. government agencies            $    6,099  $        -  $      (71) $    6,028
 Obligations of state and political subdivisions        21,800         641         (34)     22,407
 Mortgage-backed securities                             82,054          22      (2,382)     79,694
 Corporate debt securities                               5,998          49           -       6,048
 Equity securities                                      11,040           -        (451)     10,588
                                                    ----------  ----------  ----------  ----------
                                                    $  126,991  $      713  $   (2,939) $  124,765
                                                    ==========  ==========  ==========  ==========

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
                                                    ==========  ==========  ==========  ==========

<CAPTION>
                                                                  GROSS       GROSS
                                                     AMORTIZED  UNREALIZED  UNREALIZED  ESTIMATED
                                                       COST       GAINS       LOSSES    FAIR VALUE
                                                    ----------  ----------  ----------  ----------
<S>                                                 <C>         <C>         <C>         <C>
HELD TO MATURITY SECURITIES:

MARCH 31, 2007
 Mortgage-backed securities                         $       67              $       (2) $       65
                                                    ==========  ==========  ==========  ==========

DECEMBER 31, 2006
 Mortgage-backed securities                         $       82  $        -  $       (1) $       81
                                                    ==========  ==========  ==========  ==========
</TABLE>

         For the three months ended March 31, 2007 and 2006, there were no gross
realized  gains or losses on sales or calls of  available  for sale  securities.
There were no sales or  transfers of held to maturity  securities  for the three
months ended March 31, 2007 and 2006.

         At March 31, 2007 and December 31, 2006,  securities  having fair value
amounts of  approximately  $77,197,000  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 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 and the intent and ability of
the  Company  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.

         At March 31, 2007,  the Company held  $97,768,000 of available for sale
investment securities in an unrealized loss position of which $99,000 were in an
unrealized loss position for less than twelve months and $97,669,000  were in an
unrealized  loss position and had been in an unrealized loss position for twelve
months or 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
to collect all amounts due  according  to the  contractual  terms for all of the
underlying investment securities;  therefore, management does not consider these
investments to be other-than-temporarily impaired.

                                        7
<PAGE>

         Included in the above  securities at March 31, 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
$409,000 at March 31, 2007 as compared  to $724,000 at December  31,  2006.  The
securities are callable at par on June 1, 2008. The market value per share as of
March 31, 2007 was $45.91  compared to $42.76 per share at December 31, 2006. At
March 31, 2007, these  securities had been in a loss position for  approximately
33 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 factors including, but not limited to:

    o    How far fair value has declined below book value
    o    How long the decline in fair value has existed
    o    The financial condition 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 COMPENSATION

Stock Option Plans

         At  March  31,  2007,  the  Company  had  three  shareholder   approved
stock-based  compensation  plans:  the North Valley  Bancorp 1989 Director Stock
Option Plan, the 1998 Employee Stock  Incentive Plan and the 1999 Director Stock
Option Plan.  The Plans do not provide for the  settlement of awards in cash and
new shares are issued upon  exercise 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
of the  underlying  common  stock on the date granted and the stock must be paid
for 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 ten
years  from the date of grant.  The  vesting  period is  generally  four  years;
however the vesting  period can be modified at the  discretion  of the Company's
Board of Directors.  Outstanding  options under the plans are exercisable  until
their expiration.  Total options of 2,554,281 were authorized under all plans at
March 31, 2007.

Stock Option Compensation

         The weighted  average grant date fair value of options  granted for the
three  month  period  ended  March  31,  2007  and  2006 was  $5.26  and  $3.01,
respectively.  For the three month  periods  ended March 31, 2007 and 2006,  the
compensation  cost  recognized  for stock option  compensation  was $112,000 and
$48,000, respectively.  Director stock grant expense for the three month periods
ended  March  31,  2007 and 2006 was  $45,000  and  $33,000,  respectively.  The
recognized  tax benefit for stock  option  compensation  expense was $42,000 and
$174,000,   for  the  three  month  periods  ended  March  31,  2007  and  2006,
respectively.  At March 31,  2007,  the  total  unrecognized  compensation  cost
related to  stock-based  awards granted to employees  under the Company's  stock
option plans was $547,000.  This cost will be amortized on a straight-line basis
over a weighted average period of  approximately  1.7 years and will be adjusted
for subsequent changes in estimated forfeitures.

Stock Option Activity

         Under the Company's stock option plans as of March 31, 2007,  1,151,749
shares  of the  Company's  common  stock  are  available  for  future  grants to
directors and employees of the Company. Under the Director Plan, options may not
be  granted  at a price  less 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:

                                        8
<PAGE>

<TABLE>
<CAPTION>
                                                                                 Weighted
                                                                  Weighted       Average
                                                                  Average        Remaining        Exercise       Aggregate
                                                                  Exercise      Contractual        Price         Intrinsic
                                                    Shares         Price           Term            Range        Value ($000)
                                                 ------------   ------------   -------------   --------------   ------------
<S>                                                   <C>       <C>              <C>           <C>              <C>
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                                            (51,711)           8.43        N/A         $5.36 - 10.24

Expired or Forfeited                                  (2,831)          19.50        N/A        $17.29 - 19.86

                                                 ------------   ------------   -------------   --------------   ------------
Outstanding at March 31, 2007                         787,783   $      10.69     4.3 years      $5.36 - 24.75   $     11,379
                                                 ------------   ------------   -------------   --------------   ------------

Fully vested and exercisable at March 31, 2007        669,120   $       9.26     3.42 years     $5.36 - 24.75   $     10,618
                                                 ============   ============   =============   ==============   ============

Options expected to vest                              118,663   $      18.72     9.10 years    $15.72 - 24.75   $        761
                                                 ============   ============   =============   ==============   ============
</TABLE>

         The aggregate  intrinsic value is calculated as the difference  between
the  exercise  price  of the  underlying  awards  and the  quoted  price  of the
Company's  common stock as of March 31,  2007.  The  intrinsic  value of options
exercised during the three months ended March 31, 2007 and 2006 totaled $864,000
and $356,000, 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  securities  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 of the current
period. The Company's total comprehensive income was as follows:

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED MARCH 31,
                                                             -----------------------------
(in thousands)                                                    2007            2006
----------------------------------------------------------   -------------   -------------
<S>                                                          <C>             <C>
Net income                                                   $       2,204   $       2,129
Other comprehensive income (loss), net of tax:
 Holding income (loss) arising during period                           490            (115)
                                                             -------------   -------------
Total comprehensive income                                   $       2,694   $       2,014
                                                             =============   =============
</TABLE>

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 month  periods ended March 31, 2007 and 2006 is
reconciled as follows (in thousands, except per share amounts):

                                        9
<PAGE>

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED MARCH 31,
                                                             -----------------------------
                                                                  2007            2006
                                                             -------------   -------------
<S>                                                          <C>             <C>
CALCULATION OF BASIC EARNINGS PER SHARE:
  Numerator - net income                                     $       2,204   $       2,129
  Denominator - weighted average common shares outstanding           7,340           7,507
                                                             -------------   -------------
     Basic earnings per share                                $        0.30   $        0.28
                                                             =============   =============

CALCULATION OF DILUTED EARNINGS PER SHARE:
  Numerator - net income                                     $       2,204   $       2,129
  Denominator:
    Weighted average common shares outstanding                       7,340           7,507
    Dilutive effect of outstanding options                             295             317
                                                             -------------   -------------
      Weighted average common shares outstanding
       and common stock equivalents                                  7,635           7,824
                                                             -------------   -------------

      Diluted earnings per share                             $        0.29   $        0.27
                                                             =============   =============
</TABLE>

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  March  31,  2007 and 2006 are
$57,000 and $59,000,  respectively.  Components of net periodic benefit cost for
the  Company's  supplemental  nonqualified  defined  benefit plans for the three
months ended March 31, 2007 and 2006 are  presented in the  following  table (in
thousands):

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED MARCH 31,
                                                             -----------------------------
                                                                  2007            2006
                                                             -------------   -------------
<S>                                                          <C>             <C>
COMPONENTS OF NET PERIODIC BENEFITS COST:
 Service cost                                                $         117   $         122
 Interest cost                                                          63              67
 Amortization of net obligation at transition                            -               -
 Prior service amortization                                              8               8
 Recognized net actuarial loss                                           8              15
                                                             -------------   -------------
Total components of net periodic cost                        $         196   $         212
                                                             =============   =============
</TABLE>

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 or results of its operations or its
cash flows.

         The Company was  contingently  liable under letters of credit issued on
behalf of its customers in the amount of  $17,728,000  and  $13,067,000 at March
31, 2007 and December 31, 2006. At March 31, 2007, commercial and consumer lines
of credit and real estate loans of  approximately  $96,934,000 and  $159,912,000
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  upon the borrower  meeting
certain financial and other covenants and such commitments  typically have fixed
expiration dates and require payment of a fee. As many of these  commitments are
expected  to expire  without  being  drawn upon,  the total  commitments  do not
necessarily  represent  future cash  requirements.  The Company  evaluates  each
potential  borrower  and  the  necessary  collateral  on  an  individual  basis.
Collateral  varies,  but  may  include  real  property,   bank  deposits,   debt
securities, equity securities or business or personal assets.

                                       10
<PAGE>

         Standby  letters of credit are conditional  commitments  written by the
Company to  guarantee  the  performance  of a customer to a third  party.  These
guarantees are issued primarily relating to inventory purchases 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 March 31, 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 March 31,  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 78% of the Company's loan portfolio at both
March  31,  2007 and  December  31,  2006.  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 July 2006, the Financial  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  statements in accordance  with FASB  Statement No. 109,
Accounting for Income Taxes. FIN 48 also prescribes a recognition  threshold and
measurement standard for the financial statement  recognition and measurement of
an income tax  position  taken or expected  to be taken 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 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 positions of the
Company as of January 1, 2007.  There was no  cumulative  effect of applying the
provisions of FIN 48 and there was no material effect on the Company's provision
for  income  taxes for the  three  months  ended  March 31,  2007.  The  Company
recognizes  interest  accrued related 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.

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 Deferred Compensation
and Postretirement  Benefit Aspects of 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 a change in accounting  principle either through a  cumulative-effect
adjustment to retained  earnings or other  components of equity or net assets in
the statement 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.

                                       11
<PAGE>

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 of the Securities  Exchange Act of 1934, as amended,  and are subject 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 in 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
nationally 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 in accordance
with accounting  principles  generally  accepted in the United States of America
(GAAP). The financial  information contained within our financial statements is,
to a significant extent,  financial information that is based on measures 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  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 Accountings 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 the
value of  collateral,  present  value of future  cash  flows or values  that are
observable in the secondary market and the loan balance.

         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. 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.

                                       12
<PAGE>

Share Based Compensation

         At March 31,  2007,  the  Company  had three  stock-based  compensation
plans:  the North Valley  Bancorp  1989  Director  Stock  Option Plan,  the 1998
Employee Stock Incentive Plan and the 1999 Director Stock Option Plan, which are
described more fully in Note D to the Unaudited Condensed Consolidated Financial
Statements included herein in Item 1 - Financial Statements. 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 fair 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.

ANNOUNCED PLAN OF MERGER

         As  announced  by the  Company on April 11,  2007 and  reported  on the
Company's  Current  Report on Form 8-K,  filed with the  Securities and Exchange
Commission  on April 11, 2007 (the  "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  will merge with and into  Sterling
Financial  Corporation,  a Washington  corporation  ("Sterling"),  with Sterling
being the surviving corporation.

         Under the terms of the  Merger  Agreement,  which has been  unanimously
approved  by the  Boards of  Directors  of both  companies,  each share of North
Valley  common stock will be  converted  into 0.7364  shares of Sterling  common
stock and $2.80 in cash, subject to certain  conditions.  Based upon the closing
price for  Sterling's  common  stock on April 10, 2007 of $30.33 per share,  the
consideration  is  equivalent  to $25.14 per share of North Valley common stock.
Outstanding  options to purchase  shares of North  Valley  common  stock will be
assumed and  converted  into  options to purchase  Sterling  common  stock.  The
transaction,  which is valued at  approximately  $196.2 million,  is expected to
close in the third quarter of 2007, pending North Valley  shareholder  approval,
receipt of all regulatory approvals, and satisfaction of other customary closing
conditions.

                                       13
<PAGE>

OVERVIEW

         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 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

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED MARCH 31,
                                                             -----------------------------
(in thousands except per share amounts)                           2007            2006
----------------------------------------------------------   -------------   -------------
<S>                                                          <C>             <C>
Net interest income                                          $      10,337   $      10,393
Provision for loan and lease losses                                      -               -
Noninterest income                                                   3,134           2,798
Noninterest expense                                                 10,230          10,016
Provision for income taxes                                           1,037           1,046
                                                             -------------   -------------
Net income                                                   $       2,204   $       2,129
                                                             =============   =============

Earnings Per Share
  Basic                                                      $        0.30   $        0.28
  Diluted                                                    $        0.29   $        0.27

Annualized Return on Average Assets                                   1.00%           0.96%
Annualized Return on Average Equity                                  11.69%          11.96%
</TABLE>

         Net income for the three  months  ended  March 31,  2007  increased  by
$75,000,  or 3.5%,  compared to the same period in 2006.  Diluted  earnings  per
share  increased  $0.02,  or 7.4%,  for the three  months  ended  March 31, 2007
compared  to the same period in 2006.  The  increase in net income for the first
quarter,  compared  to the same  period in 2006,  was  principally  driven by an
increase in  noninterest  income of  $336,000,  or 12.0%,  mostly  offset by the
slight decrease in net interest  income of $57,000,  or 0.5% and the increase in
noninterest expense of $214,000, or 2.1%.

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.

          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:

                                       14
<PAGE>

SCHEDULE OF AVERAGE DAILY BALANCE AND AVERAGE YIELDS AND RATES
(Dollars in thousands)

<TABLE>
<CAPTION>
                                          THREE MONTHS ENDED MARCH 31, 2007      THREE MONTHS ENDED MARCH 31, 2006
                                        ------------------------------------   ------------------------------------
                                          AVERAGE      YIELD/      INTEREST      AVERAGE      YIELD/      INTEREST
                                          BALANCE      RATE         AMOUNT       BALANCE      RATE         AMOUNT
                                        ----------   ----------   ----------   ----------   ----------   ----------
<S>                                     <C>                <C>    <C>          <C>                <C>    <C>
ASSETS
Earning assets:
 Federal funds sold                     $   10,294         5.40%  $      137   $    8,768         4.86%  $      105
 Investment securities:
  Taxable                                  102,689         4.52%       1,144      134,930         4.07%       1,355
  Non-taxable (1)                           21,789         6.81%         366       23,483         7.06%         409
  FNMA preferred stock (1)                  10,617         7.22%         189       12,039         6.67%         198
                                        ----------   ----------   ----------   ----------   ----------   ----------
 Total investments                         135,095         5.10%       1,699      170,452         4.67%       1,962
 Loans and leases (2)(3)                   653,710         7.96%      12,824      624,879         7.62%      11,746
                                        ----------   ----------   ----------   ----------   ----------   ----------
Total earning assets                       799,099         7.44%      14,660      804,099         6.97%      13,813

Non earning assets                         100,808                                106,905
Allowance for loan and
 lease losses                               (8,837)                                (7,929)
                                        ----------                             ----------
Total non-earning assets                    91,971                                 98,976

Total assets                            $  891,070                             $  903,075
                                        ==========                             ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
 Transaction accounts                   $  160,598         0.44%  $      173   $  192,771         0.30%  $      143
 Savings and money market                  199,529         1.79%         880      184,893         1.16%         527
 Time certificates                         202,795         4.41%       2,203      170,440         3.19%       1,340
 Other borrowed funds                       60,757         6.03%         903       91,573         5.42%       1,224
                                        ----------   ----------   ----------   ----------   ----------   ----------
Total interest bearing
 liabilities                               623,679         2.70%       4,159      639,677         2.05%       3,234
                                                     ----------   ----------                ----------   ----------
Demand deposits                            178,232                                180,440
Other liabilities                           12,702                                 10,743
                                        ----------                             ----------
Total liabilities                          814,613                                830,860
                                        ----------                             ----------
Shareholders' equity                        76,457                                 72,215
                                        ----------                             ----------
Total liabilities and
 shareholders' equity                   $  891,070                             $  903,075
                                        ==========                             ==========
Net interest income                                               $   10,501                             $   10,579
                                                                  ==========                             ==========
Net interest spread                                        4.74%                                  4.92%
                                                     ==========                             ==========
Net interest margin                                        5.33%                                  5.34%
                                                     ==========                             ==========
</TABLE>

(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 $398 and $376 for the three  months  ended March 31,
     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 month  period ended March 31, 2007
resulted  primarily  from the increase in average rate paid on interest  bearing
liabilities  somewhat  offset by a shift in earning asset  composition to higher
yielding  loans  as  well  as  increased  yields.  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 and also add
fixed rate mortgages in an  anticipation  of a declining rate  environment.  The
Company will continue to sell the fixed rate jumbo mortgage loans it originates.

         While the yield on average earning  assets,  for the three months ended
March 31,  2007,  increased  by 47 basis  points from the same period last year,
yields on average  interest  bearing  liabilities  increased by 65 basis points.
While the Company's net interest  margin (FTE) remained  consistent at 5.33% for
the three  months  ended  March 31,  2007 with the 5.34% for the same  period in
2006,  it  decreased  8 basis  points  from  5.41% for the linked  quarter.  The
contraction   was  expected  to  result  from  the   Company's   cost  of  funds
incrementally  increasing  more than the  Company's  asset yields  incrementally
increased, although the Company recognized a shift in earning assets to a higher
percentage of loans.

                                       15
<PAGE>

PROVISION FOR LOAN AND LEASE LOSSES

         The Company did not record a  provision  for loan and lease  losses for
the three  months  ended  March 31, 2007 or 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 not record any additional
provision reflects the lack of growth in the loan portfolio. Management believes
that the current  level of  allowance  for loan and lease losses as of March 31,
2007 of  $8,815,000,  or 1.35% 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 19.

NONINTEREST INCOME

         The following  table is a summary of the Company's  noninterest  income
for the periods indicated:

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED MARCH 31,
                                                             -----------------------------
(In thousands)                                                    2007            2006
----------------------------------------------------------   -------------   -------------
<S>                                                          <C>             <C>
 Service charges on deposit accounts                         $       1,644   $       1,477
 Other fees and charges                                                892             702
 Earnings on cash surrender value of life insurance policies           311             293
 Gain on sale of loans                                                  53              80
 Other                                                                 234             246
                                                             -------------   -------------
Total noninterest income                                     $       3,134   $       2,798
                                                             =============   =============
</TABLE>

         Noninterest income increased from $2,798,000 for the three months ended
March 31, 2006 to  $3,134,000  for the same period in 2007.  Service  charges on
deposits  increased $167,000 from the three months ended March 31, 2006 compared
to the same period in 2007,  driven by growth in the number of demand  accounts.
Other fees and charges  increased from $702,000 for the three months ended March
31,  2006 to  $892,000  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. The Company recorded $53,000 in gains on sales of mortgages
for the three months ended March 31, 2007  compared to $80,000 in gains on sales
of mortgages for the same period in 2006. Other income decreased to $234,000 for
the three months ended March 31, 2007 from $246,000 for the same period in 2006.

NONINTEREST EXPENSE

         The following table is a summary of the Company's  noninterest  expense
for the periods indicated:

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED MARCH 31,
                                                             -----------------------------
(In thousands)                                                    2007            2006
----------------------------------------------------------   -------------   -------------
<S>                                                          <C>             <C>
Salaries & employee benefits                                 $       5,559   $       5,637
Occupancy expense                                                      769             707
Data processing expenses                                               594             503
Equipment expense                                                      535             533
Professional services                                                  435             364
Marketing                                                              221             255
ATM expense                                                            259             203
Printing & supplies                                                    239             195
Operations expense                                                     214             192
Director                                                               168             152
Amortization of intangibles                                            163             163
Postage                                                                126             153
Other                                                                  948             959
                                                             -------------   -------------
   Total noninterest expense                                 $      10,230   $      10,016
                                                             =============   =============
</TABLE>

                                       16
<PAGE>

         Noninterest  expense  totaled  $10,230,000  for the three  months ended
March 31,  2007,  compared  to  $10,016,000  for the same  period in 2006.  This
represents  an increase of $214,000,  or 2.1%,  for the three months ended March
31, 2007 from the comparable period in 2006 due primarily to an increase in data
processing expense and nonrecurring  professional  services expenses  associated
with the Company's announced planned merger with Sterling Financial Corporation.
Salaries and benefits  decreased by $78,000 or 1.4% to $5,559,000  for the three
months ended March 31, 2007 compared to $5,637,000  for the same period in 2006.
Data processing  expense  increased $91,000 for the three months ended March 31,
2007 compared to the same period in 2006. Most other expense  categories for the
three  months ended March 31, 2007  experienced  relatively  small  decreases or
increases  from the same  respective  period  in 2006.  The  Company's  ratio of
noninterest expense to average assets was 4.66% for the three months ended March
31,  2007  compared  to 4.50%  for the same  period  in 2006.  The  increase  in
noninterest  expense  to average  assets  ratio is a result of the  increase  in
expenses  noted above  compounded by the decrease in average  total assets.  The
Company's  efficiency  ratio  remained  unchanged  at 75.9% for the three months
ended March 31, 2007 and 2006.

INCOME TAXES

         The  provision  for income  taxes for the three  months ended March 31,
2007 was  $1,037,000 as compared to $1,046,000  for the same period in 2006. The
effective  income tax rate for state and federal  income taxes was 32.0% for the
three months ended March 31, 2007 compared to 32.9% for the same period in 2006.
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  Company-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'.

FINANCIAL CONDITION AS OF MARCH 31, 2007 AS COMPARED TO DECEMBER 31, 2006

         Total  assets  at  March  31,  2007,  were  $906,744,000,  compared  to
$905,673,000 at December 31, 2006.  Loans and leases  decreased  $9,230,000,  or
1.4%, to $650,563,000 at March 31, 2007 from  $659,793,000 at December 31, 2006.
Deposits increased $10,411,000,  or 1.4%, from December 31, 2006 to $760,699,000
at March 31, 2007.  Investment  securities  and federal funds sold  increased to
$158,127,000 at March 31, 2007, compared to $144,323,000 at December 31, 2006.

LOAN AND LEASE PORTFOLIO

         Loans and leases,  the  Company's  major  component of earning  assets,
decreased  during the first three  months of 2007 to  $650,563,000  at March 31,
2007 from  $659,793,000  at December 31,  2006.  Commercial  loans  decreased by
$3,806,000,  commercial real estate loans  decreased by $5,068,000,  real estate
construction  loans  decreased  by  $4,373,000,   and  direct  financing  leases
decreased by $179,000  from  December 31, 2006.  The decreases are primarily the
result of the Company's  decision to remain price disciplined in an increasingly
price  competitive  environment.  Real estate - mortgage  loans and  installment
loans   increased  from  December  31,  2006  by  $1,576,000   and   $2,854,000,
respectively.

         The  Company's  average loan to deposit ratio was 88.2% for the quarter
ended March 31, 2007 compared to 85.8% 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  $28,831,000  while  total  average  deposits   increased  by
$12,610,000.

                                       17
<PAGE>

<TABLE>
<CAPTION>
                                                                MARCH 31,     DECEMBER 31,
(Dollars in thousands)                                           2007            2006
----------------------------------------------------------   -------------   -------------
<S>                                                          <C>             <C>
Commercial                                                   $      74,316   $      78,122
Real estate - commercial                                           258,255         263,323
Real estate - construction                                         208,826         213,199
Real estate - mortgage                                              42,063          40,487
Installment                                                         30,805          27,951
Direct financing leases                                              1,806           1,985
Other                                                               35,607          35,828
                                                             -------------   -------------
                                                                   651,678         660,895

Deferred loan fees, net                                             (1,115)         (1,102)
Allowance for loan and lease losses                                 (8,815)         (8,831)
                                                             -------------   -------------
                                                             $     641,748   $     650,962
                                                             =============   =============
</TABLE>

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 March 31,  2007,  the  recorded  investment  in loans and leases for
which  impairment had been  recognized was  approximately  $459,000  compared to
$127,000 at March 31, 2006. Of the 2007 balance,  there was a related  valuation
allowance  of $45,000.  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. 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 March 31, 2007,  and  December  31, 2006,  are
summarized as follows:

<TABLE>
<CAPTION>
                                                               MARCH 31,      DECEMBER 31,
                                                                 2007            2006
                                                             -------------   -------------
<S>                                                          <C>             <C>
 Nonaccrual loans and leases                                 $         459   $          72
 Loans and leases past due 90 days and accruing interest                60             403
 Other real estate owned                                               902             902
                                                             -------------   -------------
   Total nonperforming assets                                $       1,421   $       1,377
                                                             =============   =============

Nonaccrual loans and leases to total gross loans and
 leases                                                               0.07%           0.01%
Nonperforming loans and leases to total gross loans
 and leases                                                           0.08%           0.07%
Total nonperforming assets to total assets                            0.16%           0.15%
</TABLE>

                                       18
<PAGE>

ALLOWANCE FOR LOAN AND LEASE LOSSES

         A summary of the  allowance for loan and lease losses at March 31, 2007
and March 31, 2006 is as follows:

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED MARCH 31,
                                                             -----------------------------
                                                                  2007            2006
                                                             -------------   -------------
<S>                                                          <C>             <C>
Balance beginning of period                                  $       8,831   $       7,864
Provision for loan and lease losses                                      -               -
Net charge-offs                                                        (16)            (32)
                                                             -------------   -------------
Balance end of period                                        $       8,815   $       7,832
                                                             =============   =============
Allowance for loan and lease losses to total
 loans and leases                                                     1.35%           1.25%
</TABLE>

         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.

         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 March 31, 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

                                       19
<PAGE>

         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  $8,815,000  in allowance at March 31, 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.

Management  anticipates that as the Company continues to implement its strategic
plan the Company will:

                  o   Generate further growth in loans receivable held for
                      investment

                  o   Emphasize the origination of income property real estate
                      loans

                  o   Continue expansion of commercial business lending

         As a result,  future  provisions  will 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  increased to $760,699,000 at March 31, 2007 compared to
$750,288,000 at December 31, 2006. Money market accounts increased $4,434,000 or
4.0%  from  December  31,  2006,   interest-bearing  demand  deposits  increased
$6,960,000  or 4.3%  from  December  31,  2006,  and  certificates  of  deposits
increased  $10,202,000  or  5.2%,  while  noninterest-bearing   demand  deposits
decreased  $8,633,000 or 4.4%,  and savings  decreased  $2,552,000 or 2.9%.  The
Company experienced a shift in deposits from noninterest-bearing  demand to time
certificates as time deposit rates increased.

                                               MARCH 31,      DECEMBER 31,
                                                 2007            2006
                                             -------------   -------------
Noninterest-bearing demand                   $     186,209   $     194,842
Interest-bearing demand                            167,899         160,939
Money market and savings                           198,715         196,833
Time certificates                                  207,876         197,674
                                             -------------   -------------
 Total deposits                              $     760,699   $     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 March 31, 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 $92,609,000  secured
by certain loans and  investment  securities  as of March 31, 2007.  The Company
also has a line of credit with Federal Reserve Bank of San Francisco  ("FRB") of
$2,605,000  secured by first deeds of trust on eligible  commercial  real estate
loans and  leases.  As of March 31,  2007,  borrowings  consisted  of  long-term
borrowings  of  $25,000,000  outstanding  with  the  FHLB  and  $31,961,000  was
outstanding in the form of subordinated debt issued by the Company.

                                       20
<PAGE>

         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
$185,653,000  and $175,067,000 (or 20.5% and 19.3% of total assets) at March 31,
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  $676,436,000 and $673,303,000 at March 31, 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,
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.

                                       21
<PAGE>

         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 best 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.  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 $78,111,000 as
of March 31, 2007, as compared to $75,491,000 at December 31, 2006. The increase
was due to net income of  $2,204,000,  stock option  exercises of $659,000 and a
decrease in  unrealized  loss on  available  for sale  securities  of  $491,000,
partially offset by the cash dividends paid out in the amount of $734,000. Under
current  regulations,  management  believes  that the Company  meets all capital
adequacy  requirements  and North Valley Bank was considered well capitalized at
March 31, 2007 and December 31, 2006.

         The Company's and North Valley Bank's  capital  amounts and  risk-based
capital ratios are presented below.

                                       22
<PAGE>

<TABLE>
<CAPTION>
                                                                                                   TO BE WELL CAPITALIZED
                                                                           FOR CAPITAL ADEQUACY    UNDER PROMPT CORRECTIVE
                                                        ACTUAL                   PURPOSES             ACTION PROVISIONS
                                               -----------------------   -----------------------   -----------------------
                                                                           MINIMUM      MINIMUM     MINIMUM       MINIMUM
                                                 AMOUNT       RATIO        AMOUNT       RATIO       AMOUNT        RATIO
                                               ----------   ----------   ----------   ----------   ----------   ----------
<S>                                            <C>               <C>     <C>                <C>    <C>               <C>
COMPANY
AS OF MARCH 31, 2007
  Total capital (to risk weighted assets)      $  102,516        12.18%  $   67,334         8.00%         N/A          N/A
  Tier 1 capital (to risk weighted assets)     $   89,264        10.60%  $   33,685         4.00%         N/A          N/A
  Tier 1 capital (to average assets)           $   89,264        10.21%  $   34,971         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 MARCH 31, 2007
  Total capital (to risk weighted assets)      $  101,097        12.03%  $   67,230         8.00%  $   84,037        10.00%
  Tier 1 capital (to risk weighted assets)     $   92,282        10.98%  $   33,618         4.00%  $   50,427         6.00%
  Tier 1 capital (to average assets)           $   92,282        10.58%  $   34,889         4.00%  $   43,612         5.00%

AS OF DECEMBER 31, 2006
  Total capital (to risk weighted assets)      $   97,642        11.61%  $   67,281         8.00%  $   66,175        10.00%
  Tier 1 capital (to risk weighted assets)     $   88,811        10.56%  $   33,641         4.00%  $   39,705         6.00%
  Tier 1 capital (to average assets)           $   88,811         9.97%  $   35,631         4.00%  $   38,153         5.00%
</TABLE>

                                       23
<PAGE>

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 three months ended March 31, 2007 compared
to December 31, 2006.  Please see  discussion  under the caption  "Interest Rate
Sensitivity" on page 21.

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  March  31,  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  March 31, 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

         None

ITEM 5.  OTHER INFORMATION

         None

                                       24
<PAGE>

ITEM 6.  EXHIBITS

         31     Rule 13a-14(a) / 15d-14(a) Certifications
         32     Section 1350 Certifications

                                       25
<PAGE>

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  May 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)

                                       26