UNITED STATESSECURITIES 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, 2009.                              
|  |                                                                                                                                                               
|o | 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 o

Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).
Yes o      No o

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of
large accelerated filer, accelerated filer and smaller reporting company
in Rule 12b-2 of the Exchange Act (Check one):

| |                           |                            
| | ------------------------- | ---------------------------
| | Large accelerated filer o | Accelerated filer o        
| |                           |                            
| | Non-accelerated filer x   | Smaller reporting company o
| |                           |                            

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). 
Yes o      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  7,495,817
shares as of May 11, 2009.



---



INDEX

NORTH VALLEY BANCORP AND SUBSIDIARIES

|                              |                                                                                                        |   
|----------------------------- | ------------------------------------------------------------------------------------------------------ | --
|PART I. FINANCIAL INFORMATION | 3                                                                                                     
|                              |                                                                                                        |   
|Item 1.                       | Financial
  Statements (Unaudited)                                                                     | 3 
|                              |                                                                                                        |   
|                              | Condensed
  Consolidated Balance SheetsMarch 31, 2009 and December 31, 2008                           | 3 
|                              |                                                                                                        |   
|                              | Condensed
  Consolidated Statements of OperationsFor the three months ended March 31,
  2009 and 2008 | 4 
|                              |                                                                                                        |   
|                              | Condensed
  Consolidated Statements of Cash FlowsFor the three months ended March 31,
  2009 and 2008 | 5 
|                              |                                                                                                        |   
|                              | Notes to
  Condensed Consolidated Financial Statements                                                 | 6 
|                              |                                                                                                        |   
|Item 2.                       | Managements
  Discussion and Analysis of Financial Condition and Results of Operations                | 13
|                              |                                                                                                        |   
|Item 3.                       | Quantitative
  and Qualitative Disclosures about Market Risk                                           | 27
|                              |                                                                                                        |   
|Item 4.                       | Controls
  and Procedures                                                                              | 27
|                              |                                                                                                        |   
|PART II.OTHER INFORMATION     | 28                                                                                                    
|                              |                                                                                                        |   
|Item 1.                       | Legal
  Proceedings                                                                                    | 28
|                              |                                                                                                        |   
|Item 1A.                      | Risk
  Factors                                                                                         | 28
|                              |                                                                                                        |   
|Item 2.                       | Unregistered
  Sales of Equity Securities and Use of Proceeds                                          | 28
|                              |                                                                                                        |   
|Item 3.                       | Defaults
  Upon Senior Securities                                                                      | 28
|                              |                                                                                                        |   
|Item 4.                       | Submission
  of Matters to a Vote of Security Holders                                                  | 28
|                              |                                                                                                        |   
|Item 5.                       | Other
  Information                                                                                    | 28
|                              |                                                                                                        |   
|Item 6.                       | Exhibits                                                                                               | 28
|                              |                                                                                                        |   
|SIGNATURES                    | 29                                                                                                    

2

---



|                                                   
|---------------------------------------------------
|PART I.
  FINANCIAL INFORMATION                    
|ITEM 1.
  FINANCIAL STATEMENTS                     
|NORTH
  VALLEY BANCORP AND SUBSIDIARIES            
|CONDENSED
  CONSOLIDATED BALANCE SHEETS (Unaudited)
|(In
  thousands except share data)                 
|                                                   

|                                                                                                                           |  |                  |         |                     |   |         |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | ------------------- | - | ------- | -
|                                                                                                                           |  | March 31,
  2009 |         | December 31,
  2008 |  
|                                                                                                                           |  |                  |         |                     |  
|                                                                                                                           |  |                  |         |                     |  
|ASSETS                                                                                                                     |  |                  |         |                     |   |         |  
|Cash and cash equivalents:                                                                                                 |  |                  |         |                     |   |         |  
|Cash and due from banks                                                                                                    |  | $                | 19,595  |                     | $ | 27,153  |  
|Federal funds sold                                                                                                         |  |                  | 49,915  |                     |   |        |  
|                                                                                                                           |  |                  |         |                     |   |         |  
|Total cash and cash equivalents                                                                                            |  |                  | 69,510  |                     |   | 27,153  |  
|                                                                                                                           |  |                  |         |                     |   |         |  
|Investment securities available for sale, at fair value                                                                    |  |                  | 97,514  |                     |   | 76,345  |  
|Investment securities held to maturity, at amortized cost                                                                  |  |                  | 15      |                     |   | 21      |  
|                                                                                                                           |  |                  |         |                     |   |         |  
|Loans and leases                                                                                                           |  |                  | 660,653 |                     |   | 693,422 |  
|Less: Allowance for loan and lease losses                                                                                  |  |                  | (15,887 | )                   |   | (11,327 | )
|                                                                                                                           |  |                  |         |                     |   |         |  
|Net loans and leases                                                                                                       |  |                  | 644,766 |                     |   | 682,095 |  
|                                                                                                                           |  |                  |         |                     |   |         |  
|Premises and equipment, net                                                                                                |  |                  | 11,191  |                     |   | 11,418  |  
|Accrued interest receivable                                                                                                |  |                  | 2,709   |                     |   | 2,742   |  
|Other real estate owned                                                                                                    |  |                  | 5,943   |                     |   | 10,408  |  
|FHLB and FRB stock and other securities                                                                                    |  |                  | 5,825   |                     |   | 5,825   |  
|Bank-owned life insurance policies                                                                                         |  |                  | 31,889  |                     |   | 31,612  |  
|Core deposit intangibles, net                                                                                              |  |                  | 802     |                     |   | 838     |  
|Goodwill                                                                                                                   |  |                  | 15,187  |                     |   | 15,187  |  
|Other assets                                                                                                               |  |                  | 18,498  |                     |   | 15,907  |  
|                                                                                                                           |  |                  |         |                     |   |         |  
|                                                                                                                           |  |                  |         |                     |   |         |  
|TOTAL ASSETS                                                                                                               |  | $                | 903,849 |                     | $ | 879,551 |  
|                                                                                                                           |  |                  |         |                     |   |         |  
|                                                                                                                           |  |                  |         |                     |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                       |  |                  |         |                     |   |         |  
|                                                                                                                           |  |                  |         |                     |   |         |  
|LIABILITIES:                                                                                                               |  |                  |         |                     |   |         |  
|Deposits:                                                                                                                  |  |                  |         |                     |   |         |  
|Noninterest-bearing                                                                                                        |  | $                | 149,681 |                     | $ | 161,748 |  
|Interest-bearing                                                                                                           |  |                  | 637,151 |                     |   | 593,196 |  
|                                                                                                                           |  |                  |         |                     |   |         |  
|Total deposits                                                                                                             |  |                  | 786,832 |                     |   | 754,944 |  
|                                                                                                                           |  |                  |         |                     |   |         |  
|Other borrowed funds                                                                                                       |  |                  |        |                     |   | 3,516   |  
|Accrued interest payable and other liabilities                                                                             |  |                  | 10,133  |                     |   | 11,872  |  
|Subordinated debentures                                                                                                    |  |                  | 31,961  |                     |   | 31,961  |  
|                                                                                                                           |  |                  |         |                     |   |         |  
|Total liabilities                                                                                                          |  |                  | 828,926 |                     |   | 802,293 |  
|                                                                                                                           |  |                  |         |                     |   |         |  
|                                                                                                                           |  |                  |         |                     |   |         |  
|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
  7,495,817 for March 31, 2009 and December 31, 2008 |  |                  | 41,627  |                     |   | 41,553  |  
|Retained earnings                                                                                                          |  |                  | 34,323  |                     |   | 37,430  |  
|Accumulated other comprehensive loss, net of tax                                                                           |  |                  | (1,027  | )                   |   | (1,725  | )
|                                                                                                                           |  |                  |         |                     |   |         |  
|Total stockholders equity                                                                                                 |  |                  | 74,923  |                     |   | 77,258  |  
|                                                                                                                           |  |                  |         |                     |   |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY                                                                                 |  | $                | 903,849 |                     | $ | 879,551 |  
|                                                                                                                           |  |                  |         |                     |   |         |  

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

3

---



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

|                                                              |  |                                      |        |      |   |        | 
|------------------------------------------------------------- |  | ------------------------------------ | ------ | ---- | - | ------ | 
|                                                              |  | For the three months ended March 31, |       
|                                                              |  | 2009                                 |        | 2008 |  
|                                                              |  |                                      |        |      |  
|                                                              |  |                                      |        |      |  
|INTEREST INCOME:                                              |  |                                      |        |      |   |        | 
|Interest and fees on loans and leases                         |  | $                                    | 10,536 |      | $ | 12,976 | 
|Interest on investments:                                      |  |                                      |        |      |   |        | 
|Taxable interest income                                       |  |                                      | 694    |      |   | 934    | 
|Nontaxable interest income                                    |  |                                      | 180    |      |   | 235    | 
|Interest on federal funds sold and repurchase agreements      |  |                                      | 9      |      |   | 5      | 
|                                                              |  |                                      |        |      |   |        | 
|Total interest income                                         |  |                                      | 11,419 |      |   | 14,150 | 
|                                                              |  |                                      |        |      |   |        | 
|                                                              |  |                                      |        |      |   |        | 
|INTEREST EXPENSE:                                             |  |                                      |        |      |   |        | 
|Deposits                                                      |  |                                      | 2,768  |      |   | 3,828  | 
|Subordinated debentures                                       |  |                                      | 542    |      |   | 595    | 
|Other borrowings                                              |  |                                      | 1      |      |   | 599    | 
|                                                              |  |                                      |        |      |   |        | 
|Total interest expense                                        |  |                                      | 3,311  |      |   | 5,022  | 
|                                                              |  |                                      |        |      |   |        | 
|                                                              |  |                                      |        |      |   |        | 
|NET INTEREST INCOME                                           |  |                                      | 8,108  |      |   | 9,128  | 
|                                                              |  |                                      |        |      |   |        | 
|PROVISION FOR LOAN AND LEASE LOSSES                           |  |                                      | 7,000  |      |   | 2,400  | 
|                                                              |  |                                      |        |      |   |        | 
|                                                              |  |                                      |        |      |   |        | 
|NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE
LOSSES |  |                                      | 1,108  |      |   | 6,728  | 
|                                                              |  |                                      |        |      |   |        | 
|                                                              |  |                                      |        |      |   |        | 
|NONINTEREST INCOME:                                           |  |                                      |        |      |   |        | 
|Service charges on deposit accounts                           |  |                                      | 1,528  |      |   | 1,716  | 
|Other fees and charges                                        |  |                                      | 964    |      |   | 965    | 
|Earnings on cash surrender value of life insurance
policies   |  |                                      | 336    |      |   | 330    | 
|Gain on sale of loans                                         |  |                                      | 97     |      |   | 88     | 
|Gain on sales or calls of investment securities               |  |                                      |       |      |   | 1      | 
|Loss on sale/writedown of other real estate owned             |  |                                      | (890   | )    |   |       | 
|Other                                                         |  |                                      | 239    |      |   | 391    | 
|                                                              |  |                                      |        |      |   |        | 
|Total noninterest income                                      |  |                                      | 2,274  |      |   | 3,491  | 
|                                                              |  |                                      |        |      |   |        | 
|                                                              |  |                                      |        |      |   |        | 
|NONINTEREST EXPENSES:                                         |  |                                      |        |      |   |        | 
|Salaries and employee benefits                                |  |                                      | 5,064  |      |   | 5,536  | 
|Occupancy expense                                             |  |                                      | 761    |      |   | 754    | 
|Furniture and equipment expense                               |  |                                      | 469    |      |   | 465    | 
|Other                                                         |  |                                      | 3,151  |      |   | 3,050  | 
|                                                              |  |                                      |        |      |   |        | 
|Total noninterest expenses                                    |  |                                      | 9,445  |      |   | 9,805  | 
|                                                              |  |                                      |        |      |   |        | 
|                                                              |  |                                      |        |      |   |        | 
|(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES               |  |                                      | (6,063 | )    |   | 414    | 
|                                                              |  |                                      |        |      |   |        | 
|(BENEFIT) PROVISION FOR INCOME TAXES                          |  |                                      | (2,956 | )    |   | 134    | 
|                                                              |  |                                      |        |      |   |        | 
|                                                              |  |                                      |        |      |   |        | 
|NET (LOSS) INCOME                                             |  | $                                    | (3,107 | )    | $ | 280    | 
|                                                              |  |                                      |        |      |   |        | 
|                                                              |  |                                      |        |      |   |        | 
|Per Share Amounts                                             |  |                                      |        |      |   |        | 
|Basic (Loss) Earnings Per Share                               |  | $                                    | (0.41  | )    | $ | 0.04   | 
|                                                              |  |                                      |        |      |   |        | 
|Diluted (Loss) Earnings Per Share                             |  | $                                    | (0.41  | )    | $ | 0.04   | 
|                                                              |  |                                      |        |      |   |        | 
|Cash Dividends Per Common Share                               |  | $                                    |       |      | $ | 0.10   | 
|                                                              |  |                                      |        |      |   |        | 

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

4

---



|                                                             
|-------------------------------------------------------------
|NORTH
  VALLEY BANCORP AND SUBSIDIARIES                      
|CONDENSED
  CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
|FOR THE
  THREE MONTHS ENDED MARCH 31, (in thousands)        
|                                                             

|                                                                            |  |      |         |      |   |         |  
|--------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|                                                                            |  | 2009 |         | 2008 |  
|                                                                            |  |      |         |      |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                       |  |      |         |      |   |         |  
|Net (Loss) Income                                                           |  | $    | (3,107  | )    | $ | 280     |  
|Adjustments to reconcile net (loss) income to net cash provided
by          |  |      |         |      |   |         |  
|operating activities:                                                       |  |      |         |      |   |         |  
|Depreciation and amortization                                               |  |      | 478     |      |   | 513     |  
|(Accretion) amortization of premium on securities,
net                      |  |      | (17     | )    |   | 6       |  
|Amortization of core deposit intangible                                     |  |      | 36      |      |   | 163     |  
|Provision for loan and lease losses                                         |  |      | 7,000   |      |   | 2,400   |  
|Loss on sale/write-down of other real estate
owned                          |  |      | 890     |      |   |        |  
|Gain on sale or calls of investment
securities                              |  |      |        |      |   | (1      | )
|Gain on sale of loans                                                       |  |      | (97     | )    |   | (88     | )
|Gain on sale of premises and equipment                                      |  |      |        |      |   | (1      | )
|FHLB stock dividends                                                        |  |      |        |      |   | (50     | )
|Stock-based compensation expense                                            |  |      | 74      |      |   | 178     |  
|Excess tax benefit from exercise of stock
options                           |  |      |        |      |   | (18     | )
|Effect of changes in:                                                       |  |      |         |      |   |         |  
|Accrued interest receivable                                                 |  |      | 33      |      |   | 666     |  
|Other assets                                                                |  |      | (3,354  | )    |   | (682    | )
|Accrued interest payable and other
liabilities                              |  |      | (1,739  | )    |   | (781    | )
|                                                                            |  |      |         |      |   |         |  
|Net cash provided by operating activities                                   |  |      | 197     |      |   | 2,585   |  
|                                                                            |  |      |         |      |   |         |  
|                                                                            |  |      |         |      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                       |  |      |         |      |   |         |  
|Purchases of available for sale
securities                                  |  |      | (23,243 | )    |   |        |  
|Proceeds from maturities/calls of available for
sale securities             |  |      | 3,275   |      |   | 6,158   |  
|Proceeds from maturities/calls of held to maturity
securities               |  |      | 6       |      |   |        |  
|Purchases of FHLB and FRB stock and other
securities                        |  |      |        |      |   | (555    | )
|Net decrease (increase) in loans and
leases                                 |  |      | 30,233  |      |   | (4,380  | )
|Proceeds from sales of other real estate
owned                              |  |      | 3,768   |      |   |        |  
|Proceeds from sales of premises and
equipment                               |  |      | 7       |      |   |        |  
|Purchases of premises and equipment                                         |  |      | (258    | )    |   | (147    | )
|                                                                            |  |      |         |      |   |         |  
|Net cash provided by investing activities                                   |  |      | 13,788  |      |   | 1,076   |  
|                                                                            |  |      |         |      |   |         |  
|                                                                            |  |      |         |      |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                       |  |      |         |      |   |         |  
|Net increase in deposits                                                    |  |      | 31,888  |      |   | 26,010  |  
|Net change in other borrowed funds                                          |  |      | (3,516  | )    |   | (28,797 | )
|Cash dividends paid                                                         |  |      |        |      |   | (741    | )
|Exercise of stock options, including tax
benefit                            |  |      |        |      |   | 91      |  
|                                                                            |  |      |         |      |   |         |  
|Net cash provided by (used in) financing
activities                         |  |      | 28,372  |      |   | (3,437  | )
|                                                                            |  |      |         |      |   |         |  
|                                                                            |  |      |         |      |   |         |  
|NET INCREASE CASH AND CASH EQUIVALENTS                                      |  |      | 42,357  |      |   | 224     |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                |  |      | 27,153  |      |   | 28,569  |  
|                                                                            |  |      |         |      |   |         |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                    |  |      | 69,510  |      | $ | 28,793  |  
|                                                                            |  |      |         |      |   |         |  
|                                                                            |  |      |         |      |   |         |  
|Supplemental Disclosures of Cash Flow Information                           |  |      |         |      |   |         |  
|Cash paid during the period for:                                            |  |      |         |      |   |         |  
|Interest                                                                    |  |      | 3,729   |      | $ | 5,414   |  
|Income taxes                                                                |  |      |        |      |   |        |  
|                                                                            |  |      |         |      |   |         |  
|Noncash investing and financing activities:                                 |  |      |         |      |   |         |  
|Net change in unrealized loss on available for sale
investment
  securities |  |      | 1,185   |      |   | 408     |  
|Transfer from loans to other real estate
owned                              |  |      | 193     |      |   |        |  
|Cash dividends declared                                                     |  |      |        |      |   | 742     |  
|Tax benefit from stock options exercised                                    |  |      |        |      |   | 18      |  

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

5

---



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,
2008. Operating results for the three months ended March 31, 2009 are not
necessarily indicative of the results that may be expected for any subsequent
period or for the year ended December 31, 2009.

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.

Management has determined
that since all of the banking products and services offered by the Company are
available in each branch of NVB, all branches are located within the same
economic environment and management does not allocate resources based on the
performance of different lending or transaction activities, it is appropriate
to aggregate NVB branches and report them as a single operating segment. No
single customer accounts for more than 10 percent of revenues for the Company
or NVB.

NOTE B  INVESTMENT SECURITIES

At March 31, 2009 and
December 31, 2008, the amortized cost of securities and their approximate fair
value were as follows (in thousands):

|                                                |  |                |        |                              |   |                            |  |                         |        |   |   |        | 
|----------------------------------------------- |  | -------------- | ------ | ---------------------------- | - | -------------------------- |  | ----------------------- | ------ | - | - | ------ | 
|                                                |  | Amortized Cost |        | Gross 
  Unrealized 
  Gains |   | Gross 
  Unrealized Losses |  | Estimated 
  Fair Value |       
|                                                |  |                |        |                              |   |                            |  |                         |       
|Available for sale securities:                  |  |                |        |                              |   |                            |  |                         |        |   |   |        | 
|                                                |  |                |        |                              |   |                            |  |                         |        |   |   |        | 
|March 31, 2009                                  |  |                |        |                              |   |                            |  |                         |        |   |   |        | 
|Obligations of U.S. government agencies         |  | $              | 1,500  |                              | $ | 85                         |  | $                       |       |   | $ | 1,585  | 
|Obligations of state and political
subdivisions |  |                | 15,835 |                              |   | 429                        |  |                         | (170   | ) |   | 16,094 | 
|Mortgage-backed securities                      |  |                | 72,080 |                              |   | 2,415                      |  |                         | (159   | ) |   | 74,336 | 
|Corporate debt securities                       |  |                | 6,002  |                              |   |                           |  |                         | (3,503 | ) |   | 2,499  | 
|Equity securities                               |  |                | 3,000  |                              |   |                           |  |                         |       |   |   | 3,000  | 
|                                                |  |                |        |                              |   |                            |  |                         |        |   |   |        | 
|                                                |  | $              | 98,417 |                              | $ | 2,929                      |  | $                       | (3,832 | ) | $ | 97,514 | 
|                                                |  |                |        |                              |   |                            |  |                         |        |   |   |        | 
|                                                |  |                |        |                              |   |                            |  |                         |        |   |   |        | 
|December 31, 2008                               |  |                |        |                              |   |                            |  |                         |        |   |   |        | 
|Obligations of U.S. government agencies         |  | $              | 1,500  |                              | $ | 93                         |  | $                       |       |   | $ | 1,593  | 
|Obligations of state and political
subdivisions |  |                | 16,037 |                              |   | 356                        |  |                         | (217   | ) |   | 16,176 | 
|Mortgage-backed securities                      |  |                | 51,894 |                              |   | 541                        |  |                         | (490   | ) |   | 51,945 | 
|Corporate debt securities                       |  |                | 6,002  |                              |   |                           |  |                         | (2,371 | ) |   | 3,631  | 
|Equity securities                               |  |                | 3,000  |                              |   |                           |  |                         |       |   |   | 3,000  | 
|                                                |  |                |        |                              |   |                            |  |                         |        |   |   |        | 
|                                                |  | $              | 78,433 |                              | $ | 990                        |  | $                       | (3,078 | ) | $ | 76,345 | 
|                                                |  |                |        |                              |   |                            |  |                         |        |   |   |        | 
|March 31, 2009                                  |  |                |        |                              |   |                            |  |                         |        |   |   |        | 
|Mortgage-backed securities                      |  | $              | 15     |                              | $ |                           |  | $                       | (1     | ) | $ | 14     | 
|                                                |  |                |        |                              |   |                            |  |                         |        |   |   |        | 
|                                                |  |                |        |                              |   |                            |  |                         |        |   |   |        | 
|December 31, 2008                               |  |                |        |                              |   |                            |  |                         |        |   |   |        | 
|Mortgage-backed securities                      |  | $              | 21     |                              | $ |                           |  | $                       | (1     | ) | $ | 20     | 
|                                                |  |                |        |                              |   |                            |  |                         |        |   |   |        | 

6

---



For the three months ended
March 31, 2009 there were no gross realized gains on sales or calls of
available for sale securities. For the three months ended March 31, 2008 there
was $1,000 in gross realized gains on sales or calls of available for sale
securities. For the three months ended March 31, 2009 and 2008 there were no
gross realized losses on sales or calls of available for sale securities. There
were no sales or transfers of held to maturity securities for the three months
ended March 31, 2009 and 2008.

At March 31, 2009 and
December 31, 2008, securities having fair value amounts of approximately
$86,236,000 and $65,118,000 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, 2009, the
Company held $20,919,000 of available for sale investment securities in an
unrealized loss position of which $7,789,000 were in an unrealized loss
position for less than twelve months and $13,130,000 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.

NOTE C  STOCK-BASED COMPENSATION

Stock Option Plans

At March 31, 2009, the
Company had four shareholder approved stock-based compensation plans: the North
Valley Bancorp 1989 Director Stock Option Plan, the 1998 Employee Stock
Incentive Plan, the 1999 Director Stock Option Plan and the 2008 Stock
Incentive Plan. The plans do not provide for the settlement of awards in cash
and new shares are issued upon exercise of the options. Under the North Valley
Bancorp 1989 Director Stock Option Plan each member of the Board of Directors,
including employees who are Directors, automatically received every January a
non-statutory stock option to purchase 1,000 shares of the Companys Common
Stock. Effective upon adoption of the North Valley Bancorp 1999 Director Stock
Option Plan, no further grants of options have been made or will be made under
the 1989 Director Plan. Pursuant to the 1989 Director Plan, there were no
outstanding options to purchase shares of Common Stock at March 31, 2009. The
North Valley Bancorp 1998 Employee Stock Incentive Plan provides for awards in
the form of options (which may constitute incentive stock options (ISOs) or
non-statutory stock options (NSOs) to key employees) and also provides for
the award of shares of Common Stock to outside directors. Pursuant to the Stock
Incentive Plan there were outstanding options to purchase 421,290 shares of
Common Stock at March 31, 2009. As provided in the Stock Incentive Plan, the
authorization to award incentive stock options terminated on February 19, 2008.
The 1999 Director Stock Option Plan replaced the existing North Valley Bancorp
1989 Director Stock Option Plan. As of March 31, 2009, there were options
outstanding under the 1999 Director Stock Option Plan for the purchase of
241,000 shares of Common Stock. A total of 225,767 shares of Common Stock were
available for the grant of additional options under the 1999 Director Stock
Option Plan at March 31, 2009. As of March 31, 2009, there were options outstanding
under the 2008 Stock Incentive Plan for the purchase of 274,212 shares of
Common Stock. A total of 125,788 shares of Common Stock were available for the
grant of additional options under the 2008 Stock Incentive Plan at March 31,
2009. Options for a total of 1,130,091 shares were authorized under all plans
at March 31, 2009.

7

---



The North Valley Bancorp
2008 Stock Incentive Plan was adopted by the Companys Board of Directors on
February 27, 2008, effective that date, and was approved by the Companys shareholders
at the annual meeting, May 22, 2008. The terms of the 2008 Stock Incentive Plan
are substantially the same as the North Valley Bancorp 1998 Employee Stock
Incentive Plan. The 2008 Stock Incentive Plan provides for the grant to key
employees of stock options, which may consist of NSOs and ISOs. The 2008 Stock
Incentive Plan also provides for the grant to outside directors, and to
consultants and advisers to the Company, of stock options, all of which must be
NSOs. The shares of Common Stock authorized to be granted as options under the
Stock Incentive Plan consist of 400,000 shares of the Companys Common Stock.
Effective January 1, 2009, and on each January 1 thereafter for the remaining
term of the 2008 Stock Incentive Plan, the aggregate number of shares of Common
Stock which are reserved for issuance pursuant to options granted under the
terms of the 2008 Stock Incentive Plan shall be increased by a number of shares
of Common Stock equal to 2% of the total number of the shares of Common Stock of
the Company outstanding at the end of the most recently concluded calendar
year. Any shares of Common Stock that have been reserved but not issued as
options during any calendar year shall remain available for grant during any
subsequent calendar year. Each outside director of the Company shall also be
eligible to receive a stock award of 900 shares of Common Stock as part of his
or her annual retainer paid by the Company for his or her services as a
director. Each stock award shall be fully vested when granted to the outside
director. The number of shares of Common Stock available as stock awards to
outside directors shall equal the number of shares of Common Stock to be
awarded to such outside directors. Outstanding options under the plans are
exercisable until their expiration.

Stock Option Compensation

There were 19,500 and
135,899 options granted in the three month periods ended March 31, 2009 and
2008, respectively. The weighted average grant date fair value of options
granted for the three month period ended March 31, 2009 and 2008 was $1.50 and
$3.03, respectively. For the three month periods ended March 31, 2009 and 2008,
the compensation cost recognized for stock option compensation was $59,000 and
$139,000, respectively. Director stock grant expense for the three month
periods ended March 31, 2009 and 2008 was $14,000 and $39,000, respectively.
The recognized tax benefit for stock option compensation expense was $18,000
for the three month period ended March 31, 2008. There was no recognized tax
benefit for stock option compensation expense for the three month period ended
March 31, 2009. At March 31, 2009, the total unrecognized compensation cost
related to stock-based awards granted to employees under the Companys stock
option plans was $559,000. This cost will be amortized on a straight-line basis
over a weighted average period of approximately 3.1 years and will be adjusted
for subsequent changes in estimated forfeitures.

The fair value of each
option is estimated on the date of grant with the following assumptions:

|                                         |  |                              |           |      |   |              |  
|---------------------------------------- |  | ---------------------------- | --------- | ---- | - | ------------ | -
|                                         |  | Three months ended March 31, |          
|                                         |  |                              |          
|                                         |  | 2009                         |           | 2008 |  
|                                         |  |                              |           |      |  
|                                         |  |                              |           |      |   |              |  
|Average dividend yield                   |  |                              | 0.00      | %    |   | 3.08         | %
|Expected volatility                      |  |                              | 36.76     | %    |   | 27.08        | %
|Average risk-free interest
  rate        |  |                              | 2.34      | %    |   | 3.67         | %
|Expected option life                     |  |                              | 7
  years |      |   | 6.52
  years |  
|Weighted average grant date
  fair value |  | $                            | 1.50      |      | $ | 3.03         |  
|                                         |  |                              |           |      |   |              |  

Stock-Based Compensation

Under the Companys stock
option plans as of March 31, 2009, 351,555 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 Stock Incentive
Plans, 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. The vesting period is generally four years; however the vesting
period can be modified at the discretion of the Companys Board of Directors,
and for all options granted in the fourth quarter in 2008 and first quarter
2009 the vesting period is five years. A summary of outstanding stock options
follows:

8

---



|                                               |  |        |         |                                       |   |                                                     |  |                          |           |                                      |   |            |  |   |    | 
|---------------------------------------------- |  | ------ | ------- | ------------------------------------- | - | --------------------------------------------------- |  | ------------------------ | --------- | ------------------------------------ | - | ---------- |  | - | -- | 
|                                               |  | Shares |         | Weighted
  Average
  Exercise
  Price |   | Weighted
  Average
  Remaining
  Contractual
  Term |  | Exercise
  Price
  Range |           | Aggregate
  Intrinsic
  Value ($000) |  
|                                               |  |        |         |                                       |   |                                                     |  |                          |           |                                      |  
|                                               |  |        |         |                                       |   |                                                     |  |                          |           |                                      |   |            |  |   |    | 
|Outstanding at January 1, 2009                 |  |        | 987,402 |                                       | $ | 9.74                                                |  |                          | 6
  years |                                      | $ | 4.79-24.75 |  | $ |   | 
|                                               |  |        |         |                                       |   |                                                     |  |                          |           |                                      |   |            |  |   |    | 
|Granted                                        |  |        | 19,500  |                                       |   | 3.55                                                |  |                          |          |                                      |   | 3.15-3.64  |  |   |   | 
|Exercised                                      |  |        |        |                                       |   |                                                    |  |                          |          |                                      |   |           |  |   |   | 
|Expired or Forfeited                           |  |        | (70,400 | )                                     |   | 8.75                                                |  |                          |          |                                      |   | 6.80-20.62 |  |   |   | 
|                                               |  |        |         |                                       |   |                                                     |  |                          |           |                                      |   |            |  |   |    | 
|Outstanding at March 31, 2009                  |  |        | 936,502 |                                       | $ | 9.68                                                |  |                          | 6
  years |                                      | $ | 3.15-24.75 |  | $ | 15 | 
|                                               |  |        |         |                                       |   |                                                     |  |                          |           |                                      |   |            |  |   |    | 
|                                               |  |        |         |                                       |   |                                                     |  |                          |           |                                      |   |            |  |   |    | 
|Fully vested and exercisable at March 31, 2009 |  |        | 545,936 |                                       | $ | 11.05                                               |  |                          | 3
  years |                                      | $ | 6.51-24.75 |  | $ |   | 
|                                               |  |        |         |                                       |   |                                                     |  |                          |           |                                      |   |            |  |   |    | 
|                                               |  |        |         |                                       |   |                                                     |  |                          |           |                                      |   |            |  |   |    | 
|Options expected to vest                       |  |        | 390,566 |                                       | $ | 7.78                                                |  |                          | 9
  years |                                      | $ | 3.15-24.75 |  | $ | 15 | 
|                                               |  |        |         |                                       |   |                                                     |  |                          |           |                                      |   |            |  |   |    | 

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, 2009.
The intrinsic value of options exercised during the three months ended March
31, 2008 totaled $44,000. There were no options exercised during the three
months ended March 31, 2009.

NOTE D  COMPREHENSIVE (LOSS) INCOME

Comprehensive (loss) income
includes net (loss) 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 (in thousands):

|                                        |  |                              |        |      |   |     | 
|--------------------------------------- |  | ---------------------------- | ------ | ---- | - | --- | 
|                                        |  | Three months ended March 31, |       
|                                        |  |                              |       
|                                        |  | 2009                         |        | 2008 |  
|                                        |  |                              |        |      |  
|                                        |  |                              |        |      |   |     | 
|Net (loss) income                       |  | $                            | (3,107 | )    | $ | 280 | 
|Other comprehensive income, net of tax: |  |                              |        |      |   |     | 
|Holding gain arising during period      |  |                              | 698    |      |   | 240 | 
|                                        |  |                              |        |      |   |     | 
|Total comprehensive (loss) income       |  | $                            | (2,409 | )    | $ | 520 | 
|                                        |  |                              |        |      |   |     | 

NOTE E  IMPAIRED AND NONPERFORMING LOANS AND LEASES AND OREO

At March 31, 2009 and
December 31, 2008, the recorded investment in nonperforming loans and leases
was approximately $19,926,000 and $18,936,000, respectively. Of the March 31,
2009 balance, a specific reserve of $1,832,000 was established. Of the December
31, 2008 balance, a specific reserve of $1,755,000 was established. If interest
had been accruing on the nonperforming loans, such income would have approximated
$374,000 for the three months ended March 31, 2009.

At March 31, 2009 and
December 31, 2008, the recorded investment in other real estate owned (OREO)
was approximately $5,943,000 and $10,408,000, respectively. During the quarter
ended March 31, 2009, the Company transferred one property from loans in the
amount of $193,000 to OREO, had $3,768,000 in proceeds on sales of OREO and
recorded an $890,000 loss on the sale/writedown of OREO in other noninterest
income. The March 31, 2009 balance of OREO of $5,943,000 consists of seven
properties with the largest property representing $2,875,000 of the balance at
March 31, 2009.

Nonperforming loans and
leases include all such loans and leases that are either on nonaccrual status
or are 90 days past due as to principal or interest but still accrue interest
because such loans are well-secured and in the process of collection.
Nonperforming loans and leases and OREO at March 31, 2009 and December 31, 2008
are summarized as follows (in thousands):

9

---



|                                                                 |  |           |        |              |   |        |  
|---------------------------------------------------------------- |  | --------- | ------ | ------------ | - | ------ | -
|                                                                 |  | March 31, |        | December 31, |  
|                                                                 |  | 2009      |        | 2008         |  
|                                                                 |  |           |        |              |  
|                                                                 |  |           |        |              |   |        |  
|Nonaccrual loans and leases                                      |  | $         | 19,926 |              | $ | 18,936 |  
|Loans and leases past due 90 days and accruing
interest          |  |           |       |              |   |       |  
|Other real estate owned                                          |  |           | 5,943  |              |   | 10,408 |  
|                                                                 |  |           |        |              |   |        |  
|Total nonperforming assets                                       |  | $         | 25,869 |              | $ | 29,344 |  
|                                                                 |  |           |        |              |   |        |  
|                                                                 |  |           |        |              |   |        |  
|Nonaccrual loans and
  leases to total gross loans and leases    |  |           | 3.02   | %            |   | 2.73   | %
|Nonperforming loans and
  leases to total gross loans and leases |  |           | 3.02   | %            |   | 2.73   | %
|Total nonperforming assets
  to total assets                     |  |           | 2.86   | %            |   | 3.34   | %

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. When a net loss occurs there is
no effect on the calculation of diluted loss per share for common stock
equivalents because the conversion is anti-dilutive.

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, 2009 and 2008 is reconciled as follows (in thousands,
except per share amounts):

|                                                                          |  |                              |        |      |   |       | 
|------------------------------------------------------------------------- |  | ---------------------------- | ------ | ---- | - | ----- | 
|                                                                          |  | Three months ended March 31, |       
|                                                                          |  | 2009                         |        | 2008 |  
|                                                                          |  |                              |        |      |  
|Calculation
  of basic earnings per share:                                |  |                              |        |      |   |       | 
|Numerator  net (loss) income                                             |  | $                            | (3,107 | )    | $ | 280   | 
|Denominator  weighted average common shares
outstanding                  |  |                              | 7,496  |      |   | 7,417 | 
|                                                                          |  |                              |        |      |   |       | 
|                                                                          |  |                              |        |      |   |       | 
|Basic (loss) earnings per share                                           |  | $                            | (0.41  | )    | $ | 0.04  | 
|                                                                          |  |                              |        |      |   |       | 
|                                                                          |  |                              |        |      |   |       | 
|Calculation
  of diluted earnings per share:                              |  |                              |        |      |   |       | 
|Numerator  net (loss) income                                             |  | $                            | (3,107 | )    | $ | 280   | 
|Denominator:                                                              |  |                              |        |      |   |       | 
|Weighted average common shares
outstanding                                |  |                              | 7,496  |      |   | 7,417 | 
|Dilutive effect of outstanding options                                    |  |                              |       |      |   | 128   | 
|                                                                          |  |                              |        |      |   |       | 
|Weighted
  average common shares outstanding and common stock equivalents |  |                              | 7,496  |      |   | 7,545 | 
|                                                                          |  |                              |        |      |   |       | 
|                                                                          |  |                              |        |      |   |       | 
|Diluted
  (loss) earnings per share                                       |  | $                            | (0.41  | )    | $ | 0.04  | 
|                                                                          |  |                              |        |      |   |       | 

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
were $57,000 for each of the three months ended March 31, 2009 and 2008. Components
of net periodic benefit cost for the Companys supplemental nonqualified
defined benefit plans for the three months ended March 31, 2009 and 2008 are
presented in the following table (in thousands):

10

---



|                                            |  |                              |     |      |   |     | 
|------------------------------------------- |  | ---------------------------- | --- | ---- | - | --- | 
|                                            |  | Three months ended March 31, |    
|                                            |  | 2009                         |     | 2008 |  
|                                            |  |                              |     |      |  
|Components
  of net periodic benefits cost: |  |                              |     |      |   |     | 
|Service cost                                |  | $                            | 135 |      | $ | 137 | 
|Interest cost                               |  |                              | 83  |      |   | 75  | 
|Prior service amortization                  |  |                              | 8   |      |   | 8   | 
|Recognized net actuarial loss               |  |                              | 5   |      |   | 12  | 
|                                            |  |                              |     |      |   |     | 
|Total
  components of net periodic cost     |  | $                            | 231 |      | $ | 232 | 
|                                            |  |                              |     |      |   |     | 

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 $5,764,000 and $7,003,000 at March 31, 2009 and December 31, 2008. At March
31, 2009, commercial and consumer lines of credit and real estate loans of
approximately $95,589,000 and $56,768,000 were undisbursed. At December 31,
2008, commercial and consumer lines of credit and real estate loans of
approximately $97,110,000 and $61,820,000 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.

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 real estate projects and 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. Most 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,
2009 and December 31, 2008. 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, 2009, no losses are anticipated as a result of these commitments.

A large portion of the loan
portfolio of the Company is dependent on real estate. At March 31, 2009 and
December 31, 2008, real estate served as the principal source of collateral
with respect to approximately 77% of the Companys loan portfolio. At March 31,
2009, real estate construction loans totaled $121,267,000, or 18% of the total
loan portfolio, and commercial loans secured by real estate totaled
$327,052,000, or 49% of the total loan portfolio. See the discussion under Loan
and Lease Portfolio starting on page 20. A further decline in the state and
national economy, in general, combined with further deterioration in real
estate values in the Companys primary operating market areas, would have an
adverse effect on the value of real estate as well as other collateral securing
loans, plus the ability of certain borrowers to repay their outstanding loans
and the overall demand for new loans, and this could have a material impact on
the Companys financial position or results of operations or its cash flows.

NOTE I  INCOME TAXES

The Company applies the
asset and liability method to account for income taxes. Deferred tax assets and
liabilities are calculated by applying applicable tax laws to the differences
between the financial statement basis and the tax basis of assets and
liabilities. The effect on deferred taxes of changes in tax laws and rates is
recognized in income in the period that includes the enactment date. On the
consolidated balance sheet, net deferred tax assets are included in other
assets.

11

---



Accounting for uncertainty
in income taxes - The benefit of a tax position is recognized in the financial
statements in the period during which, based on all available evidence,
management believes it is more likely than not that the position will be
sustained upon examination, including the resolution of appeals or litigation
processes, if any. Tax positions that meet the more-likely-than-not recognition
threshold are measured as the largest amount of tax benefit that is more than
50 percent likely of being realized upon settlement with the applicable taxing
authority. The portion of the benefits associated with tax positions taken that
exceeds the amount measured as described above is reflected as a liability for unrecognized
tax benefits in the accompanying balance sheet along with any associated
interest and penalties that would be payable to the taxing authorities upon
examination. The Company recognizes accrued interest and penalties related to
unrecognized tax benefits, if applicable, as a component of interest expense in
the consolidated statements of income. There have been no significant changes
to unrecognized tax benefits or accrued interest and penalties for the three
months ended March 31, 2009.

NOTE J  FAIR VALUE MEASUREMENT

The following tables present
information about the Companys assets measured at fair value on a recurring
and nonrecurring basis as of March 31, 2009, and indicates the fair value
hierarchy of the valuation techniques utilized by the Company to determine such
fair value. In general, fair values determined by Level 1 inputs utilize quoted
prices (unadjusted) in active markets for identical assets or liabilities that
the Company has the ability to access. Fair values determined by Level 2 inputs
utilize inputs other than quoted prices included in Level 1 that are observable
for the asset or liability, either directly or indirectly. Level 2 inputs
include quoted prices for similar assets and liabilities in active markets, and
inputs other than quoted prices that are observable for the asset or liability,
such as interest rates and yield curves that are observable at commonly quoted
intervals. Level 3 inputs are unobservable inputs for the asset or liability,
and includes situations where there is little, if any, market activity for the
asset or liability. In certain cases, the inputs used to measure fair value may
fall into different levels of the fair value hierarchy. In such cases, the
level in the fair value hierarchy within which the fair value measurement in
its entirety falls has been determined based on the lowest level input that is
significant to the fair value measurement in its entirety. The Companys
assessment of the significance of a particular input to the fair value measurement
in its entirety requires judgment, and considers factors specific to the asset
or liability.

Assets measured at fair
value on a recurring basis are summarized below (in thousands):

|                                                         |  |                             |        |                                                                      |   |                                         |  |                                                 |        |  |   |   | 
|-------------------------------------------------------- |  | --------------------------- | ------ | -------------------------------------------------------------------- | - | --------------------------------------- |  | ----------------------------------------------- | ------ |  | - | - | 
|                                                         |  |                             |        | Fair Value Measurements
  at March 31, 2009, Using                   |  
|                                                         |  |                             |        |                                                                      |  
|Description                                              |  | Fair Value
  March 31, 2009 |        | Quoted Prices in
  Active Markets for
  Identical Assets
  (Level 1) |   | Other
  Observable
  Inputs
  (Level 2) |  | Significant
  Unobservable
  Inputs
  (Level 3) |       
|                                                         |  |                             |        |                                                                      |   |                                         |  |                                                 |       
|Available-for sale securities                            |  | $                           | 97,514 |                                                                      | $ |                                        |  | $                                               | 97,514 |  | $ |  | 
|                                                         |  |                             |        |                                                                      |   |                                         |  |                                                 |        |  |   |   | 
|                                                         |  |                             |        |                                                                      |   |                                         |  |                                                 |        |  |   |   | 
|Total assets measured at fair value on a recurring basis |  | $                           | 97,514 |                                                                      | $ |                                        |  | $                                               | 97,514 |  | $ |  | 
|                                                         |  |                             |        |                                                                      |   |                                         |  |                                                 |        |  |   |   | 

Available-for-Sale Securities - Fair values for investment securities are
based on quoted market prices.

Assets measured at fair
value on a nonrecurring basis are summarized below (in thousands):

|                                                            |  |                           |        |                                                                      |   |                                         |  |                                                 |        |  |   |   | 
|----------------------------------------------------------- |  | ------------------------- | ------ | -------------------------------------------------------------------- | - | --------------------------------------- |  | ----------------------------------------------- | ------ |  | - | - | 
|                                                            |  |                           |        | Fair Value Measurements
  at March 31, 2009, Using                   |  
|                                                            |  |                           |        |                                                                      |  
|Description                                                 |  | Fair Value March 31, 2009 |        | Quoted Prices in
  Active Markets for
  Identical Assets
  (Level 1) |   | Other
  Observable
  Inputs
  (Level 2) |  | Significant
  Unobservable
  Inputs
  (Level 3) |       
|                                                            |  |                           |        |                                                                      |   |                                         |  |                                                 |       
|Impaired Loans                                              |  | $                         | 19,926 |                                                                      | $ |                                        |  | $                                               | 19,926 |  | $ |  | 
|                                                            |  |                           |        |                                                                      |   |                                         |  |                                                 |        |  |   |   | 
|Other Real Estate Owned                                     |  |                           | 5,943  |                                                                      |   |                                        |  |                                                 | 5,943  |  |   |  | 
|                                                            |  |                           |        |                                                                      |   |                                         |  |                                                 |        |  |   |   | 
|                                                            |  |                           |        |                                                                      |   |                                         |  |                                                 |        |  |   |   | 
|Total assets measured at fair value on a nonrecurring
basis |  | $                         | 25,869 |                                                                      | $ |                                        |  | $                                               | 25,869 |  | $ |  | 
|                                                            |  |                           |        |                                                                      |   |                                         |  |                                                 |        |  |   |   | 

Impaired loansimpaired loans, which are measured for
impairment using the fair value of the collateral for the collateral dependent
loans, had a carrying amount of $19,926,000, with a specific reserve of
$1,832,000.

Other real estate owned-Other real estate owned represents real
estate which the Company has taken control of in partial or full satisfaction
of loans. At the time of foreclosure, other real estate owned is recorded at
the fair value of the real estate less costs to sell, which becomes the
propertys new basis.

12

---



NOTE K - NEW ACCOUNTING PRONOUNCEMENTS

Employers Disclosures about Postretirement
Benefit Plan Assets-In
December 2008, the FASB issued FASB Staff Position (FSP) Financial Accounting
Standard No. 132R-1, Employers Disclosures about Postretirement Benefit Plan Assets
(FSP 132(R)-1). This standard provides guidance on an employers disclosures
about plan assets of a defined benefit pension or other postretirement plan. It
also includes a technical amendment to FASB Statement No. 132(R) that requires
a nonpublic entity to disclose net periodic benefit cost for each annual period
for which a statement of income is presented. The objectives of the disclosures
about plan assets in an employers defined benefit pension or other
postretirement plan are to provide users of financial statements with an
understanding of how investment allocation decisions are made, including the
factors that are pertinent to an understanding of investment policies and
strategies, the major categories of plan assets, the inputs and valuation techniques
used to measure the fair value of plan assets, the effect of fair value
measurements using significant unobservable inputs (Level 3) on changes in plan
assets for the period, and significant concentrations of risk within plan
assets. The disclosures about plan assets required by this FSP are effective
for fiscal years ending after December 15, 2009. Early adoption is permitted.
The Company is currently assessing the potential effect of FSP 132(R)-1 on its
financial position, results of operations and cash flows.

In April 2009, the Financial
Accounting Standards Board (FASB) issued the following three FASB Staff
Positions (FSPs) intended to provide additional guidance and enhance
disclosures regarding fair value measurements and impairment of securities:

FSP FAS 157-4, Determining
Fair Value When the Volume and Level of Activity for the Asset or Liability
Have Significantly Decreased and Identifying Transactions That Are Not
Orderly, provides additional guidance for estimating fair value in accordance
with SFAS No. 157 when the volume and level of activity for the asset or
liability have decreased significantly. FSP FAS 157-4 also provides guidance on
identifying circumstances that indicate a transaction is not orderly. The
provisions of FSP FAS 157-4 are effective for the Companys interim period
ending on June 30, 2009. Management is currently evaluating the effect that the
provisions of FSP FAS 157-4 may have on the Companys condensed consolidated
financial statements.

FSP FAS 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments,requires disclosures about fair value of
financial instruments in interim reporting periods of publicly traded companies
that were previously only required to be disclosed in annual financial
statements. The provisions of FSP FAS 107-1 and APB 28-1 are effective for the
Companys interim period ending on June 30, 2009. As FSP FAS 107-1 and APB 28-1
amends only the disclosure requirements about fair value of financial
instruments in interim periods, the adoption of FSP FAS 107-1 and APB 28-1 is
not expected to affect the Companys condensed consolidated financial
statements.

FSP FAS 115-2 and FAS 124-2,
Recognition and Presentation of Other-Than-Temporary Impairments, amends
current other-than-temporary impairment guidance in GAAP for debt securities to
make the guidance more operational and to improve the presentation and
disclosure of other-than-temporary impairments on debt and equity securities in
the financial statements. This FSP does not amend existing recognition and
measurement guidance related to other-than-temporary impairments of equity
securities. The provisions of FSP FAS 115-2 and FAS 124-2 are effective for the
Companys interim period ending on June 30, 2009. Management is currently
evaluating the effect that the provisions of FSP FAS 115-2 and FAS 124-2 may
have on the Companys condensed consolidated financial statements.

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.

13

---



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 maintained to provide for losses related to impaired loans and
leases and other losses that can be reasonably expected to occur in the normal
course of business. The allowance for loan and lease losses is established
through a provision for loan and lease losses charged to operations. Loans and
leases are charged against the allowance for loan and lease losses when
management believes that the collectibility of the principal is unlikely or,
with respect to consumer installment loans, according to an established
delinquency schedule. Management attributes formula reserves to different types
of loans using percentages which are based upon perceived risk associated with
the portfolio and underlying collateral, historical loss experience, and
vulnerability to existing economic conditions, which may affect the
collectibility of the loans. Specific reserves are allocated for impaired loans
and leases which have experienced a decline in internal grading and when
management believes additional loss exposure exists. The unallocated allowance
is based upon managements evaluation of various conditions that are not
directly measured in the determination of the formula and specific allowances.
The evaluation of inherent losses with respect to these conditions is subject
to a higher degree of uncertainty because they are not identified with specific
problem credits or portfolio segments. Although the allowance for loan and
lease losses is allocated to various portfolio segments, it is general in nature
and is available for the loan and lease portfolio in its entirety. The
allowance is an amount that management believes will be adequate to absorb
losses inherent in existing loans and leases. Actual amounts could differ from
those estimates.

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 or lease
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.

Share Based Compensation

At March 31, 2009, the
Company had four shareholder approved stock-based compensation plans: the North
Valley Bancorp 1989 Director Stock Option Plan, the 1998 Employee Stock Incentive
Plan, the 1999 Director Stock Option Plan and the 2008 Stock Incentive Plan.
The 1999 Director Stock Option Plan replaced the existing North Valley Bancorp
1989 Director Stock Option Plan. The North Valley Bancorp 2008 Stock Incentive
Plan was adopted by the Companys Board of Directors on February 27, 2008,
effective that date, and was approved by the Companys shareholders at the
Annual Meeting, May 22, 2008. The terms of the 2008 Stock Incentive Plan are
substantially the same as the North Valley Bancorp 1998 Employee Stock
Incentive Plan. See Note C  Stock-Based Compensation to the Unaudited
Condensed Consolidated Financial Statements in Item 1  Financial Statements.

Prior to January 1, 2006,
the Company accounted for the plans under the recognition and measurement
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and related Interpretations, as permitted by
Financial Accounting Standards Board (FASB) Statement No. 123, Accounting for
Stock-Based Compensation (Statement 123) and FASB Statement No. 148,
Accounting for Stock-Based Compensation - Transition and Disclosure. Effective
January 1, 2006, the Company adopted the fair value recognition provisions of
FASB Statement No. 123(R), Share-Based Payment (Statement 123 (R)), using the
modified prospective transition method. Under this transition method,
compensation cost recognized in fiscal year 2007 and 2008 includes: (a)
compensation cost for all share-based payments vesting during 2007 and 2008
that were granted prior to, but not yet vested as of, January 1, 2006 based on
the grant-date fair value estimated in accordance with the original provisions
of Statement 123; and, (b) compensation cost for all share-based payments
vesting during 2007 and 2008 that were granted subsequent to January 1, 2006,
based on the grant-date fair value estimated in accordance with 14 the provisions of Statement 123(R). The
Company has elected the alternative method prescribed by FASB Staff Position
No. FAS 123(R)-3, Transition Election
Related to Accounting for the Tax Effects of Share-Based Payment Awards,
commonly referred to as the short-cut method, for accounting for the tax
consequences of share-based awards.

14

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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 2009.

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 B to Unaudited Condensed
Consolidated Financial Statements in Item 1  Financial Statements.

Fair Value

Effective
January 1, 2008, we adopted SFAS No. 157,Fair Value Measurements, which among other things, requires enhanced
disclosures about financial instruments carried at fair value. SFAS No. 157
establishes a hierarchical disclosure framework associated with the level of
observable pricing scenarios utilized in measuring financial instruments at
fair value. The degree of judgment utilized in measuring the fair value of
financial instruments generally correlates to the level of the observable
pricing scenario. Financial instruments with readily available active quoted
prices or for which fair value can be measured from actively quoted prices
generally will have a higher degree of observable pricing and a lesser degree
of judgment utilized in measuring fair value. Conversely, financial instruments
rarely traded or not quoted will generally have little or no observable pricing
and a higher degree of judgment utilized in measuring fair value. Observable
pricing scenarios are impacted by a number of factors, including the type of
financial instrument, whether the financial instrument is new to the market and
not yet established and the characteristics specific to the transaction.

See Note J of
theNotes to Condensed Consolidated
Financial Statements for additional information about the financial
instruments carried at fair value.

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 and seven Business Banking Centers, and a
loan production office 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.

15

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Earnings Summary

|                                           |  |                              |         |      |   |       |  
|------------------------------------------ |  | ---------------------------- | ------- | ---- | - | ----- | -
|                                           |  | Three months ended March 31, |        
|(in thousands except per
  share amounts)  |  | 2009                         |         | 2008 |  
|                                           |  |                              |         |      |  
|                                           |  |                              |         |      |   |       |  
|Net interest income                        |  | $                            | 8,108   |      | $ | 9,128 |  
|Provision for loan and lease losses        |  |                              | 7,000   |      |   | 2,400 |  
|Noninterest income                         |  |                              | 2,274   |      |   | 3,491 |  
|Noninterest expense                        |  |                              | 9,445   |      |   | 9,805 |  
|(Benefit) provision for income taxes       |  |                              | (2,956  | )    |   | 134   |  
|                                           |  |                              |         |      |   |       |  
|Net (loss) income                          |  | $                            | (3,107  | )    | $ | 280   |  
|                                           |  |                              |         |      |   |       |  
|                                           |  |                              |         |      |   |       |  
|(Loss) earnings Per Share                  |  |                              |         |      |   |       |  
|Basic                                      |  | $                            | (0.41   | )    | $ | 0.04  |  
|Diluted                                    |  | $                            | (0.41   | )    | $ | 0.04  |  
|                                           |  |                              |         |      |   |       |  
|Annualized (Loss) Return on Average Assets |  |                              | (1.43%  | )    |   | 0.12  | %
|Annualized (Loss) Return on Average Equity |  |                              | (16.26% | )    |   | 1.35  | %

The Company
had a net loss of $3,107,000, or $0.41 per diluted share, for the three months
ended March 31, 2009 compared to net income of $280,000, or $0.04 per diluted
share, for the same period in 2008. This represents a decrease in net income of
$3,387,000, and a decrease in diluted earnings per share of $0.45, for the
three months ended March 31, 2009 compared to the same period in 2008. The
decrease in net income for the first quarter of 2009, compared to the same
period in 2008, was principally driven by a $7,000,000 provision for loan and
lease losses for the three months ended March 31, 2009 compared to a $2,400,000
provision for the same period in 2008, and secondarily due to a decrease in
noninterest income and net interest income of $1,217,000 and $1,020,000,
respectively, for the three months ended March 31, 2009 compared to the same
period in 2008. These changes were partially offset by a decrease in
noninterest expense of $360,000 for the three months ended March 31, 2009
compared to the same period in 2008.

Net Interest Income

Net interest
income is the principal source of the Companys operating earnings and
represents the difference between interest earned on loans and leases and other
investments and interest paid on deposits and other borrowings. The amount of
interest income and expense is affected by changes in the volume and mix of
earning assets and interest-bearing deposits and borrowings, along with changes
in interest rates.

16

---



The following
table is a summary of the Companys net interest income, presented on a fully
taxable equivalent (FTE) basis for tax-exempt investments included in earning
assets, for the periods indicated:

|                                                                                         |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|---------------------------------------------------------------------------------------- |  | --------------------------------- | ------- | --------------------------------- |  | ----------------- | - | ----------------- | ------ | ------------- | - | ----------------- | - |  | ---- | - | - | ------ | 
|Schedule
  of Average Daily Balance and Average Yields and Rates(Dollars
  in thousands) |  |                                   |         |                                   |  |                   |   |                   |        |              
|                                                                                         |  | Three months ended March 31, 2009 |         | Three months ended March 31, 2008 | 
|                                                                                         |  |                                   |         |                                   | 
|                                                                                         |  | Average
  Balance                 |         | Yield/
  Rate                     |  | Interest
  Amount |   | Average
  Balance |        | Yield/
  Rate |   | Interest
  Amount |  
|                                                                                         |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |  
|                                                                                         |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|Assets                                                                                   |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|Earning assets:                                                                          |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|Federal funds sold                                                                       |  | $                                 | 15,010  |                                   |  | 0.24              | % | $                 | 9      |               | $ | 591               |   |  | 3.39 | % | $ | 5      | 
|Investment securities:                                                                   |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|Taxable                                                                                  |  |                                   | 73,279  |                                   |  | 3.84              | % |                   | 694    |               |   | 85,324            |   |  | 4.11 | % |   | 875    | 
|Non-taxable (1)                                                                          |  |                                   | 15,898  |                                   |  | 6.79              | % |                   | 266    |               |   | 20,539            |   |  | 6.76 | % |   | 346    | 
|FNMA preferred stock (1)                                                                 |  |                                   |        |                                   |  |                  |   |                   |       |               |   | 3,284             |   |  | 9.53 | % |   | 78     | 
|                                                                                         |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|Total investments                                                                        |  |                                   | 89,177  |                                   |  | 4.37              | % |                   | 960    |               |   | 109,147           |   |  | 4.77 | % |   | 1,299  | 
|Loans and leases (2)(3)                                                                  |  |                                   | 680,838 |                                   |  | 6.28              | % |                   | 10,536 |               |   | 743,004           |   |  | 7.00 | % |   | 12,976 | 
|                                                                                         |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|Total earning assets                                                                     |  |                                   | 785,025 |                                   |  | 5.94              | % |                   | 11,505 |               |   | 852,742           |   |  | 6.72 | % |   | 14,280 | 
|                                                                                         |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|Non earning assets                                                                       |  |                                   | 104,785 |                                   |  |                   |   |                   |        |               |   | 99,331            |   |  |      |   |   |        | 
|Allowance for loan and lease losses                                                      |  |                                   | (11,434 | )                                 |  |                   |   |                   |        |               |   | (10,755           | ) |  |      |   |   |        | 
|                                                                                         |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|Total non-earning assets                                                                 |  |                                   | 93,351  |                                   |  |                   |   |                   |        |               |   | 88,576            |   |  |      |   |   |        | 
|                                                                                         |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|Total assets                                                                             |  | $                                 | 878,376 |                                   |  |                   |   |                   |        |               | $ | 941,318           |   |  |      |   |   |        | 
|                                                                                         |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|                                                                                         |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|Liabilities and Shareholders Equity                                                     |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|Interest bearing liabilities:                                                            |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|Transaction accounts                                                                     |  | $                                 | 153,395 |                                   |  | 0.37              | % | $                 | 141    |               | $ | 154,950           |   |  | 0.64 | % | $ | 249    | 
|Savings and money market                                                                 |  |                                   | 167,802 |                                   |  | 1.06              | % |                   | 440    |               |   | 181,670           |   |  | 1.79 | % |   | 810    | 
|Time certificates                                                                        |  |                                   | 285,662 |                                   |  | 3.10              | % |                   | 2,187  |               |   | 248,202           |   |  | 4.47 | % |   | 2,769  | 
|Other borrowed funds                                                                     |  |                                   | 33,328  |                                   |  | 6.61              | % |                   | 543    |               |   | 104,924           |   |  | 4.56 | % |   | 1,194  | 
|                                                                                         |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|Total interest bearing liabilities                                                       |  |                                   | 640,187 |                                   |  | 2.10              | % |                   | 3,311  |               |   | 689,746           |   |  | 2.92 | % |   | 5,022  | 
|                                                                                         |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|Demand deposits                                                                          |  |                                   | 149,582 |                                   |  |                   |   |                   |        |               |   | 155,541           |   |  |      |   |   |        | 
|Other liabilities                                                                        |  |                                   | 11,106  |                                   |  |                   |   |                   |        |               |   | 12,895            |   |  |      |   |   |        | 
|                                                                                         |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|Total liabilities                                                                        |  |                                   | 800,875 |                                   |  |                   |   |                   |        |               |   | 858,182           |   |  |      |   |   |        | 
|                                                                                         |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|Shareholders equity                                                                     |  |                                   | 77,501  |                                   |  |                   |   |                   |        |               |   | 83,136            |   |  |      |   |   |        | 
|                                                                                         |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|Total liabilities and shareholders equity                                               |  | $                                 | 878,376 |                                   |  |                   |   |                   |        |               | $ | 941,318           |   |  |      |   |   |        | 
|                                                                                         |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|Net interest income                                                                      |  |                                   |         |                                   |  |                   |   | $                 | 8,194  |               |   |                   |   |  |      |   | $ | 9,258  | 
|                                                                                         |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|Net interest spread                                                                      |  |                                   |         |                                   |  | 3.84              | % |                   |        |               |   |                   |   |  | 3.80 | % |   |        | 
|                                                                                         |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|Net interest margin                                                                      |  |                                   |         |                                   |  | 4.23              | % |                   |        |               |   |                   |   |  | 4.35 | % |   |        | 
|                                                                                         |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|                                                                                         |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 
|                                                                                         |  |                                   |         |                                   |  |                   |   |                   |        |               |   |                   |   |  |      |   |   |        | 

|    |                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------
|(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 $237
  and $207 for the three months ended March 31, 2009 and 2008, 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) of $1,064,000 for the three month period ended March 31, 2009
compared to the three month period ended March 31, 2008 was driven by a
decrease in interest income of $2,775,000 which was partially offset by a
decrease in interest expense of $1,711,000. The decrease of $2,775,000 in
interest income for first quarter of 2009 compared to the same period in 2008
was primarily due to a decrease in average earning assets of $67,717,000, and
secondarily due to a decrease in yield on those earning assets of 78 basis
points. The Company had foregone interest income of $374,000 due to loans
placed on nonaccrual status for the first quarter of 2009 down from the
foregone interest of $526,000 for the same period in 2008. Interest expense
decreased $1,711,000 due primarily to a decrease in rates paid on deposits of
80 basis points for the first quarter of 2009 compared to the same period in
2008, and secondarily to a decrease in average other borrowed funds of
$71,596,000 for the first quarter of 2009 compared to the same period in 2008,
although the rates on these funds increased. Average loans and leases decreased
$62,166,000 in the first quarter of 2009 compared to the first quarter of 2008,
and the yield on the loan portfolio for the comparable periods decreased 72
basis points to 6.28%. The decrease in average total loans and leases and the
increase in average deposits was primarily used to decrease other borrowed
funds and secondarily used to enhance our liquidity as average Federal funds
sold increased $14,419,000. Average yields on total average earning assets
decreased 78 basis points from the quarter ended March 31, 2008 to 5.94% for
the quarter ended March 31, 2009. Over the same period the average rate paid on
interest-bearing liabilities decreased by 82 basis points to 2.10%. The
decrease in both yields earned and rates paid is reflective of the declining
interest rate environment as the Federal Reserve has reduced interest rates by
500 basis points since September 2007. As a result of the above, the Companys
net interest margin for the quarter ended March 31, 2009 was 4.23%, a decrease
of 12 basis points from 4.35% for the quarter ended March 31, 2008 and an 8
basis point increase from the 4.15% net interest margin for the linked quarter
ended December 31, 2008.

17

---



Provision for Loan and Lease Losses

The Company
recorded a provision for loan and lease losses of $7,000,000 for the three
months ended March 31, 2009 compared to a $2,400,000 provision for the three
months ended March 31, 2008. The process for determining allowance adequacy and
the resultant provision for loan losses 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 environment and activity. The decision
to record the $7,000,000 provision reflects managements assessment of the
overall adequacy of the allowance for loan and lease losses including the
consideration of the increase in nonperforming loans and the overall effect of
the continued recession and the declines in real estate values. Management
believes that the current level of allowance for loan and lease losses as of
March 31, 2009 of $15,887,000, or 2.40% of total loans and leases, is adequate
at this time. The allowance for loan and lease losses was $11,327,000, or 1.63%
of total loans and leases, at December 31, 2008. For further information
regarding our allowance for loan and lease losses, see Allowance for Loan and
Lease Losses on page 22.

Noninterest Income

The following
table is a summary of the Companys noninterest income for the periods
indicated (in thousands):

|                                                            |  |                              |       |      |   |       | 
|----------------------------------------------------------- |  | ---------------------------- | ----- | ---- | - | ----- | 
|                                                            |  | Three months ended March 31, |      
|                                                            |  | 2009                         |       | 2008 |  
|                                                            |  |                              |       |      |  
|                                                            |  |                              |       |      |   |       | 
|Service charges on deposit accounts                         |  |                              | 1,528 |      |   | 1,716 | 
|Other fees and charges                                      |  |                              | 964   |      |   | 965   | 
|Earnings on cash surrender value of life insurance
policies |  |                              | 336   |      |   | 330   | 
|Gain on sale of loans                                       |  |                              | 97    |      |   | 88    | 
|Gain on sales or calls of investment securities             |  |                              |      |      |   | 1     | 
|Loss on other real estate owned                             |  |                              | (890  | )    |   |      | 
|Other                                                       |  |                              | 239   |      |   | 391   | 
|                                                            |  |                              |       |      |   |       | 
|Total noninterest income                                    |  | $                            | 2,274 |      | $ | 3,491 | 
|                                                            |  |                              |       |      |   |       | 

Noninterest
income decreased $1,217,000, or 34.9%, to $2,274,000 for the three months ended
March 31, 2009 from $3,491,000 for the three months ended March 31, 2008. The
decrease in noninterest income was primarily driven by the recording of the
loss on the sale/writedown of OREO of $890,000 as the Company continued its
focus on reducing the levels of nonperforming assets since December 31, 2008.
Service charges on deposits decreased $188,000 to $1,528,000 for the three
months ended March 31, 2009 compared to $1,716,000 for the same period in 2008.
Other fees and charges remained consistent at $964,000 for the three months
ended March 31, 2009 compared to $965,000 for the same period in 2008. The
Company recorded $97,000 in gains on sales of mortgages for the three months
ended March 31, 2009 compared to $88,000 in gains on sales of mortgages for the
same period in 2008. Other noninterest income decreased $152,000 to $239,000
for the three months ended March 31, 2009 from $391,000 for the same period in
2008. The decrease in other noninterest income was primarily due to the
mandatory redemption of shares from the VISA initial public offering completed
in March 2008 and a decrease in sales volume of annuity and other nondeposit
investment products to customers.

18

---



Noninterest Expense

The following
table is a summary of the Companys noninterest expense for the periods
indicated (in thousands):

|                             |  |                              |       |      |   |       | 
|---------------------------- |  | ---------------------------- | ----- | ---- | - | ----- | 
|                             |  | Three months ended March 31, |      
|                             |  | 2009                         |       | 2008 |  
|                             |  |                              |       |      |  
|                             |  |                              |       |      |   |       | 
|Salaries & employee benefits |  | $                            | 5,064 |      | $ | 5,536 | 
|Occupancy expense            |  |                              | 761   |      |   | 754   | 
|Data processing expenses     |  |                              | 581   |      |   | 532   | 
|Equipment expense            |  |                              | 469   |      |   | 465   | 
|FDIC & state assessments     |  |                              | 411   |      |   | 45    | 
|Professional services        |  |                              | 327   |      |   | 287   | 
|ATM expense                  |  |                              | 285   |      |   | 227   | 
|Postage                      |  |                              | 164   |      |   | 149   | 
|Operations expense           |  |                              | 143   |      |   | 189   | 
|Printing & supplies          |  |                              | 137   |      |   | 198   | 
|Director                     |  |                              | 132   |      |   | 223   | 
|Marketing                    |  |                              | 121   |      |   | 200   | 
|Amortization of intangibles  |  |                              | 36    |      |   | 163   | 
|Other                        |  |                              | 814   |      |   | 837   | 
|                             |  |                              |       |      |   |       | 
|Total noninterest expense    |  | $                            | 9,445 |      | $ | 9,805 | 
|                             |  |                              |       |      |   |       | 

Noninterest
expense totaled $9,445,000 for the three months ended March 31, 2009, compared
to $9,805,000 for the same period in 2008. This represents a decrease of
$360,000, or 3.7%, for the three months ended March 31, 2009 from the
comparable period in 2008 due primarily to a decrease in salaries and benefits.
Salaries and benefits decreased by $472,000 to $5,064,000 for the three months
ended March 31, 2009 primarily due to the elimination of the 2009 bonus accrual
and a reduction in staffing compared to $5,536,000 for the same period in 2008.
Offsetting this decrease was the Companys FDIC and state assessments which
increased $366,000 to $411,000 for the three months ended March 31, 2009
compared to $45,000 for the same period in 2008. This increase is expected to
continue as the Company has elevated levels of nonperforming loans which impact
the factors used in the calculation as well as the anticipation of a special
assessment by the FDIC. Most other expense categories for the three months
ended March 31, 2009 experienced relatively small changes from the same
respective period in 2008. The Companys ratio of noninterest expense to
average assets was 4.30% for the three months ended March 31, 2009 compared to
4.17% for the same period in 2008. The Companys efficiency ratio was 91.0% and
77.7% for the three months ended March 31, 2009 and 2008, respectively.

Income Taxes

The benefit
for income taxes for the three months ended March 31, 2009 was $2,956,000 as
compared to a provision for income taxes of $134,000 for the same period in
2008. The effective benefit rate for state and federal income taxes was 48.8%
for the three months ended March 31, 2009 compared to an effective tax rate of
32.4% for the same period in 2008. 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 and Company-owned life insurance
policies whose income is exempt from Federal taxes. In addition, the Company
receives certain 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, 2009 As
Compared to December 31, 2008

Total assets
at March 31, 2009 increased $24,298,000 to $903,849,000, compared to
$879,551,000 at December 31, 2008. Loans and leases decreased $32,769,000, or
4.7%, to $660,653,000 at March 31, 2009 from $693,422,000 at December 31, 2008.
Deposits increased $31,888,000, or 4.2%, from December 31, 2008 to $786,832,000
at March 31, 2009. Investment securities and federal funds sold increased to
$147,444,000 at March 31, 2009, compared to $76,366,000 at December 31, 2008.
Other borrowed funds decreased $3,516,000 as the Company did not have any other
borrowed funds at March 31, 2009 compared to $3,516,000 at December 31, 2008.

19

---



Loan and Lease Portfolio

Loans and
leases, the Companys major component of earning assets, decreased $32,769,000
during the first three months of 2009 to $660,653,000 at March 31, 2009 from
$693,422,000 at December 31, 2008. Commercial loans decreased by $16,279,000,
and real estate construction loans decreased by $15,488,000, while the
remaining loan categories remained relatively unchanged from their December 31,
2008 balance.

The Companys
average loan to deposit ratio was 90.0% for the quarter ended March 31, 2009
compared to 100.4% for the same period in 2008. The decrease in the Companys
average loan to deposit ratio is driven by both the decrease in total average
loans of $62,166,000 and the increase in total average deposits of $16,078,000.

|                                    |  |                  |         |                     |   |         |  
|----------------------------------- |  | ---------------- | ------- | ------------------- | - | ------- | -
|(in thousands)                      |  | March 31,
  2009 |         | December 31,
  2008 |  
|                                    |  |                  |         |                     |  
|                                    |  |                  |         |                     |   |         |  
|Commercial                          |  | $                | 75,750  |                     | $ | 92,029  |  
|Real estate - commercial            |  |                  | 327,052 |                     |   | 327,098 |  
|Real estate - construction          |  |                  | 121,267 |                     |   | 136,755 |  
|Real estate - mortgage              |  |                  | 62,961  |                     |   | 62,155  |  
|Installment                         |  |                  | 28,593  |                     |   | 29,945  |  
|Direct financing leases             |  |                  | 1,000   |                     |   | 1,035   |  
|Other                               |  |                  | 44,990  |                     |   | 45,424  |  
|                                    |  |                  |         |                     |   |         |  
|                                    |  |                  |         |                     |   |         |  
|                                    |  |                  | 661,613 |                     |   | 694,441 |  
|                                    |  |                  |         |                     |   |         |  
|Deferred loan fees, net             |  |                  | (960    | )                   |   | (1,019  | )
|Allowance for loan and lease losses |  |                  | (15,887 | )                   |   | (11,327 | )
|                                    |  |                  |         |                     |   |         |  
|                                    |  |                  |         |                     |   |         |  
|                                    |  | $                | 644,766 |                     | $ | 682,095 |  
|                                    |  |                  |         |                     |   |         |  

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.

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
loans (defined as nonaccrual loans and loans 90 days or more past due and still
accruing interest) totaled $19,926,000 at March 31, 2009, a decrease of
$5,824,000 from the March 31, 2008 balance of $25,750,000, and an increase of
$990,000 from the December 31, 2008 balance of $18,936,000. Nonperforming loans
as a percentage of total loans were 3.02% at March 31, 2009, compared to 3.43%
at March 31, 2008, and 2.73% at December 31, 2008.

Of the
$19,926,000 balance of nonperforming loans at March 31, 2009, a specific
reserve of $1,832,000 has been established. Related to the March 31, 2008
balance and December 31, 2008 balance, specific reserves of $4,178,000 and
$1,755,000, respectively, were established. If interest had been accruing on
the nonperforming loans, such income would have approximated $374,000 and
$526,000 for the three months ended March 31, 2009 and 2008, respectively.

20

---



The overall
level of nonperforming loans increased $990,000 to $19,926,000 at March 31,
2009 from $18,936,000 at December 31, 2008. The total dollar amount of
reductions in nonperforming loans during the first quarter of 2009 of
$6,614,000 was due primarily to collections from borrowers, charge-offs, and
one transfer to OREO. This decrease was offset by the addition of sixteen loans
in the amount of $7,604,000 as nonaccrual loans during the first quarter of
2009. The addition was centered in three loans totaling $4,385,000. The largest
loan of this group is a $2,007,000 commercial real estate loan located in
Shasta County. No specific reserve is currently required on this loan. The
second loan in this group is a $1,465,000 residential development loan
consisting of two single-family residences that are listed for sale located in
Napa County. No specific reserve is currently required on this loan. The third
loan in this group is a $913,000 residential land loan located in Nevada
County. No specific reserve is currently required on this loan. For the other
thirteen loans placed on nonaccrual in the aggregate amount of $3,219,000,
specific reserves of $164,000 were established for these loans.

As discussed
in the Companys first quarter earnings release and Form 10-Q for the period
ended March 31, 2008, there were four nonperforming real estate projects with
loans totaling $24,047,000 which were the primary contributors to the increase
in nonperforming loans at March 31, 2008. At December 31, 2008, only two of
these projects remained: one of the loans which was on nonaccrual was a
residential development project in Placer County with a balance of $2,463,000
and the other loan was a residential acquisition and development project
located in Shasta County which was taken into OREO during the second quarter of
2008 and had a balance of $4,059,000 at December 31, 2008. For the loan for the
residential development project located in Placer County, collections were
received during the first quarter of 2009 resulting in the full payoff of the
remaining balance of the loan with no additional losses to the Company. For the
OREO property located in Shasta County, portions of the property were sold
during the first quarter of 2009 for $1,001,000 resulting in the Company
recording a pre-tax loss on the sale of this portion of the OREO of $183,000.
The remaining property in OREO has a balance of $2,875,000 at March 31, 2009.

As discussed
in the Companys second quarter earnings release and Form 10-Q for the period
ended June 30, 2008, there were two construction loans identified as impaired,
totaling $10,201,000, added to the nonperforming loans during the second
quarter of 2008. As of March 31, 2009 the larger of the two loans, a mixed-use
construction loan located in Sonoma County with a remaining balance of
$3,489,000 continues on nonaccrual. During the first quarter of 2009, $357,000 in
payments from the borrower were received and applied to the principal balance
of the loan reducing it from the December 31, 2008 balance of $3,846,000. This
loan has a specific reserve of $250,000 as of March 31, 2009. The other loan
was a residential development project located in Placer County that was taken
into OREO through foreclosure during the fourth quarter of 2008 at its carrying
value of $2,259,000 with no further charge to the allowance. This property was
sold for $1,831,000 during the first quarter of 2009 and the Company recorded a
pre-tax loss on the sale of OREO of $428,000.

As discussed
in the Companys third quarter earnings release and Form 10-Q for the period
ended September 30, 2008, 23 loans were placed on nonaccrual status totaling $7,592,000
(which are primarily secured by real-estate) during the third quarter of 2008.
The largest of this group was a $1,125,000 residential lot development loan
located in Shasta County. The principal balance of the loan was reduced by
$74,000 to $1,051,000 during the fourth quarter of 2008 from collections from
the borrower. This property was taken into OREO through a deed in lieu of
foreclosure during the fourth quarter of 2008 at a carrying value of $1,051,000
with no charge to the allowance. This property was sold for $936,000 during the
first quarter of 2009 and the Company recorded a pre-tax loss on the sale of
OREO of $115,000.

As discussed
in the Companys fourth quarter earnings release and Form 10-K for the period
ended December 31, 2008, there was an additional $7,575,000 of loans placed on
nonaccrual during the fourth quarter of 2008, which was made up primarily of
four relationships. The largest relationship of this group represents
residential lot development and residential construction loans located in
Solano County which had a balance of $3,773,000 at December 31, 2008. During
the first quarter of 2009, the Company charged-off $660,000 resulting in a
balance of $3,113,000 at March 31, 2009 and a specific reserve of $47,000 has
been established for these loans. The second relationship in this group is a
residential land loan located in Sutter County. This loan had an original
balance of $2,500,000, however the Company charged-off $1,225,000 in the fourth
quarter of 2008 to write the loan down to its current net realizable value of
$1,275,000. This loan remains on nonaccrual at March 31, 2009 and does not have
any additional specific reserve. The third relationship in this group was a
commercial loan for $921,000 located in Sonoma County which was fully reserved
for through a specific reserve. This entire loan was charged-off during the
first quarter of 2009. The fourth relationship in this group is an SBA-504 loan
for $870,000 located in Humboldt County. This loan remains on nonaccrual at March
31, 2009 with a balance of $870,000. No specific reserve has been established
for this loan.

Gross loan and
lease charge offs for the first quarter of 2009 were $2,635,000 and recoveries
totaled $195,000 resulting in net charge offs of $2,440,000. Gross loan and
lease charge offs for the first quarter of 2008 were $185,000 and recoveries
totaled $52,000 resulting in net charge offs of $133,000.

21

---



Nonperforming
assets (nonperforming loans and OREO) totaled $25,869,000 at March 31, 2009, a
decrease of $783,000 from the March 31, 2008 balance of $26,652,000, and a
$3,475,000 decrease from the December 31, 2008 balance of $29,344,000.
Nonperforming assets as a percentage of total assets were 2.86% at March 31,
2009 compared to 2.82% at March 31, 2008 and 3.34% at December 31, 2008. The
overall level of OREO decreased $4,465,000 to $5,943,000 at March 31, 2009 from
$10,408,000 at December 31, 2008. The decrease in OREO was a result of the sale
of three properties for $3,768,000 during the first quarter, which the Company
recognized a loss of $890,000 on the sale/writedown of OREO. This reduction in
OREO was partially offset by the addition of one property to OREO for $193,000.

Nonperforming
assets at March 31, 2009, and December 31, 2008, are summarized as follows (in
thousands):

|                                                               |  |                  |        |                     |   |        |  
|-------------------------------------------------------------- |  | ---------------- | ------ | ------------------- | - | ------ | -
|                                                               |  | March 31,
  2009 |        | December 31,
  2008 |  
|                                                               |  |                  |        |                     |  
|                                                               |  |                  |        |                     |   |        |  
|Nonaccrual loans and leases                                    |  | $                | 19,926 |                     | $ | 18,936 |  
|Loans and leases past due 90 days and accruing
interest        |  |                  |       |                     |   |       |  
|Other real estate owned                                        |  |                  | 5,943  |                     |   | 10,408 |  
|                                                               |  |                  |        |                     |   |        |  
|Total nonperforming assets                                     |  | $                | 25,869 |                     | $ | 29,344 |  
|                                                               |  |                  |        |                     |   |        |  
|                                                               |  |                  |        |                     |   |        |  
|Nonaccrual loans and leases to total gross loans and
leases    |  |                  | 3.02   | %                   |   | 2.73   | %
|Nonperforming loans and leases to total gross loans and
leases |  |                  | 3.02   | %                   |   | 2.73   | %
|Total nonperforming assets to total assets                     |  |                  | 2.86   | %                   |   | 3.34   | %

Allowance for Loan and Lease Losses

A summary of
the allowance for loan and lease losses at March 31, 2009 and March 31, 2008 is
as follows (in thousands):

|                                                              |  |                              |        |      |   |        |  
|------------------------------------------------------------- |  | ---------------------------- | ------ | ---- | - | ------ | -
|                                                              |  | Three months ended March 31, |       
|                                                              |  | 2009                         |        | 2008 |  
|                                                              |  |                              |        |      |  
|                                                              |  |                              |        |      |   |        |  
|Balance beginning of period                                   |  | $                            | 11,327 |      | $ | 10,755 |  
|Provision for loan and lease losses                           |  |                              | 7,000  |      |   | 2,400  |  
|Net (charge-offs) recoveries                                  |  |                              | (2,440 | )    |   | (133   | )
|                                                              |  |                              |        |      |   |        |  
|Balance end of period                                         |  | $                            | 15,887 |      | $ | 13,022 |  
|                                                              |  |                              |        |      |   |        |  
|                                                              |  |                              |        |      |   |        |  
|Allowance for loan and lease losses to total loans and
leases |  |                              | 2.40   | %    |   | 1.73   | %

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 the probable losses in loans
and leases receivable. 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. The Company also engages a third party credit review consultant
to analyze the Companys loan and lease loss adequacy. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically reviews 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 probable losses in various segments or pools within
  the loan and lease portfolio. The loss factor for each segment or pool 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.

22

---



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 allowances. 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, 2009 included the following, which existed at the balance sheet
  date:

| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | General
  business and economic conditions effecting the Companys key lending areas   
| |   |                                                                                        
| |  | Real estate
  values and market trends in Northern California                          
| |   |                                                                                        
| |  | Loan volumes
  and concentrations, including trends in past due and nonperforming loans
| |   |                                                                                        
| |  | Seasoning of
  the loan portfolio                                                      
| |   |                                                                                        
| |  | Status of
  the current business cycle                                                 
| |   |                                                                                        
| |  | Specific
  industry or market conditions within portfolio segments                     
| |   |                                                                                        
| |  | Model
  imprecision                                                                    

| |    |                                                                                                                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | Specific
  Allowance                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | Specific
  allowances are established in cases where management has identified
  significant conditions or circumstances related to an individually impaired
  credit. In other words, these allowances are specific to the loss inherent in
  a particular loan. The amount for a specific allowance is calculated in
  accordance with SFAS No. 114, Accounting
  By Creditors For Impairment Of A Loan.

The
$15,877,000 in formula and specific allowances reflects managements estimate
of the inherent loss in various pools or segments in the portfolio and
individual loans and leases, and includes adjustments for general economic
conditions, trends in the portfolio and changes in the mix of the portfolio.

Management
anticipates growth in commercial lending and commercial real estate and to a
lesser extent consumer and real estate mortgage lending, while it anticipates a
further decline in construction lending. As a result, future provisions will be
required and the ratio of the allowance for loan and lease losses to loans and
leases outstanding may increase to reflect portfolio risk, increasing
concentrations, loan type and changes in economic conditions.

Deposits

Total deposits
increased $31,888,000, or 4.2%, to $786,832,000 at March 31, 2009 compared to
$754,944,000 at December 31, 2008. During the first quarter of 2009,
certificates of deposits increased $17,360,000, or 6.1%, savings increased
$15,445,000, or 9.8%, and interest-bearing demand deposits increased
$11,150,000, or 7.3%, while noninterest-bearing demand deposits decreased
$12,067,000, or 7.5%.

|                           |  |                  |         |                     |   |         | 
|-------------------------- |  | ---------------- | ------- | ------------------- | - | ------- | 
|(in thousands)             |  | March 31,
  2009 |         | December 31,
  2008 |  
|                           |  |                  |         |                     |  
|                           |  |                  |         |                     |   |         | 
|Noninterest-bearing demand |  | $                | 149,681 |                     | $ | 161,748 | 
|Interest-bearing demand    |  |                  | 163,023 |                     |   | 151,873 | 
|Savings                    |  |                  | 172,534 |                     |   | 157,089 | 
|Time certificates          |  |                  | 301,594 |                     |   | 284,234 | 
|                           |  |                  |         |                     |   |         | 
|                           |  |                  |         |                     |   |         | 
|Total deposits             |  | $                | 786,832 |                     | $ | 754,944 | 
|                           |  |                  |         |                     |   |         | 

Primarily as a
result of the deposit increase, the Company was able to repay all of the other
borrowed funds by March 31, 2009 from the $3,516,000 outstanding at December
31, 2008.

23

---



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 $10,000,000 as
of March 31, 2009 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 $146,084,000 secured by certain loans and investment
securities as of March 31, 2009. The Company also has a line of credit with
Federal Reserve Bank of San Francisco (FRB) of $1,336,000 secured by first
deeds of trust on eligible commercial real estate loans and leases. As of March
31, 2009, $31,961,000 was outstanding in the form of subordinated debt issued
by the Company.

The Company
manages both assets and liabilities by monitoring asset and liability mixes,
volumes, maturities, yields and rates in order to preserve liquidity and
earnings stability. Total liquid assets (cash and due from banks, federal funds
sold, and available for sale investment securities) totaled $167,024,000 and
$103,498,000 (or 18.5% and 11.8% of total assets) at March 31, 2009 and December
31, 2008, 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 $652,139,000 and $633,813,000 at March 31, 2009 and December 31, 2008,
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.

24

---



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, 2008.

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 decreased to $74,923,000 as of March 31,
2009, as compared to $77,258,000 at December 31, 2008. The decrease was due to
the net loss of $3,107,000, partially offset by an increase in unrealized gain
on available for sale securities of $698,000 and stock compensation benefit of
$74,000. Under current regulations, management believes that the Company meets
all capital adequacy requirements and North Valley Bank was considered well
capitalized at March 31, 2009 and December 31, 2008.

25

---



On October 3,
2008, President Bush signed into law the Emergency Economic Stabilization Act
of 2008 (the EESA). Pursuant to the EESA, the Secretary of the Treasury was
authorized to establish the Troubled Asset Relief Program (TARP) and to
invest in financial institutions and purchase mortgages, mortgage-backed
securities and certain other financial instruments from financial institutions,
in an aggregate amount up to $700 billion, for the purpose of stabilizing and
providing liquidity to the U.S. financial markets. On October 14, 2008, the
United States Department of the Treasury (the UST) announced a Capital Purchase
Program (CPP) to invest up to $250 billion of this $700 billion amount in
certain eligible U.S. banks, thrifts and their holding companies in the form of
non-voting, senior preferred stock. Bank holding companies and banks eligible
to participate as a Qualifying Financial Institution (QFI) in the CPP will be
expected to comply with certain standardized terms and conditions specified by
the UST, including the following:

| |   |                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Submission
  of an application prior to November 14, 2008 to the QFIs Federal banking
  regulator to obtain preliminary approval to participate in the CPP;                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                   
| |  | If the QFI
  receives preliminary approval, it will have 30 days within which to submit
  final documentation and fulfill any outstanding requirements;                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                   
| |  | The minimum
  amount of capital eligible for purchase by the UST under the CPP is 1 percent
  of the Total Risk-Weighted Assets of the QFI and the maximum is the lesser of
  (i) an amount equal to 3 percent of the Total Risk-Weighted Assets of the QFI
  or (ii) $25 billion;
| |   |                                                                                                                                                                                                                                                                                   
| |  | Capital
  acquired by a QFI under the CPP will be accorded Tier 1 capital treatment;                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                   
| |  | The
  preferred stock issued to the UST will be non-voting (except in the case of
  class votes) senior perpetual preferred stock that ranks senior to common
  stock and pari passu with existing preferred stock (except junior preferred
  stock);                             
| |   |                                                                                                                                                                                                                                                                                   
| |  | In addition
  to the preferred stock, the UST will be issued warrants to acquire shares of
  the QFIs common stock equal in value to 15 percent of the amount of capital
  purchased by the UST;                                                                                 
| |   |                                                                                                                                                                                                                                                                                   
| |  | Dividends on
  the preferred stock are payable to the UST at the rate of 5% per annum for
  the first 5 years and 9% per annum thereafter;                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                   
| |  | Subject to
  certain exceptions and other requirements, no redemption of the preferred
  stock is permitted during the first 3 years;                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                   
| |  | Certain
  restrictions on the payment of dividends to shareholders of the QFI shall
  remain in effect while the preferred stock purchased by the UST is
  outstanding;                                                                                                           
| |   |                                                                                                                                                                                                                                                                                   
| |  | Any
  repurchase of QFI shares will require the consent of the UST, subject to
  certain exceptions;                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                   
| |  | The
  preferred shares must not be subject to any contractual restrictions on
  transfer; and                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                   
| |  | The QFI must
  agree to be bound by certain executive compensation and corporate governance
  requirements and senior executive officers must agree to certain compensation
  restrictions.                                                                                       

The Board of Directors of the Company has not made a final decision
 whether to participate in the CPP. Such a determination
would depend upon various
factors including, without limitation, the requirements imposed upon the Company
under the investment agreement and related documentation that will be provided
to a participating QFI and the evaluation of other factors including the terms
and conditions summarized above.

26

---



The Companys
and North Valley Banks capital amounts and risk-based capital ratios are
presented below (in thousands).

|                                         |  |        |         |                               |  |                                                                  |   |                 |        |                  |  |                 |   |   |        |  |  |       |  
|---------------------------------------- |  | ------ | ------- | ----------------------------- |  | ---------------------------------------------------------------- | - | --------------- | ------ | ---------------- |  | --------------- | - | - | ------ |  |  | ----- | -
|                                         |  | Actual |         | For Capital Adequacy Purposes |  | To be Well Capitalized Under Prompt Corrective Action Provisions |  
|                                         |  |        |         |                               |  |                                                                  |  
|                                         |  | Amount |         | Ratio                         |  | Minimum
  Amount                                                 |   | Minimum
  Ratio |        | Minimum
  Amount |  | Minimum
  Ratio |  
|                                         |  |        |         |                               |  |                                                                  |   |                 |        |                  |  |                 |  
|                                         |  |        |         |                               |  |                                                                  |   |                 |        |                  |  |                 |   |   |        |  |  |       |  
|Company                                  |  |        |         |                               |  |                                                                  |   |                 |        |                  |  |                 |   |   |        |  |  |       |  
|As of March 31, 2009                     |  |        |         |                               |  |                                                                  |   |                 |        |                  |  |                 |   |   |        |  |  |       |  
|Total capital (to risk weighted assets)  |  | $      | 100,793 |                               |  | 12.84                                                            | % | $               | 62,799 |                  |  | 8.00            | % |   | N/A    |  |  | N/A   |  
|Tier 1 capital (to risk weighted assets) |  | $      | 85,221  |                               |  | 10.85                                                            | % | $               | 31,418 |                  |  | 4.00            | % |   | N/A    |  |  | N/A   |  
|Tier 1 capital (to average assets)       |  | $      | 85,221  |                               |  | 9.88                                                             | % | $               | 34,502 |                  |  | 4.00            | % |   | N/A    |  |  | N/A   |  
|                                         |  |        |         |                               |  |                                                                  |   |                 |        |                  |  |                 |   |   |        |  |  |       |  
|As of December 31, 2008                  |  |        |         |                               |  |                                                                  |   |                 |        |                  |  |                 |   |   |        |  |  |       |  
|Total capital (to risk weighted assets)  |  | $      | 104,125 |                               |  | 12.75                                                            | % | $               | 65,333 |                  |  | 8.00            | % |   | N/A    |  |  | N/A   |  
|Tier 1 capital (to risk weighted assets) |  | $      | 89,231  |                               |  | 10.93                                                            | % | $               | 32,655 |                  |  | 4.00            | % |   | N/A    |  |  | N/A   |  
|Tier 1 capital (to average assets)       |  | $      | 89,231  |                               |  | 10.36                                                            | % | $               | 34,452 |                  |  | 4.00            | % |   | N/A    |  |  | N/A   |  
|                                         |  |        |         |                               |  |                                                                  |   |                 |        |                  |  |                 |   |   |        |  |  |       |  
|North Valley Bank                        |  |        |         |                               |  |                                                                  |   |                 |        |                  |  |                 |   |   |        |  |  |       |  
|As of March 31, 2009                     |  |        |         |                               |  |                                                                  |   |                 |        |                  |  |                 |   |   |        |  |  |       |  
|Total capital (to risk weighted assets)  |  | $      | 99,194  |                               |  | 12.65                                                            | % | $               | 62,731 |                  |  | 8.00            | % | $ | 78,414 |  |  | 10.00 | %
|Tier 1 capital (to risk weighted assets) |  | $      | 89,318  |                               |  | 11.39                                                            | % | $               | 31,367 |                  |  | 4.00            | % | $ | 47,051 |  |  | 6.00  | %
|Tier 1 capital (to average assets)       |  | $      | 89,318  |                               |  | 10.38                                                            | % | $               | 34,419 |                  |  | 4.00            | % | $ | 43,024 |  |  | 5.00  | %
|                                         |  |        |         |                               |  |                                                                  |   |                 |        |                  |  |                 |   |   |        |  |  |       |  
|As of December 31, 2008                  |  |        |         |                               |  |                                                                  |   |                 |        |                  |  |                 |   |   |        |  |  |       |  
|Total capital (to risk weighted assets)  |  | $      | 102,906 |                               |  | 12.61                                                            | % | $               | 65,285 |                  |  | 8.00            | % | $ | 81,607 |  |  | 10.00 | %
|Tier 1 capital (to risk weighted assets) |  | $      | 92,693  |                               |  | 11.36                                                            | % | $               | 32,638 |                  |  | 4.00            | % | $ | 48,958 |  |  | 6.00  | %
|Tier 1 capital (to average assets)       |  | $      | 92,693  |                               |  | 10.79                                                            | % | $               | 34,363 |                  |  | 4.00            | % | $ | 42,953 |  |  | 5.00  | %

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, 2009 compared to December
31, 2008. Please see discussion under the caption Interest Rate Sensitivity
on page 24.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure
controls and procedures are designed with the objective of ensuring that information
required to be disclosed in reports filed by the Company under the Exchange
Act, such as this Quarterly Report, is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission. Disclosure controls and procedures are also
designed with the objective of ensuring that such information is accumulated
and communicated to management, including the Chief Executive Officer and the
Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.

Evaluation of Disclosure Controls and
Procedures

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, 2009. Based on this
evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that the Companys disclosure controls and procedures are effective.

Internal Control over Financial Reporting

Management of
the Company is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company. There was no change in the
Companys internal control over financial reporting that occurred during the
quarter ended March 31, 2009 that has materially affected or is reasonable
likely to materially affect, the Companys internal control over financial
reporting.

27

---



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, 2008.

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

ITEM 6. EXHIBITS

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

28

---



SIGNATURES

Pursuant to
the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|                                                               | 
|-------------------------------------------------------------- | 
|NORTH VALLEY BANCORP                                           | 
|(Registrant)                                                   | 
|                                                               | 
|Date May 12,
  2009                                            | 
|                                                               | 
|By:                                                            | 
|                                                               | 
|/s/ Michael
  J. Cushman                                       | 
|                                                               | 
|Michael J.
  Cushman                                           | 
|President
  & Chief Executive Officer                          | 
|(Principal
  Executive Officer)                                | 
|                                                               | 
|/s/ Kevin R.
  Watson                                          | 
|                                                               | 
|Kevin R.
  Watson                                              | 
|Executive
  Vice President & Chief Financial Officer           | 
|(Principal
  Financial Officer & Principal Accounting Officer) | 

29

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