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

                                    FORM 10-Q


(Mark One)

[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934
     For the period ended September 30, 2006.

[ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

     For the Quarterly Transition Period From ____________ to ____________



                         Commission file number 0-10652


                              NORTH VALLEY BANCORP
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)



                California                             94-2751350
    ---------------------------------           ------------------------
      (State or other jurisdiction              (IRS Employer ID Number)
    of incorporation or organization)


300 Park Marina Circle, Redding, CA                        96001
----------------------------------------                ----------
(Address of principal executive offices)                (Zip code)


Registrant's telephone number, including area code     (530) 226-2900
                                                     ----------------


        ---------------------------------------------------------------
        (Former name, former address and former fiscal year, if changed
                               since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the
preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X]  No [ ]

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

Large accelerated filer [ ]   Accelerated filer [X]   Non-accelerated filer [ ]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ]  No [X]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

Common Stock - 7,286,033 shares as of November 8, 2006.
<PAGE>

                                      INDEX

                      NORTH VALLEY BANCORP AND SUBSIDIARIES

PART I.  FINANCIAL INFORMATION
------------------------------

Item 1.  Financial Statements (Unaudited)

         Condensed Consolidated Balance Sheets--September 30, 2006 and
         December 31, 2005                                                    3

         Condensed Consolidated Statements of Income--For the three months
         ended September 30, 2006 and 2005                                    4

         Condensed Consolidated Statements of Income--For the nine months
         ended September 30, 2006 and 2005                                    5

         Condensed Consolidated Statements of Cash Flows--For the nine
         months ended September 30, 2006 and 2005                             6

         Notes to Condensed Consolidated Financial Statements                 7

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations                                               15

Item 3.  Quantitative and Qualitative Disclosures about Market Risk          28

Item 4.  Controls and Procedures                                             28


PART II.  OTHER INFORMATION
---------------------------

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
<PAGE>
<TABLE>
<CAPTION>

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

NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands except share data)
------------------------------------------------------------------------------------------------------
                                                                          September 30,   December 31,
                                                                              2006            2005
                                                                          ------------    ------------
<S>                                                                       <C>             <C>
ASSETS
Cash and cash equivalents:
  Cash and due from banks                                                 $     38,015    $     48,294
  Federal funds sold                                                               680           7,800
                                                                          ------------    ------------
        Total cash and cash equivalents                                         38,695          56,094

Investment securities available for sale, at fair value                        138,486         164,258
Investment securities held to maturity, at amortized cost                           82              91

Loans and leases                                                               666,148         624,512
  Less: Allowance for loan and lease losses                                     (8,853)         (7,864)
                                                                          ------------    ------------
  Net loans and leases                                                         657,295         616,648

Premises and equipment, net                                                     14,081          14,946
Accrued interest receivable                                                      3,999           3,834
Other real estate owned                                                            902             902
FHLB and FRB stock and other securities                                          5,494           5,663
Company-owned life insurance policies                                           29,222          28,495
Core deposit intangibles, net                                                    2,049           2,537
Goodwill                                                                        15,187          15,187
Other assets                                                                     9,111           9,760
                                                                          ------------    ------------

  TOTAL ASSETS                                                            $    914,603    $    918,415
                                                                          ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Deposits:
  Noninterest-bearing                                                     $    195,490    $    186,555
  Interest-bearing                                                             565,405         560,135
                                                                          ------------    ------------
  Total deposits                                                               760,895         746,690

Accrued interest payable and other liabilities                                  10,784          11,463
Other borrowed funds                                                            38,100          56,500
Subordinated debentures                                                         31,961          31,961
                                                                          ------------    ------------
  Total liabilities                                                            841,740         846,614
                                                                          ------------    ------------

Commitments and Contingencies (Note G)

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
  7,285,283 and 7,497,599 at September 30, 2006 and December 31, 2005           38,959          39,810
Retained earnings                                                               35,901          34,437
Accumulated other comprehensive loss, net of tax                                (1,997)         (2,446)
                                                                          ------------    ------------
  Total stockholders' equity                                                    72,863          71,801
                                                                          ------------    ------------
  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                              $    914,603    $    918,415
                                                                          ============    ============
</TABLE>


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

                                       3
<PAGE>
<TABLE>
<CAPTION>

NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands except per share data)
-------------------------------------------------------------------------------------------------
                                                                      For the three months ended
                                                                             September 30,
                                                                     ----------------------------
                                                                         2006            2005
                                                                     ------------    ------------
<S>                                                                  <C>             <C>
INTEREST INCOME:
Interest and fees on loans and leases                                $     12,899    $     10,993
Interest on investments:
  Taxable interest income                                                   1,330           1,583
  Nontaxable interest income                                                  257             276
Interest on Federal funds sold and repurchase agreements                       20             113
                                                                     ------------    ------------
    Total interest income                                                  14,506          12,965
                                                                     ------------    ------------

INTEREST EXPENSE:
Deposits                                                                    2,782           1,651
Subordinated debentures                                                       611             450
Other borrowings                                                              603             480
                                                                     ------------    ------------
    Total interest expense                                                  3,996           2,581
                                                                     ------------    ------------

NET INTEREST INCOME                                                        10,510          10,384

PROVISION FOR LOAN AND LEASE LOSSES                                           555             280
                                                                     ------------    ------------

NET INTEREST INCOME AFTER PROVISION
  FOR LOAN AND LEASE LOSSES                                                 9,955          10,104
                                                                     ------------    ------------

NONINTEREST INCOME:
Service charges on deposit accounts                                         1,723           1,683
Other fees and charges                                                        902             721
Earnings on cash surrender value of life insurance policies                   309             320
Gain on sale of loans                                                         171              54
Gain on sales or calls of securities                                           16              22
Other                                                                         477             267
                                                                     ------------    ------------
    Total noninterest income                                                3,598           3,067
                                                                     ------------    ------------

NONINTEREST EXPENSES:
Salaries and employee benefits                                              5,407           4,995
Occupancy expense                                                             772             666
Furniture and equipment expense                                               533             540
Other                                                                       3,147           3,323
                                                                     ------------    ------------
    Total noninterest expenses                                              9,859           9,524
                                                                     ------------    ------------

INCOME BEFORE PROVISION FOR INCOME TAXES                                    3,694           3,647

PROVISION FOR INCOME TAXES                                                    775           1,214
                                                                     ------------    ------------

NET INCOME                                                           $      2,919    $      2,433
                                                                     ============    ============

Per Share Amounts
Basic Earnings Per Share                                             $       0.40    $       0.33
                                                                     ============    ============
Diluted Earnings Per Share                                           $       0.39    $       0.31
                                                                     ============    ============
Cash Dividends Per Common Share                                      $       0.10    $       0.10
                                                                     ============    ============
</TABLE>

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

                                       4
<PAGE>
<TABLE>
<CAPTION>

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

                                                                            For the nine months ended
                                                                                 September 30,
                                                                          ----------------------------
                                                                              2006            2005
                                                                          ------------    ------------
<S>                                                                       <C>             <C>
INTEREST INCOME:
Interest and fees on loans and leases                                     $     36,862    $     30,699
Interest on investments:
  Taxable interest income                                                        4,285           4,985
  Nontaxable interest income                                                       800             870
Interest on Federal funds sold and repurchase agreements                           196             374
                                                                          ------------    ------------
    Total interest income                                                       42,143          36,928
                                                                          ------------    ------------

INTEREST EXPENSE:
Deposits                                                                         6,913           4,370
Subordinated debentures                                                          1,843           1,272
Other borrowings                                                                 1,789           1,236
                                                                          ------------    ------------
    Total interest expense                                                      10,545           6,878
                                                                          ------------    ------------

NET INTEREST INCOME                                                             31,598          30,050

PROVISION FOR LOAN AND LEASE LOSSES                                                925             730
                                                                          ------------    ------------
NET INTEREST INCOME AFTER PROVISION
  FOR LOAN AND LEASE LOSSES                                                     30,673          29,320
                                                                          ------------    ------------
NONINTEREST INCOME:
Service charges on deposit accounts                                              4,806           4,005
Other fees and charges                                                           2,334           1,938
Earnings on cash surrender value of life insurance policies                        889             884
Gain on sale of loans                                                              336             155
(Loss) gain on sales or calls of securities                                         (3)            117
Other                                                                            1,049             881
                                                                          ------------    ------------
    Total noninterest income                                                     9,411           7,980
                                                                          ------------    ------------
NONINTEREST EXPENSES:
Salaries and employee benefits                                                  16,458          14,369
Occupancy expense                                                                2,255           1,985
Furniture and equipment expense                                                  1,610           1,513
Other                                                                            9,432           9,554
                                                                          ------------    ------------
    Total noninterest expenses                                                  29,755          27,421
                                                                          ------------    ------------

INCOME BEFORE PROVISION FOR INCOME TAXES                                        10,329           9,879

PROVISION FOR INCOME TAXES                                                       2,987           3,200
                                                                          ------------    ------------

NET INCOME                                                                $      7,342    $      6,679
                                                                          ============    ============
Per Share Amounts
Basic Earnings Per Share                                                  $       0.99    $       0.90
                                                                          ============    ============
Diluted Earnings Per Share                                                $       0.95    $       0.86
                                                                          ============    ============
Cash Dividends Per Common Share                                           $       0.10    $       0.30
                                                                          ============    ============
</TABLE>

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

                                       5
<PAGE>
<TABLE>
<CAPTION>

NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
----------------------------------------------------------------------------------------------------------------
                                                                                     For the nine months ended
                                                                                            September 30,
                                                                                    ----------------------------
                                                                                        2006            2005
                                                                                    ------------    ------------
<S>                                                                                 <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income                                                                          $      7,342    $      6,679
Adjustments to reconcile net income to net cash provided by
     operating activities:
     Depreciation and amortization                                                         1,753           1,604
     Amortization of premium on securites                                                     72             183
     Amortization of core deposit intangible                                                 488             488
     Provision for loan and lease losses                                                     925             730
     Loss (gain) on sale or calls on securities                                                3            (117)
     Gain on sale of loans                                                                  (336)           (155)
     Gain on sale of premises and equipment                                                 (217)            (37)
     Stock-based compensation expense                                                        227             159
Effect of changes in:
     Accrued interest receivable                                                            (165)           (175)
     Other assets                                                                           (391)           (195)
     Accrued interest payable and other liabilities                                         (680)           (650)
                                                                                    ------------    ------------
        Net cash provided by operating activities                                          9,021           8,514
                                                                                    ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Proceeds from sales of available for sale securities                                     62              --
     Proceeds from maturities/calls of available for sale securities                      26,406          20,007
     Purchases of available for sale securities                                               --          (1,989)
     Proceeds from maturities/calls of held to maturity securities                            --          27,058
     Net change in FHLB and FRB stock and other securities                                   169            (662)
     Net change in interest bearing deposits in other financial institutions                  --             500
     Net increase in loans and leases                                                    (41,236)        (56,928)
     Proceeds from sales of premises and equipment                                           329              37
     Purchases of premises and equipment                                                  (1,000)         (4,186)
                                                                                    ------------    ------------
        Net cash used in investing activities                                            (15,270)        (16,163)
                                                                                    ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Net increase in deposits                                                             14,205          39,690
     Net decrease in other borrowed funds                                                (18,400)         (2,056)
     Cash dividends paid                                                                  (2,204)         (2,232)
     Repurchase of common stock                                                           (5,270)           (188)
     Deferred tax benefit on stock-based compensation                                        175             571
     Exercise of stock options                                                               344           1,076
                                                                                    ------------    ------------
        Net cash (used in) provided by financing activities                              (11,150)         36,861
                                                                                    ------------    ------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                     (17,399)         29,212
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                              56,094          24,215
                                                                                    ------------    ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                            $     38,695    $     53,427
                                                                                    ============    ============
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Year for:
     Interest                                                                       $     10,922    $      7,319
     Income taxes                                                                          4,075           3,956
</TABLE>

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

                                       6
<PAGE>

                      NORTH VALLEY BANCORP AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A - BASIS OF PRESENTATION

         The accompanying unaudited condensed consolidated financial statements
of North Valley Bancorp and subsidiaries (the "Company") have been prepared in
accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X
of the Securities and Exchange Commission. Accordingly, certain information and
notes required by accounting principles generally accepted in the United States
for annual financial statements are not included herein. Management believes
that the disclosures are adequate to make the information not misleading. In the
opinion of management, all adjustments (consisting solely of normal recurring
adjustments) considered necessary for a fair presentation of the results for the
interim periods presented have been included. For further information, refer to
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2005. Operating results for the three and nine months ended September 30, 2006
are not necessarily indicative of the results that may be expected for any
subsequent period or for the year ended December 31, 2006.

         The condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries North Valley Bank ("NVB"), North
Valley Trading Company, which is inactive, and Bank Processing, Inc. ("BPI"),
which is also inactive. After the close of business on June 30, 2006, the former
banking subsidiary NVB Business Bank was merged into North Valley Bank.
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.


                                       7
<PAGE>

NOTE B - INVESTMENT SECURITIES

At September 30, 2006 and December 31, 2005, the amortized cost of securities
and their approximate fair value were as follows (in thousands):
<TABLE>
<CAPTION>

                                                                               Gross          Gross
                                                             Amortized       Unrealized     Unrealized      Estimated
                                                               Cost            Gains          Losses        Fair Value
                                                           ------------    ------------    ------------    ------------
<S>                                                        <C>             <C>             <C>             <C>
Available for sale securities:

September 30, 2006
  Securities of US government agencies and
    corporations                                           $      9,119    $         --    $       (138)   $      8,981
  Obligations of states and political subdivisions               22,169             806             (48)         22,927
  Mortgage-backed securities                                     89,671              20          (3,224)         86,467
  Corporate debt securities                                       5,998              --             (37)          5,961
  Equity securities of government sponsored entities             15,042              26            (918)         14,150
                                                           ------------    ------------    ------------    ------------
                                                           $    141,999    $        852    $     (4,365)   $    138,486
                                                           ============    ============    ============    ============

December 31, 2005
  Securities of US government agencies and
    corporations                                           $     16,015    $         --    $       (241)   $     15,774
  Obligations of states and political subdivisions               23,473             541             (83)         23,931
  Mortgage-backed securities                                    105,935              43          (3,499)        102,479
  Corporate debt securities                                       7,994              23             (32)          7,985
  Equity securities of government sponsored entities             15,089              27          (1,027)         14,089
                                                           ------------    ------------    ------------    ------------
                                                           $    168,506    $        634    $     (4,882)   $    164,258
                                                           ============    ============    ============    ============

<CAPTION>

                                                                               Gross          Gross
                                                             Amortized       Unrealized     Unrealized      Estimated
                                                               Cost            Gains          Losses        Fair Value
                                                           ------------    ------------    ------------    ------------
<S>                                                        <C>             <C>             <C>             <C>

Held to maturity securities:

September 30, 2006
  Mortgage-backed securities                               $         82    $         --    $         (2)   $         80
                                                           ============    ============    ============    ============
December 31, 2005
  Mortgage-backed securities                               $         91    $         --    $         (3)   $         88
                                                           ============    ============    ============    ============
</TABLE>

         For the three months ended September 30, 2006 and 2005, there were
$16,000 and $22,000 gross realized gains on sales or calls of available for sale
securities, respectively. There were no gross realized losses on sales or calls
of available for sale securities for the three months ended September 30, 2006
or 2005. There were $16,000 and $297,000 gross realized gains on sales or calls
of available for sale securities for the nine months ended September 30, 2006
and 2005, respectively. Gross realized losses on sales or calls of available for
sale securities for the nine months ended September 30, 2006 and 2005 were
$19,000 and $180,000. There were no sales or transfers of held to maturity
securities for the three and nine months ended September 30, 2006 and 2005.

         At September 30, 2006 and December 31, 2005, securities having fair
value amounts of approximately $76,129,000 and $103,584,000 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

                                       8
<PAGE>

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 September 30, 2006, the Company held $113,999,000 of available for
sale investment securities in an unrealized loss position of which $3,416,000
were in an unrealized loss position for less than twelve months and $110,583,000
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 believes it will be able to collect all amounts due
according to the contractual terms of the underlying investment securities and
that the noted decline in fair value is considered temporary and due only to
interest rate fluctuations.

         Included in the above securities at September 30, 2006 are 100,000
shares of FNMA, Series M perpetual preferred stock. The coupon rate is fixed at
4.75% with a taxable-equivalent yield of 6.57%. The securities are owned at par,
or $50.00 per share, for a total investment of $5,000,000 and an unrealized loss
of $875,000 at September 30, 2006 as compared to $1,100,000 at December 31,
2005. The securities are callable at par on June 1, 2008.

         Management carefully evaluated the FNMA preferred stock to determine
whether the decline in fair value below book value of these securities is
other-than-temporary. Among other items, management reviewed relevant accounting
literature which included Statement of Financial Accounting Standards ("SFAS")
No. 115, Statement of Auditing Standard ("SAS") 92, and Staff Accounting
Bulletin ("SAB") No. 59. In conducting this assessment, management evaluated a
number of factors including, but not limited to:

o        How far fair value has declined below book value
o        How long the decline in fair value has existed
o        The financial condition of the issuer
o        Rating agency changes on the issuer
o        Management's intent and ability to hold the security for a period of
         time sufficient to allow for any anticipated recovery in fair value

         Based on this evaluation, management concluded that these securities
were deemed to be temporarily impaired. Management's assessment weighed heavily
on the normal market fluctuations during the holding period, FNMA's response to
its weaker financial condition and analysis of FNMA by rating agencies and
investment bankers.

NOTE C - STOCK-BASED COMPENSATION

Stock Option Plans

         At September 30, 2006, the Company has three stock-based compensation
plans: the North Valley Bancorp 1989 Director Stock Option Plan, the 1998
Employee Stock Incentive Plan and the 1999 Director Stock Option Plan. The
shares available for grant may be granted to anyone eligible to participate in
the plans. All options granted under the Employee plan had an exercise price
equal to the market value of the underlying common stock on the date of grant.
Prior to January 1, 2006, compensation expense was not recognized in the
financial statements for these options. The options under the plans expire on
dates determined by the Board of Directors, but not later than ten years from
the date of grant. The vesting period is generally four years; however the
vesting period can be modified at the discretion of the Company's Board of
Directors. Outstanding options under the plans are exercisable until their
expiration. Total options of 2,502,353 were authorized under all plans at
September 30, 2006. The Company issues new shares of common stock upon exercise
of stock options by all plan participants.

Adoption of FAS 123(R)

         Prior to January 1, 2006, the Company accounted for the plans under the
recognition and measurement provisions of Accounting Principals Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related

                                       9
<PAGE>

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 2006
includes: (a) compensation cost for all share-based payments vesting during 2006
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 2006 that were granted subsequent to January 1, 2006, based on the
grant-date fair value estimated in accordance with the provisions of Statement
123(R).

         As a result of adopting Statement 123(R) on January 1, 2006, the
Company's income before provision for income taxes and net income for the three
and nine months ended September 30, 2006, was $41,000 and $29,000 lower, and
$133,000 and $94,000 lower respectively, than if it had continued to account for
share-based compensation under APB Opinion No. 25. Diluted earnings per share
for the three months ended September 30, 2006 would have remained unchanged if
it had continued to account for share-based compensation under APB Opinion No.
25. Diluted earnings per share for the nine months ended September 30, 2006
would have been $0.97 compared to the $0.95 reported if the Company had
continued to account for share-based compensation under APB Opinion No. 25.

         Statement 123(R) requires the cash flows resulting from the tax
benefits from tax deductions in excess of the compensation cost recognized for
those options (excess tax benefits) to be classified as a cash flow from
financing activities in the statement of cash flows. The $175,000 excess tax
benefits classified as cash flows from financing activities would have been
classified as an operating cash inflow if the Company had not adopted Statement
123(R).

 Determining Fair Value

         The fair value of each option award is estimated on the date of grant
using a Black-Scholes based option valuation model that uses the assumptions
discussed below. This fair value is then amortized on a straight-line basis over
the requisite service periods of the awards, which is generally the vesting
period.

         Expected Term - The Company's expected term represents the period that
the Company's stock-based awards are expected to be outstanding and was
determined based on the "simplified" method as outlined in Staff Accounting
Bulletin ("SAB") No. 107. Under this method the expected term is determined by
adding the vesting term to the original contractual term and dividing by 2.

         Expected Volatility - The Company uses the trading history of the
common stock of the Company in determining an estimated volatility factor when
using the Black-Scholes option-pricing formula to determine the fair value of
options granted.

         Expected Dividend - The Company estimates the expected dividend based
on its historical experience of dividends declared per year, giving
consideration to any anticipated changes and the estimated stock price over the
expected term based on historical experience when using the Black-Scholes
option-pricing formula to determine the fair value of options granted.

         Risk-Free Interest Rate - The Company bases the risk-free interest rate
used in the Black-Scholes option-pricing formula on the implied yield currently
available on U.S. Treasury zero-coupon issues with the same or substantially
equivalent remaining term as the expected term of the options.

         Estimated Forfeitures - When estimating forfeitures, the Company
considers voluntary and involuntary termination behavior as well as analysis of
actual option forfeitures.

Pro Forma

         The following table illustrates the effect on net income and earnings
per share for the three and nine months ended September 30, 2005 if the Company
had applied the fair value recognition provisions of Statement 123 to options
granted under the Company's stock option plans.

                                       10
<PAGE>
<TABLE>
<CAPTION>

                                                                                          Three months ended,   Nine months ended,
(in thousands except per share data)                                                          September 30,       September 30,
                                                                                                  2005                2005
                                                                                              ------------        ------------
<S>                                                                                           <C>                 <C>
Net income, as reported                                                                       $      2,433        $      6,679
Add:  total stock-based compensation expense included in net income, net of tax                         31                  94
Deduct:  total stock-based compensation expense determined under the fair value based
         method for all awards, net of tax                                                             (86)               (255)
                                                                                              ------------        ------------
Net income, pro forma                                                                         $      2,378        $      6,518

Basic earnings per common share:
As reported                                                                                   $       0.33        $       0.90
Pro forma                                                                                     $       0.32        $       0.88

Diluted earnings per common and equivalent share:
As reported                                                                                   $       0.31        $       0.86
Pro forma                                                                                     $       0.31        $       0.84
<CAPTION>

    The fair value of the options granted during the three and nine months
ended September 30, 2006 and 2005 are noted below and were calculated using
the Black-Scholes option-pricing formula with the following assumptions and
prices:

                                                      Three months ended September 30,         Nine months ended September 30,
                                                      --------------------------------        --------------------------------
                                                          2006                2005                2006                2005
                                                      ------------        ------------        ------------        ------------
<S>                                                  <C>                 <C>               <C>             <C>
Dividend yield                                                2.30%               2.18%          2.24-2.30%          2.18-2.28%
Expected volatility                                          15.71%              15.73%        14.78-15.72%        15.29-16.55%
Risk-Free interest rate                                       3.58%               3.58%               3.58%               3.58%
Expected option life                                       7 years             7 years             7 years             7 years
Weighted average grant date fair value                $       2.96        $       3.31        $       2.95        $       3.34
</TABLE>

Stock Compensation Expense - Stock Options

         At September 30, 2006, the total unrecognized compensation cost related
to stock-based awards granted to employees under the Company's stock option
plans was $306,000. This cost will be amortized on a straight-line basis over a
weighted average period of approximately 2.8 years and will be adjusted for
subsequent changes in estimated forfeitures. The total fair value of shares
vested for the three months and nine months ended September 30, 2006 was $41,000
and $133,000.

Stock Option Activity

         A summary of the activity in the Company's option plans is as follows:

                                       11
<PAGE>

<TABLE>
<CAPTION>


                                                                                          Weighted
                                                                          Weighted        Average
                                                                          Average         Remaining       Exercise       Aggregate
                                                                          Exercise       Contractual        Price        Intrinsic
                                                            Shares         Price            Term            Range       Value ($000)
                                                       -----------------------------------------------------------------------------
<S>                                                       <C>        <C>                <C>           <C>     <C>     <C>
Outstanding at January 1, 2006                              896,560    $       9.51       4.2 years     $5.36 - 19.86

Granted                                                      59,157           17.33             N/A    $16.38 - 17.95

Exercised                                                   (80,484)           8.41             N/A     $5.53 - 15.72

Expired or Forfeited                                        (66,221)          12.09             N/A     $8.58 - 19.86

                                                       -----------------------------------------------------------------------------
Outstanding at September 30, 2006                           809,012    $       9.98       5.1 years     $5.36 - 19.86   $      6,193
                                                       -----------------------------------------------------------------------------

Fully vested and excercisable at September 30, 2006         702,606    $       8.88       4.6 years     $5.36 - 19.86   $      6,149
                                                       =============================================================================
</TABLE>

         Cash received from stock option exercises under the Company's option
plans for the nine months ended September 30, 2006 and September 30, 2005 was
$344,000 and $1,076,000, respectively. The actual tax benefit realized for the
tax deductions from stock option exercises under the stock option plans totaled
$175,000 and $571,000 for the nine months ended September 30, 2006 and September
30, 2005, respectively.

NOTE D - COMPREHENSIVE INCOME

         Comprehensive income includes net income and other comprehensive income
or loss. The Company's only sources of other comprehensive income (loss) are
unrealized gains and losses on available for sale investment securities and
adjustments to the minimum pension liability. Reclassification adjustments
resulting from gains or losses on investment securities that were realized and
included in net income of the current period that also had been included in
other comprehensive income (loss) as unrealized holding gains or losses in the
period in which they arose are excluded from comprehensive income of the current
period. The Company's total comprehensive income was as follows:
<TABLE>
<CAPTION>

                                                             Three months ended             Nine months ended
(in thousands)                                                  September 30,                 September 30,
                                                       ----------------------------    ----------------------------
                                                           2006            2005            2006            2005
                                                       ------------    ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>             <C>
Net income                                             $      2,919    $      2,433    $      7,342    $      6,679
Other comprehensive income (loss), net of tax:
  Holding income (loss) arising during period                 1,885          (1,015)            451          (1,068)
  Reclassification adjustment                                     9              13              (2)             69
                                                       ------------    ------------    ------------    ------------
                                                              1,894          (1,002)            449            (999)
                                                       ------------    ------------    ------------    ------------

Total comprehensive income                             $      4,813    $      1,431    $      7,791    $      5,680
                                                       ============    ============    ============    ============
</TABLE>

NOTE E - EARNINGS PER SHARE

         Basic earnings per share are computed by dividing net income by the
weighted average common shares outstanding for the period. Diluted earnings per
share reflect the potential dilution that could occur if options or other
contracts to issue common stock were exercised and converted into common stock.

         There was no difference in the numerator, net income, used in the
calculation of basic earnings per share and diluted earnings per share. The
denominator used in the calculation of basic earnings per share and diluted
earnings per share for the three and nine month periods ended September 30, 2006
and 2005 is reconciled as follows (in thousands, except per share amounts):


                                       12
<PAGE>
<TABLE>
<CAPTION>
                                                                         Three months ended               Nine months ended
                                                                            September 30,                   September 30,
                                                                     ----------------------------    ----------------------------
                                                                         2006            2005            2006            2005
                                                                     ------------    ------------    ------------    ------------
<S>                                                                  <C>             <C>             <C>             <C>
Calculation of basic earnings per share:
Numerator - net income                                               $      2,919    $      2,433    $      7,342    $      6,679
Denominator - weighted average common shares outstanding                    7,277           7,451           7,411           7,400
                                                                     ------------    ------------    ------------    ------------

     Basic earnings per share                                        $       0.40    $       0.33    $       0.99    $       0.90
                                                                     ============    ============    ============    ============
Calculation of diluted earnings per share:
Numerator - net income                                               $      2,919    $      2,433    $      7,342    $      6,679
Denominator:
  Weighted average common shares outstanding                                7,277           7,451           7,411           7,400
  Dilutive effect of outstanding options                                      253             358             280             394
                                                                     ------------    ------------    ------------    ------------
     Weighted average common shares outstanding
       and common stock equivalents                                         7,530           7,809           7,691           7,794
                                                                     ------------    ------------    ------------    ------------

     Diluted earnings per share                                      $       0.39    $       0.31    $       0.95    $       0.86
                                                                     ============    ============    ============    ============
</TABLE>

NOTE F - 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. Components
of net periodic benefit cost for the Company's supplemental nonqualified defined
benefit plans for the three and nine months ended September 30, 2006 and 2005
are presented in the following table (in thousands):
<TABLE>
<CAPTION>

                                                                         Three months ended               Nine months ended
                                                                            September 30,                   September 30,
                                                                     ----------------------------    ----------------------------
                                                                         2006            2005            2006            2005
                                                                     ------------    ------------    ------------    ------------
<S>                                                                  <C>             <C>             <C>             <C>
Components of net periodic benefits cost:
  Service cost                                                       $        123    $         69    $        367    $        202
  Interest cost                                                                67              48             201             146
  Amortization of net obligation at transition                                 --               7              --              21
  Prior service amortization                                                    8               9              24              27
  Recognized net actuarial loss                                                14              --              44              --
                                                                     ------------    ------------    ------------    ------------
Total components of net periodic cost                                $        212    $        133    $        636    $        396
                                                                     ============    ============    ============    ============
</TABLE>

NOTE G - 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 $14,720,000 and $14,196,000 at
September 30, 2006 and December 31, 2005. At September 30, 2006, commercial and
consumer lines of credit and real estate loans of approximately $74,962,000 and
$173,927,000 were undisbursed. At December 31, 2005, commercial and consumer
lines of credit and real estate loans of approximately $78,602,000 and
$127,608,000 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 inventory purchases by the Company's
commercial and technology customers and such guarantees are typically short
term. Credit risk is similar to that involved in extending loan commitments to
customers and the Company, accordingly, uses evaluation and collateral
requirements similar to those for loan commitments. Virtually all of such
commitments are collateralized.

         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

                                       13
<PAGE>

to credit loss. However, at September 30, 2006, no losses are anticipated as a
result of these commitments.

         In management's opinion, a concentration exists in real estate-related
loans which represent approximately 77% of the Company's loan portfolio at both
September 30, 2006 and December 31, 2005. Although management believes such
concentrations to have no more than the normal risk of collectibility, a
substantial decline in the economy in general, or a decline in real estate
values in the Company's primary market areas in particular, could have an
adverse impact on collectibility of these loans. However, personal and business
income represents the primary source of repayment for a majority of these loans.

NOTE H - NEW ACCOUNTING PRONOUNCEMENTS

Accounting for Tax Effects of Share-Based Payment Awards

         In November 2005, the Financial Accounting Standards Board ("FASB")
issued FASB Staff Position No. FAS 123R-3, Transition Election Related to
Accounting for Tax Effects of Share-Based Payment Awards ("FSP 123R-3"). The
alternative transition method includes simplified methods to establish the
beginning balance of the additional paid-in capital pool ("APIC pool") related
to the tax effects of employee share-based compensation, and to determine the
subsequent impact on the APIC pool and consolidated statements of cash flows of
the tax effects of employee share-based compensation awards that are outstanding
upon adoption of Statement of Financial Accounting Standards No. 123 (revised
2004), Share Based Payment, ("SFAS 123R"). Management is currently evaluating
the available transition alternatives of FSP 123R-3. Management does not believe
the adoption of FSP 123R-3 will have a material impact on the Company's
financial statements.

Staff Accounting Bulletin 108: Considering the Effects of Prior Year
Misstatements

         On September 13, 2006, the Securities and Exchange Commission published
Staff Accounting Bulletin No. 108 Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements ("SAB 108"). The interpretations in this Staff Accounting Bulletin
are being issued to address diversity in practice in quantifying financial
statement misstatements and the potential under current practice to build up
improper amounts on the balance sheet. This guidance will apply to the first
fiscal year ending after November 15, 2006 and early application in interim
periods is encouraged. Management does not believe the adoption of SAB 108 will
have a material impact on the Company's financial statements.

Accounting for Servicing of Financial Assets

         In March 2006, the Financial Accounting Standards Board (FASB) issued
Statement No. 156 (SFAS 156), Accounting for Servicing of Financial Assets - An
Amendment of FASB Statement No. 140. SFAS 156 requires that a servicing asset or
liability be recognized each time a contract to service a financial asset is
entered into, requires that all separately recognized servicing assets and
servicing liabilities be initially measured at fair value, if practicable, and
permits the subsequent measurement of servicing assets and servicing liabilities
based on the amortization method or the fair value measurement method. SFAS 156
also permits a one-time reclassification of available for sale securities to
trading securities provided that the available for sale securities are
identified in some manner as offsetting the entity's exposure to changes in the
fair value of servicing assets or servicing liabilities that are subsequently
measured at fair value. SFAS 156 will become effective as of the beginning of
the first fiscal year that begins after September 15, 2006. Earlier adoption is
permitted at the beginning of an entity's fiscal year provided the entity has
not yet issued financial statements, including interim financial statements, for
any period of that fiscal year.

         The Company will apply the requirements for recognition and initial
measurement of servicing assets and servicing liabilities prospectively to all
transactions entered into on or after January 1, 2007. Management has not
completed its evaluation of the impact of SFAS 156 but believes that the effect
on the Company's financial position and results of operations will not be
material.

Accounting for Uncertainty in Income Taxes

         In July 2006, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes
- an interpretation of FASB Statement No. 109. FIN 48 requires that realization
of an uncertain income tax position be "more likely than not" before it can be
recognized in the financial statements. Further, FIN 48 prescribes the benefit
to be recorded in the financial statements as the amount most likely to be

                                       14
<PAGE>

realized assuming a review by tax authorities having all relevant information
and applying current conventions. FIN 48 also clarifies the financial statement
classification of tax-related penalties and interest and sets forth new
disclosures regarding unrecognized tax benefits. FIN 48 is effective for fiscal
years beginning after December 15, 2006. Management of the Company is currently
evaluating the requirements of FIN 48 and the impact this interpretation may
have on its 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.

Critical Accounting Policies
----------------------------

General

         North Valley Bancorp's financial statements are prepared in accordance
with accounting principles generally accepted in the United States of America
(GAAP). The financial information contained within our financial statements is,
to a significant extent, financial information that is based on measures of the
financial effects of transactions and events that have already occurred. A
variety of factors could affect the ultimate value that is obtained either when
earning income, recognizing an expense, recovering an asset or relieving a
liability. We use historical loss factors as one factor in determining the
inherent loss that may be present in our loan and lease portfolio. Actual losses
could differ significantly from the historical factors that we use. Another
estimate that we use is related to the expected useful lives of our depreciable
assets. In addition, GAAP itself may change from one previously acceptable
method to another method. Although the economics of our transactions would be
the same, the timing of events that would impact our transactions could change.

Allowance for Loan and Lease Losses

         The allowance for loan and lease losses is based on the probable
estimated losses in our loan and lease portfolio. The allowance is based on two
basic principles of accounting: (1) Statement of Financial Accountings Standards
(SFAS) No. 5 "Accounting for Contingencies," which requires that losses be
accrued when they are probable of occurring and estimable; and (2) SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," which requires that losses
be accrued on impaired loans (as defined) based on the differences between the
value of collateral, present value of future cash flows or values that are
observable in the secondary market and the loan balance.

         The allowance for loan and lease losses is established through a
provision for loan and lease losses based on management's evaluation of the
risks inherent in the loan and lease portfolio. In determining levels of risk,
management considers a variety of factors, including, but not limited to, asset
classifications, economic trends, industry experience and trends, geographic
concentrations, estimated collateral values, historical loan and lease loss
experience, and the Company's underwriting policies. The allowance for loan and
lease losses is maintained at an amount management considers adequate to cover
losses in loans and leases receivable which are considered probable and
estimable. While management uses the best information available to make these
estimates, future adjustments to allowances may be necessary due to economic,
operating, regulatory, and other conditions that may be beyond the Company's
control. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for loan and
lease losses. Such agencies may require the Company to recognize additions to
the allowance based on judgments different from those of management.

                                       15
<PAGE>

Share Based Compensation

         At September 30, 2006, the Company had three stock-based compensation
plans: the North Valley Bancorp 1989 Director Stock Option Plan, the 1998
Employee Stock Incentive Plan and the 1999 Director Stock Option Plan, which are
described more fully in Note C to the Unaudited Condensed Consolidated Financial
Statements included herein in Item 1 - Financial Statements. On January 1, 2006,
the Company adopted Statement of Financial Accounting Standards No. 123 (revised
2004), Share-Based Payment (SFAS 123R), using the modified-prospective
transition method. Under this transition method, compensation cost recognized
during the three and nine months ended September 30, 2006 includes: (a)
compensation cost for all share-based awards granted prior to, but not yet
vested as of, January 1, 2006, based on the grant-date fair value and related
service period estimates in accordance with the original provisions of SFAS 123
and (b) compensation cost for all share-based awards granted subsequent to
January 1, 2006, based on the grant-date fair value and related service periods
estimated in accordance with the provisions of SFAS 123R. Under the provisions
of the modified-prospective transition method, results for the three or nine
months ended September 30, 2005 have not been restated.

         Prior to the adoption of SFAS 123R, the Company used the intrinsic
value method to account for its stock option plans (in accordance with the
provisions of Accounting Principles Board Opinion No. 25). Intrinsic value is
the difference between share fair market value and option exercise price. Under
this method, compensation expense was recognized for awards of options to
purchase shares of common stock to employees under compensatory plans only if
the fair market value of the stock at the option grant date (or other
measurement date, if later) was greater than the amount the employee was
required to pay to acquire the stock. Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), permitted
companies to continue using the intrinsic value method or to adopt a fair value
based method to account for stock option plans. The fair value based method
would have resulted in the recognition, as expense over the vesting period, of
the fair value of all stock-based awards on the date of grant.

         SFAS 123R clarifies and expands the guidance in SFAS 123 in several
areas, including measuring fair value and attributing compensation cost to
reporting periods. SFAS 123R includes a requirement to: (a) estimate forfeitures
of share-based awards at the date of grant, (b) expense share-based awards
granted to retirement eligible employees and those employees with
non-substantive non-compete agreements immediately, (c) attribute compensation
costs of share-based award grants to the stated future vesting period, (d)
recognize compensation cost of all share-based awards based upon the grant-date
fair value (including pre-2006 options that vest after January 1, 2006).

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
2006.

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.

                                       16
<PAGE>

Overview
--------

         North Valley Bancorp (the "Company") is a bank holding company
headquartered in Redding, California. On June 30, 2006, the former banking
subsidiary NVB Business Bank was merged into the Company's wholly owned
subsidiary, North Valley Bank. All of the business activities of NVB Business
Bank were assumed by North Valley Bank as of the effective date of the merger.
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
branches, including two supermarket branches, in Northern California. The
Company's principal business consists of attracting deposits from the general
public and using the funds to originate commercial, real estate and installment
loans to customers, who are predominately small and middle market businesses and
middle income individuals. The Company's primary source of revenues is interest
income from its loan and investment securities portfolios. The Company is not
dependent on any single customer for more than ten percent of its revenues.
Effective July 27, 2006, North Valley Bancorp Directors Roger Kohlmeier and
Martin Mariani became directors of North Valley Bank, the Company's wholly-owned
banking subsidiary, bringing the total number of directors at North Valley Bank
to nine. All of the nine directors of the Company are now directors of NVB.
<TABLE>
<CAPTION>

Earnings Summary
----------------

                                                     Three months ended               Nine months ended
                                                        September 30,                   September 30,
                                                 ----------------------------    ----------------------------
(in thousands except per share amounts)              2006            2005            2006            2005
                                                 ------------    ------------    ------------    ------------
<S>                                              <C>             <C>             <C>             <C>
Net interest income                              $     10,510    $     10,384    $     31,598    $     30,050
Provision for loan and lease losses                       555             280             925             730
Noninterest income                                      3,598           3,067           9,411           7,980
Noninterest expense                                     9,859           9,524          29,755          27,421
Provision for income taxes                                775           1,214           2,987           3,200
                                                 ------------    ------------    ------------    ------------
Net income                                       $      2,919    $      2,433    $      7,342    $      6,679
                                                 ============    ============    ============    ============
Earnings Per Share
    Basic                                        $       0.40    $       0.33    $       0.99    $       0.90
    Diluted                                      $       0.39    $       0.31    $       0.95    $       0.86

Annualized Return on Average Assets                      1.28%           1.07%           1.09%           1.00%
Annualized Return on Average Equity                     16.49%          13.99%          13.75%          13.29%
</TABLE>

         Net income for the three and nine months ended September 30, 2006
increased by $486,000, or 20.0%, and $663,000, or 9.9%, respectively, compared
to the same periods in 2005. Diluted earnings per share increased $0.08, or
25.8%, and $0.09, or 10.5%, respectively, for the three and nine months ended
September 30, 2006 compared to the same periods in 2005. The increase in net
income for the quarter was principally driven by a one time reduction in the
Company's effective tax rate resulting from a change in our estimate of the
effective tax rate for 2006. Following the filing of the Company's 2005 tax
returns during the third quarter, we determined that our estimated tax rate to
be applied to 2006 net income should be reduced to reflect greater California
jobs credits and a lowering of the expected Federal statutory rate on the
Company's taxable income in 2006. These changes reduced our third quarter tax
provision by approximately $456,000, and reduced our effective tax rate for the
year to 29.0% from 33.3% at June 30, 2006.

         The Company recorded a provision for loan and lease losses for the
three months ended September 30, 2006 of $555,000 resulting in total provision
recorded for the nine months ended September 30, 2006 of $925,000. Provision for
loan and lease losses of $280,000 and $730,000 were recorded for the three and
nine months ended September 30, 2005. The process for determining allowance
adequacy includes a comprehensive analysis of the loan portfolio. Factors in the
analysis include size and mix of the loan portfolio, nonperforming loan levels,
charge-off/recovery activity and other qualitative factors including economic
activity. Management believes that the current level of allowance for loan and
lease losses as of September 30, 2006 of $8,853,000, or 1.33% of total loans and
leases, is adequate at this time. The allowance for loan and lease losses was
$7,864,000, or 1.26% of total loans and leases, at December 31, 2005. For
further information regarding our allowance for loan and lease losses, see
"Allowance for Loan and Lease Losses" on page 24.

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.

                                       17
<PAGE>

         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)
<TABLE>
<CAPTION>

                                              Three months ended September 30,              Three months ended September 30, 2005
                                       --------------------------------------------    --------------------------------------------
                                          Average         Yield/         Interest        Average          Yield/        Interest
                                          Balance         Rate            Amount         Balance          Rate           Amount
                                       ------------    ------------    ------------    ------------    ------------    ------------
<S>                                    <C>                     <C>     <C>             <C>                     <C>     <C>
Assets
Earning assets:
  Federal funds sold                   $      1,517            5.23%   $         20    $     11,365            2.49%   $         71
  Investment securities:
    Taxable                                 111,624            4.04%          1,136         150,620            3.90%          1,479
    Non-taxable (1)                          22,504            6.77%            384          23,919            6.58%            397
    FNMA preferred stock (1)                 12,041            6.52%            198          12,039            6.52%            198
                                       ------------    ------------    ------------    ------------    ------------    ------------
  Total investments                         146,169            4.66%          1,718         186,578            4.41%          2,074
  Loans and leases (2)(3)                   651,367            7.86%         12,899         603,103            7.25%         10,993
                                       ------------    ------------    ------------    ------------    ------------    ------------
Total earning assets                        799,053            7.27%         14,637         801,046            6.51%         13,138

Non earning assets                          111,818                                         111,370
Allowance for loan and
  lease losses                               (8,498)                                         (7,125)
                                       ------------                                    ------------
Total non-earning assets                    103,320                                         104,245

Total assets                           $    902,373                                    $    905,291
                                       ============                                    ============



Liabilities and Shareholders' Equity
Interest bearing liabilities:
  Transaction accounts                 $    185,339            0.31%   $        144    $    195,290            0.42%   $        207
  Savings and money market                  180,273            1.84%            835         198,882            0.94%            470
  Time certificates                         183,363            3.90%          1,803         155,959            2.47%            972
  Other borrowed funds                       86,195            5.59%          1,214          75,991            4.86%            931
                                       ------------    ------------    ------------    ------------    ------------    ------------
Total interest bearing
    liabilities                             635,170            2.50%          3,996         626,122            1.63%          2,580
Demand deposits                             187,497                                         198,501
Other liabilities                             9,496                                          11,489
                                       ------------                                    ------------
Total liabilities                           832,163                                         836,112
                                       ------------                                    ------------
Shareholders' equity                         70,210                                          69,179
                                       ------------                                    ------------
Total liabilities and
  shareholders' equity                 $    902,373                                    $    905,291
                                       ============                                    ============


Net interest income                                                    $     10,641                                    $     10,558
                                                                       ============                                    ============
Net interest spread                                            4.77%                                           4.88%
                                                       ============                                    ============
Net interest margin                                            5.28%                                           5.23%
                                                       ============                                    ============
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Tax-equivalent basis; non-taxable securities are exempt from federal
     taxation.
(2)  Loans on nonaccrual status have been included in the computations of
     averages balances.
(3)  Includes loan fees of $228 and $569 for the three months ended September
     30, 2006 and 2005, respectively.

                                       18
<PAGE>
<TABLE>
<CAPTION>

Schedule of Average Daily Balance and Average Yields and Rates
(Dollars in thousands)
                                           Nine months ended September 30, 2006           Nine months ended September 30, 2005
                                       --------------------------------------------    --------------------------------------------
                                          Average         Yield/         Interest        Average          Yield/        Interest
                                          Balance         Rate            Amount         Balance          Rate           Amount
                                       ------------    ------------    ------------    ------------    ------------    ------------
<S>                                    <C>                     <C>     <C>             <C>                     <C>     <C>
Assets
Earning assets:
  Federal funds sold                   $      5,398            4.85%   $        196    $     17,747            2.82%   $        374
  Investment securities:
    Taxable                                 120,769            4.09%          3,697         159,900            3.81%          4,557
    Non-taxable (1)                          23,121            6.90%          1,194          24,900            6.97%          1,299
    FNMA preferred stock (1)                 12,061            6.57%            593          12,039            6.36%            573
    Interest earning deposits in
      other banks                                --              --              --             113            2.37%              2
                                       ------------    ------------    ------------    ------------    ------------    ------------
  Total investments                         155,951            4.70%          5,484         196,952            4.37%          6,431
  Loans and leases (2)(3)                   634,837            7.76%         36,862         581,080            7.06%         30,699
                                       ------------    ------------    ------------    ------------    ------------    ------------
Total earning assets                        796,186            7.14%         42,542         795,779            6.30%         37,504

Non earning assets                          111,019                                         109,694
Allowance for loan and
  lease losses                               (8,155)                                         (7,159)
                                       ------------                                    ------------
Total non-earning assets                    102,864                                         102,535

Total assets                           $    899,050                                    $    898,314
                                       ============                                    ============



Liabilities and Shareholders' Equity
Interest bearing liabilities:
  Transaction accounts                 $    191,011            0.30%   $        435    $    195,389            0.41%   $        604
  Savings and money market                  179,297            1.38%          1,848         204,047            0.80%          1,216
  Time certificates                         175,399            3.53%          4,631         155,605            2.19%          2,550
  Other borrowed funds                       88,839            5.46%          3,631          76,743            4.37%          2,508
                                       ------------    ------------    ------------    ------------    ------------    ------------
Total interest bearing
    liabilities                             634,546            2.22%         10,545         631,784            1.46%          6,878
Demand deposits                             182,976                                         187,063
Other liabilities                            10,131                                          12,080
                                       ------------                                    ------------
Total liabilities                           827,653                                         830,927
                                       ------------                                    ------------
Shareholders' equity                         71,397                                          67,387
                                       ------------                                    ------------
Total liabilities and
  shareholders' equity                 $    899,050                                    $    898,314
                                       ============                                    ============

Net interest income                                                    $     31,997                                    $     30,626
                                                                       ============                                    ============
Net interest spread                                            4.92%                                           4.84%
                                                       ============                                    ============
Net interest margin                                            5.37%                                           5.15%
                                                       ============                                    ============

-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Tax-equivalent basis; non-taxable securities are exempt from federal
     taxation.
(2)  Loans on nonaccrual status have been included in the computations of
     averages balances.
(3)  Includes loan fees of $909 and $1,408 for the nine months ended September
     30, 2006 and 2005, respectively.

         Net interest income has been adjusted to a fully taxable equivalent
basis (FTE) for tax-exempt investments included in earning assets. The increase
in net interest income (FTE) for the three and nine month periods ended
September 30, 2006 resulted primarily from a shift in earning asset composition
to higher yielding loans as well as increased yields. These benefits were
largely offset by the increase in average rate paid on interest bearing
liabilities. Management is proactive in attempting to manage the Company's net
interest margin, that is, trying to maximize current net interest income without
placing an undue risk on future earnings. Currently the Company is selling
certain fixed-rate 15-and 30-year residential mortgages in order to minimize the
Company's interest rate risk and to generate consistent mortgage fee income.

         While the yield on average earning assets for the three and nine months
ended September 30, 2006 increased by 76 and 84 basis points, respectively, from
the same periods last year, yields on average interest bearing liabilities also
increased by 87 and 76 basis points, respectively. The Company's net interest
margin (FTE) increased from 5.23% and 5.15% for the three and nine months ended
September 30, 2005 to 5.28% and 5.37% for the same period in 2006. The net
interest margin (FTE) for the three months ended September 30, 2006 shows
contraction of 24 basis points from 5.52% for the linked quarter. The
contraction was expected to result from the Company's cost of funds
incrementally increasing more than the Company's asset yields incrementally
increased, although the Company recognized a shift in earning assets to a higher
percentage of loans.

                                       19
<PAGE>

Provision for Loan and Lease Losses
-----------------------------------

         The Company recorded a provision for loan and lease losses for the
three months ended September 30, 2006 of $555,000 resulting in total provision
recorded for the nine months ended September 30, 2006 of $925,000. For the three
and nine months ended September 30, 2005, $280,000 and $730,000 was recorded.
The increase reflects growth in the loan portfolio and management's concern for
current economic uncertainty in the real estate market and business conditions
generally. Provisions for loan and lease losses are recorded based on
management's evaluation of the risks inherent in the loan and lease portfolio.
The allowance for loan and lease losses is maintained at an amount management
considers adequate to cover losses in loans and leases receivable which are
considered probable and estimable. See "Allowance for Loan and Lease Losses" on
page 24.

Noninterest Income
------------------

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

                                                                         Three months ended              Nine months ended
                                                                            September 30,                   September 30,
                                                                     ----------------------------    ----------------------------
(In thousands)                                                           2006            2005            2006            2005
                                                                     ------------    ------------    ------------    ------------
<S>                                                                  <C>             <C>             <C>             <C>
  Service charges on deposit accounts                                $      1,723    $      1,683    $      4,806    $      4,005
  Other fees and charges                                                      902             721           2,334           1,938
  Earnings on cash surrender value of life insurance policies                 309             320             889             884
  Gain on sale of loans                                                       171              54             336             155
  Gain (loss) on sales or calls of securities                                  16              22              (3)            117
  Other                                                                       477             267           1,049             881
                                                                     ------------    ------------    ------------    ------------
Total noninterest income                                             $      3,598    $      3,067    $      9,411    $      7,980
                                                                     ============    ============    ============    ============
</TABLE>

         Noninterest income increased from $3,067,000 and $7,980,000 for the
three and nine months ended September 30, 2005 to $3,598,000 and $9,411,000 for
the same periods in 2006. Service charges on deposits increased $40,000 from the
three months ended September 30, 2005 compared to the same period in 2006 and
$801,000 from the nine months ended September 30, 2005 compared to the nine
month period ended September 30, 2006. Other fees and charges increased from
$721,000 and $1,938,000 for the three and nine months ended September 30, 2005
to $902,000 and $2,334,000 for the same periods in 2006. The increase in fees is
directly attributable to the increase in debit card activity, specifically,
point-of-sale and foreign ATM use. The Company recorded $171,000 in gains on
sales of mortgages as well as gain on sales or calls of securities of $16,000
for the three months ended September 30, 2006 compared to $54,000 in gains on
sales of mortgages and $22,000 in gains on sales or calls of securities for the
same period in 2005. Other income increased to $476,000 for the three months
ended September 30, 2006 from $267,000 for the same period in 2005. The increase
in other income was primarily due to a gain on sale of Company property as well
as an increase in fees earned associated with the Company's third-party
nondeposit investment products.

Noninterest Expense
-------------------

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

                                                                         Three months ended              Nine months ended
                                                                            September 30,                   September 30,
                                                                     ----------------------------    ----------------------------
(In thousands)                                                           2006            2005            2006            2005
                                                                     ------------    ------------    ------------    ------------
<S>                                                                  <C>             <C>             <C>             <C>

Salaries & employee benefits                                         $      5,407    $      4,995    $     16,458    $     14,369
Occupancy expense                                                             772             666           2,255           1,985
Data processing expenses                                                      658             436           1,752           1,444
Equipment expense                                                             533             540           1,610           1,513
Professional services                                                         383             393           1,099           1,036
Marketing                                                                     270             297             826             767
ATM expense                                                                   229             205             656             563
Printing & supplies                                                           151             179             509             472
Postage                                                                        90             142             390             443
Other                                                                       1,366           1,671           4,200           4,829
                                                                     ------------    ------------    ------------    ------------
     Total noninterest expense                                       $      9,859    $      9,524    $     29,755    $     27,421
                                                                     ============    ============    ============    ============
</TABLE>

         Noninterest expense totaled $9,859,000 and $29,755,000 for the three
and nine months ended September 30, 2006, compared to $9,524,000 and $27,421,000
for the same periods in 2005. This represents an increase of $335,000, or 3.5%,
for the three months ended September 30, 2006 and $2,334,000, or 8.5% for the
nine months ended September 30, 2006 from 2005 levels due primarily to expenses
associated with the Company's continued investment in higher growth markets,
most notably Sonoma and Placer Counties, as well as the merger of the Company's
two subsidiary Banks. Salaries and benefits increased by $412,000 or 8.2% to
$5,407,000 for the three months ended September 30, 2006 compared to $4,995,000

                                       20
<PAGE>

for the same period in 2005. Data processing expense increased $222,000 and
$308,000 for the three and nine months ended September 30, 2006 compared to the
same periods in 2005, due primarily to the cost of merging the Company's two
subsidiary Banks as noted above. Most other expense categories for the three
months ended September 30, 2006 experienced relatively small decreases or
increases from the same respective period in 2005. The Company's ratio of
noninterest expense to average assets was 4.37% for the three months ended
September 30, 2006 compared to 4.21% for the same period in 2005. The increase
in noninterest expense to average assets ratio is a result of the increase in
expenses noted above. The Company's efficiency ratio improved from 70.8% for the
three months ended September 30, 2005 to 69.9% for the comparable period in
2006.

Income Taxes
------------

         The provision for income taxes for the three months ended September 30,
2006 was $775,000 as compared to $1,214,000 for the same period in 2005. The
effective income tax rate for state and federal income taxes was 21.0% for the
three months ended September 30, 2006 compared to 33.3% for the same period in
2005. Following the filing of the Company's 2005 tax returns during the third
quarter of 2006, management determined that the Company's estimated tax rate
that had been applied to previously reported net income was overstated as a
result of an underestimate of California job credits (which are determined
subsequent to year-end through a process employed by the State of California)
and an overestimate of the federal statutory tax rate (resulting from the
Company's pre-tax income falling between the federal statutory rates of 34% and
35%). As a result, the 2006 tax provision was adjusted on a cumulative basis to
reflect this change in accounting estimate. These changes reduced our third
quarter tax provision by approximately $456,000, and reduced our effective tax
rate expected to be incurred for the year to 29.0% from 33.3% at June 30, 2006.
The difference in the effective tax rate compared to the statutory tax rate
(approximately 42.05%) is primarily the result of the Company's investment in
municipal securities, FNMA Preferred Stock, and Company-owned life insurance
policies whose income is exempt from Federal taxes. In addition, the Company
receives special tax benefits from the State of California Franchise Tax Board
for operating and providing loans, as well as jobs, in designated `Enterprise
Zones'.

Financial Condition as of September 30, 2006 As Compared to December 31, 2005
-----------------------------------------------------------------------------

         Total assets at September 30, 2006, were $914,603,000, compared to
$918,415,000 at December 31, 2005. Loans and leases increased $41,636,000, or
6.7%, to $666,148,000 at September 30, 2006 from $624,512,000 at December 31,
2005. Deposits increased $14,205,000 or 1.9%, from December 31, 2005 to
$760,895,000 at September 31, 2006. Investment securities and federal funds
decreased to $139,248,000 at September 30, 2006, compared to $172,149,000 at
December 31, 2005.

Loan and Lease Portfolio
------------------------

         Loans and leases, the Company's major component of earning assets,
increased during the first nine months of 2006 to $666,148,000 at September 30,
2006 from $624,512,000 at December 31, 2005. The Company's average loan to
deposit ratio was 88.4% for the quarter ended September 30, 2006 compared to
80.6% for the same period in 2005. The increase in the Company's average loan to
deposit ratio is driven by an increase in total average loans of $48,264,000
while total average deposits decreased by $12,160,000. Commercial loans
increased by $19,614,000, while commercial real estate loans increased by
$9,087,000 and real estate construction by $26,752,000 from December 31, 2005.
The increases are primarily the result of the Company's decision to enter into
and invest in higher growth markets such as Santa Rosa, Ukiah, Fairfield,
Roseville, and Woodland. Real estate - mortgage, installment, and direct
financing leases decreased from December 31, 2005 by $4,082,000, $11,362,000,
and $831,000, respectively. The decrease in real estate - mortgage loans is
primarily due to the Company's decision to sell originated mortgage loans while
the decrease in installment loans is due to the Company's decision to
discontinue purchasing indirect auto contracts in May of 2005.

                                       21
<PAGE>
<TABLE>
<CAPTION>

(Dollars in thousands)                                     September 30,   December 31,
                                                               2006            2005
                                                           ------------    ------------
<S>                                                             <C>             <C>
Commercial                                                 $     82,702    $     63,088
Real Estate - Commercial                                        254,697         245,610
Real Estate - Construction                                      225,881         199,129
Real Estate - Mortgage                                           35,418          39,500
Installment                                                      29,452          40,818
Direct Financing Leases                                           2,289           3,120
Other                                                            36,798          33,890
                                                           ------------    ------------

                                                                667,237         625,155

Deferred Loan Fees, Net                                          (1,089)           (643)
Allowance for Loan and Lease Losses                              (8,853)         (7,864)

                                                           ------------    ------------
                                                           $    657,295    $    616,648
                                                           ============    ============
</TABLE>

Impaired,  Nonaccrual,  Past Due and Restructured  Loans and Leases and Other
-----------------------------------------------------------------------------
Nonperforming Assets
--------------------

         The Company considers a loan or lease impaired if, based on current
information and events, it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. The measurement of impaired loans
and leases is generally based on the present value of expected future cash flows
discounted at the historical effective interest rate, except that all
collateral-dependent loans and leases are measured for impairment based on the
fair value of the collateral.

         At September 30, 2006, the recorded investment in loans and leases for
which impairment had been recognized was approximately $24,000 compared to
$696,000 at September 30, 2005. During the portion of the year that the loans
and leases were impaired, the Company recognized interest income of
approximately $2,844 for cash payments received in 2006.

         At December 31, 2005, the recorded investment in loans and leases for
which impairment had been recognized was approximately $686,000. Of the 2005
balance, approximately $196,000 has a related valuation allowance of $98,000.
For the year ended December 31, 2005, the average recorded investment in loans
and leases for which impairment had been recognized was approximately $791,000.
During the portion of the year that the loans and leases were impaired, the
Company recognized interest income of approximately $6,000 for cash payments
received in 2005.

         Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is discontinued
either when reasonable doubt exists as to the full and timely collection of
interest or principal, or when a loan becomes contractually past due by 90 days
or more with respect to interest or principal (except that when management
believes a loan is well secured and in the process of collection, interest
accruals are continued on loans deemed by management to be fully collectible).
When a loan is placed on nonaccrual status, all interest previously accrued but
not collected is reversed against current period interest income. Income on such
loans is then recognized only to the extent that cash is received and where the
future collection of principal is probable. Interest accruals are resumed on
such loans when, in the judgment of management, the loans are estimated to be
fully collectible as to both principal and interest.

         Nonperforming assets at September 30, 2006, and December 31, 2005, are
summarized as follows:

<TABLE>
<CAPTION>

                                                          September 30,    December 31,
                                                               2006            2005
                                                           ------------    ------------
<S>                                                        <C>             <C>
Nonaccrual loans and leases                                $         24    $        686
Loans and leases past due 90 days and accruing interest             703              67
Other real estate owned                                             902             902
                                                           ------------    ------------
    Total nonperforming assets                             $      1,629    $      1,655
                                                           ============    ============

Nonaccrual loans and leases to total gross loans
    and leases                                                     0.00%           0.11%
Nonperforming loans and leases to total gross loans
    and leases                                                     0.11%           0.12%
Total nonperforming assets to total assets                         0.18%           0.18%
</TABLE>

                                       22
<PAGE>

Allowance for Loan and Lease Losses
-----------------------------------

         A summary of the allowance for loan and lease losses at September 30,
2006 and September 30, 2005 is as follows:
<TABLE>
<CAPTION>

                                                                         Nine months ended
                                                                            September 30,
                                                                     ----------------------------
                                                                         2006            2005
                                                                     ------------    ------------
<S>                                                                  <C>             <C>
Balance beginning of period                                          $      7,864    $      7,217
Provision for loan and lease losses                                           925             730
Net recoveries (charge-offs)                                                   64            (232)
                                                                     ------------    ------------
Balance end of period                                                $      8,853    $      7,715
                                                                     ============    ============

Allowance for loan and lease losses to total loans and leases                1.33%           1.26%
</TABLE>

         The allowance for loan and lease losses is established through a
provision for loan and lease losses based on management's evaluation of the
risks inherent in the loan and lease portfolio. In determining levels of risk,
management considers a variety of factors, including, but not limited to, asset
classifications, economic trends, industry experience and trends, geographic
concentrations, estimated collateral values, historical loan and lease loss
experience, and the Company's underwriting policies. While management uses the
best information available to make these estimates, future adjustments to
allowances may be necessary due to economic, operating, regulatory, and other
conditions that may be beyond the Company's control. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the adequacy of the Company's allowance for loan and lease
losses. Such agencies may require the Company to recognize additions to the
allowance based on judgments different from those of management.

         The allowance for loan and lease losses is comprised of two primary
types of allowances:

         1.       Formula Allowance

                  Formula allowances are based upon loan and lease loss factors
                  that reflect management's estimate of the inherent loss in
                  various segments of pools within the loan and lease portfolio.
                  The loss factor is multiplied by the portfolio segment (e.g.
                  multifamily permanent mortgages) balance to derive the formula
                  allowance amount. The loss factors are updated periodically by
                  the Company to reflect current information that has an effect
                  on the amount of loss inherent in each segment.

                  The formula allowance is adjusted for qualitative factors that
                  are based upon management's evaluation of conditions that are
                  not directly measured in the determination of the formula and
                  specific allowance. The evaluation of inherent loss with
                  respect to these conditions is subject to a higher degree of
                  uncertainty because they are not identified with specific
                  problem credits or historical performance of loan and lease
                  portfolio segments. The conditions evaluated to determine the
                  adjustment to the formula allowance at September 30, 2006
                  included the following, which existed at the balance sheet
                  date:

                      o    General business and economic conditions effecting
                           the Company's key lending areas

                      o    Real estate values and market trends in Northern
                           California

                      o    Loan volumes and concentrations

                      o    Seasoning of the loan portfolio, including trends in
                           past due and nonperforming loans

                      o    Status of the current business cycle

                      o    Specific industry or market conditions within
                           portfolio segments

                      o    Model imprecision

                                       23
<PAGE>

         2.       Specific Allowance

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

         The $8,853,000 in allowance at September 30, 2006 reflects management's
estimate of the inherent loss in various pools or segments in the portfolio, and
includes adjustments for general economic conditions, trends in the portfolio
and changes in the mix of the portfolio.

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

                      o    Generate further growth in loans receivable held for
                           investment

                      o    Emphasize the origination of income property real
                           estate loans

                      o    Continue expansion of commercial business lending

         As a result, future provisions will be required and the ratio of the
allowance for loan and lease losses to loans outstanding may increase.
Experience across the financial services industry indicates that commercial
business and income property loans may present greater risks than residential
real estate loans, and therefore should be accompanied by suitably higher levels
of reserves.

Deposits
--------

         Total deposits increased to $760,895,000 at September 30, 2006 compared
to $746,690,000 at December 31, 2005. Money market accounts increased
$27,982,000 or 30.1% from December 31, 2005, noninterest-bearing demand deposits
increased $8,935,000 or 4.8% from December 31, 2005, and certificates of
deposits increased $18,971,000 or 11.2%, while interest-bearing demand deposits
decreased $30,399,000 or 15.6%, and savings decreased $11,284,000 or 11.0%.

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 $35,000,000 as of September 30, 2006 were also
available to provide liquidity. In addition, the Company has a revolving,
unsecured line of credit for $8,000,000 with a correspondent bank and NVB is a
member of the Federal Home Loan Bank ("FHLB") providing additional unused
borrowing capacity of $70,582,000 secured by certain loans and investment
securities as of September 30, 2006. The Company also has a line of credit with
Federal Reserve Bank of San Francisco ("FRB") of $2,881,000 secured by first
deeds of trust on eligible commercial real estate loans and leases. As of
September 30, 2006, borrowings consisted of $600,000 in short term FHLB
advances, long-term borrowings of $37,500,000 were outstanding with the FHLB and
$31,961,000 was outstanding in the form of subordinated debt issued by the
Company.

         The Company manages both assets and liabilities by monitoring asset and
liability mixes, volumes, maturities, yields and rates in order to preserve
liquidity and earnings stability. Total liquid assets (cash and due from banks,
federal funds sold, and available for sale investment securities) totaled
$177,181,000 and $220,352,000 (or 19.4% and 24.0% of total assets) at September
30, 2006 and December 31, 2005, 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 $658,380,000 and $686,608,000 at September 30,
2006 and December 31, 2005, 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.

                                       24
<PAGE>

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.

         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

                                       25
<PAGE>

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, 2005.

         For this simulation analysis, the Company has made certain assumptions
about the duration of its non-maturity deposits that are important to
determining net economic value at risk.

Capital Resources
-----------------

         The Company maintains capital to support future growth and dividend
payouts while trying to effectively manage the capital on hand. From the
depositor standpoint, a greater amount of capital on hand relative to total
assets is generally viewed as positive. At the same time, from the standpoint of
the shareholder, a greater amount of capital on hand may not be viewed as
positive because it limits the Company's ability to earn a high rate of return
on stockholders' equity (ROE). Stockholders' equity increased to $72,863,000 as
of September 30, 2006, as compared to $71,801,000 at December 31, 2005. The
increase was due to net income of $7,342,000, stock options of $745,000 and a
decrease in unrealized loss on available for sale securities of $449,000,
partially offset by the repurchase of shares of $5,270,000 and cash dividends
paid out in the amount of $2,204,000. Under current regulations, management
believes that the Company meets all capital adequacy requirements and North
Valley Bank was considered well capitalized at September 30, 2006 and December
31, 2005.

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

                                       26
<PAGE>
<TABLE>
<CAPTION>

                                                                                                          To be Well Capitalized
                                                                              For Capital Adequacy       Under Prompt Corrective
                                                        Actual                      Purposes               Action Provisions
                                            ------------------------------------------------------------------------------------
                                                                             Minimum        Minimum       Minimum       Minimum
                                               Amount          Ratio         Amount          Ratio        Amount         Ratio
                                            ------------------------------------------------------------------------------------
<S>                                         <C>                  <C>     <C>                   <C>     <C>                  <C>
Company
As of September 30, 2006
Total capital (to risk weighted assets)     $     96,924        11.34%   $     68,377          8.00%            N/A          N/A
Tier 1 capital (to risk weighted assets)    $     81,869         9.58%   $     34,183          4.00%            N/A          N/A
Tier 1 capital (to average assets)          $     81,869         9.25%   $     35,403          4.00%            N/A          N/A

As of December 31, 2005
Total capital (to risk weighted assets)     $     94,473        11.92%   $     63,395          8.00%            N/A          N/A
Tier 1 capital (to risk weighted assets)    $     80,181        10.12%   $     31,698          4.00%            N/A          N/A
Tier 1 capital (to average assets)          $     80,181         8.87%   $     36,147          4.00%            N/A          N/A

North Valley Bank
As of September 30, 2006
Total capital (to risk weighted assets)     $     94,005        11.03%   $     68,181          8.00%   $     85,227        10.00%
Tier 1 capital (to risk weighted assets)    $     85,152         9.99%   $     34,095          4.00%   $     51,142         6.00%
Tier 1 capital (to average assets)          $     85,152         9.48%   $     35,929          4.00%   $     44,911         5.00%

As of December 31, 2005
Total capital (to risk weighted assets)     $     76,647        11.58%   $     52,940          8.00%   $     66,175        10.00%
Tier 1 capital (to risk weighted assets)    $     70,127        10.60%   $     26,470          4.00%   $     39,705         6.00%
Tier 1 capital (to average assets)          $     70,127         9.19%   $     30,522          4.00%   $     38,153         5.00%
</TABLE>

                                       27
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------------------------------------------------------------------

         In management's opinion there has not been a material change in the
Company's market risk profile for the nine months ended September 30, 2006
compared to December 31, 2005. Please see discussion under the caption "Interest
Rate Sensitivity" on page 26.

ITEM 4. CONTROLS AND PROCEDURES
-------------------------------

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

         Evaluation of Disclosure Controls and Procedures and Internal Control
over Financial Reporting. The Company's management, including the Chief
Executive Officer and the Chief Financial Officer, evaluated the Company's
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Exchange Act) as of September 30, 2006. Based on this evaluation, the Chief
Executive Officer and the Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective. An evaluation of any changes
in the Company's internal control over financial reporting that occurred during
the Company's fiscal quarter ended September 30, 2006 was carried out under the
supervision and with the participation of the Company's Chief Executive Officer,
Chief Financial Officer and other members of the Company's senior management
group. The Company's Chief Executive Officer and Chief Financial Officer
concluded that no change identified in connection with such evaluation has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.

PART II - OTHER INFORMATION
---------------------------

Item 1.  Legal Proceedings

         There are no material legal proceedings pending against the Company or
against any of its property. The Company, because of the nature of its business,
is generally subject to various legal actions, threatened or filed, which
involve ordinary, routine litigation incidental to its business. Some of the
pending cases seek punitive damages in addition to other relief. Although the
amount of the ultimate exposure, if any, cannot be determined at this time, the
Company does not expect that the final outcome of threatened or filed suits will
have a materially adverse effect on its consolidated financial position.

Item 1A.  Risk Factors

         There have been no material changes from risk factors as previously
disclosed by the Company in its response to Item 1A of Part 1 of Form 10-K for
the fiscal year ended December 31, 2005.

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

         None

                                       28
<PAGE>

SIGNATURES

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


NORTH VALLEY BANCORP
--------------------
(Registrant)

Date  November 8, 2006
      ---------------

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