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

                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 June 30, 2007.

[ ]  Transition Report Pursuant to Section 13 or 15(d) of the
     Securities Exchange Act of 1934 For the Quarterly Transition Period
     From _________to ___________

                         Commission file number 0-10652

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

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

       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 - 7,363,045 shares as of August 7, 2007.

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

<PAGE>

                                      INDEX

                      NORTH VALLEY BANCORP AND SUBSIDIARIES

PART I.  FINANCIAL INFORMATION

Item 1.    Financial Statements (Unaudited)                                  3

           Condensed Consolidated Balance Sheets--June 30, 2007
           and December 31, 2006                                             4

           Condensed Consolidated Statements of Income--For the three
           and six months ended June 30, 2007 and 2006                       5

           Condensed Consolidated Statements of Cash Flows--
           For the six months ended June 30, 2007 and 2006                   7

           Notes to Condensed Consolidated Financial Statements              8

Item 2.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations                              14

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                                                29

Item 6.    Exhibits                                                         29

SIGNATURES                                                                  30

                                        2
<PAGE>

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

                                        3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                          JUNE 30,     DECEMBER 31,
                                                                            2007           2006
                                                                        ------------   ------------
<S>                                                                     <C>            <C>
ASSETS
Cash and cash equivalents:
  Cash and due from banks                                               $     27,209   $     30,826
  Federal funds sold                                                             700         10,670
                                                                        ------------   ------------
    Total cash and cash equivalents                                           27,909         41,496

Investment securities available for sale, at fair value                      113,617        133,571
Investment securities held to maturity, at amortized cost                         55             82

Loans and leases                                                             678,397        659,793
  Less: Allowance for loan and lease losses                                   (8,746)        (8,831)
                                                                        ------------   ------------
  Net loans and leases                                                       669,651        650,962
Premises and equipment, net                                                   13,445         13,797
Accrued interest receivable                                                    3,634          3,838
Other real estate owned                                                          902            902
FHLB and FRB stock and other securities                                        5,590          5,495
Bank-owned life insurance policies                                            29,979         29,483
Core deposit intangibles, net                                                  1,561          1,886
Goodwill                                                                      15,187         15,187
Other assets                                                                  10,200          8,974
                                                                        ------------   ------------

  TOTAL ASSETS                                                          $    891,730   $    905,673
                                                                        ============   ============
LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Deposits:
  Noninterest-bearing                                                   $    171,529   $    194,842
  Interest-bearing                                                           568,402        555,446
                                                                        ------------   ------------
    Total deposits                                                           739,931        750,288
Other borrowed funds                                                          31,605         37,500
Accrued interest payable and other liabilities                                 9,845         10,433
Subordinated debentures                                                       31,961         31,961
                                                                        ------------   ------------
    Total liabilities                                                        813,342        830,182
                                                                        ------------   ------------
Commitments and Contingencies (Note H)

STOCKHOLDERS' EQUITY:
Preferred stock, no par value: authorized 5,000,000 shares; none
 outstanding                                                                       -              -
Common stock, no par value: authorized 20,000,000 shares; outstanding
 7,362,625 and 7,300,914 at June 30, 2007 and December 31, 2006               40,086         39,202
Retained earnings                                                             41,079         38,626
Accumulated other comprehensive loss, net of tax                              (2,777)        (2,337)
                                                                        ------------   ------------
  Total stockholders' equity                                                  78,388         75,491
                                                                        ------------   ------------
  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                            $    891,730   $    905,673
                                                                        ============   ============
</TABLE>

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

                                        4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                   FOR THE THREE MONTHS ENDED
                                                                            JUNE 30,
                                                                   ---------------------------
                                                                       2007           2006
                                                                   ------------   ------------
<S>                                                                <C>            <C>
INTEREST INCOME:
Interest and fees on loans and leases                              $     13,008   $     12,217
Interest on investments:
  Taxable interest income                                                 1,106          1,453
  Nontaxable interest income                                                244            269
Interest on Federal funds sold and repurchase agreements                    242             71
                                                                   ------------   ------------
    Total interest income                                                14,600         14,010
                                                                   ------------   ------------

INTEREST EXPENSE:
Deposits                                                                  3,608          2,121
Subordinated debentures                                                     610            605
Other borrowings                                                            290            589
                                                                   ------------   ------------
    Total interest expense                                                4,508          3,315
                                                                   ------------   ------------

NET INTEREST INCOME                                                      10,092         10,695

PROVISION FOR LOAN AND LEASE LOSSES                                           -            370
                                                                   ------------   ------------

NET INTEREST INCOME AFTER PROVISION
 FOR LOAN AND LEASE LOSSES                                               10,092         10,325
                                                                   ------------   ------------

NONINTEREST INCOME:
Service charges on deposit accounts                                       1,687          1,606
Other fees and charges                                                      966            730
Earnings on cash surrender value of life insurance policies                 298            286
Gain on sale of loans                                                        44             85
Other                                                                       175            308
                                                                   ------------   ------------
  Total noninterest income                                                3,170          3,015
                                                                   ------------   ------------

NONINTEREST EXPENSES:
Salaries and employee benefits                                            5,475          5,414
Occupancy expense                                                           754            776
Furniture and equipment expense                                             518            544
Other                                                                     3,985          3,146
                                                                   ------------   ------------
    Total noninterest expenses                                           10,732          9,880
                                                                   ------------   ------------

INCOME BEFORE PROVISION FOR INCOME TAXES                                  2,530          3,460

PROVISION FOR INCOME TAXES                                                  810          1,166
                                                                   ------------   ------------

NET INCOME                                                         $      1,720   $      2,294
                                                                   ============   ============
PER SHARE AMOUNTS
Basic Earnings Per Share                                           $       0.23   $       0.31
                                                                   ============   ============
Diluted Earnings Per Share                                         $       0.22   $       0.30
                                                                   ============   ============
Cash Dividends Per Common Share                                    $       0.10   $       0.10
                                                                   ============   ============
</TABLE>

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

                                        5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                    FOR THE SIX MONTHS ENDED
                                                                            JUNE 30,
                                                                   ---------------------------
                                                                       2007           2006
                                                                   ------------   ------------
<S>                                                                <C>            <C>
INTEREST INCOME:
Interest and fees on loans and leases                              $     25,832   $     23,963
Interest on investments:
  Taxable interest income                                                 2,392          2,955
  Nontaxable interest income                                                493            543
Interest on Federal funds sold and repurchase agreements                    379            176
                                                                   ------------   ------------
    Total interest income                                                29,096         27,637
                                                                   ------------   ------------

INTEREST EXPENSE:
Deposits                                                                  6,864          4,131
Subordinated debentures                                                   1,218          1,232
Other borrowings                                                            585          1,186
                                                                   ------------   ------------
    Total interest expense                                                8,667          6,549
                                                                   ------------   ------------

NET INTEREST INCOME                                                      20,429         21,088

PROVISION FOR LOAN AND LEASE LOSSES                                           -            370
                                                                   ------------   ------------

NET INTEREST INCOME AFTER PROVISION
 FOR LOAN AND LEASE LOSSES                                               20,429         20,718
                                                                   ------------   ------------

NONINTEREST INCOME:
Service charges on deposit accounts                                       3,331          3,083
Other fees and charges                                                    1,858          1,432
Earnings on cash surrender value of life insurance policies                 609            579
Gain on sale of loans                                                        97            165
Other                                                                       409            554
                                                                   ------------   ------------
    Total noninterest income                                              6,304          5,813
                                                                   ------------   ------------
NONINTEREST EXPENSES:
Salaries and employee benefits                                           11,034         11,051
Occupancy expense                                                         1,523          1,483
Furniture and equipment expense                                           1,053          1,077
Other                                                                     7,352          6,285
                                                                   ------------   ------------
    Total noninterest expenses                                           20,962         19,896
                                                                   ------------   ------------

INCOME BEFORE PROVISION FOR INCOME TAXES                                  5,771          6,635

PROVISION FOR INCOME TAXES                                                1,847          2,212
                                                                   ------------   ------------

NET INCOME                                                         $      3,924   $      4,423
                                                                   ============   ============
PER SHARE AMOUNTS
Basic Earnings Per Share                                           $       0.53   $       0.59
                                                                   ============   ============
Diluted Earnings Per Share                                         $       0.51   $       0.57
                                                                   ============   ============
Cash Dividends Per Common Share                                    $       0.20   $       0.20
                                                                   ============   ============
</TABLE>

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

                                        6
<PAGE>

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

<TABLE>
<CAPTION>
                                                                          FOR THE SIX MONTHS ENDED
                                                                                  JUNE 30,
                                                                        ----------------------------
                                                                            2007            2006
                                                                        ------------    ------------
<S>                                                                     <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income                                                              $      3,924    $      4,423
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation and amortization                                                1,122           1,168
  Amortization of premium on securities                                           80              72
  Amortization of core deposit intangible                                        325             325
  Provision for loan and lease losses                                              -             370
  Loss on sale or calls on securities                                              -              19
  Gain on sale of loans                                                          (97)           (165)
  Gain on sale of premises and equipment                                           -             (14)
  FHLB stock dividends                                                           144             112
  Stock-based compensation expense                                               250             158
  Excess tax benefit from exercise of stock options                              (86)           (174)
Effect of changes in:
  Accrued interest receivable                                                    204             214
  Other assets                                                                (1,417)          1,383
  Accrued interest payable and other liabilities                                (502)         (1,601)
                                                                        ------------    ------------
    Net cash provided by operating activities                                  3,947           6,290
                                                                        ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sales of available for sale securities                             -              44
  Proceeds from maturities/calls of available for sale securities             19,155          16,452
  Net change in FHLB and FRB stock and other securities                         (239)            223
  Net increase in loans and leases                                           (18,591)        (14,882)
  Proceeds from sales of premises and equipment                                    -              14
  Purchases of premises and equipment                                           (770)           (900)
                                                                        ------------    ------------
    Net cash (used in) provided by investing activities                         (445)            951
                                                                        ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net decrease in deposits                                                   (10,357)        (24,279)
  Net (decrease) increase in other borrowed funds                             (5,895)          2,000
  Cash dividends paid                                                         (1,471)         (1,497)
  Repurchase of common stock                                                       -          (5,270)
  Exercise of stock options, including tax benefit                               634             362
                                                                        ------------    ------------
    Net cash used in financing activities                                    (17,089)        (28,684)
                                                                        ------------    ------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                    (13,587)        (21,443)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                  41,496          56,094
                                                                        ------------    ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                $     27,909    $     34,651
                                                                        ============    ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Year for:
  Interest                                                              $      9,073    $      6,483
  Income taxes                                                          $      2,865    $      4,146
</TABLE>

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

                                        7
<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
of America for annual financial statements are not included herein. Management
believes that the disclosures are adequate to make the information not
misleading. In the opinion of management, all adjustments (consisting solely of
normal recurring adjustments) considered necessary for a fair presentation of
the results for the interim periods presented have been included. For further
information, refer to the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2006. Operating results for the three and six months ended June 30,
2007 are not necessarily indicative of the results that may be expected for any
subsequent period or for the year ended December 31, 2007.

         The condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries North Valley Bank ("NVB") and
North Valley Trading Company, which is inactive. Significant intercompany items
and transactions have been eliminated in consolidation. North Valley Capital
Trust I, North Valley Capital Trust II, North Valley Capital Trust III and North
Valley Capital Statutory Trust IV are unconsolidated subsidiaries formed solely
for the purpose of issuing trust preferred securities.

         The preparation of condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions. These estimates
and assumptions affect the reported amounts of assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates.

NOTE B - ANNOUNCED PLAN OF MERGER

         As reported on the Company's Current Report on Form 8-K, filed with the
Commission on April 11, 2007 (the "April Current Report"), the Company has
entered into an Agreement and Plan of Merger dated April 10, 2007 (the "Merger
Agreement") pursuant to which the Company will merge with and into Sterling
Financial Corporation, a Washington corporation ("Sterling"), with Sterling
being the surviving corporation. A copy of the Merger Agreement (together with
certain other information regarding the proposed merger) is provided in the
April Current Report. Consummation of the merger required approval of the
Company's shareholders, and remains subject to certain other conditions
specified in the Merger Agreement, including the receipt of all necessary
regulatory approvals and the satisfaction of other closing conditions that are
customary for such transactions.

         A special meeting of the Company shareholders was held on July 31,
2007, and the principal terms of the Merger Agreement, including the proposed
merger of the Company with and into Sterling, were approved by majority vote of
the outstanding shares of the common stock of the Company. See Item 4 of Part II
on page 28 of this report for information regarding the results of voting at the
special meeting of shareholders on July 31, 2007.

                                        8
<PAGE>

NOTE C - INVESTMENT SECURITIES

At June 30, 2007 and December 31, 2006, the amortized cost of securities and
their approximate fair value were as follows (in thousands):

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

JUNE 30, 2007
  Obligations of U.S. government agencies              $      5,099   $          -   $        (61)  $      5,038
  Obligations of state and political subdivisions            20,894            308            (95)        21,107
  Mortgage-backed securities                                 77,429             18         (2,988)        74,459
  Corporate debt securities                                   5,999             11            (14)         5,996
  Equity securities                                           8,000              -           (982)         7,018
                                                       ------------   ------------   ------------   ------------
                                                       $    117,421   $        337   $     (4,140)  $    113,617
                                                       ============   ============   ============   ============
DECEMBER 31, 2006
  Obligations of U.S. government agencies              $      7,605   $          -   $       (105)         7,500
  Obligations of state and political subdivisions            21,957            643            (40)        22,560
  Mortgage-backed securities                                 86,028             20         (2,824)        83,224
  Corporate debt securities                                   5,998              7            (17)         5,988
  Equity securities                                          15,040             26           (767)        14,299
                                                       ------------   ------------   ------------   ------------
                                                       $    136,628   $        696   $     (3,753)  $    133,571
                                                       ============   ============   ============   ============
</TABLE>

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

JUNE 30, 2007
  Mortgage-backed securities                           $         55                  $         (1)  $         54
                                                       ============   ============   ============   ============
DECEMBER 31, 2006
  Mortgage-backed securities                           $         82   $          -   $         (1)  $         81
                                                       ============   ============   ============   ============
</TABLE>

         For the six months ended June 30, 2007, there were $15,000 in gross
realized gains on sales or calls of available for sale securities, while no
gross realized gains on sales or calls of available for sale securities were
recognized for the six months ended June 30, 2006. For the six months ended June
30, 2007 and 2006, there were $51,000 and $19,000, respectively, in gross
realized losses on sales or calls of available for sale securities. There were
no sales or transfers of held to maturity securities for the three and six
months ended June 30, 2007 and 2006.

         At June 30, 2007 and December 31, 2006, securities having fair value
amounts of approximately $71,344,000 and $81,258,000 were pledged to secure
public deposits, short-term borrowings, treasury, tax and loan balances and for
other purposes required by law or contract.

         Investment securities are evaluated for other-than-temporary impairment
on at least a quarterly basis and more frequently when economic or market
conditions warrant such an evaluation to determine whether a decline in their
value below amortized cost is other-than-temporary. Management utilizes criteria
such as the magnitude and duration of the decline and the intent and ability of
the Company to retain its investment in the issues for a period of time
sufficient to allow for an anticipated recovery in fair value, in addition to
the reasons underlying the decline, to determine whether the loss in value is
other-than-temporary. The term "other-than-temporary" is not intended to
indicate that the decline is permanent, but indicates that the prospects for a
near-term recovery of value is not necessarily favorable, or that there is a
lack of evidence to support a realizable value equal to or greater than the
carrying value of the investment. Once a decline in value is determined to be
other-than-temporary, the value of the security is reduced and a corresponding
charge to earnings is recognized.

         At June 30, 2007, the Company held $94,039,000 of available for sale
investment securities in an unrealized loss position of which $6,325,000 were in
an unrealized loss position for less than twelve months and $87,714,000 were in
an unrealized loss position and had been in an unrealized loss position for
twelve months or more. Management periodically evaluates each investment
security for other-than-temporary impairment, relying primarily on industry
analyst reports, observation of market conditions and interest rate
fluctuations. Management has the ability and intent to hold securities with
established maturity dates until recovery of fair value, which may be at
maturity, and believes it will be able to collect all amounts due according to
the contractual terms for all of the underlying investment securities;
therefore, management does not consider these investments to be
other-than-temporarily impaired.

                                        9
<PAGE>

         Included in the above securities at June 30, 2007 are 100,000 shares of
FNMA, Series M perpetual preferred stock. The coupon rate is fixed at 4.75% with
a taxable-equivalent yield of 6.31%. The securities are owned at par, or $50.00
per share, for a total investment of $5,000,000 and an unrealized loss of
$850,000 at June 30, 2007 as compared to $724,000 at December 31, 2006. The
securities are callable at par on June 1, 2008. The market value per share as of
June 30, 2007 was $41.50 compared to $42.76 per share at December 31, 2006. At
June 30, 2007, these securities had been in a loss position for approximately 48
months.

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

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

         Based on this evaluation, management concluded that these securities
were not deemed to be other-than-temporarily impaired. Management's assessment
weighed heavily on its intent and ability to hold the securities to recovery,
normal market fluctuations during this holding period, FNMA's response to its
weaker financial condition, and analysis of FNMA by rating agencies and
investment bankers.

NOTE D - STOCK-BASED COMPENSATION

STOCK OPTION PLANS

         At June 30, 2007, the Company had three shareholder approved
stock-based compensation plans: the North Valley Bancorp 1989 Director Stock
Option Plan, the 1998 Employee Stock Incentive Plan and the 1999 Director Stock
Option Plan. The Plans do not provide for the settlement of awards in cash and
new shares are issued upon exercise of the options. The shares available for
grant may be granted to anyone eligible to participate in the plans. All options
granted under the Employee plan had an exercise price equal to the market value
of the underlying common stock on the date granted and the stock must be paid
for in full at the time the option is exercised. The options under the plans
expire on dates determined by the Board of Directors, but not later than ten
years from the date of grant. The vesting period is generally four years;
however the vesting period can be modified at the discretion of the Company's
Board of Directors. Outstanding options under the plans are exercisable until
their expiration. Total options of 2,554,281 were authorized under all plans at
June 30, 2007.

STOCK OPTION COMPENSATION

         There were no options grants in the three month period ended June 30,
2007. For the three month period ended June 30, 2006, 18,500 options were
granted at a weighted average grant date fair value of $2.85. For the three
month periods ended June 30, 2007 and 2006, the compensation cost recognized for
stock option compensation was $49,000 and $44,000, respectively. Director stock
grant expense for the three month periods ended June 30, 2007 and 2006 was
$45,000 and $33,000, respectively. The recognized tax benefit for stock option
compensation expense was $44,000 for the three month period ended June 30, 2007.
No tax benefit was recognized for stock option compensation expense for the
three month period ended June 30, 2006. At June 30, 2007, the total unrecognized
compensation cost related to stock-based awards granted to employees under the
Company's stock option plans was $498,000. This cost will be amortized on a
straight-line basis over a weighted average period of approximately 1.6 years
and will be adjusted for subsequent changes in estimated forfeitures.

                                       10
<PAGE>

STOCK OPTION ACTIVITY

         Under the Company's stock option plans as of June 30, 2007, 1,151,749
shares of the Company's common stock are available for future grants to
directors and employees of the Company. Under the Director Plan, options may not
be granted at a price less than 85% of fair market value at the date of the
grant. Under the Employee Plan, options may not be granted at a price less than
the fair market value at the date of the grant. Under both plans, options may be
exercised over a ten year term and vest ratably over four years from the date of
the grant. A summary of outstanding stock options follows:

<TABLE>
<CAPTION>
                                                                                  Weighted
                                                                   Weighted       Average
                                                                    Average       Remaining        Exercise        Aggregate
                                                                   Exercise      Contractual         Price         Intrinsic
                                                     Shares         Price           Term             Range        Value ($000)
                                                  ------------   ------------   ------------   ----------------   ------------
<S>                                                    <C>       <C>             <C>            <C>               <C>
Outstanding at January 1, 2007                         778,712   $       9.77    3.8 years       $5.36 - 19.86

Granted                                                 63,613          20.41        N/A        $20.03 - 24.75

Exercised                                              (61,711)          8.46        N/A         $5.36 - 10.24

Expired or Forfeited                                    (2,831)         19.50        N/A        $17.29 - 19.86
                                                  ------------   ------------   ------------   ----------------   ------------
Outstanding at June 30, 2007                           777,783   $      10.71     4.1 years     $5.36 - 24.75     $     10,315
                                                  ------------   ------------   ------------   ----------------   ------------

Fully vested and exercisable at June 30, 2007          664,620   $       9.33     3.2 years     $5.36 - 24.75     $      9,729
                                                  ============   ============   ============   ================   ============

Options expected to vest                               113,163   $      18.81     8.9 years     $15.72 - 24.75    $        586
                                                  ============   ============   ============   ================   ============
</TABLE>

         The aggregate intrinsic value of outstanding, fully vested and
exercisable and expected to vest options are calculated as the difference
between the exercise price of the underlying awards and the quoted price of the
Company's common stock as of June 30, 2007. The intrinsic value of exercised
options is calculated as the difference between exercise price of the underlying
awards and the quoted price of the Company's common stock at the date of
exercise. The intrinsic value of options exercised during the three months ended
June 30, 2007 and 2006 totaled $160,000 and $181,000, respectively.

NOTE E - COMPREHENSIVE INCOME

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

<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED JUNE 30,    SIX MONTHS ENDED JUNE 30,
                                           ---------------------------   ---------------------------
(in thousands)                                 2007           2006           2007           2006
----------------------------------------   ------------   ------------   ------------   ------------
<S>                                        <C>            <C>            <C>            <C>
Net income                                 $      1,720   $      2,294   $      3,924   $      4,423
Other comprehensive loss, net of tax:
 Holding loss arising during period                (931)        (1,330)          (440)        (1,445)
                                           ------------   ------------   ------------   ------------
Total comprehensive income                 $        789   $        964   $      3,484   $      2,978
                                           ============   ============   ============   ============
</TABLE>

NOTE F - EARNINGS PER SHARE

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

                                       11
<PAGE>

         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 six month periods ended June 30, 2007 and
2006 is reconciled as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED JUNE 30,    SIX MONTHS ENDED JUNE 30,
                                                     ---------------------------   ---------------------------
                                                         2007           2006           2007           2006
                                                     ------------   ------------   ------------   ------------
<S>                                                  <C>            <C>            <C>            <C>
CALCULATION OF BASIC EARNINGS PER SHARE:
  Numerator - net income                             $      1,720   $      2,294   $      3,924   $      4,423
  Denominator - weighted average common shares
   outstanding                                              7,359          7,450          7,350          7,478
                                                     ------------   ------------   ------------   ------------
      Basic earnings per share                       $       0.23   $       0.31   $       0.53   $       0.59
                                                     ============   ============   ============   ============

CALCULATION OF DILUTED EARNINGS PER SHARE:
  Numerator - net income                             $      1,720   $      2,294   $      3,924   $      4,423
  Denominator:
    Weighted average common shares outstanding              7,359          7,450          7,350          7,478
    Dilutive effect of outstanding options                    309            270            302            294
                                                     ------------   ------------   ------------   ------------
      Weighted average common shares outstanding
       and common stock equivalents                         7,668          7,720          7,652          7,772
                                                     ------------   ------------   ------------   ------------

      Diluted earnings per share                     $       0.22   $       0.30   $       0.51   $       0.57
                                                     ============   ============   ============   ============
</TABLE>

NOTE G - PENSION PLAN BENEFITS

         The Company has a supplemental retirement plan for key executives and a
supplemental retirement plan for certain retired key executives and directors.
These plans are nonqualified defined benefit plans and are unsecured. Total
contributions paid for the three months ended June 30, 2007 and 2006 are
$559,000 and $57,000, respectively. Components of net periodic benefit cost for
the Company's supplemental nonqualified defined benefit plans for the three and
six months ended June 30, 2007 and 2006 are presented in the following table (in
thousands):

<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED JUNE 30,    SIX MONTHS ENDED JUNE 30,
                                                   ---------------------------   ---------------------------
                                                       2007           2006           2007           2006
                                                   ------------   ------------   ------------   ------------
<S>                                                <C>            <C>            <C>            <C>
COMPONENTS OF NET PERIODIC BENEFITS COST:
  Service cost                                     $        116   $        122   $        233   $        244
  Interest cost                                              63             67            126            134
  Amortization of net obligation at transition                -              -              -              -
  Prior service amortization                                  8              8             16             16
  Recognized net actuarial loss                               8             15             16             30
                                                   ------------   ------------   ------------   ------------
Total components of net periodic cost              $        195   $        212   $        391   $        424
                                                   ============   ============   ============   ============
</TABLE>

NOTE H - COMMITMENTS AND CONTINGENCIES

         The Company is involved in legal actions arising from normal business
activities. Management, based upon the advice of legal counsel, believes that
the ultimate resolution of all pending legal actions will not have a material
effect on the Company's financial position or results of its operations or its
cash flows.

         The Company was contingently liable under standby letters of credit
issued on behalf of its customers in the amount of $16,142,000 and $13,067,000
at June 30, 2007 and December 31, 2006. At June 30, 2007, commercial and
consumer lines of credit and real estate loans of approximately $69,936,000 and
$155,001,000 were undisbursed. At December 31, 2006, commercial and consumer
lines of credit and real estate loans of approximately $88,061,000 and
$145,034,000 were undisbursed.

         Loan commitments are typically contingent upon the borrower meeting
certain financial and other covenants and such commitments typically have fixed
expiration dates and require payment of a fee. As many of these commitments are
expected to expire without being drawn upon, the total commitments do not
necessarily represent future cash requirements. The Company evaluates each
potential borrower and the necessary collateral on an individual basis.
Collateral varies, but may include real property, bank deposits, debt
securities, equity securities or business or personal assets.

         Standby letters of credit are conditional commitments written by the
Company to guarantee the performance of a customer to a third party. These
guarantees are issued primarily relating to inventory purchases by the Company's
commercial customers and such guarantees are typically short term. Credit risk
is similar to that involved in extending loan commitments to customers and the
Company, accordingly, uses evaluation and collateral requirements similar to
those for loan commitments.

                                       12
<PAGE>

Virtually all of such commitments are collateralized. The fair value of the
liability related to these standby letters of credit, which represents the fees
received for issuing the guarantees, was not significant at June 30, 2007 and
December 31, 2006. The Company recognizes these fees as revenues over the term
of the commitment or when the commitment is used.

         Loan commitments and standby letters of credit involve, to varying
degrees, elements of credit and market risk in excess of the amounts recognized
in the balance sheet and do not necessarily represent the actual amount subject
to credit loss. However, at June 30, 2007, no losses are anticipated as a result
of these commitments.

         In management's opinion, a concentration exists in real estate-related
loans which represent approximately 77% at June 30, 2007 and 78% at December 31,
2006 of the Company's loan portfolio. Although management believes such
concentrations to have no more than the normal risk of collectibility, a
substantial decline in the economy in general, or a decline in real estate
values in the Company's primary market areas in particular, could have an
adverse impact on collectibility of these loans. However, personal and business
income represents the primary source of repayment for a majority of these loans.

NOTE I - INCOME TAXES

         In July 2006, the Financial Accounting Standards Board (FASB) issued
Financial Accounting Standards Interpretation No. 48 (FIN 48), Accounting for
Uncertainty in Income Taxes--an Interpretation of FASB Statement No. 109. FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes. FIN 48 also prescribes a recognition threshold and
measurement standard for the financial statement recognition and measurement of
an income tax position taken or expected to be taken in a tax return. FIN 48
also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosures and transitions. The Company has
adopted FIN 48 as of January 1, 2007.

       The Company previously recognized income tax positions based on
management's estimate of whether it is reasonably possible that a liability has
been incurred for unrecognized income tax benefits by applying FASB Statement
No. 5, Accounting for Contingencies.

         The provisions of FIN 48 have been applied to all tax positions of the
Company as of January 1, 2007. There was no cumulative effect of applying the
provisions of FIN 48 and there was no significant effect on the Company's
provision for income taxes for the three and six months ended June 30, 2007. The
Company recognizes interest accrued related to unrecognized tax benefits and
accruals for penalties in income tax expense.

NOTE J - NEW ACCOUNTING PRONOUNCEMENTS

FAIR VALUE OPTION FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES

         In February 2007, the FASB issued Statement No. 159 (SFAS 159), The
Fair Value Option for Financial Assets and Financial Liabilities - Including an
Amendment of FASB Statement No. 115. This standard permits an entity to choose
to measure many financial instruments and certain other items at fair value at
specified election dates. The entity will report unrealized gains and losses on
items for which the fair value option has been elected in earnings at each
subsequent reporting date. The fair value option: (a) may be applied instrument
by instrument, with a few exceptions, such as investments otherwise accounted
for by the equity method; (b) is irrevocable (unless a new election date
occurs); and (c) is applied only to entire instruments and not to portions of
instruments. The provisions of SFAS 159 are effective as of the beginning of an
entity's first fiscal year that begins after November 15, 2007. Management did
not elect to early adopt SFAS 159 and has not yet completed its evaluation of
the impact that SFAS 159 will have.

ACCOUNTING FOR DEFERRED COMPENSATION AND POSTRETIREMENT BENEFIT ASPECTS OF
COLLATERAL ASSIGNMENT SPLIT-DOLLAR LIFE INSURANCE ARRANGEMENTS

         In March 2007, the Emerging Issues Task Force (EITF) reached a final
consensus on Issue No. 06-10 (EITF 06-10), Accounting for Deferred Compensation
and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life
Insurance Arrangements. EITF 06-10 requires employers to recognize a liability
for the post-retirement benefit related to collateral assignment split-dollar
life insurance arrangements in accordance with SFAS No. 106 or APB Opinion No.
12. EITF 06-10 also requires employers to recognize and measure an asset based
on the nature and substance of the collateral assignment split-dollar life
insurance arrangement. The provisions of EITF 06-10 are effective for the
Company on January 1, 2008, with earlier application permitted, and are to be
applied as a change in accounting principle either through a cumulative-effect
adjustment to retained earnings or other components of equity or net assets in
the statement of financial position as of the beginning of the year of adoption;
or as a change in accounting principle through retrospective application to all
prior periods.

                                       13
<PAGE>

The Company does not expect adoption of EITF 06-10 to have a significant impact
on its consolidated financial statements, results of operations or liquidity.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

         Certain statements in this Form 10-Q (excluding statements of fact or
historical financial information) involve forward-looking information within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E 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.

                                       14
<PAGE>

Share Based Compensation

         On January 1, 2006, the Company adopted Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123R).
Under SFAS No.123R, compensation expense is recognized for options granted prior
to the adoption date in an amount equal to the fair value of the unvested
amounts over their remaining vesting period, based on the grant date fair value
estimated in accordance with SFAS No. 123, "Accounting for Stock Based
Compensation" and compensation expense for all share based payments granted
after adoption based on the grant date fair values estimated in accordance with
SFAS No. 123R. The estimates of the grant date fair values are based on an
option pricing model that uses assumptions based on the expected option life,
the level of estimated forfeitures, expected stock volatility and the risk-free
interest rate. The calculation of the fair value of share based payments is by
nature inexact, and represents management's best estimate of the grant date fair
value of the share based payments.

Goodwill

         Business combinations involving the Company's acquisition of the equity
interests or net assets of another enterprise may give rise to goodwill.
Goodwill represents the excess of the cost of an acquired entity over the net of
the amounts assigned to assets acquired and liabilities assumed in transactions
accounted for under the purchase method of accounting. Goodwill of $15,187,000
was recorded in the Company's acquisition of Yolo Community Bank. The value of
goodwill is ultimately derived from the Company's ability to generate net
earnings. A decline in net earnings could be indicative of a decline in the fair
value of goodwill and result in impairment. For that reason, goodwill will be
assessed for impairment at a reporting unit level at least annually. Management
will conduct its annual assessment of impairment during the fourth quarter of
2007.

Impairment of Investment Securities

         Investment securities are evaluated for other-than-temporary impairment
on at least a quarterly basis and more frequently when economic or market
conditions warrant such an evaluation to determine whether a decline in their
value below amortized cost is other-than-temporary. Management utilizes criteria
such as the magnitude and duration of the decline, the financial condition of
the issuer, rating agency changes related to the issuer's securities and the
intent and ability of the Bank to retain its investment in the issues for a
period of time sufficient to allow for an anticipated recovery in fair value, in
addition to the reasons underlying the decline, to determine whether the loss in
value is other-than-temporary. The term "other-than-temporary" is not intended
to indicate that the decline is permanent, but indicates that the prospects for
a near-term recovery of value is not necessarily favorable, or that there is a
lack of evidence to support a realizable value equal to or greater than the
carrying value of the investment. Once a decline in value is determined to be
other-than-temporary, the value of the security is reduced and a corresponding
charge to earnings is recognized. See Note C to Unaudited Condensed Consolidated
Financial Statements in Item 1 - Financial Statements.

ANNOUNCED PLAN OF MERGER
------------------------

         As reported on the Company's Current Report on Form 8-K, filed with the
Commission on April 11, 2007 (the "April Current Report"), the Company has
entered into an Agreement and Plan of Merger dated April 10, 2007 (the "Merger
Agreement") pursuant to which the Company will merge with and into Sterling
Financial Corporation, a Washington corporation ("Sterling"), with Sterling
being the surviving corporation. A copy of the Merger Agreement (together with
certain other information regarding the proposed merger) is provided in the
April Current Report. Consummation of the merger required approval of the
Company's shareholders, and remains subject to certain other conditions
specified in the Merger Agreement, including the receipt of all necessary
regulatory approvals and the satisfaction of other closing conditions that are
customary for such transactions.

         A special meeting of the Company shareholders was held on July 31,
2007, and the principal terms of the Merger Agreement, including the proposed
merger of the Company with and into Sterling, were approved by majority vote of
the outstanding shares of the common stock of the Company. See Item 4 of Part II
on page 28 of this report for information regarding the results of voting at the
special meeting of shareholders on July 31, 2007, which information is
incorporated here by this reference.

         Shareholders of a California corporation, including the Company, have
dissenters' rights of appraisal under limited circumstances. No dissenters'
rights are available for shares, such as the Company shares, that are listed on
the Nasdaq Global Select Market unless demands for payment are filed with
respect to 5 percent or more of the outstanding shares. Holders of shares of
Company common stock who wish to exercise dissenters' rights must also vote
against the merger proposal presented at the special meeting. As indicated in
Item 4 of Part II of this report, fewer than 5 percent of the outstanding shares
voted against the merger proposal. Therefore, the Company expects that less than
5 percent of the outstanding shares will file a demand for payment and no
Company shareholders will have the right to have the Company purchase their
shares in accordance with the dissenters' rights provisions of California law.

                                       15
<PAGE>

         Even though the Company shareholders have approved the principal terms
of the Merger Agreement, the Company and Sterling can agree at any time, by
mutual consent, not to complete the proposed merger. Also, either the Company or
Sterling can decide, without the consent of the other, not to complete the
merger in a number of situations as described in the Merger Agreement. For
example, the Board of Directors of the Company can decide, at its discretion, to
terminate the Merger Agreement (without Sterling's consent) if the average
closing price of Sterling's common stock during the 20-day period just prior to
the closing date of the proposed merger is less than $28.23 per share and the
Sterling common stock price has also declined from a price of $33.21 per share
by 15 percent or more relative to a weighted average index of a certain group of
financial institution holding companies (the "Index Group"). A copy of Exhibit F
to the Merger Agreement, listing the financial institution holding companies
currently comprising the Index Group, is filed with this report as Exhibit
99.140 and incorporated here by this reference. The Index Group was composed of
20 financial institution holding companies on April 10, 2007, the date of the
Merger Agreement. Subsequently, on May 4, 2007, Greater Bay Bancorp announced
its proposed merger with Wells Fargo & Company. In accordance with Section
8.1(j) of the Merger Agreement, the composition of the Index Group (as reflected
in Exhibit 99.140 to this report) has been updated. Greater Bay Bancorp has been
removed from the Index Group (as it existed on April 10, 2007) and the weights
(percentages) attributed to the remaining 19 companies have been adjusted
proportionately. In the example given above, Sterling would have the option to
avoid termination of the Merger Agreement by increasing the consideration to be
paid to the Company shareholders, as provided in Section 8.1(j). The Merger
Agreement provides that each share of Company common stock will be converted
into 0.7364 shares of Sterling common stock and $2.80 in cash (subject to
certain conditions). An adjustment in such consideration could be effected by an
increase in the cash portion, the stock portion, or a combination of cash and
stock, at Sterling's discretion.

         In short, a "Sterling Determination Price" of less than $28.23 on the
"Determination Date," combined with a "Sterling Change Ratio" which is less than
the "Index Change Ratio, as such terms are defined in Section 8.1(j) of the
Merger Agreement, would trigger the possibility of a decision by the Company
Board of Directors to give Sterling a notice of termination (as summarized in
the example given above). On the last trading date immediately preceding the
filing of this report, the closing price per share of Sterling common stock on
the Nasdaq Global Select Market was below $28.23. However, it should be noted
that the "Determination Date" will be the date that is ten (10) business days
before the "Closing Date" and the "Closing Date" is defined in Section 9.1 of
the Merger Agreement as the last day of the month following the receipt of all
regulatory approvals. Applications for the required regulatory approvals have
been submitted by Sterling and remain pending as of the date of this report.
Sterling has advised the Company that all such approvals are expected to be
obtained during the third quarter of 2007. Based on this expectation, the
Company presently anticipates that its merger with and into Sterling will become
effective not later than September 30, 2007.

         Any change in the market price of Sterling common stock prior to the
completion of the proposed merger will affect the value of the merger
consideration that Company shareholders will receive upon completion of the
merger. Stock price changes may result from a variety of factors, including
general market and economic conditions, changes in the businesses, operations
and prospects of Sterling or the Company, and regulatory considerations, and
many of these factors are beyond the control of Sterling or the Company.
Therefore, Company shareholders and investors in the common stock of the Company
are urged to review and carefully consider the provisions regarding merger
consideration set forth in the Merger Agreement, including Section 8.1(j) of the
Merger Agreement, and the potential consequences of the changes that may occur
in the stock trading prices for shares of Sterling common stock and the
financial institutions listed in the Index Group, after the date of this report
and prior to the "Closing Date."

                                       16
<PAGE>

OVERVIEW
--------

         North Valley Bancorp (the "Company") is a bank holding company
headquartered in Redding, California. The Company's wholly owned subsidiary,
North Valley Bank ("NVB"), a state-chartered bank, operates out of its main
office located at 300 Park Marina Circle, Redding, CA 96001, with twenty-six
commercial banking offices, including two supermarket branches, in Northern
California. The Company's principal business consists of attracting deposits
from the general public and using the funds to originate commercial, real estate
and installment loans to customers, who are predominately small and middle
market businesses and middle income individuals. The Company's primary source of
revenues is interest income from its loan and investment securities portfolios.
The Company is not dependent on any single customer for more than ten percent of
its revenues.

EARNINGS SUMMARY
----------------

<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED JUNE 30,      SIX MONTHS ENDED JUNE 30,
                                           ----------------------------    ----------------------------
(in thousands except per share amounts)        2007            2006            2007            2006
----------------------------------------   ------------    ------------    ------------    ------------
<S>                                        <C>             <C>             <C>             <C>
Net interest income                        $     10,092    $     10,695    $     20,429    $     21,088
Provision for loan and lease losses                   -             370               -             370
Noninterest income                                3,170           3,015           6,304           5,813
Noninterest expense                              10,732           9,880          20,962          19,896
Provision for income taxes                          810           1,166           1,847           2,212
                                           ------------    ------------    ------------    ------------
Net income                                 $      1,720    $      2,294    $      3,924    $      4,423
                                           ============    ============    ============    ============

Earnings Per Share
  Basic                                    $       0.23    $       0.31    $       0.53    $       0.59
  Diluted                                  $       0.22    $       0.30    $       0.51    $       0.57
Annualized Return on Average Assets                0.77%           1.03%           0.89%           0.99%
Annualized Return on Average Equity                8.81%          12.82%          10.23%          12.39%
</TABLE>

         Net income for the three and six months ended June 30, 2007 decreased
by $574,000, or 25.0%, and $499,000, or 11.3%, respectively, compared to the
same periods in 2006. Diluted earnings per share decreased $0.08, or 26.7%, for
the three months ended June 30, 2007 compared to the same period in 2006.
Diluted earnings per share decreased $0.06, or 10.5%, for the six months ended
June 30, 2007 compared to the same period in 2006. For the three and six month
periods ended June 30, 2007, the Company had $950,000 and $1,060,000,
respectively, of merger related expenses resulting from the pending merger with
and into Sterling Financial Corporation, announced on April 11, 2007. Results
for the three and six month periods ended June 30, 2007, on a non-GAAP basis,
excluding these non-core merger related expenses were net income of $2,366,000,
or $0.31 per diluted share and $4,645,000, or $0.61 per diluted share,
respectively.

NET INTEREST INCOME
-------------------

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

          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:

                                       17
<PAGE>

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

<TABLE>
<CAPTION>
                                          THREE MONTHS ENDED JUNE 30, 2007        THREE MONTHS ENDED JUNE 30, 2006
                                       ---------------------------------------   ------------------------------------
                                        AVERAGE        YIELD/        INTEREST     AVERAGE       YIELD/      INTEREST
                                        BALANCE         RATE          AMOUNT      BALANCE       RATE         AMOUNT
                                       ---------     -----------     ---------   ---------   -----------    ---------
<S>                                    <C>                  <C>      <C>         <C>                <C>     <C>
ASSETS
Earning assets:
  Federal funds sold                   $  18,630            5.21%    $     242   $   5,837          4.88%   $      71
  Investment securities:
    Taxable                               97,410            4.31%        1,047     121,799          4.30%       1,307
    Non-taxable (1)                       20,497            7.12%          364      23,386          6.88%         401
    FNMA preferred stock (1)               5,969            5.24%           78      12,049          6.59%         198
                                       ---------     -----------     ---------   ---------   -----------    ---------
  Total investments                      123,876            4.82%        1,489     157,234          4.86%       1,906
  Loans and leases (2)(3)                660,362            7.90%       13,008     627,975          7.80%      12,217
                                       ---------     -----------     ---------   ---------   -----------    ---------
Total earning assets                     802,868            7.36%       14,739     791,046          7.20%      14,194

Non earning assets                        99,094                                   108,919
Allowance for loan and lease losses       (8,803)                                   (8,032)
                                       ---------                                 ---------
Total non-earning assets                  90,291                                   100,887

Total assets                           $ 893,159                                 $ 891,933
                                       =========                                 =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
  Transaction accounts                 $ 159,683            0.50%    $     200   $ 195,005          0.30%   $     148
  Savings and money market               196,941            1.93%          948     172,777          1.13%         485
  Time certificates                      216,025            4.57%        2,460     172,251          3.46%       1,488
  Other borrowed funds                    58,512            6.17%          900      88,808          5.39%       1,194
                                       ---------     -----------     ---------   ---------   -----------    ---------
Total interest bearing liabilities       631,161            2.86%        4,508     628,841          2.11%       3,315
                                                     -----------     ---------               -----------    ---------
Demand deposits                          173,562                                   181,143
Other liabilities                         10,130                                   10,165
                                       ---------                                 ---------
Total liabilities                        814,853                                   820,149
                                       ---------                                 ---------
Shareholders' equity                      78,306                                    71,784
                                       ---------                                 ---------
Total liabilities and
 shareholders' equity                  $ 893,159                                 $ 891,933
                                       =========                                 =========
Net interest income                                                  $  10,231                              $  10,879
                                                                     =========                              =========
Net interest spread                                         4.50%                                   5.09%
                                                     ===========                             ===========
Net interest margin                                         5.11%                                   5.52%
                                                     ===========                             ===========
</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 $409 and $305 for the three months ended June 30,
     2007 and 2006, respectively.

                                       18
<PAGE>

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

<TABLE>
<CAPTION>
                                           SIX MONTHS ENDED JUNE 30, 2007           SIX MONTHS ENDED JUNE 30, 2006
                                       ---------------------------------------   ------------------------------------
                                        AVERAGE        YIELD/        INTEREST     AVERAGE       YIELD/      INTEREST
                                        BALANCE         RATE          AMOUNT      BALANCE       RATE         AMOUNT
                                       ---------     -----------     ---------   ---------   -----------    ---------
<S>                                    <C>                  <C>      <C>         <C>                <C>     <C>
ASSETS
Earning assets:
  Federal funds sold                   $  14,485            5.28%    $     379   $   7,295          4.87%   $     176
  Investment securities:
    Taxable                              100,035            4.42%        2,191     126,334          4.25%       2,662
    Non-taxable (1)                       21,139            6.92%          725      23,434          6.97%         810
    FNMA preferred stock (1)               8,280            6.50%          267      12,058          6.61%         395
                                       ---------     -----------     ---------   ---------   -----------    ---------
  Total investments                      129,454            4.96%        3,183     161,826          4.82%       3,867
  Loans and leases (2)(3)                657,054            7.93%       25,832     626,436          7.71%      23,963
                                       ---------     -----------     ---------   ---------   -----------    ---------
Total earning assets                     800,993            7.40%       29,394     795,557          7.10%      28,006

Non earning assets                        99,761                                   109,897
Allowance for loan and lease losses       (8,820)                                   (7,981)
                                       ---------                                 ---------
Total non-earning assets                  90,941                                   101,916

Total assets                           $ 891,934                                 $ 897,473
                                       =========                                 =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
  Transaction accounts                 $ 160,138            0.47%    $     373   $ 193,894          0.30%   $     292
  Savings and money market               198,228            1.86%        1,828     178,801          1.14%       1,012
  Time certificates                      209,447            4.49%        4,663     171,351          3.33%       2,828
  Other borrowed funds                    59,628            6.10%        1,803      90,183          5.40%       2,417
                                       ---------     -----------     ---------   ---------   -----------    ---------
Total interest bearing liabilities       627,441            2.79%        8,667     634,229          2.08%       6,549
                                                     -----------     ---------               -----------    ---------
Demand deposits                          175,748                                   180,793
Other liabilities                         11,418                                    10,454
                                       ---------                                 ---------
Total liabilities                        814,607                                   825,476
                                       ---------                                 ---------
Shareholders' equity                      77,327                                    71,997
                                       ---------                                 ---------
Total liabilities and
 shareholders' equity                  $ 891,934                                 $ 897,473
                                       =========                                 =========
Net interest income                                                  $  20,727                              $  21,457
                                                                     =========                              =========
Net interest spread                                         4.61%                                   5.02%
                                                     ===========                             ===========
Net interest margin                                         5.22%                                   5.44%
                                                     ===========                             ===========
</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 $807 and $681 for the six months ended June 30, 2007
     and 2006, respectively.

         Net interest income has been adjusted to a fully taxable equivalent
basis (FTE) for tax-exempt investments included in earning assets. The decrease
in net interest income (FTE) for the three and six month periods ended June 30,
2007 resulted primarily from the increase in average rate paid on interest
bearing liabilities somewhat offset by a shift in earning asset composition to
higher yielding loans as well as increased yields. Management is proactive in
attempting to manage the Company's net interest margin, that is, trying to
maximize current net interest income without placing an undue risk on future
earnings. Currently the Company is retaining fixed-rate 15-and 30-year
conforming residential mortgages to better diversify the portfolio. The Company
will continue to sell the fixed rate jumbo mortgage loans it originates.

         While the yield on average earning assets, for the three and six months
ended June 30, 2007, increased by 16 and 30 basis points, respectively, from the
same period last year, the rates paid on average interest bearing liabilities
increased by 75 and 71 basis points, respectively. The Company's net interest
margin (FTE) contracted 41 basis points to 5.11% for the three months ended June
30, 2007 from the 5.52% for the same period in 2006, and decreased 22 basis
points from 5.33% for the linked quarter. The net interest margin for the six
months ended June 30, 2007 contracted 22 basis points to 5.22% from 5.44% for
the same period in 2006.

                                       19
<PAGE>

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

         The Company did not record a provision for loan and lease losses for
the three and six months ended June 30, 2007. The Company recorded $370,000 for
the three and six months ended June 30, 2006. The process for determining
allowance adequacy includes a comprehensive analysis of the loan portfolio.
Factors in the analysis include size and mix of the loan portfolio,
nonperforming loan levels, charge-off/recovery activity and other qualitative
factors including economic activity. The decision to not record any additional
provision reflects the limited growth in the loan portfolio. Management believes
that the current level of allowance for loan and lease losses as of June 30,
2007 of $8,746,000, or 1.29% of total loans and leases, is adequate at this
time. The allowance for loan and lease losses was $8,831,000, or 1.34% of total
loans and leases, at December 31, 2006. For further information regarding our
allowance for loan and lease losses, see "Allowance for Loan and Lease Losses"
on page 23.

NONINTEREST INCOME
------------------

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

                                       THREE MONTHS ENDED    SIX MONTHS ENDED
                                            JUNE 30,             JUNE 30,
                                       -------------------  -------------------
(In thousands)                           2007       2006      2007       2006
-------------------------------------  --------   --------  --------   --------
  Service charges on deposit accounts  $  1,687   $  1,606  $  3,331   $  3,083
  Other fees and charges                    966        730     1,858      1,432
  Earnings on cash surrender value
   of life insurance policies               298        286       609        579
  Gain on sale of loans                      44         85        97        165
  Other                                     175        308       409        554
                                       --------   --------  --------   --------
Total noninterest income               $  3,170   $  3,015  $  6,304   $  5,813
                                       ========   ========  ========   ========

         Noninterest income increased from $3,015,000 for the three months ended
June 30, 2006 to $3,170,000 for the same period in 2007. Service charges on
deposits increased $81,000 from the three months ended June 30, 2006 compared to
the same period in 2007, driven by growth in the number of demand accounts.
Other fees and charges increased from $730,000 for the three months ended June
30, 2006 to $966,000 for the same period in 2007. The increase in fees is
attributable to the increase in debit card activity, specifically, point-of-sale
and foreign ATM use. The Company recorded $44,000 in gains on sales of mortgages
for the three months ended June 30, 2007 compared to $85,000 in gains on sales
of mortgages for the same period in 2006. Other income decreased to $175,000 for
the three months ended June 30, 2007 from $308,000 for the same period in 2006
due to decreases in income from sales of annuity and security products as well
as gain on loan sales.

         Noninterest income increased $491,000 to $6,304,000 for the six months
ended June 30, 2007 from $5,813,000 for the same period in 2006. The increase
was primarily driven by the increase in service charges on deposit accounts of
$248,000 and the increase in other fees and charges of $426,000 as discussed
above, partially offset by the decrease in gain on sale of loans and other
noninterest income.

NONINTEREST EXPENSE
-------------------

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

                                       THREE MONTHS ENDED    SIX MONTHS ENDED
                                            JUNE 30,             JUNE 30,
                                       -------------------  -------------------
(In thousands)                           2007       2006      2007       2006
-------------------------------------  --------   --------  --------   --------
Salaries & employee benefits           $  5,475   $  5,414  $ 11,034   $ 11,051
Occupancy expense                           754        776     1,523      1,483
Data processing expenses                    528        591     1,122      1,094
Equipment expense                           518        544     1,053      1,077
Professional services                       375        352       810        716
Marketing                                   307        301       528        556
ATM expense                                 246        224       505        427
Printing & supplies                         149        163       388        358
Operations expense                          222        219       436        411
Director                                    147        149       315        301
Amortization of intangibles                 163        163       325        325
Postage                                     128        147       254        300
Merger expense                              756          -       756          -
Other                                       964        837     1,913      1,797
                                       --------   --------  --------   --------
  Total noninterest expense            $ 10,732   $  9,880  $ 20,962   $ 19,896
                                       ========   ========  ========   ========

                                       20
<PAGE>

         Noninterest expense totaled $10,732,000 for the three months ended June
30, 2007, compared to $9,880,000 for the same period in 2006. This represents an
increase of $852,000, or 8.6%, for the three months ended June 30, 2007 from the
comparable period in 2006 due primarily to expenses related to the pending
merger with Sterling Financial Corporation of $950,000, for the quarter,
$756,000 of which is included in the merger expense category and $194,000 of
which is legal fees for the merger included in the professional services
category in the above table. Salaries and benefits increased by $61,000 or 1.1%
to $5,475,000 for the three months ended June 30, 2007 compared to $5,414,000
for the same period in 2006. Data processing expense decreased $63,000 for the
three months ended June 30, 2007 compared to the same period in 2006. Most other
expense categories for the three months ended June 30, 2007 experienced
relatively small decreases or increases from the same respective period in 2006.
The Company's ratio of noninterest expense to average assets was 4.81% for the
three months ended June 30, 2007 compared to 4.43% for the same period in 2006.
The Company's efficiency ratio increased to 80.92% for the three months ended
June 30, 2007 from 72.06% for the same period in 2006.

         Noninterest expense totaled $20,962,000 for the six months ended June
30, 2007, compared to $19,896,000 for the same period in 2006. This represents
an increase of $1,066,000, or 5.4%, for the six months ended June 30, 2007 from
the comparable period in 2006 due primarily to expenses related to the pending
merger with Sterling Financial Corporation of $1,060,000, for the six months
ended June 30, 2007, $756,000 of which is included in the merger expense
category and $304,000 of which is legal fees for the merger included in the
professional services category in the above table. Most other expense categories
for the six months ended June 30, 2007 experienced relatively small decreases or
increases from the same respective period in 2006. The Company's ratio of
noninterest expense to average assets was 4.70% for the six months ended June
30, 2007 compared to 4.43% for the same period in 2006. The Company's efficiency
ratio increased to 78.41% for the six months ended June 30, 2007 from 73.96% for
the same period in 2006.

INCOME TAXES
------------

         The provision for income taxes for the three months ended June 30, 2007
was $810,000 compared to $1,166,000 for the same period in 2006. The provision
for income taxes for the six months ended June 30, 2007 was $1,847,000 compared
to $2,212,000 for the same period in 2006. The effective income tax rate for
state and federal income taxes was 32.0% for both the three and six month
periods ended June 30, 2007 compared to 33.7% and 33.3%, respectively, for the
same periods in 2006. The difference in the effective tax rate compared to the
statutory tax rate (approximately 42.05%) is primarily the result of the
Company's investment in municipal securities, FNMA Preferred Stock, and
Bank-owned life insurance policies whose income is exempt from Federal taxes. In
addition, the Company receives special tax benefits from the State of California
Franchise Tax Board for operating and providing loans, as well as jobs, in
designated `Enterprise Zones'.

FINANCIAL CONDITION AS OF JUNE 30, 2007 AS COMPARED TO DECEMBER 31, 2006
------------------------------------------------------------------------

         Total assets at June 30, 2007, were $891,730,000, compared to
$905,673,000 at December 31, 2006. Loans and leases increased $18,604,000, or
2.8%, to $678,397,000 at June 30, 2007 from $659,793,000 at December 31, 2006.
Deposits decreased $10,357,000, or 1.4%, from December 31, 2006 to $739,931,000
at June 30, 2007. Investment securities and federal funds sold decreased to
$114,372,000 at June 30, 2007, compared to $144,323,000 at December 31, 2006.

LOAN AND LEASE PORTFOLIO
------------------------

         Loans and leases, the Company's major component of earning assets,
increased during the first six months of 2007 to $678,397,000 at June 30, 2007
from $659,793,000 at December 31, 2006. Commercial loans increased by
$3,694,000, commercial real estate loans increased by $6,904,000, real estate -
mortgage loans increased by $2,275,000, and installment loans increased by
$6,071,000. Real estate construction loans decreased by $517,000 and direct
financing leases decreased by $395,000 from December 31, 2006.

         The Company's average loan to deposit ratio was 88.5% for the quarter
ended June 30, 2007 compared to 87.1% for the same period in 2006. The increase
in the Company's average loan to deposit ratio is driven by an increase in total
average loans of $32,387,000 while total average deposits increased by
$25,035,000.

                                       21
<PAGE>

                                                JUNE 30,     DECEMBER 31,
(DOLLARS IN THOUSANDS)                            2007            2006
---------------------------------------------   ---------    ------------
Commercial                                      $  81,816    $     78,122
Real estate - commercial                          270,227         263,323
Real estate - construction                        212,682         213,199
Real estate - mortgage                             42,762          40,487
Installment                                        34,022          27,951
Direct financing leases                             1,590           1,985
Other                                              36,356          35,828
                                                ---------    ------------
                                                  679,455         660,895

Deferred loan fees, net                            (1,058)         (1,102)
Allowance for loan and lease losses                (8,746)         (8,831)
                                                ---------    ------------
                                                $ 669,651    $    650,962
                                                =========    ============

IMPAIRED, NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS AND LEASES AND
OTHER NONPERFORMING ASSETS

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

         At June 30, 2007, the recorded investment in loans and leases for which
impairment had been recognized was approximately $368,000 compared to $30,000 at
June 30, 2006. Of the 2007 balance, there was a related valuation allowance of
$42,000. During the portion of the year that the loans and leases were impaired,
the Company recognized interest income of approximately $2,000 for cash payments
received in 2007.

         At December 31, 2006, the recorded investment in loans and leases for
which impairment had been recognized was approximately $72,000. Of the 2006
balance, there was a related valuation allowance of $36,000. For the year ended
December 31, 2006, the average recorded investment in loans and leases for which
impairment had been recognized was approximately $63,000. During the portion of
the year that the loans and leases were impaired, the Company recognized
interest income of approximately $9,000 for cash payments received in 2006.

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

         Nonperforming assets at June 30, 2007, and December 31, 2006, are
summarized as follows:

                                                JUNE 30,    DECEMBER 31,
                                                  2007          2006
                                                ---------   ------------
  Nonaccrual loans and leases                   $     368   $         72
  Loans and leases past due 90 days and
   accruing interest                                2,535            403
  Other real estate owned                             902            902
                                                ---------   ------------
  Total nonperforming assets                    $   3,805   $      1,377
                                                =========   ============

Nonaccrual loans and leases to
 total gross loans and leases                        0.05%          0.01%
Nonperforming loans and leases
 to total gross loans and leases                     0.43%          0.07%
Total nonperforming assets to total assets           0.43%          0.15%

                                       22
<PAGE>

ALLOWANCE FOR LOAN AND LEASE LOSSES
-----------------------------------

         A summary of the allowance for loan and lease losses at June 30, 2007
and June 30, 2006 is as follows:

                                                    SIX MONTHS ENDED
                                                        JUNE 30,
                                                ------------------------
                                                  2007          2006
                                                ---------   ------------
Balance beginning of period                     $   8,831   $      7,864
Provision for loan and lease losses                     -            370
Net (charge-offs) recoveries                          (85)            58
                                                ---------   ------------
Balance end of period                           $   8,746   $      8,292
                                                =========   ============

Allowance for loan and lease losses
 to total loans and leases                           1.29%          1.30%

         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 June 30, 2007 included
                 the following, which existed at the balance sheet date:

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

                    o    Real estate values and market trends in Northern
                         California

                    o    Loan volumes and concentrations

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

                    o    Status of the current business cycle

                    o    Specific industry or market conditions within portfolio
                         segments

                    o    Model imprecision

                                       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 $8,746,000 in allowance at June 30, 2007 reflects management's
estimate of the inherent loss in various pools or segments in the portfolio, and
includes adjustments for general economic conditions, trends in the portfolio
and changes in the mix of the portfolio.

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

DEPOSITS
--------

         Total deposits decreased $10,357,000, or 1.4%, to $739,931,000 at June
30, 2007 compared to $750,288,000 at December 31, 2006. Noninterest-bearing
demand deposits decreased $23,313,000 or 12.0% from December 31, 2006,
interest-bearing demand deposits decreased $1,390,000 or 0.9%, money market
accounts decreased $1,655,000 or 1.5%, and savings decreased $7,902,000 or 9.1%,
while certificates of deposits increased $23,903,000 or 12.1% from December 31,
2006. The Company experienced a shift in deposits from noninterest-bearing
demand to time certificates as time deposit rates increased.

                                        JUNE 30,     DECEMBER 31,
                                         2007           2006
                                      ------------   ------------
Noninterest-bearing demand            $    171,529   $    194,842
Interest-bearing demand                    159,549        160,939
Money market and savings                   187,276        196,833
Time certificates                          221,577        197,674
                                      ------------   ------------
  Total deposits                      $    739,931   $    750,288
                                      ============   ============

LIQUIDITY
---------

         The objective of liquidity management is to ensure the continuous
availability of funds to meet the demands of depositors and borrowers.
Collection of principal and interest on loans and leases, the liquidations and
maturities of investment securities, deposits with other banks, customer
deposits and short term borrowings, when needed, are primary sources of funds
that contribute to liquidity. Unused lines of credit from correspondent banks to
provide federal funds of $25,000,000 as of June 30, 2007 were also available to
provide liquidity. In addition, NVB is a member of the Federal Home Loan Bank
("FHLB") providing additional unused borrowing capacity of $80,959,000 secured
by certain loans and investment securities as of June 30, 2007. The Company also
has a line of credit with Federal Reserve Bank of San Francisco ("FRB") of
$2,477,000 secured by first deeds of trust on eligible commercial real estate
loans and leases. As of June 30, 2007, borrowings consisted of term borrowings
of $25,000,000 and overnight borrowings of $6,325,000 outstanding with the FHLB,
overnight borrowings of $280,000 with other correspondent banks, 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
$141,526,000 and $175,067,000 (or 15.9% and 19.3% of total assets) at June 30,
2007 and December 31, 2006, respectively.

         Core deposits, defined as demand deposits, interest bearing demand
deposits, regular savings, money market deposit accounts and time deposits of
less than $100,000, continue to provide a relatively stable and low cost source
of funds. Core deposits totaled $647,577,000 and $673,303,000 at June 30, 2007
and December 31, 2006, respectively.

                                       24
<PAGE>

         In assessing liquidity, historical information such as seasonal loan
demand, local economic cycles and the economy in general are considered along
with current ratios, management goals and unique characteristics of the Company.
Management believes the Company is in compliance with its policies relating to
liquidity.

INTEREST RATE SENSITIVITY
-------------------------

         The Company constantly monitors earning asset and deposit levels,
developments and trends in interest rates, liquidity, capital adequacy and
marketplace opportunities. Management responds to all of these to protect and
possibly enhance net interest income while managing risks within acceptable
levels as set forth in the Company's policies. In addition, alternative business
plans and contemplated transactions are also analyzed for their impact. This
process, known as asset/liability management, is carried out by changing the
maturities and relative proportions of the various types of loans, investments,
deposits and other borrowings in the ways prescribed above.

         The tool used to manage and analyze the interest rate sensitivity of a
financial institution is known as a simulation model and is performed with
specialized software built for this specific purpose for financial institutions.
This model allows management to analyze three specific types of risks: market
risk, mismatch risk, and basis risk.

Market Risk

         Market risk results from the fact that the market values of assets or
liabilities on which the interest rate is fixed will increase or decrease with
changes in market interest rates. If the Company invests in a fixed-rate, long
term security and then interest rates rise, the security is worth less than a
comparable security just issued because the older security pays less interest
than the newly issued security. If the security had to be sold before maturity,
then the Company would incur a loss on the sale. Conversely, if interest rates
fall after a fixed-rate security is purchased, its value increases, because it
is paying at a higher rate than newly issued securities. The fixed rate
liabilities of the Company, like certificates of deposit and fixed-rate
borrowings, also change in value with changes in interest rates. As rates drop,
they become more valuable to the depositor and hence more costly to the Company.
As rates rise, they become more valuable to the Company. Therefore, while the
value changes when rates move in either direction, the adverse impacts of market
risk to the Company's fixed-rate assets are due to rising rates and for the
Company's fixed-rate liabilities, they are due to falling rates. In general, the
change in market value due to changes in interest rates is greater in financial
instruments that have longer remaining maturities. Therefore, the exposure to
market risk of assets is lessened by managing the amount of fixed-rate assets
and by keeping maturities relatively short. These steps, however, must be
balanced against the need for adequate interest income because variable-rate and
shorter-term assets generally yield less interest than longer-term or fixed-rate
assets.

Mismatch Risk

         The second interest-related risk, mismatch risk, arises from the fact
that when interest rates change, the changes do not occur equally in the rates
of interest earned and paid because of differences in the contractual terms of
the assets and liabilities held. A difference in the contractual terms, a
mismatch, can cause adverse impacts on net interest income.

         The Company has a certain portion of its loan portfolio tied to the
national prime rate. If these rates are lowered because of general market
conditions, e.g., the prime rate decreases in response to a rate decrease by the
Federal Reserve Open Market Committee ("FOMC"), these loans will be repriced. If
the Company were at the same time to have a large proportion of its deposits in
long-term fixed-rate certificates, interest earned on loans would decline while
interest paid on the certificates would remain at higher levels for a period of
time until they mature. Therefore net interest income would decrease
immediately. A decrease in net interest income could also occur with rising
interest rates if the Company had a large portfolio of fixed-rate loans and
securities that was funded by deposit accounts on which the rate is steadily
rising.

         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.

                                       25
<PAGE>

Basis Risk

         The third interest-related risk, basis risk, arises from the fact that
interest rates rarely change in a parallel or equal manner. The interest rates
associated with the various assets and liabilities differ in how often they
change, the extent to which they change, and whether they change sooner or later
than other interest rates. For example, while the repricing of a specific asset
and a specific liability may occur at roughly the same time, the interest rate
on the liability may rise one percent in response to rising market rates while
the asset increases only one-half percent. While the Company would appear to be
evenly matched with respect to mismatch risk, it would suffer a decrease in net
interest income. This exposure to basis risk is the type of interest risk least
able to be managed, but is also the least dramatic. Avoiding concentration in
only a few types of assets or liabilities is the best means of increasing the
chance that the average interest received and paid will move in tandem. The
wider diversification means that many different rates, each with their own
volatility characteristics, will come into play.

Net Interest Income and Net Economic Value Simulations

         To quantify the extent of all of these risks both in its current
position and in transactions it might make in the future, the Company uses
computer modeling to simulate the impact of different interest rate scenarios on
net interest income and on net economic value. Net economic value or the market
value of portfolio equity is defined as the difference between the market value
of financial assets and liabilities. These hypothetical scenarios include both
sudden and gradual interest rate changes, and interest rate changes in both
directions. This modeling is the primary means the Company uses for interest
rate risk management decisions.

         The hypothetical impact of sudden interest rate shocks applied to the
Company's asset and liability balances are modeled quarterly. The results of
this modeling indicate how much of the Company's net interest income and net
economic value are "at risk" (deviation from the base level) from various sudden
rate changes. This exercise is valuable in identifying risk exposures. The
results for the Company's most recent simulation analysis indicate that the
Company's net interest income at risk over a one-year period and net economic
value at risk from 2% shocks are within normal expectations for sudden changes
and do not materially differ from those of December 31, 2006.

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

CAPITAL RESOURCES
-----------------

         The Company maintains capital to support future growth and dividend
payouts while trying to effectively manage the capital on hand. From the
depositor standpoint, a greater amount of capital on hand relative to total
assets is generally viewed as positive. At the same time, from the standpoint of
the shareholder, a greater amount of capital on hand may not be viewed as
positive because it limits the Company's ability to earn a high rate of return
on stockholders' equity (ROE). Stockholders' equity increased to $78,388,000 as
of June 30, 2007, as compared to $75,491,000 at December 31, 2006. The increase
was due to net income of $3,924,000, stock option exercises of $884,000,
partially offset by the increase in unrealized loss on available for sale
securities of $440,000, and the cash dividends paid out in the amount of
$1,471,000. Under current regulations, management believes that the Company
meets all capital adequacy requirements and North Valley Bank was considered
well capitalized at June 30, 2007 and December 31, 2006.

                                       26
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                       TO BE WELL
                                                                                                       CAPITALIZED
                                                                                                      UNDER PROMPT
                                                                         FOR CAPITAL ADEQUACY          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 JUNE 30, 2007
  Total capital (to risk weighted assets)       $ 103,506       12.03%   $  68,832        8.00%         N/A         N/A
  Tier 1 capital (to risk weighted assets)      $  90,622       10.54%   $  34,392        4.00%         N/A         N/A
  Tier 1 capital (to average assets)            $  90,622       10.34%   $  35,057        4.00%         N/A         N/A

AS OF DECEMBER 31, 2006
  Total capital (to risk weighted assets)       $ 100,065       11.88%   $  67,384        8.00%         N/A         N/A
  Tier 1 capital (to risk weighted assets)      $  86,032       10.21%   $  33,705        4.00%         N/A         N/A
  Tier 1 capital (to average assets)            $  86,032        9.66%   $  35,624        4.00%         N/A         N/A

NORTH VALLEY BANK
AS OF JUNE 30, 2007
  Total capital (to risk weighted assets)       $ 102,004       11.90%   $  68,574        8.00%   $  85,718       10.00%
  Tier 1 capital (to risk weighted assets)      $  93,258       10.88%   $  34,286        4.00%   $  51,429        6.00%
  Tier 1 capital (to average assets)            $  93,258       10.66%   $  34,994        4.00%   $  43,742        5.00%

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

                                       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 six months ended June 30, 2007 compared to
December 31, 2006. Please see discussion under the caption "Interest Rate
Sensitivity" on page 25.

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 June 30, 2007. Based on this evaluation, the Chief Executive
Officer and the Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective. An evaluation of any changes in the
Company's internal control over financial reporting that occurred during the
Company's fiscal quarter ended June 30, 2007 was carried out under the
supervision and with the participation of the Company's Chief Executive Officer,
Chief Financial Officer and other members of the Company's senior management
group. The Company's Chief Executive Officer and Chief Financial Officer
concluded that no change identified in connection with such evaluation has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.

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

ITEM 1.  LEGAL PROCEEDINGS

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

ITEM 1A.  RISK FACTORS

         There have been no material changes from risk factors as previously
disclosed by the Company in its response to Item 1A of Part 1 of Form 10-K for
the fiscal year ended December 31, 2006.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

         None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         Not applicable

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matter was submitted to a vote of the Company shareholders during
the period covered by this report, through the solicitation of proxies or
otherwise. As provided in the Company Bylaws, an annual meeting of Company
shareholders is held in May of each year. Due to the proposed merger with
Sterling Financial Corporation, the Board of Directors postponed the 2007 annual
meeting in order to call a special meeting of shareholders to consider and vote
on the Agreement and Plan of Merger, as signed by the Company and Sterling
Financial Corporation on April 10, 2007. The special meeting was held on
Tuesday, July 31, 2007 and the Company shareholders approved the following
proposals:

                                       28
<PAGE>

1.       To approve the principal terms of the Agreement and Plan of Merger
         dated April 10, 2007, by and between Sterling Financial Corporation and
         North Valley Bancorp.

2.       To grant discretionary authority to adjourn the Special Meeting if
         necessary to permit further solicitation of proxies.

         Results of the voting are presented below:

                         SPECIAL MEETING OF SHAREHOLDERS
                             TUESDAY, JULY 31, 2007

Total Shares Outstanding:   7,362,625
      Total Shares Voted:   4,534,261      61.6%

<TABLE>
<CAPTION>
                                       PERCENT OF                     PERCENT OF                     PERCENT OF
      PROPOSAL 1:           FOR        OUTSTANDING      AGAINST       OUTSTANDING      ABSTAIN       OUTSTANDING
                       ------------   ------------   ------------    ------------   ------------    ------------
      <S>                 <C>                 <C>         <C>                 <C>        <C>                 <C>
                          4,394,342           59.7%        83,389             1.1%        56,360             0.8%
</TABLE>

<TABLE>
<CAPTION>
                                        PERCENT OF                   PERCENT OF                      PERCENT OF
      PROPOSAL 2:           FOR          QUORUM        AGAINST          QUORUM        ABSTAIN          QUORUM
                       ------------   ------------   ------------    ------------   ------------    ------------
      <S>                 <C>                 <C>         <C>                 <C>        <C>                 <C>
                          4,070,565           89.8%       184,703             4.1%       278,993             6.2%
</TABLE>

ITEM 5.  OTHER INFORMATION

         None

ITEM 6.  EXHIBITS

         31       Rule 13a-14(a) / 15d-14(a) Certifications
         32       Section 1350 Certifications
         99.140   Updated Exhibit F to Agreement and Plan of Merger dated
                  April 10, 2007

                                       29
<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 August 8, 2007


By:

/s/ Michael J. Cushman
-----------------------------------
Michael J. Cushman
President & Chief Executive Officer
(Principal Executive Officer)


/s/ Kevin R. Watson
-----------------------------------
Kevin R. Watson
Executive Vice President &
Chief Financial Officer
(Principal Financial Officer &
Principal Accounting Officer)

                                       30