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, 2006.

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


                         Commission file number 0-10652
                                                -------


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


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


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


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


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

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

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

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

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

Common Stock - 7,275,708 shares as of August 9, 2006.
<PAGE>
                                      INDEX

                      NORTH VALLEY BANCORP AND SUBSIDIARIES

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

Item 1.     Financial Statements (Unaudited)                                 3

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

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

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

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

            Notes to Condensed Consolidated Financial Statements             7

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

Item 3.     Quantitative and Qualitative Disclosures about Market Risk      26

Item 4.     Controls and Procedures                                         26


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

Item 1.     Legal Proceedings                                               26

Item 1A.    Risk Factors                                                    26

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds     26

Item 3.     Defaults Upon Senior Securities                                 27

Item 4.     Submission of Matters to a Vote of Security Holders             27

Item 5.     Other Information                                               27

Item 6.     Exhibits                                                        27


SIGNATURES                                                                  28
----------

                                       2
<PAGE>
<TABLE>
<CAPTION>

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

NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands except share data)
--------------------------------------------------------------------------------------------------------
                                                                            June 30,        December 31,
                                                                              2006              2005
                                                                          ------------      ------------
<S>                                                                       <C>               <C>
ASSETS
Cash and cash equivalents:
  Cash and due from banks                                                 $     33,901      $     48,294
  Federal funds sold                                                               750             7,800
                                                                          ------------      ------------
        Total cash and cash equivalents                                         34,651            56,094

Investment securities available for sale, at fair value                        145,225           164,258
Investment securities held to maturity, at amortized cost                           88                91

Loans and leases                                                               639,617           624,512
  Less: Allowance for loan and lease losses                                     (8,292)           (7,864)
                                                                          ------------      ------------
  Net loans and leases                                                         631,325           616,648

Premises and equipment, net                                                     14,678            14,946
Accrued interest receivable                                                      3,620             3,834
Other real estate owned                                                            902               902
FHLB and FRB stock and other securities                                          5,440             5,663
Company-owned life insurance policies                                           28,967            28,495
Core deposit intangibles, net                                                    2,212             2,537
Goodwill                                                                        15,187            15,187
Other assets                                                                     8,971             9,760
                                                                          ------------      ------------
  TOTAL ASSETS                                                            $    891,266      $    918,415
                                                                          ============      ============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Deposits:
  Noninterest-bearing                                                     $    186,392      $    186,555
  Interest-bearing                                                             536,019           560,135
                                                                          ------------      ------------
  Total deposits                                                               722,411           746,690

Other borrowed funds                                                            58,500            56,500
Accrued interest payable and other liabilities                                   9,863            11,463
Subordinated debentures                                                         31,961            31,961
                                                                          ------------      ------------
  Total liabilities                                                            822,735           846,614
                                                                          ------------      ------------

Commitments and Contingencies (Note G)

STOCKHOLDERS' EQUITY:
Preferred stock, no par value: authorized 5,000,000 shares; none
  outstanding                                                                       --                --
Common stock, no par value: authorized 20,000,000 shares; outstanding
  7,258,154 and 7,497,599 at June 30, 2006 and December 31, 2005                38,733            39,810
Retained earnings                                                               33,689            34,437
Accumulated other comprehensive loss, net of tax                                (3,891)           (2,446)
                                                                          ------------      ------------
  Total stockholders' equity                                                    68,531            71,801
                                                                          ------------      ------------
  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                              $    891,266      $    918,415
                                                                          ============      ============

</TABLE>

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

                                       3
<PAGE>
<TABLE>
<CAPTION>

NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands except per share data)
--------------------------------------------------------------------------------------------------
                                                                          For the three months
                                                                             ended June 30,
                                                                     -----------------------------
                                                                         2006             2005
                                                                     ------------     ------------
<S>                                                                  <C>              <C>
INTEREST INCOME:
Interest and fees on loans and leases                                $     12,217     $     10,249
Interest on investments:
  Taxable interest income                                                   1,453            1,714
  Nontaxable interest income                                                  269              283
Interest on Federal funds sold and repurchase agreements                       71               90
                                                                     ------------     ------------
    Total interest income                                                  14,010           12,336
                                                                     ------------     ------------

INTEREST EXPENSE:
Deposits                                                                    2,121            1,467
Subordinated debentures                                                       605              411
Other borrowings                                                              589              390
                                                                     ------------     ------------
    Total interest expense                                                  3,315            2,268
                                                                     ------------     ------------

NET INTEREST INCOME                                                        10,695           10,068

PROVISION FOR LOAN AND LEASE LOSSES                                           370              180
                                                                     ------------     ------------

NET INTEREST INCOME AFTER PROVISION
  FOR LOAN AND LEASE LOSSES                                                10,325            9,888
                                                                     ------------     ------------

NONINTEREST INCOME:
Service charges on deposit accounts                                         1,606            1,189
Other fees and charges                                                        730              649
Earnings on cash surrender value of life insurance policies                   286              287
Gain on sale of loans                                                          85               54
Other                                                                         308              284
                                                                     ------------     ------------
    Total noninterest income                                                3,015            2,463
                                                                     ------------     ------------

NONINTEREST EXPENSES:
Salaries and employee benefits                                              5,414            4,692
Occupancy expense                                                             776              692
Furniture and equipment expense                                               544              412
Other                                                                       3,146            3,667
                                                                     ------------     ------------
    Total noninterest expenses                                              9,880            9,463
                                                                     ------------     ------------

INCOME BEFORE PROVISION FOR INCOME TAXES                                    3,460            2,888

PROVISION FOR INCOME TAXES                                                  1,166              901
                                                                     ------------     ------------

NET INCOME                                                           $      2,294     $      1,987
                                                                     ============     ============

Per Share Amounts
Basic Earnings Per Share                                             $       0.31     $       0.27
                                                                     ============     ============
Diluted Earnings Per Share                                           $       0.30     $       0.26
                                                                     ============     ============
Cash Dividends Per Common Share                                      $       0.10     $       0.10
                                                                     ============     ============
</TABLE>

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

                                       4
<PAGE>
<TABLE>
<CAPTION>

NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands except per share data)
--------------------------------------------------------------------------------------------------
                                                                           For the six months
                                                                              ended June 30,
                                                                     -----------------------------
                                                                         2006             2005
                                                                     ------------     ------------
<S>                                                                  <C>              <C>
INTEREST INCOME:
Interest and fees on loans and leases                                $     23,963     $     19,706
Interest on investments:
  Taxable interest income                                                   2,955            3,402
  Nontaxable interest income                                                  543              594
Interest on Federal funds sold and repurchase agreements                      176              261
                                                                     ------------     ------------
    Total interest income                                                  27,637           23,963
                                                                     ------------     ------------

INTEREST EXPENSE:
Deposits                                                                    4,131            2,719
Subordinated debentures                                                     1,232              822
Other borrowings                                                            1,186              756
                                                                     ------------     ------------
    Total interest expense                                                  6,549            4,297
                                                                     ------------     ------------

NET INTEREST INCOME                                                        21,088           19,666

PROVISION FOR LOAN AND LEASE LOSSES                                           370              450
                                                                     ------------     ------------
NET INTEREST INCOME AFTER PROVISION
  FOR LOAN AND LEASE LOSSES                                                20,718           19,216
                                                                     ------------     ------------
NONINTEREST INCOME:
Service charges on deposit accounts                                         3,083            2,322
Other fees and charges                                                      1,432            1,217
Earnings on cash surrender value of life insurance policies                   579              564
Gain on sale of loans                                                         165              101
Other                                                                         554              709
                                                                     ------------     ------------
    Total noninterest income                                                5,813            4,913
                                                                     ------------     ------------

NONINTEREST EXPENSES:
Salaries and employee benefits                                             11,051            9,374
Occupancy expense                                                           1,483            1,319
Furniture and equipment expense                                             1,077              973
Other                                                                       6,285            6,231
                                                                     ------------     ------------
    Total noninterest expenses                                             19,896           17,897
                                                                     ------------     ------------

INCOME BEFORE PROVISION FOR INCOME TAXES                                    6,635            6,232

PROVISION FOR INCOME TAXES                                                  2,212            1,986
                                                                     ------------     ------------

NET INCOME                                                           $      4,423     $      4,246
                                                                     ============     ============

Per Share Amounts
Basic Earnings Per Share                                             $       0.59     $       0.58
                                                                     ============     ============
Diluted Earnings Per Share                                           $       0.57     $       0.55
                                                                     ============     ============
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>
<TABLE>
<CAPTION>

NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
------------------------------------------------------------------------------------------------------------
                                                                                     For the six months
                                                                                       ended June 30,
                                                                               -----------------------------
                                                                                   2006             2005
                                                                               ------------     ------------
<S>                                                                            <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income                                                                     $      4,423     $      4,246
Adjustments to reconcile net income to net cash provided by
    operating activities:
    Depreciation and amortization                                                     1,168            1,133
    Amortization of premium on securites                                                 72              135
    Amortization of core deposit intangible                                             325              325
    Provision for loan and lease losses                                                 370              450
    Loss (gain) on sale or calls on securities                                           19              (95)
    Gain on sale of loans                                                              (165)            (101)
    Gain on sale of premises and equipment                                              (14)             (35)
    Stock-based compensation expense                                                    158              106
Effect of changes in:
    Accrued interest receivable                                                         214              480
    Other assets                                                                      1,321             (656)
    Accrued interest payable and other liabilities                                   (1,601)            (934)
                                                                               ------------     ------------
       Net cash provided by operating activities                                      6,290            5,054
                                                                               ------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Proceeds from sales of available for sale securities                                 44           20,033
    Proceeds from maturities/calls of available for sale securities                  16,452           16,184
    Purchases of available for sale securities                                           --           (1,989)
    Net change in FHLB and FRB stock and other securities                               223             (328)
    Net change in interest bearing deposits in other financial institutions              --              500
    Net increase in loans and leases                                                (14,882)         (45,698)
    Proceeds from sales of premises and equipment                                        14               --
    Purchases of premises and equipment                                                (900)          (3,187)
                                                                               ------------     ------------
       Net cash provided by (used in) investing activities                              951          (14,485)
                                                                               ------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Net change in deposits                                                          (24,279)          17,417
    Net change in other borrowed funds                                                2,000            8,944
    Cash dividends paid                                                              (1,497)          (1,481)
    Repurchase of common stock                                                       (5,270)            (188)
    Deferred tax benefit on stock-based compensation                                    175              357
    Exercise of stock options                                                           187              477
                                                                               ------------     ------------
       Net cash (used in) provided by financing activities                          (28,684)          25,526
                                                                               ------------     ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                (21,443)          16,095
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                         56,094           24,215
                                                                               -----------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                       $     34,651     $     40,310
                                                                               =============================
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Year for:
    Interest                                                                   $      6,483     $      4,271
    Income taxes                                                                      4,146            3,473
</TABLE>

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

                                       6
<PAGE>
                      NORTH VALLEY BANCORP AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A - BASIS OF PRESENTATION

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

         The condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries North Valley Bank ("NVB"), North
Valley Trading Company, which is inactive, and Bank Processing, Inc. ("BPI").
Effective 6:01 p.m., June 30, 2006, the former banking subsidiary NVB Business
Bank was merged into North Valley Bank. All of the business activities of NVB
Business Bank were assumed by North Valley Bank as of the effective date of the
merger. 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 consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.

                                       7
<PAGE>
NOTE B - INVESTMENT SECURITIES

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

<TABLE>
<CAPTION>

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

June 30, 2006
  Securities of US government agencies and
    corporations                                                      $     11,033   $         --   $       (251)  $     10,782
  Obligations of states and political subdivisions                          23,144            298           (187)        23,255
  Mortgage-backed securities                                                94,705              7         (5,305)        89,406
  Corporate debt securities                                                  7,996             25            (13)         8,008
  Equity securities of government sponsored entities                        15,040             25         (1,292)        13,774
                                                                      ------------   ------------   ------------   ------------
                                                                      $    151,918   $        355   $     (7,048)  $    145,225
                                                                      ============   ============   ============   ============

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

                                                                                         Gross         Gross
                                                                       Amortized      Unrealized     Unrealized     Estimated
                                                                          Cost           Gains         Losses       Fair Value
                                                                      ------------   ------------   ------------   ------------
<S>                                                                   <C>            <C>            <C>            <C>
Held to maturity securities:

June 30, 2006
  Mortgage-backed securities                                          $         88   $         --   $         (4)  $         84
                                                                      ============   ============   ============   ============
December 31, 2005
  Mortgage-backed securities                                          $         91   $         --   $         (3)  $         88
                                                                      ============   ============   ============   ============
</TABLE>

         There were no gross realized gains on sales or calls of available for
sale securities for the six months ended June 30, 2006. Gross realized losses on
sales or calls of available for sale securities for the six months ended June
30, 2006 were $19,000. Gross realized gains on sales or calls of available for
sale securities were $275,000 for the six months ended June 30, 2005. Gross
realized losses on sales or calls of available for sale securities for the six
months ended June 30, 2005 were $180,000. There were no sales or transfers of
held to maturity securities for the three and six months ended June 30, 2006 and
2005.

         At June 30, 2006 and December 31, 2005, securities having fair value
amounts of approximately $81,206,000 and $103,584,000 were pledged to secure
public deposits, short-term borrowings, treasury, tax and loan balances and for
other purposes required by law or contract.

         Investment securities are evaluated for other-than-temporary impairment
on at least a quarterly basis and more frequently when economic or market
conditions warrant such an evaluation to determine whether a decline in their
value below amortized cost is other than temporary. Management utilizes criteria
such as the magnitude and duration of the decline and the intent and ability of
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

                                       8
<PAGE>
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, 2006, the Company held $121,160,000 of available for sale
investment securities in an unrealized loss position of which $8,966,000 were in
a loss position for less than twelve months and $112,194,000 were in a loss
position and had been in a loss position for twelve months or more. Management
periodically evaluates each investment security for other than temporary
impairment, relying primarily on industry analyst reports, observation of market
conditions and interest rate fluctuations. Management believes it will be able
to collect all amounts due according to the contractual terms of the underlying
investment securities and that the noted decline in fair value is considered
temporary and due only to interest rate fluctuations.

         Included in the above securities at June 30, 2006 are 100,000 shares of
FNMA, Series M perpetual preferred stock. The coupon rate is fixed at 4.75% with
a taxable-equivalent yield of 6.38%. The securities are owned at par, or $50.00
per share, for a total investment of $5,000,000 and an unrealized loss of
$1,250,000 at June 30, 2006 as compared to $1,100,000 at December 31, 2005. The
securities are callable at par on June 1, 2008.

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

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

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

NOTE C - STOCK-BASED COMPENSATION

Stock Option Plans

         At June 30, 2006, the Company has three stock-based compensation plans:
the North Valley Bancorp 1989 Director Stock Option Plan, the 1998 Employee
Stock Incentive Plan and the 1999 Director Stock Option Plan. The shares
available for grant may be granted to anyone eligible to participate in the
plans. All options granted under the Employee plan had an exercise price equal
to the market value of the underlying common stock on the date of grant.
Compensation expense was recognized in the financial statements for the Director
Plans for the difference between the fair market value of the options at the
date of the grant and the exercise price which represented 85% of the fair
market value and no compensation expense on these options was recognized prior
to January 1, 2006. 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 or five years; however the vesting period can
be modified at the discretion of the Company's Board of Directors. Outstanding
options under the plans are exercisable until their expiration. Total options of
2,502,353 were authorized under all plans at June 30, 2006. The Company issues
new shares of common stock upon exercise of stock options by all plan
participants.

Adoption of FAS 123(R)

         Prior to January 1, 2006, the Company accounted for the plans under the
recognition and measurement provisions of Accounting Principals Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations, as permitted by Financial Accounting Standards Board ("FASB")
Statement No. 123, Accounting for Stock-Based Compensation and FASB Statement
No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure.
Effective January 1, 2006, the Company adopted the fair value recognition

                                       9
<PAGE>
provisions of FASB Statement No. 123(R), Share-Based Payment ("Statement 123
R"), using the modified prospective transition method. Under this transition
method, compensation cost recognized in fiscal year 2006 includes: (a)
compensation cost for all share-based payments vesting during 2006 that were
granted prior to, but not yet vested as of, January 1, 2006 based on the
grant-date fair value estimated in accordance with the original provisions of
Statement 123 and (b) compensation cost for all share-based payments vesting
during 2006 that were granted subsequent to January 1, 2006, based on the
grant-date fair value estimated in accordance with the provisions of Statement
123(R).

         As a result of adopting Statement 123(R) on January 1, 2006, the
Company's income before provision for income taxes and net income for the three
and six months ended June 30, 2006, was $44,000 and $29,000 lower, and $92,000
and $61,000 lower respectively, than if it had continued to account for
share-based compensation under APB Opinion No. 25. Diluted earnings per share
for the three months ended June 30, 2006 would have remained unchanged if it had
continued to account for share-based compensation under APB Opinion No. 25.
Diluted earnings per share for the six months ended June 30, 2006 would have
been $0.58 compared to the $0.55 reported if the Company had continued to
account for share-based compensation under APB Opinion No. 25.

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

Determining Fair Value

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

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

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

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

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

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

Pro Forma

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

                                       10
<PAGE>
<TABLE>
<CAPTION>

                                                                               Three months ended,  Six months ended,
(in thousands except per share data)                                              June 30, 2005      June 30, 2005
                                                                                  -------------      -------------
<S>                                                                               <C>                <C>
Net income, as reported                                                           $       1,987      $       4,246
Add:  total stock-based compensation expense
   included in net income, net of tax                                                        31                 63
Deduct:  total stock-based compensation expense
   determined under the fair value based
   method for all awards, net of tax                                                        (78)              (157)
                                                                                  -------------      -------------
Net income, pro forma                                                             $       1,940      $       4,152

Basic earnings per common share:
As reported                                                                       $        0.27      $        0.58
Pro forma                                                                         $        0.26      $        0.56

Diluted earnings per common and equivalent share:
As reported                                                                       $        0.26      $        0.55
Pro forma                                                                         $        0.25      $        0.53



<CAPTION>

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


                                               Three months ended June 30,            Six months ended June 30,
                                            --------------------------------      --------------------------------
                                                 2006               2005               2006               2005
                                            -------------      -------------      -------------      -------------
<S>                                                  <C>                <C>           <C>            <C>
Dividend yield                                       2.28%              2.28%         2.24-2.28%         2.20-2.28%
Expected volatility                                 15.72%             15.29%       14.78-15.72%       15.29-15.86%
Risk-Free interest rate                              3.58%              3.58%              3.58%              3.58%
Expected option life                              7 years            7 years            7 years            7 years
Weighted average grant date fair value      $        2.85      $        3.39      $        2.95      $        3.34

</TABLE>

Stock Compensation Expense - Stock Options

         At June 30, 2006, the total unrecognized compensation cost related to
stock-based awards granted to employees under the Company's stock option plans
was $318,000. This cost will be amortized on a straight-line basis over a
weighted average period of approximately 3.0 years and will be adjusted for
subsequent changes in estimated forfeitures. The total fair value of shares
vested for the three months and six months ended June 30, 2006 was $44,000 and
$92,000.
<TABLE>
<CAPTION>

Stock Option Activity

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

                                                                                  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, 2006                        896,560    $       9.51       4.2 years     $5.36 - 19.86   $      7,528

Granted                                                49,157           17.38             N/A    $16.38 - 17.95   $         --

Exercised                                             (60,555)           8.58             N/A     $5.53 - 15.72   $        537

Expired or Forfeited                                  (66,221)          12.09             N/A     $8.58 - 19.86   $        389

                                                 -----------------------------------------------------------------------------
Outstanding at June 30, 2006                          818,941    $       7.62       5.0 years     $5.36 - 19.86   $      6,257
                                                 -----------------------------------------------------------------------------

Fully vested and excercisable at June 30, 2006        708,550    $       8.81       4.6 years     $5.36 - 19.86   $      6,080
                                                 -----------------------------------------------------------------------------
</TABLE>

                                       11
<PAGE>
         The total intrinsic value of options exercised for the three months and
six months ended June 30, 2006 was $181,000 and $537,000.

         Cash received from stock option exercises under the Company's option
plans for the six months ended June 30, 2006 and June 30, 2005 was $187,000 and
$477,000, respectively. The actual tax benefit realized for the tax deductions
from stock option exercises under the stock option plans totaled $175,000 and
$357,000 for the six months ended June 30, 2006 and June 30, 2005, respectively.

NOTE D - COMPREHENSIVE INCOME

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

(in thousands)                                                          Three months ended June 30,      Six months ended June 30,
                                                                       ----------------------------    ----------------------------
                                                                           2006            2005            2006             2005
                                                                       ------------    ------------    ------------    ------------
<S>                                                                    <C>             <C>             <C>             <C>
Net income                                                             $      2,294    $      1,987    $      4,423    $      4,246
Other comprehensive (loss) income, net of tax:
  Holding (loss) income arising during period                                (1,330)          1,393          (1,445)           (108)
  Reclassification adjustment                                                    --               1              --             110
                                                                       ------------    ------------    ------------    ------------
                                                                             (1,330)          1,394          (1,445)              2
                                                                       ------------    ------------    ------------    ------------

Total comprehensive income                                             $        964    $      3,381    $      2,978    $      4,248
                                                                       ============    ============    ============    ============
<CAPTION>

NOTE E - EARNINGS PER SHARE

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

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

                                                                        Three months ended June 30,      Six months ended June 30,
                                                                       ----------------------------    ----------------------------
                                                                               2006            2005            2006            2005
                                                                       ------------    ------------    ------------    ------------
<S>                                                                    <C>             <C>             <C>             <C>
Calculation of basic earnings per share:
Numerator - net income                                                 $      2,294    $      1,987    $      4,423    $      4,246
Denominator - weighted average common shares outstanding                      7,450           7,411           7,478           7,375
                                                                       ------------    ------------    ------------    ------------

     Basic earnings per share                                          $       0.31    $       0.27    $       0.59    $       0.58
                                                                       ============    ============    ============    ============

Calculation of diluted earnings per share:
Numerator - net income                                                 $      2,294    $      1,987    $      4,423    $      4,246
Denominator:
  Weighted average common shares outstanding                                  7,450           7,411           7,478           7,375
  Dilutive effect of outstanding options                                        270             360             294             412
                                                                       ------------    ------------    ------------    ------------
     Weighted average common shares outstanding
       and common stock equivalents                                           7,720           7,771           7,772           7,787
                                                                       ------------    ------------    ------------    ------------

     Diluted earnings per share                                        $       0.30    $       0.26    $       0.57    $       0.55
                                                                       ============    ============    ============    ============
</TABLE>

NOTE F - PENSION PLAN BENEFITS

         The Company has a supplemental retirement plan for key executives and a
supplemental retirement plan for certain retired key executives and directors.
These plans are nonqualified defined benefit plans and are unsecured. Components
of net periodic benefit cost for the Company's supplemental nonqualified defined
benefit plans for the three and six months ended June 30, 2006 and 2005 are
presented in the following table (in thousands):

                                       12
<PAGE>
<TABLE>
<CAPTION>

                                                  Three months ended June 30,      Six months ended June 30,
                                                 ----------------------------    ----------------------------
                                                     2006            2005            2006            2005
                                                 ------------    ------------    ------------    ------------
<S>                                              <C>             <C>             <C>             <C>
Components of net periodic benefits cost:
  Service cost                                   $        122    $         66    $        244    $        133
  Interest cost                                            67              48             134              98
  Amortization of net obligation at transition             --               7              --              14
  Prior service amortization                                8               9              16              18
  Recognized net actuarial loss                            15              --              30              --
                                                 ------------    ------------    ------------    ------------
Total components of net periodic cost            $        212    $        130    $        424    $        263
                                                 ============    ============    ============    ============
</TABLE>

NOTE G - COMMITMENTS AND CONTINGENCIES

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

         The Company was contingently liable under letters of credit issued on
behalf of its customers in the amount of $19,245,000 and $14,196,000 at June 30,
2006 and December 31, 2005. At June 30, 2006, commercial and consumer lines of
credit and real estate loans of approximately $75,489,000 and $141,090,000 were
undisbursed. At December 31, 2005, commercial and consumer lines of credit and
real estate loans of approximately $78,602,000 and $127,608,000 were
undisbursed.

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

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

         Loan commitments and standby letters of credit involve, to varying
degrees, elements of credit and market risk in excess of the amounts recognized
in the balance sheet and do not necessarily represent the actual amount subject
to credit loss. However, at June 30, 2006, no losses are anticipated as a result
of these commitments.

         In management's opinion, a concentration exists in real estate-related
loans which represent approximately 78% and 77% of the Company's loan portfolio
at June 30, 2006 and December 31, 2005, respectively. Although management
believes such concentrations to have no more than the normal risk of
collectibility, a substantial decline in the economy in general, or a decline in
real estate values in the Company's primary market areas in particular, could
have an adverse impact on collectibility of these loans. However, personal and
business income represents the primary source of repayment for a majority of
these loans.


NOTE H - NEW ACCOUNTING PRONOUNCEMENTS

Accounting for Servicing of Financial Assets

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

                                       13
<PAGE>
         The Company will apply the requirements for recognition and initial
measurement of servicing assets and servicing liabilities prospectively to all
transactions entered into on or after January 1, 2007. Management has not
completed its evaluation of the impact of SFAS 156 but believes that the effect
on the Company's financial position and results of operations will not be
material.

Accounting for Uncertainty in Income Taxes

         In July 2006, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes
- an interpretation of FASB Statement No. 109. FIN 48 requires that realization
of an uncertain income tax position be "more likely than not" before it can be
recognized in the financial statements. Further, FIN 48 prescribes the benefit
to be recorded in the financial statements as the amount most likely to be
realized assuming a review by tax authorities having all relevant information
and applying current conventions. FIN 48 also clarifies the financial statement
classification of tax-related penalties and interest and sets forth new
disclosures regarding unrecognized tax benefits. FIN 48 is effective for fiscal
years beginning after December 15, 2006. Management of the Company is currently
evaluating the requirements of FIN 48 and the impact this interpretation may
have on its financial statements.

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

         Certain statements in this Form 10-Q (excluding statements of fact or
historical financial information) involve forward-looking information within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, and are subject to the
"safe harbor" created by those sections. These forward-looking statements
involve certain risks and uncertainties that could cause actual results to
differ materially from those in the forward-looking statements. Such risks and
uncertainties include, but are not limited to, the following factors:
competitive pressure in banking industry increases significantly; changes in the
interest rate environment reduce margins; general economic conditions, either
nationally or regionally, are less favorable than expected, resulting in, among
other things, a deterioration in credit quality and an increase in the provision
for possible loan losses; changes in the regulatory environment; changes in
business conditions, particularly in the Northern California region; volatility
of rate sensitive deposits; operational risks including data processing system
failures or fraud; asset/liability matching risks and liquidity risks; the
California power crises; the U.S. "war on terrorism" and military action by the
U.S. in the Middle East, and changes in the securities markets.

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

General

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

Allowance for Loan and Lease Losses

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

                                       14
<PAGE>
         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.

Share Based Compensation

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

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

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

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 North Valley Bank Business Bank.
The value of goodwill is ultimately derived from the Company's ability to
generate net earnings. A decline in net earnings could be indicative of a
decline in the fair value of goodwill and result in impairment. For that reason,
goodwill will be assessed for impairment at a reporting unit level at least
annually. Management will conduct its annual assessment of impairment during the
fourth quarter of 2006.

Impairment of Investment Securities

         Investment securities are evaluated for other-than-temporary impairment
on at least a quarterly basis and more frequently when economic or market
conditions warrant such an evaluation to determine whether a decline in their
value below amortized cost is other than temporary. Management utilizes criteria
such as the magnitude and duration of the decline, the financial condition of

                                       15
<PAGE>
the issuer, rating agency changes related to the issuer's securities and the
intent and ability of the Bank to retain its investment in the issues for a
period of time sufficient to allow for an anticipated recovery in fair value, in
addition to the reasons underlying the decline, to determine whether the loss in
value is other than temporary. The term "other than temporary" is not intended
to indicate that the decline is permanent, but indicates that the prospects for
a near-term recovery of value is not necessarily favorable, or that there is a
lack of evidence to support a realizable value equal to or greater than the
carrying value of the investment. Once a decline in value is determined to be
other than temporary, the value of the security is reduced and a corresponding
charge to earnings is recognized. See Note B to Unaudited Condensed Consolidated
Financial Statements in Item 1 - Financial Statements.

Overview
--------

         North Valley Bancorp (the "Company") is a bank holding company
headquartered in Redding, California. Effective 6:01 p.m., June 30, 2006, the
former banking subsidiary NVB Business Bank was merged into North Valley Bank.
All of the business activities of NVB Business Bank were assumed by North Valley
Bank as of the effective date of the merger. Its 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 branches, including two
supermarket branches, in Northern California. The Company's principal business
consists of attracting deposits from the general public and using the funds to
originate commercial, real estate and installment loans to customers, who are
predominately small and middle market businesses and middle income individuals.
The Company's primary source of revenues is interest income from its loan and
investment securities portfolios. The Company is not dependent on any single
customer for more than ten percent of its revenues. Effective July 27, 2006,
North Valley Bancorp holding company Directors Roger Kohlmeier and Martin
Mariani became directors of the wholly-owned banking subsidiary North Valley
Bank, bringing the total number of directors at North Valley Bank to nine. All
of the 9 directors of the Company are now directors of NVB.

<TABLE>
<CAPTION>

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

                                                  Three months ended June 30,      Six months ended June 30,
                                                 ----------------------------    ----------------------------
(in thousands except per share amounts)              2006            2005            2006            2005
                                                 ------------    ------------    ------------    ------------
<S>                                              <C>             <C>             <C>             <C>
Net interest income                              $     10,695    $     10,068    $     21,088    $     19,666
Provision for loan and lease losses                       370             180             370             450
Noninterest income                                      3,015           2,463           5,813           4,913
Noninterest expense                                     9,880           9,463          19,896          17,897
Provision for income taxes                              1,166             901           2,212           1,986
                                                 ------------    ------------    ------------    ------------
Net income                                       $      2,294    $      1,987    $      4,423    $      4,246
                                                 ============    ============    ============    ============

Earnings Per Share
    Basic                                        $       0.31    $       0.27    $       0.59    $       0.58
    Diluted                                      $       0.30    $       0.26    $       0.57    $       0.55

Annualized Return on Average Assets                      1.03%           0.89%           0.99%           0.96%
Annualized Return on Average Equity                     12.82%          11.91%          12.39%          12.80%
</TABLE>

         Net income for the three and six months ended June 30, 2006 increased
by $307,000, or 15.5%, and $177,000, or 4.2%, respectively, compared to the same
periods in 2005. Diluted earnings per share increased $0.04, or 15.4%, and
$0.02, or 3.6%, respectively, for the three and six months ended June 30, 2006
compared to the same periods in 2005. The Company did not record a provision for
loan and lease losses for the three months ended March 31, 2006 while
recognizing $370,000 of provision for loan and lease losses for the three months
ended June 30, 2006 resulting in total provision recorded for the six months
ended June 30, 2006 of $370,000. Provision for loan and lease losses of $180,000
and $450,000 was recorded for the three and six months ended June 30, 2005. The
process for determining allowance adequacy includes a comprehensive analysis of
the loan portfolio. Factors in the analysis include size and mix of the loan
portfolio, nonperforming loan levels, charge-off/recovery activity and other
qualitative factors including economic activity. Management believes that the
current level of allowance for loan and lease losses as of June 30, 2006 of
$8,292,000, or 1.30% of total loans and leases, is adequate at this time. The
allowance for loan and lease losses was $7,864,000, or 1.26% of total loans and
leases, at December 31, 2005. For further information regarding our allowance
for loan and lease losses, see "Allowance for Loan and Lease Losses" on page 22.

Net Interest Income
-------------------

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

                                       16
<PAGE>
         The following table is a summary of the Company's net interest income,
presented on a fully taxable equivalent (FTE) basis for tax-exempt investments
included in earning assets, for the periods indicated:

<TABLE>
<CAPTION>

Average Daily Balance Sheets
(Dollars in thousands, except percentages)

                                           Three months ended June 30, 2006          Three months ended June 30, 2005
                                       ---------------------------------------    --------------------------------------
                                         Average       Yield/        Interest       Average       Yield/       Interest
                                         Balance        Rate          Amount        Balance        Rate         Amount
                                       ----------    -----------    ----------    ----------    ----------    ----------
<S>                                    <C>                 <C>     <C>           <C>                 <C>     <C>
Assets
Earning assets:
  Federal Funds Sold                   $    5,837          4.88%   $       71    $   12,480          2.89%   $       90
  Investment securities:
    Taxable                               121,799          4.30%        1,307       159,490          3.94%        1,565
    Non-taxable (1)                        23,386          6.88%          401        24,370          6.95%          422
    FNMA preferred stock (1)               12,049          6.59%          198        12,039          6.73%          202
                                       ----------    -----------    ----------    ----------    ----------    ----------
  Total investments                       157,234          4.86%        1,906       195,899          4.48%        2,189
  Loans and leases (2)(3)                 627,975          7.80%       12,217       581,858          7.07%       10,249
                                       ----------    -----------    ----------    ----------    ----------    ----------
Total earning assets                      791,046          7.20%       14,194       790,237          6.36%       12,528

Non earning assets                        108,919                                   109,083
Allowance for loan and
  lease losses                             (8,032)                                   (7,166)
                                       ----------                                ----------
Total non-earning assets                  100,887                                   101,917

Total assets                           $  891,933                                $  892,154
                                       ==========                                ==========

Liabilities and Shareholders' Equity
Interest bearing liabilities:
  Transaction accounts                 $  195,005          0.30%   $      148    $  196,689          0.42%   $      204
  Savings and money market                172,777          1.13%          485       205,852          0.77%          395
  Time certificates                       172,251          3.46%        1,488       154,626          2.25%          868
  Other borrowed funds                     88,808          5.39%        1,194        77,112          4.17%          801
                                       ----------    -----------   ----------    ----------    ----------    ----------
Total interest bearing
  liabilities                             628,841          2.11%        3,315       634,279          1.43%        2,268
Demand deposits                           181,143                                   180,692
Other liabilities                          10,165                                    10,266
                                       ----------                                ----------
Total liabilities                         820,149                                   825,237
                                       ----------                                ----------
Shareholders' equity                       71,784                                    66,917
                                       ----------                                ----------
Total liabilities and
  shareholders' equity                 $  891,933                                $  892,154
                                       ==========                                ==========
Net interest income                                                $   10,879                                $   10,260
                                                                   ==========                                ==========
Net interest spread                                        5.09%                                     4.93%
                                                     ==========                                ==========
Net interest margin                                        5.52%                                     5.21%
                                                     ==========                                ==========
</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 $706 and $886 for the three months ended June 30,
     2006 and 2005, respectively.


                                       17
<PAGE>
<TABLE>
<CAPTION>

Average Daily Balance Sheets
(Dollars in thousands, except percentages)

                                            Six months ended June 30, 2006             Six months ended June 30, 2005
                                       ---------------------------------------    --------------------------------------
                                         Average       Yield/        Interest       Average       Yield/       Interest
                                         Balance        Rate          Amount        Balance        Rate         Amount
                                       ----------    -----------    ----------    ----------    ----------    ----------
<S>                                    <C>                 <C>     <C>           <C>                 <C>     <C>
Assets
Earning assets:
  Federal Funds Sold                   $    7,295          4.87%   $      176    $   20,105          2.62%   $      261
  Investment securities:
    Taxable                               126,334          4.25%        2,662       162,770          3.86%        3,116
    Non-taxable (1)                        23,434          6.97%          810        25,405          7.04%          887
    FNMA preferred stock (1)               12,058          6.61%          395        12,039          6.28%          375
    Interest earning deposits                  --            --            --           172          2.34%            2
                                       ----------    -----------    ----------    ----------    ----------    ----------
  Total investments                       161,826          4.82%        3,867       200,386          4.41%        4,380
  Loans and leases (2)(3)                 626,436          7.71%       23,963       569,727          6.98%       19,706
                                       ----------    -----------    ----------    ----------    ----------    ----------
Total earning assets                      795,557          7.10%       28,006       790,218          6.21%       24,347

Non earning assets                        109,897                                   110,893
Allowance for loan and
  lease losses                             (7,981)                                   (7,178)
                                       ----------                                ----------
Total non-earning assets                  101,916                                   103,715

Total assets                           $  897,473                                $  893,933
                                       ==========                                ==========

Liabilities and Shareholders' Equity
Interest bearing liabilities:
  Transaction accounts                 $  193,894          0.30%   $      292    $  195,462          0.41%   $      397
  Savings and money market                178,801          1.14%        1,012       206,726          0.72%          743
  Time certificates                       171,351          3.33%        2,828       155,432          2.05%        1,579
  Other borrowed funds                     90,183          5.40%        2,417        76,063          4.18%        1,578
                                       ----------    -----------    ----------    ----------    ----------    ----------
Total interest bearing
  liabilities                             634,229          2.08%        6,549       633,683          1.37%        4,297
Demand deposits                           180,793                                   180,590
Other liabilities                          10,454                                    12,761
                                       ----------                                ----------
Total liabilities                         825,476                                   827,034
                                       ----------                                ----------
Shareholders' equity                       71,997                                    66,899
                                       ----------                                ----------
Total liabilities and
  shareholders' equity                 $  897,473                                $  893,933
                                       ==========                                ==========
Net interest income                                                $   21,457                                $   20,050
                                                                   ==========                                ==========
Net interest spread                                        5.02%                                     4.84%
                                                     ==========                                ==========
Net interest margin                                        5.44%                                     5.12%
                                                     ==========                                ==========
</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 $953 for the six months ended June 30, 2006
     and 2005, respectively.

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

         While average earning assets for the three and six months ended June
30, 2006 increased by $809,000 and $5,339,000, respectively, from the same
periods last year, yields on average earning assets also increased by 84 and 89
basis points, respectively. Average interest bearing liabilities decreased by
$5,438,000 for the three months ended June 30, 2006 compared to the same period
in 2005 while the average rate paid on those liabilities increased by 68 basis
points. The Company's net interest margin (FTE) increased from 5.21% and 5.12%
for the three and six months ended June 30, 2005 to 5.52% and 5.44% for the same
period in 2006.

                                       18
<PAGE>
Provision for Loan and Lease Losses
-----------------------------------

         The Company did not record a provision for loan and lease losses for
the three months ended March 31, 2006 while recognizing $370,000 of provision
for loan and lease losses for the three months ended June 30, 2006 resulting in
total provision recorded for the six months ended June 30, 2006 of $370,000. For
the three and six months ended June 30, 2005, $180,000 and $450,000 was
recorded. Provisions for loan and lease losses are recorded based on
management's evaluation of the risks inherent in the loan and lease portfolio.
The allowance for loan and lease losses is maintained at an amount management
considers adequate to cover losses in loans and leases receivable which are
considered probable and estimable. See "Allowance for Loan and Lease Losses" on
page 22.

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

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

<TABLE>
<CAPTION>

                                                                 Three months ended June 30,      Six months ended June 30,
                                                                ----------------------------    ----------------------------
(In thousands)                                                      2006            2005            2006            2005
                                                                ------------    ------------    ------------    ------------
<S>                                                             <C>             <C>             <C>             <C>
  Service charges on deposit accounts                           $      1,606    $      1,189    $      3,083    $      2,322
  Other fees and charges                                                 730             649           1,432           1,217
  Earnings on cash surrender value of life insurance policies            286             287             579             564
  Gain on sale of loans                                                   85              54             165             101
  (Loss) gain on sale or calls of securities                             (19)              2             (19)             95
  Other                                                                  327             282             573             614
                                                                ------------    ------------    ------------    ------------
Total noninterest income                                        $      3,015    $      2,463    $      5,813    $      4,913
                                                                ============    ============    ============    ============

<CAPTION>

         Noninterest income increased from $2,463,000 and $4,913,000 for the
three and six months ended June 30, 2005 to $3,015,000 and $5,813,000 for the
same periods in 2006. Service charges on deposits increased $417,000 from the
three months ended June 30, 2005 compared to the same period in 2006 and
$761,000 from the six months ended June 30, 2005 compared to the six month
period ended June 30, 2006. Other fees and charges increased from $649,000 and
$1,217,000 for the three and six months ended June 30, 2005 to $730,000 and
$1,432,000 for the same periods in 2006. The increase in fees is directly
attributable to the increase in debit card activity, specifically, point-of-sale
and foreign ATM use. The Company recorded $85,000 in gains on sales of mortgages
but recorded a loss on sales of securities of $19,000 for the three months ended
June 30, 2006 compared to $54,000 in gains on sales of mortgages and $2,000 in
gains on sales of securities for the same period in 2005. Other income increased
to $327,000 for the three months ended June 30, 2006 from $282,000 for the same
period in 2005. The increase in other income was primarily due to an increase in
fees earned associated with the Company's third-party nondeposit investment
products.

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

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

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

Salaries & employee benefits                                    $      5,414    $      4,692    $     11,051    $      9,374
Equipment expense                                                        544             412           1,077             973
Occupancy expense                                                        776             692           1,483           1,319
Data processing expenses                                                 591             689           1,094           1,008
Professional services                                                    352             329             716             643
Marketing                                                                301             272             556             470
ATM expense                                                              224             156             427             358
Printing & supplies                                                      163             133             358             293
Postage                                                                  147             190             300             301
Other                                                                  1,368           1,898           2,834           3,158
                                                                ------------    ------------    ------------    ------------
     Total noninterest expense                                  $      9,880    $      9,463    $     19,896    $     17,897
                                                                ============    ============    ============    ============

</TABLE>

         Noninterest expense totaled $9,880,000 and $19,896,000 for the three
and six months ended June 30, 2006, compared to $9,463,000 and $17,897,000 for
the same periods in 2005. This represents an increase of $417,000, or 4.4%, for
the three months ended June 30, 2006 and $1,999,000, or 11.2% for the six months
ended June 30, 2006 from 2005 levels due primarily to the Company's continued
investment in higher growth markets, most notably Sonoma and Placer Counties.
Salaries and benefits increased by $722,000 or 15.4% to $5,414,000 for the three
months ended June 30, 2006 compared to $4,692,000 for the same period in 2005.
Most other expense categories for the three months ended June 30, 2006
experienced relatively small decreases or increases from the same respective
periods in 2005. The Company's ratio of noninterest expense to average assets
was 4.43% for the three months ended June 30, 2006 compared to 4.24% for the
same period in 2005. The increase in noninterest expense to average assets ratio

                                       19
<PAGE>
is a result of the increase in expenses noted above compounded by the lack of
balance sheet growth.

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

         The provision for income taxes for the three months ended June 30, 2006
was $1,166,000 as compared to $901,000 for the same period in 2005. The
effective income tax rate for state and federal income taxes was 33.7% for the
three months ended June 30, 2006 compared to 31.2% for the same period in 2005.
The increase in the effective tax rate is due to higher overall revenues in the
Company but the same or slightly lower level of revenues that are exempt from
federal taxes in the second quarter of 2006 compared to the same period in 2005.
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 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 in designated `Enterprise Zones'.

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

         Total assets at June 30, 2006, were $891,266,000, compared to
$918,415,000 at December 31, 2005. Investment securities and federal funds
decreased to $146,063,000 at June 30, 2006, compared to $172,149,000 at December
31, 2005.

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

         Loans and leases, the Company's major component of earning assets,
increased during the first six months of 2006 to $639,617,000 at June 30, 2006
from $624,512,000 at December 31, 2005. The Company's average loan to deposit
ratio was 87.1% for the quarter ended June 30, 2006 compared to 78.9% for the
same period in 2005. The increase in the Company's average loan to deposit ratio
is driven by an increase in total average loans of $46,117,000 while total
average deposits decreased by $16,683,000. Commercial loans increased by
$7,254,000, while commercial real estate loans increased by $6,220,000 and real
estate construction by $10,742,000 from December 31, 2005. The increases are
primarily the result of the Company's decision to enter into and invest in
higher growth markets such as Santa Rosa, Ukiah, Fairfield, Roseville, and
Woodland. Real estate - mortgage, installment, and direct financing leases
decreased from December 31, 2005 by $3,867,000, $8,192,000, and $565,000,
respectively. The decrease in real estate - mortgage loans is primarily due to
the Company's strategic decision to sell originated mortgage loans while the
decrease in installment loans is due to the Company's decision to discontinue
purchasing indirect auto contracts in May of 2005.


(Dollars in thousands)                             June 30,      December 31,
                                                     2006            2005
                                                 ------------    ------------

Commercial                                       $     70,342    $     63,088
Real Estate - Commercial                              251,830         245,610
Real Estate - Construction                            209,871         199,129
Real Estate - Mortgage                                 35,633          39,500
Installment                                            32,626          40,818
Direct Financing Leases                                 2,555           3,120
Other                                                  37,665          33,890
                                                 ------------    ------------

                                                      640,522         625,155

Deferred Loan Fees, Net                                  (905)           (643)
Allowance for Loan and Lease Losses                    (8,292)         (7,864)
                                                 ------------    ------------
                                                 $    631,325    $    616,648
                                                 ============================

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.

                                       20
<PAGE>
         At June 30, 2006, the recorded investment in loans and leases for which
impairment had been recognized was approximately $30,000 compared to $1,032,000
at June 30, 2005. During the portion of the year that the loans and leases were
impaired, the Company recognized interest income of approximately $2,200 for
cash payments received in 2006.

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

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

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

<TABLE>
<CAPTION>

                                                                       June 30,      December 31,
                                                                         2006            2005
                                                                     ------------    ------------
<S>                                                                  <C>             <C>
  Nonaccrual loans and leases                                        $         30    $        686
  Loans and leases past due 90 days and accruing interest                     193              67
  Other real estate owned                                                     902             902
                                                                     ------------    ------------
    Total nonperforming assets                                       $      1,125    $      1,655
                                                                     ============    ============

Nonaccrual loans and leases to total gross loans and leases                  0.00%           0.11%
Nonperforming loans and leases to total gross loans and leases               0.03%           0.12%
Total nonperforming assets to total assets                                   0.13%           0.18%

<CAPTION>

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

         A summary of the allowance for loan and lease losses at June 30, 2006
and June 30, 2005 is as follows:

                                                                      Six months ended June 30,
                                                                     ----------------------------
                                                                         2006            2005
                                                                     ------------    ------------
<S>                                                                  <C>             <C>
Balance beginning of period                                          $      7,864    $      7,217
Provision for loan and lease losses                                           370             450
Net recoveries (charge-offs)                                                   58             (55)
                                                                     ------------    ------------
Balance end of period                                                $      8,292    $      7,612
                                                                     ============    ============

Allowance for loan and lease losses to total loans and leases                1.30%           1.27%
</TABLE>

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

                                       21
<PAGE>
         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, 2006 included
                  the following, which existed at the balance sheet date:

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

                  o        Real estate values and market trends in Northern
                           California

                  o        Loan volumes and concentrations

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

                  o        Status of the current business cycle

                  o        Specific industry or market conditions within
                           portfolio segments

                  o        Model imprecision

         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 $8,292,000 in formula and specific allowances at June 30, 2006
reflects management's estimate of the inherent loss in various pools or segments
in the portfolio, and includes adjustments for general economic conditions,
trends in the portfolio and changes in the mix of the portfolio.

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

                  o        Generate further growth in loans receivable held for
                           investment

                  o        Emphasize the origination of income property real
                           estate loans

                  o        Continue expansion of commercial business lending

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

                                       22
<PAGE>
Deposits
--------

         Total deposits decreased to $722,411,000 at June 30, 2006 compared to
$746,690,000 at December 31, 2005. Noninterest-bearing demand deposits decreased
$163,000 or 0.1% from December 31, 2005, interest-bearing demand deposits
decreased $27,817,000 or 14.3%, while certificates of deposits increased
$7,804,000 or 4.6% mostly offset by the decreases in savings and money market
accounts of $4,103,000 or 2.1%.

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 $34,500,000 as of June 30, 2006 were also available to
provide liquidity. In addition, the Company has a revolving, unsecured line of
credit for $8,000,000 with a correspondent bank as of June 30, 2006 and NVB is a
member of the Federal Home Loan Bank ("FHLB") providing additional unused
borrowing capacity of $26,850,000 secured by certain loans and investment
securities as of June 30, 2006. The Company also has a line of credit with
Federal Reserve Bank of San Francisco ("FRB") of $2,916,000 secured by first
deeds of trust on eligible commercial real estate loans and leases. As of June
30, 2006, borrowings consisted of $19,000,000 in short term FHLB advances,
long-term borrowings of $37,500,000 were outstanding with the FHLB, $2,000,000
in overnight Fed Funds sold to correspondent bank 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
$179,876,000 and $220,352,000 (or 20.2% and 24.0% of total assets) at June 30,
2006 and December 31, 2005, respectively.

         Core deposits, defined as demand deposits, interest bearing demand
deposits, regular savings, money market deposit accounts and time deposits of
less than $100,000, continue to provide a relatively stable and low cost source
of funds. Core deposits totaled $658,380,000 and $686,608,000 at June 30, 2006
and December 31, 2005, respectively.

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

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.

                                       23
<PAGE>
As rates rise, they become more valuable to the Company. Therefore, while the
value changes when rates move in either direction, the adverse impacts of market
risk to the Company's fixed-rate assets are due to rising rates and for the
Company's fixed-rate liabilities, they are due to falling rates. In general, the
change in market value due to changes in interest rates is greater in financial
instruments that have longer remaining maturities. Therefore, the exposure to
market risk of assets is lessened by managing the amount of fixed-rate assets
and by keeping maturities relatively short. These steps, however, must be
balanced against the need for adequate interest income because variable-rate and
shorter-term assets generally yield less interest than longer-term or fixed-rate
assets.

Mismatch Risk

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

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

         This exposure to mismatch risk is managed by attempting to match the
maturities and repricing opportunities of assets and liabilities. This may be
done by varying the terms and conditions of the products that are offered to
depositors and borrowers. For example, if many depositors want shorter-term
certificates while most borrowers are requesting longer-term fixed rate loans,
the Company will adjust the interest rates on the certificates and loans to try
to match up demand for similar maturities. The Company can then partially fill
in mismatches by purchasing securities or borrowing funds from the FHLB with the
appropriate maturity or repricing characteristics.

Basis Risk

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

Net Interest Income and Net Economic Value Simulations

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

         The hypothetical impact of sudden interest rate shocks applied to the
Company's asset and liability balances are modeled quarterly. The results of
this modeling indicate how much of the Company's net interest income and net
economic value are "at risk" (deviation from the base level) from various sudden
rate changes. This exercise is valuable in identifying risk exposures. The
results for the Company's most recent simulation analysis indicate that the
Company's net interest income at risk over a one-year period and net economic
value at risk from 2% shocks are within normal expectations for sudden changes
and do not materially differ from those of December 31, 2005.

                                       24
<PAGE>
         For this simulation analysis, the Company has made certain assumptions
about the duration of its non-maturity deposits that are important to
determining net economic value at risk.

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

         The Company maintains capital to support future growth and dividend
payouts while trying to effectively manage the capital on hand. From the
depositor standpoint, a greater amount of capital on hand relative to total
assets is generally viewed as positive. At the same time, from the standpoint of
the shareholder, a greater amount of capital on hand may not be viewed as
positive because it limits the Company's ability to earn a high rate of return
on stockholders' equity (ROE). Stockholders' equity decreased to $68,531,000 as
of June 30, 2006, as compared to $71,801,000 at December 31, 2005. The decrease
was due to the repurchase of shares of $5,270,000, cash dividends paid out in
the amount of $1,497,000 and an increase in unrealized loss on available for
sale securities of $1,445,000 partially offset by net income of $4,423,000 and
exercise of stock options of $519,000. Under current regulations, management
believes that the Company meets all capital adequacy requirements and North
Valley Bank was considered well capitalized at June 30, 2006 and December 31,
2005.

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

                                                                                                          To be Well Capitalized
                                                                            For Capital Adequacy         Under Prompt Corrective
                                                       Actual                     Purposes                  Action Provisions
                                            -------------------------------------------------------------------------------------
                                                                            Minimum        Minimum       Minimum         Minimum
                                               Amount         Ratio          Amount         Ratio         Amount          Ratio
                                            -------------------------------------------------------------------------------------
<S>                                         <C>                 <C>       <C>                  <C>      <C>                 <C>
Company
As of June 30, 2006
 Total capital (to risk weighted assets)    $   93,541          11.30%    $   66,224           8.00%           N/A            N/A
 Tier 1 capital (to risk weighted assets)   $   78,161           9.44%    $   33,119           4.00%           N/A            N/A
 Tier 1 capital (to average assets)         $   78,161           8.94%    $   34,971           4.00%           N/A            N/A

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

North Valley Bank
As of June 30, 2006
 Total capital (to risk weighted assets)    $   90,234          10.92%    $   66,105           8.00%    $   82,632          10.00%
 Tier 1 capital (to risk weighted assets)   $   81,942           9.92%    $   33,041           4.00%    $   49,562           6.00%
 Tier 1 capital (to average assets)         $   81,942           9.40%    $   34,869           4.00%    $   43,586           5.00%

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

                                       25
<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, 2006 compared to
December 31, 2005. Please see discussion under the caption "Interest Rate
Sensitivity" on page 24.

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

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

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

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

Item 1.  Legal Proceedings

         There are no material legal proceedings pending against the Company or
against any of its property. The Company, because of the nature of its business,
is generally subject to various legal actions, threatened or filed, which
involve ordinary, routine litigation incidental to its business.

Item 1A.  Risk Factors

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

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

         Issuer Purchases of Equity Securities
<TABLE>
<CAPTION>

                                                                                       Number of      Maximum number
                                                                                        Shares        of Shares that
                                                                                      Purchased as       May Yet Be
                                                      Total                             Part of         Purchased
                                                    Number of                          Publicly         Under the
                                                     Shares       Average Price     Announced Plans      Plans or
        Period                                      Purchased     Paid per Share      or Programs        Programs
        --------------------------                  ---------     --------------      -----------        --------
<S>                                                <C>               <C>              <C>                  <C>
        April 1 thru June 30, 2006                   300,000          $17.57            300,000              0
</TABLE>

         On May 2, 2006, the Company announced the adoption of a stock purchase
program and the press release describing such program was attached to the
Current Report on Form 8-K filed with the Commission on May 3, 2006. This
program called for the repurchase of 4%, or approximately 300,000 shares, of
common stock of the Company. This stock purchase program was completed during
the quarter as illustrated in the table above.

                                       26
<PAGE>
Item 3.  Defaults Upon Senior Securities

         Not applicable

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

         The Annual Meeting of Shareholders of North Valley Bancorp was held on
Thursday, May 25, 2006. Shareholders of the Company approved the following
proposals:

1.       To elect the following four (4) nominees as Director of the Corporation
         for a one year term:

         Michael J. Cushman
         Dante W. Ghidinelli
         Kevin D. Hartwick
         Roger B. Kohlmeier

         The term of office of the following directors continued after the
         Annual Meeting: J.M. "Mike" Wells, Jr., William W. Cox, Dolores M.
         Vellutini, Royce L. Friesen, and Martin A. Mariani.

2.       To ratify the appointment of Perry-Smith LLP as Independent Auditor for
         the Corporation for 2006.

         Results of the election are presented below:

                              Annual Meeting of Shareholders
                                  Thursday, May 25, 2006

Total Shares Outstanding:             7,539,654
Total Shares Voted:                   5,793,698        77%

<TABLE>
<CAPTION>

Proposal 1:
                                                   Percent of                 Percent of                Percent of
Nominees                                  For        Quorum      Withheld       Quorum       Abstain      Quorum
--------                                ---------    ------      --------       ------       -------      ------
<S>                                     <C>           <C>          <C>           <C>          <C>          <C>
Michael J. Cushman                      5,669,678     97.9%       124,020        2.1%
Dante W. Ghidinelli                     5,701,940     98.4%        91,758        1.6%
Kevin D. Hartwick                       5,705,778     98.5%        87,920        1.5%
Roger B. Kohlmeier                      5,686,946     98.2%       106,752        1.8%

Proposal 2:

Perry-Smith LLP                         5,676,908     98.0%        30,190        0.5%         86,600       1.50%
</TABLE>

Item 5.  Other Information

         None

Item 6.  Exhibits

         None


                                       27
<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 9, 2006

By:

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


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


                                       28