Merged subsidiary Banks effective close of business June 30, 2006. The Company reported net income for the quarter ended June 30, 2006 of $2,294,000, or $0.30 per diluted share compared to $1,987,000 or $0.26 per diluted share for the quarter ended June 30, 2005. This represents an increase in net income of $307,000, or 15.5%, and an increase in diluted earnings per share of 15.4%, compared to the same period in 2005. The increase in net income for the second quarter of 2006 was driven by an increase in net interest income of $627,000, or 6.2%, to $10,695,000 over net interest income of $10,068,000 in the second quarter of 2005, and an increase in noninterest income of $552,000, or 22.4% for the same period. The increases were partially offset by an increase in noninterest expense of $417,000 or 4.4%, to $9,880,000 over noninterest expense of $9,463,000 in the second quarter of 2005.

Net interest income, which represents the Company's largest component of revenues and is the difference between interest earned on loans and investments and interest paid on deposits and borrowings, increased $627,000, or 6.2%, for the quarter ended June 30, 2006 compared to the same period in 2005. This was due to an increase in interest income of $1,674,000, or 13.6%, which was partially offset by an increase in interest expense of $1,047,000. The increase in interest income was due to total average outstanding loans increasing from $581,858,000 in the second quarter of 2005 to $627,975,000 in the same period this year. This represents an increase of $46,117,000, or 7.9%. The Company's net interest margin was 5.52%, which represents margin expansion of 24 basis points ("bps") over the net interest margin of 5.28% reported for the second quarter of 2005, and expansion of 18 bps over 5.34% for the linked quarter. Average yields on earning assets increased 83 bps to 7.20% for the second quarter of 2006 and the average rate paid on interest-bearing liabilities increased by 75 bps to 2.11% from the second quarter of 2005. The increase in asset yields was primarily due to the increase in total loans relative to other earning assets coupled with an increase in average loan yields, which increased from 7.08% in 2005 to 7.80% in 2006. "Our net interest margin expanded 18 basis points over the linked quarter as earning asset yields increased and we continued to improve the mix of our earning assets. Looking forward, we anticipate that our cost of funds may incrementally increase more than our asset yields incrementally increase, thus resulting in some margin contraction," commented Kevin Watson, Chief Financial Officer.

Noninterest income increased $552,000, or 22.4%, for the three months ended June 30, 2006 compared to the three months ended June 30, 2005. The increase was primarily driven by an increase in service charges on deposits which increased $417,000, or 35.1%. In addition, the Company is currently selling its fixed-rate mortgage production in order to maintain a loan portfolio with a shorter overall duration and recorded $85,000 in gains on mortgage loan sales in the second quarter of 2006. Other noninterest income increased $54,000 in the second quarter of 2006 from 2005 levels due mainly to increased fees received for sales of third-party nondeposit investment products.

Noninterest expense totaled $9.9 million for the three months ended June 30, 2006 compared to $9.5 million for the same period in 2005, which is an increase of $417,000 or 4.4%. Salaries and benefits increased by $722,000, or 15.4%, over the second quarter of 2005. Occupancy expense increased from $692,000 in the second quarter of 2005 to $776,000 in the same period in 2006 while other expenses decreased from $3,667,000 in 2005 to $3,146,000 in 2006. The increases in salaries and benefits were due to the hiring of seasoned lending teams that specialize in business lending, as well as the Company's decision made in 2005 to enhance its infrastructure, most notably in accounting and compliance, to enhance capacity for current and planned future growth.

The loan portfolio increased 6.8% from a year ago to $639,617,000 outstanding at June 30, 2006. Year-over-year and year-to-date loan growth at June 30, 2006 was $40,528,000 and $15,105,000, respectively. The majority of the loan growth was in Commercial Real Estate and Commercial Real Estate Construction generated out of our new Business Banking centers and reflects the benefit of expanding into these new markets.

Nonperforming loans (defined as nonaccrual loans and loans 90 days or more past due and still accruing interest) decreased $1,217,000 to $223,000, or 0.03% of total loans, at June 30, 2006 from $1,440,000, or 0.24% of total loans, at June 30, 2005. The allowance for loan and lease losses at June 30, 2006 was $8,292,000, or 1.30% of total loans, compared to $7,612,000, or 1.27% of total loans, at June 30, 2005. The increase reflects growth in the loan portfolio and management's concern for current economic uncertainty in the real estate market and business conditions generally. The allowance for loan and lease losses as a percentage of nonperforming loans was 3718.4% as of June 30, 2006 compared to 528.6% as of June 30, 2005. Other real estate owned at June 30, 2006 was $902,000, consisting of land originally purchased for branch expansion in Yolo County which management has listed for sale due to the acquisition of Yolo Community Bank.

Total deposits decreased $6,660,000 at June 30, 2006 to $722,411,000 compared to $729,071,000 at June 30, 2005. The decrease in deposits was concentrated in DDA and Money Market accounts due in part by a reduction in deposit balances in some sectors, i.e. construction and title company accounts. The Company continues to maintain a strong deposit mix with 26% in noninterest bearing demand deposits, 23% in interest bearing demand deposits, 27% in savings and money market accounts, and 24% in time deposits. "Our industry is facing a very competitive and challenging landscape in which growth has been made difficult. Notwithstanding, we will continue to be disciplined on both sides of the Balance Sheet. We have not compromised our credit standards or terms on loan deals and have not disregarded our pricing discipline on our deposit products just for the sake of growth. We are confident that our fundamental strategy on lending and deposit gathering will further enhance the value of our franchise," remarked Kevin Watson.

Summary

"We continue to focus on gaining efficiencies by reducing costs while still delivering excellent customer service to our clients. During the second quarter, we strengthened our Company by the merger of our two subsidiary banks and we are pleased with our overall results. We want to thank our shareholders, customers, and employees for their continued support," stated Michael Cushman, President and CEO.

North Valley Bancorp is a bank holding company headquartered in Redding, California. Its subsidiary, North Valley Bank ("NVB"), operates twenty-six commercial banking offices in Shasta, Humboldt, Del Norte, Mendocino, Yolo, Solano, Sonoma, Placer and Trinity Counties in Northern California, including two in-store supermarket branches and seven Business Banking Centers. North Valley Bancorp, through NVB, offers a wide range of consumer and business banking deposit products and services including internet banking and cash management services. In addition to these depository services, NVB engages in a full complement of lending activities including consumer, commercial and real estate loans. Additionally, NVB has SBA Preferred Lender status and provides investment services to its customers. Visit the Company's website address at www.novb.com for more information.

Cautionary Statement: This release contains certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those stated herein. Management's assumptions and projections are based on their anticipation of future events and actual performance may differ materially from those projected. Risks and uncertainties which could impact future financial performance include, among others, (a) competitive pressures in the banking industry; (b) changes in the interest rate environment; (c) general economic conditions, either nationally, regionally or locally, including fluctuations in real estate values; (d) changes in the regulatory environment; (e) changes in business conditions or the securities markets and inflation; (f) possible shortages of gas and electricity at utility companies operating in the State of California, and (g) the effects of terrorism, including the events of September 11, 2001, and thereafter, and the conduct of the war on terrorism by the United States and its allies. Therefore, the information set forth herein, together with other information contained in the periodic reports filed by the Company with the Securities and Exchange Commission, should be carefully considered when evaluating the business prospects of the Company. North Valley Bancorp undertakes no obligation to update any forward-looking statements contained in this release. NORTH VALLEY BANCORP CONDENSED CONSOLIDATED FINANCIAL DATA (Unaudited) (Dollars in thousands, except share and per share data) Three Months Ended June 30, Statement of Income Data 2006 2005 $ Change % Change --------- --------- -------- -------- Interest income Loans and leases (including fees) $ 12,217 $ 10,249 $ 1,968 19.2% Investment securities 1,722 1,997 (275) -13.8% Federal funds sold and other 71 90 (19) -21.1% --------- --------- -------- -------- Total interest income 14,010 12,336 1,674 13.6% --------- --------- -------- -------- Interest expense Interest on deposits 2,121 1,467 654 44.6% Subordinated debentures 605 411 194 47.2% Other borrowings 589 390 199 51.0% --------- --------- -------- -------- Total interest expense 3,315 2,268 1,047 46.2% --------- --------- -------- -------- Net interest income 10,695 10,068 627 6.2% Provision for loan and lease losses 370 180 190 105.6% --------- --------- -------- -------- Net interest income after provision for loan and lease losses 10,325 9,888 437 4.4% --------- --------- -------- -------- Noninterest income Service charges on deposit accounts 1,606 1,189 417 35.1% Other fees and charges 730 649 81 12.5% Other 679 625 54 8.6% --------- --------- -------- -------- Total noninterest income 3,015 2,463 552 22.4% --------- --------- -------- -------- Noninterest expenses Salaries and employee benefits 5,414 4,692 722 15.4% Occupancy 776 692 84 12.1% Furniture and equipment 544 412 132 32.0% Other 3,146 3,667 (521) -14.2% --------- --------- -------- -------- Total noninterest expenses 9,880 9,463 417 4.4% --------- --------- -------- -------- Income before provision for income taxes 3,460 2,888 572 19.8% Provision for income taxes 1,166 901 265 29.4% --------- --------- -------- -------- Net income $ 2,294 $ 1,987 $ 307 15.5% ========= ========= ======== ======== Common Share Data Earnings per share Basic $ 0.31 $ 0.27 $ 0.04 14.8% Diluted $ 0.30 $ 0.26 $ 0.04 15.4% Weighted average shares outstanding 7,449,989 7,411,013 Weighted average shares outstanding - diluted 7,719,934 7,771,277 Book value per share $ 9.44 $ 9.31 Tangible book value $ 7.04 $ 6.81 Shares outstanding 7,258,154 7,411,075 NORTH VALLEY BANCORP CONDENSED CONSOLIDATED FINANCIAL DATA (Unaudited) (Dollars in thousands, except share and per share data) Six Months Ended June 30, Statement of Income Data 2006 2005 $ Change % Change --------- --------- -------- -------- Interest income Loans and leases (including fees) $ 23,963 $ 19,706 $ 4,257 21.6% Investment securities 3,498 3,996 (498) -12.5% Federal funds sold and other 176 261 (85) -32.6% --------- --------- -------- -------- Total interest income 27,637 23,963 3,674 15.3% --------- --------- -------- -------- Interest expense Interest on deposits 4,131 2,719 1,412 51.9% Subordinated debentures 1,232 822 410 49.9% Other borrowings 1,186 756 430 56.9% --------- --------- -------- -------- Total interest expense 6,549 4,297 2,252 52.4% --------- --------- -------- -------- Net interest income 21,088 19,666 1,422 7.2% Provision for loan and lease losses 370 450 (80) -17.8% --------- --------- -------- -------- Net interest income after provision for loan and lease losses 20,718 19,216 1,502 7.8% --------- --------- -------- -------- Noninterest income Service charges on deposit accounts 3,083 2,322 761 32.8% Other fees and charges 1,432 1,217 215 17.7% Other 1,298 1,374 (76) -5.5% --------- --------- -------- -------- Total noninterest income 5,813 4,913 900 18.3% --------- --------- -------- -------- Noninterest expenses Salaries and employee benefits 11,051 9,374 1,677 17.9% Occupancy 1,483 1,319 164 12.4% Furniture and equipment 1,077 973 104 10.7% Other 6,285 6,231 54 0.9% --------- --------- -------- -------- Total noninterest expenses 19,896 17,897 1,999 11.2% --------- --------- -------- -------- Income before provision for income taxes 6,635 6,232 403 6.5% Provision for income taxes 2,212 1,986 226 11.4% --------- --------- -------- -------- Net income $ 4,423 $ 4,246 $ 177 4.2% ========= ========= ======== ======== Common Share Data Earnings per share Basic $ 0.59 $ 0.58 $ 0.01 1.7% Diluted $ 0.57 $ 0.55 $ 0.02 3.6% Weighted average shares outstanding 7,478,453 7,375,074 Weighted average shares outstanding - diluted 7,772,037 7,787,013 Book value per share $ 9.44 $ 9.31 Tangible book value $ 7.04 $ 6.81 Shares outstanding 7,258,154 7,411,075 NORTH VALLEY BANCORP CONDENSED CONSOLIDATED FINANCIAL DATA (Unaudited) (Dollars in thousands) June 30, December 31, June 30, Balance Sheet Data 2006 2005 2005 --------- --------- --------- Assets Cash and due from banks $ 33,901 $ 48,294 $ 36,110 Federal funds sold and other 750 7,800 4,200 Available-for-sale securities - at fair value 145,225 164,258 184,704 Held-to-maturity securities - at amortized cost 88 91 126 Loans and leases net of deferred loan fees 639,617 624,512 599,089 Allowance for loan and lease losses (8,292) (7,864) (7,612) --------- --------- --------- Net loans and leases 631,325 616,648 591,477 Premises and equipment, net 14,678 14,946 15,291 Other real estate owned 902 902 - Goodwill and core deposit intangibles, net 17,399 17,690 18,474 Accrued interest receivable and other assets 46,998 47,786 44,794 --------- --------- --------- Total assets $ 891,266 $ 918,415 $ 895,176 ========= ========= ========= Liabilities and Shareholders' Equity Deposits: Demand, noninterest bearing $ 186,392 $ 186,555 $ 187,255 Demand, interest bearing 166,918 194,735 191,662 Savings and money market 191,763 195,866 197,282 Time 177,338 169,534 152,872 --------- --------- --------- Total deposits 722,411 746,690 729,071 Other borrowed funds 58,500 56,500 66,538 Accrued interest payable and other liabilities 9,863 11,463 8,950 Subordinated debentures 31,961 31,961 21,651 --------- --------- --------- Total liabilities 822,735 846,614 826,210 Shareholders' equity 68,531 71,801 68,966 --------- --------- --------- Total liabilities and shareholders' equity $ 891,266 $ 918,415 $ 895,176 ========= ========= ========= Asset Quality Nonaccrual loans and leases $ 30 $ 686 $ 1,032 Loans and leases past due 90 days and accruing interest 193 67 408 Other real estate owned 902 902 - --------- --------- --------- Total nonperforming assets $ 1,125 $ 1,655 $ 1,440 ========= ========= ========= Allowance for loan and lease losses to total loans 1.30% 1.26% 1.27% Allowance for loan and lease losses to NPL's 3718.39% 1044.36% 528.61% Allowance for loan and lease losses to NPA's 737.07% 475.17% 528.61% NORTH VALLEY BANCORP CONDENSED CONSOLIDATED FINANCIAL DATA (Unaudited) (Dollars in thousands) Three Months Ended Six Months Ended June 30, June 30, Selected Financial Ratios 2006 2005 $ Change % Change --------- --------- --------- --------- Return on average total assets 1.03% 0.89% 0.99% 0.96% Return on average shareholders' equity 12.82% 11.91% 12.39% 12.80% Net interest margin (tax equivalent basis) 5.52% 5.28% 5.44% 5.12% Efficiency ratio 72.06% 75.52% 73.96% 72.81% Selected Average Balances Loans $ 627,975 $ 581,858 $ 626,436 $ 569,727 Taxable investments 133,848 171,529 138,392 174,809 Tax-exempt investments 23,386 24,370 23,434 25,405 Federal funds sold and other 5,837 12,480 7,295 20,277 --------- --------- --------- --------- Total earning assets $ 791,046 $ 790,237 $ 795,557 $ 790,218 --------- --------- --------- --------- Total assets $ 891,933 $ 892,154 $ 897,473 $ 893,933 --------- --------- --------- --------- Demand deposits - interest bearing $ 195,005 $ 196,689 $ 193,894 $ 195,462 Savings and money market 172,777 205,852 178,801 206,726 Time deposits 172,251 154,626 171,351 155,432 Other borrowings 88,808 77,112 90,183 76,063 --------- --------- --------- --------- Total interest bearing liabilities $ 628,841 $ 634,279 $ 634,229 $ 633,683 --------- --------- --------- --------- Demand deposits - noninterest bearing $ 181,143 $ 180,692 $ 180,793 $ 180,590 --------- --------- --------- --------- Shareholders' equity $ 71,784 $ 66,917 $ 71,997 $ 66,899 --------- --------- --------- ---------

NORTH VALLEY BANCORP CONDENSED CONSOLIDATED FINANCIAL DATA (Unaudited) (Dollars in thousands, except per share data)

For the Quarter Ended --------------------------------------- June March December September 2006 2006 2005 2005 --------- --------- --------- --------- Interest income $ 14,010 $ 13,627 $ 13,750 $ 12,965 Interest expense 3,315 3,234 2,825 2,581 --------- --------- --------- --------- Net interest income 10,695 10,393 10,925 10,384 Provision for loan and lease losses 370 - 200 280 Noninterest income 3,015 2,798 3,234 3,067 Noninterest expense 9,880 10,016 10,171 9,524 --------- --------- --------- --------- Income before provision for income taxes 3,460 3,175 3,788 3,647 Provision for income taxes 1,166 1,046 1,318 1,214 --------- --------- --------- --------- Net Income $ 2,294 $ 2,129 $ 2,470 $ 2,433 ========= ========= ========= ========= Earnings per share: Basic $ 0.31 $ 0.28 $ 0.33 $ 0.33 ========= ========= ========= ========= Diluted $ 0.30 $ 0.27 $ 0.32 $ 0.31 ========= ========= ========= =========

For further information contact:

Michael J. Cushman President & Chief Executive Officer (530) 226-2900 Fax: (530) 221-4877

Kevin R. Watson Executive Vice President & Chief Financial Officer (530) 226-2900 Fax: (530) 221-4877

SOURCE: North Valley Bancorp

Source: marketwire