REDDING, CA -- (Marketwire) -- 10/28/08 -- North Valley Bancorp (NASDAQ: NOVB), a bank holding company with $884 million in assets, today reported results for the third quarter and nine months ended September 30, 2008. North Valley Bancorp ("the Company") is the parent company for North Valley Bank ("NVB").

The Company reported a net loss for the third quarter ended September 30, 2008 of $1,419,000, or $0.19 per diluted share, compared to net income of $2,220,000, or $0.29 per diluted share, for the same period in 2007. For the third quarter of 2008, the Company realized an annualized (loss)/return on average shareholders' equity of (7.13%) and an annualized (loss)/return on average assets of (0.62%), as compared to 11.15% and 0.97%, respectively, for the third quarter of 2007. The Company reported a net loss for the nine months ended September 30, 2008 of $2,648,000, or $0.36 per diluted share, compared to net income of $6,144,000, or $0.80 per diluted share, for the same period in 2007. On September 7, 2008, the United States Treasury and the Federal Housing Finance Agency (FHFA) announced that the FHFA was placing Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation) under conservatorship, and as previously disclosed in a Form 8-K filing on September 16, 2008, the Company held in its available-for-sale portfolio preferred securities issued by Fannie Mae with a cost basis of $3,284,000. On September 30, 2008, the Company determined that this security was impaired and recorded a $3,284,000 pre-tax write-down of the investment. On a non-GAAP basis, excluding this impairment charge, the Company's net income for the third quarter ended September 30, 2008 would have been $802,000, or $0.11 per diluted share, and the net loss for the nine months ended September 30, 2008 would have been $426,000, or $0.06 per diluted share.

The Company has recorded $1,500,000 and $9,100,000 in provisions for loan and lease losses for the third quarter and nine months ended September 30, 2008, respectively, compared to an $850,000 provision for loan and lease losses for the third quarter and nine months ended September 30, 2007. The allowance for loan and lease losses at September 30, 2008 was $9,958,000, or 1.43% of total loans, compared to $10,755,000, or 1.44% of total loans at December 31, 2007 and $9,602,000, or 1.34% of total loans at September 30, 2007. The increase in the provision for loan and lease losses is due primarily to the increase in the level of charge-offs of $5,305,000 for the third quarter of 2008 and $10,081,000 for the nine months ended September 30, 2008 from the same periods in the prior year and the increase in the level of nonperforming loans to $20,190,000 at September 30, 2008.

"The federal government's decision to take over Fannie Mae and Freddie Mac resulted in the Company taking a loss of $3.2MM in Preferred Stock in Fannie Mae owned by North Valley Bancorp. Absent this event, the Company would have achieved profitability for the quarter," stated Michael J. Cushman, President and CEO.

The Company continues to maintain strong capital levels. At September 30, 2008, the Company's Total Risk-based Capital was $103,658,000, and its risk-based capital ratios were: Tier 1 risk-based Capital ratio -- 10.77%; Total Risk-based Capital ratio -- 12.54%; and Tier 1 Leverage ratio -- 10.05%. "Our capital position remains strong and the Bank continues to be categorized as well-capitalized despite the write-down of $3.284 million in Fannie Mae preferred stock discussed above, and the large loan loss provisions we have recorded. We are committed to maintaining the level of our allowance while addressing our impaired credits as we persevere through the challenges of this credit cycle," remarked Kevin R. Watson, Chief Financial Officer.

At September 30, 2008, total assets were $884,176,000, down from the $924,904,000 at September 30, 2007. The loan portfolio decreased $21,128,000, or 2.94%, compared to September 30, 2007, and totaled $696,308,000 at September 30, 2008. The loan to deposit ratio at September 30, 2008 was 92.2% as compared to 97.4% at September 30, 2007. Total deposits grew by $18,692,000, or 2.54%, to total $755,131,000 at September 30, 2008, driven by increases in time deposits of $37,503,000, and interest bearing demand of $11,496,000, offset by decreases in noninterest bearing demand, and savings and money market deposits of $13,388,000, and $16,919,000, respectively. When compared to December 31, 2007, total assets decreased $64,843,000 from $949,019,000, and total loans decreased $49,945,000 from $746,253,000. Deposits increased by $18,392,000, or 2.5%, from $736,739,000 at December 31, 2007, due to an increase in time deposits of $25,555,000 and interest bearing demand deposits of $16,402,000 offset by decreases in noninterest bearing demand and savings and money market deposits of $10,546,000 and $13,019,000, respectively. Other borrowings decreased $78,937,000 to $8,255,000 at September 30, 2008 from $87,192,000 at December 31, 2007.

Nonperforming loans (defined as nonaccrual loans and loans 90 days or more past due and still accruing interest) totaled $20,190,000 at September 30, 2008, an increase of $16,823,000 from September 30, 2007, and an increase of $18,426,000 from December 31, 2007. Nonperforming loans as a percentage of total loans were 2.90% at September 30, 2008, compared to 0.47% at September 30, 2007, and 0.24% at December 31, 2007. Nonperforming assets (nonperforming loans and OREO) totaled $26,042,000 at September 30, 2008, an increase of $21,773,000 from September 30, 2007, and an increase of $23,376,000 from December 31, 2007. Nonperforming assets as a percentage of total assets were 2.95% at September 30, 2008 compared to 0.46% at September 30, 2007, and 0.28% at December 31, 2007.

The level of nonperforming loans decreased $2,390,000 to $20,190,000 at September 30, 2008 from $22,580,000 at June 30, 2008 primarily as a result of charging off the specific reserves set for certain of these credits and secondarily due to paydowns received on certain loans. Nonperforming assets decreased $4,746,000 to $26,042,000 at September 30, 2008 from $30,788,000 at June 30, 2008. As discussed in the Company's first quarter earnings release and Form 10-Q for the period ended March 31, 2008, there were four nonperforming real estate projects with loans totaling $24,047,000 which resulted in the increase in nonperforming loans at March 31, 2008: two of these loans were for residential development projects and the other two were residential acquisition and development loans. As of September 30, 2008, the residential development project in Placer County with a balance of $4,497,000 remains on nonaccrual. The decrease of $4,959,000 from its June 30, 2008 balance of $9,456,000 is a result of the collection of $2,246,000 from the borrower and the charge-off of the $2,713,000 specific reserve on this credit during the third quarter of 2008 balance to reduce the loan to its net realizable value. The other residential development project loan for $6,750,000 at March 31, 2008 located in Shasta County was taken into OREO through a deed in lieu of foreclosure during the second quarter of 2008 and a portion of the property was sold resulting in a remaining carrying value of the property in OREO of $1,892,000 at June 30, 2008. This property was sold during the third quarter of 2008 and the Company recognized a $114,000 gain on the sale. The other two loans were residential acquisition and development loans located in Shasta County totaling $4,876,000 and $2,911,000, respectively, and both loans were taken into OREO during the second quarter of 2008. On transfer to OREO of the loan for $4,876,000, the value of additional property that was cross-collateralized to the original note increased the carrying value of the property to $5,414,000. A portion of this property was sold at its carrying value during the third quarter of 2008 for $464,000, and the carrying value of the remaining OREO is $4,950,000 at September 30, 2008. The second residential acquisition and development loan for $2,911,000 was transferred into OREO during the second quarter of 2008 at a carrying value of $2,000,000 and was sold on June 30, 2008 for its carrying value with no gain or loss on the sale being recorded.

As discussed in the Company's second quarter earnings release and Form 10-Q for the period ended June 30, 2008, there were two construction loans identified as impaired, totaling $10,201,000, added to nonperforming loans during the second quarter of 2008. As of September 30, 2008 the larger of the two loans in the amount of $4,506,000 remains on nonaccrual and is a mixed-use construction loan located in Sonoma County. The decrease of $2,756,000 from the June 30, 2008 balance of $7,262,000 is a result of the collection of $2,256,000 from the borrower and the charge-off of the $500,000 specific reserve on this credit during the third quarter of 2008 to reduce the loan to its net realizable value. The other loan is a residential development project located in Placer County and remains on nonaccrual. The specific reserve for this loan of $680,000 was charged-off during the third quarter of 2008 to reduce the loan to its nets realizable value of $2,259,000 at September 30, 2008.

Gross loan and lease charge offs for the third quarter of 2008 were $5,305,000 and recoveries totaled $86,000 resulting in net charge offs of $5,219,000. Gross charge offs for the nine months ended September 30, 2008 were $10,081,000 and recoveries totaled $184,000 resulting in net charge offs of $9,897,000.

The total dollar amount of reductions in nonperforming loans during the third quarter of 2008 was $9,982,000 due primarily to the pay downs and charge-offs noted above. There were no transfers to OREO during the third quarter of 2008. This decrease was offset by the addition of 23 loans on nonaccrual status totaling $7,592,000 (which are primarily secured by real-estate) during the third quarter of 2008. The largest of this group is a $1,125,000 residential lot development loan located in Shasta County. Specific reserves have been recorded totaling $792,000 for nonperforming loans at September 30, 2008.

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, decreased $1,433,000, or 14.0%, for the three months ended September 30, 2008 compared to the same period in 2007. Interest income decreased by $2,339,000, primarily due to a lower yield on earning assets and secondarily due to foregone interest income of $507,000 for the loans placed on nonaccrual status. Offsetting this was a decrease in interest expense of $906,000 due to a decrease on rates paid on deposits and borrowings for the quarter ended September 30, 2008 compared to the same period in 2007. Average loans increased $17,684,000 in the third quarter of 2008 compared to the third quarter of 2007, however the yield on the loan portfolio over the same period decreased 136 basis points to 6.49%, reflective of the declining interest rate environment and the impact of foregone interest income on the loans placed on nonaccrual. The increase in average total loans was primarily funded by a decrease in average investments of $21,689,000. Average yields on earning assets decreased 112 basis points from the quarter ended September 30, 2007, to 6.29% for the quarter ended September 30, 2008 while the average rate paid on interest-bearing liabilities decreased by 61 basis points to 2.38%.