REDDING, CA -- (Marketwire) -- 02/02/09 -- North Valley Bancorp (NASDAQ: NOVB), a bank holding company with $880 million in assets, today reported results for the fourth quarter and year ended December 31, 2008. North Valley Bancorp ("the Company") is the parent company for North Valley Bank ("NVB").

The Company reported a net loss for the year ended December 31, 2008 of $1,794,000, or $0.24 per diluted share, compared to net income of $6,534,000, or $0.86 per diluted share, for the year ended December 31, 2007. For 2008, the Company realized a loss on average shareholders' equity of 2.23% and a loss on average assets of 0.20%, as compared to returns on average shareholders equity and average assets of 8.31% and 0.72%, respectively, for 2007. The Company reported net income for the fourth quarter ended December 31, 2008 of $854,000, or $0.11 per diluted share, compared to net income of $390,000, or $0.05 per diluted share, for the same period in 2007. The primary reason for the increase in net income was the Company's re-calculation of its income tax benefit due to the pre-tax losses in the fourth quarter and for the full-year of 2008 which resulted in an increase in the benefit rate from the estimated amounts in the previous quarters. This resulted in a fourth quarter 2008 tax benefit of $2,409,000 which exceeded the loss before taxes of $1,555,000 and resulted in net income for the quarter.

The Company recorded $3,000,000 and $12,100,000 in provisions for loan and lease losses for the fourth quarter and year ended December 31, 2008, respectively, compared to a $1,200,000 and $2,050,000 in provisions for loan and lease losses for the fourth quarter and year ended December 31, 2007. The allowance for loan and lease losses at December 31, 2008 was $11,327,000, or 1.63% of total loans, compared to $10,755,000, or 1.44% of total loans at December 31, 2007. The increase in the provision for loan and lease losses is due primarily to the level of charge-offs experienced of $1,724,000 for the fourth quarter of 2008 and $11,805,000 for the year ended December 31, 2008 and the increase in the level of nonperforming loans to $18,936,000 at December 31, 2008, up from $1,764,000 at December 31, 2007. During the third quarter of 2008, the Company recognized an additional impairment on its FNMA Preferred Stock of $3,284,000, which in conjunction with the impairment charge of $1,716,000 taken in the fourth quarter of 2007, reduced the carrying value of these securities to zero at September 30, 2008.

Primarily as a result of the Company's operating performance for 2008, on January 29, 2009 the Company's Board of Directors determined that it was in the best interest of the Company to suspend indefinitely the payment of quarterly cash dividends on its common stock beginning in 2009. Cash dividends distributed to the shareholders were $0.40 per share for both 2008 and 2007. This Board decision was made to strengthen and preserve the Company's capital base in these challenging economic times. At December 31, 2008, the Company's Total Risk-based Capital was $104,125,000, and its risk-based capital ratios were: Tier 1 risk-based Capital ratio - 10.93%; Total Risk-based Capital ratio - 12.75%; and Tier 1 Leverage ratio - 10.36%. At December 31, 2008, the Bank's Total Risk-based Capital was $101,637,000, and its risk-based capital ratios were: Tier 1 risk-based Capital ratio - 11.22%; Total Risk-based Capital ratio - 12.48%; and Tier 1 Leverage ratio - 10.64%. "Our capital position remains strong for both the Company and the Bank and both continue to be categorized as well-capitalized despite the credit and securities losses we have recorded in 2008. We continue to be focused on maintaining our strong capital levels while addressing our impaired credits as we work through this current economic environment and challenging credit cycle," remarked Kevin R. Watson, Chief Financial Officer. "The Company has taken additional action to reduce noninterest expense, including reduced staffing, suspending salary increases and suspending bonus plans."

At December 31, 2008, total assets were $879,551,000, down from the $949,019,000 at December 31, 2007. The loan portfolio decreased $52,831,000, or 7.1%, compared to December 31, 2007, and totaled $693,422,000 at December 31, 2008. The Company was successful in decreasing its Real Estate - Construction portfolio during the year by $89,003,000 from $225,758,000 at December 31, 2007 to $136,755,000 at December 31, 2008. This reduction was primarily from principal reductions and pay-offs but was also a result of certain charge-offs and properties taken into other real estate owned (OREO). Consumer loans also decreased $5,361,000 from the prior year, and Commercial loans decreased $390,000. These decreases were partially offset by growth in Real Estate - Commercial loans of $29,899,000 and Real Estate - Mortgage loans of $12,024,000. The loan to deposit ratio at December 31, 2008 was 91.9% as compared to 101.3% at December 31, 2007.

Total deposits grew by $18,205,000, or 2.5%, to $754,944,000 at December 31, 2008, driven by increases in time deposits of $43,358,000, and interest bearing demand deposits of $4,817,000, offset by decreases in noninterest bearing demand, and savings and money market deposits of $5,867,000, and $24,103,000, respectively. Other borrowings decreased $83,676,000 to $3,516,000 at December 31, 2008 from $87,192,000 at December 31, 2007. This was a result of the Company's efforts to de-leverage the balance sheet to preserve and maintain strong capital levels in these uncertain economic times.

Credit Quality

Nonperforming loans (defined as nonaccrual loans and loans 90 days or more past due and still accruing interest) totaled $18,936,000 at December 31, 2008, an increase of $17,172,000 from December 31, 2007. Nonperforming loans as a percentage of total loans were 2.73% at December 31, 2008, compared to 0.24% at December 31, 2007. Nonperforming assets (nonperforming loans and OREO) totaled $29,344,000 at December 31, 2008, an increase of $26,678,000 from December 31, 2007. Nonperforming assets as a percentage of total assets were 3.34% at December 31, 2008 compared to 0.28% at December 31, 2007.

The level of nonperforming loans decreased $1,254,000 to $18,936,000 at December 31, 2008 from $20,190,000 at September 30, 2008 primarily as a result of charging off the specific reserves previously established for certain of these credits, transfers to OREO, and paydowns received on certain loans offset by the addition of thirteen loans in the fourth quarter. Nonperforming assets increased $3,302,000 to $29,344,000 at December 31, 2008 from $26,042,000 at September 30, 2008.

"The credit crisis and weak economy has challenged all banks and impacted our operating results. We continue to work hard to reduce our nonperforming loans and OREO. This month we received pay-offs on four nonperforming loans and were successful in the disposition of one of our OREO properties. Our credit team continues to work diligently on identifying and resolving risks in the loan portfolio, while remaining focused on customer service," stated Michael J. Cushman, President and CEO.

Problem Credits from the 1st Quarter, 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 were the primary contributors to 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 December 31, 2008, the residential development project in Placer County with a balance of $2,463,000 remains on nonaccrual. The decrease of $2,034,000 from its September 30, 2008 balance of $4,497,000 was a result of collections from the borrower on sales of the project properties. 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. The remaining portion of 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. In conjunction with the transfer to OREO of the $4,876,000 loan, the value of additional property that was cross-collateralized to the original note and also taken into OREO increased the carrying value of the property to $5,414,000. Portions of this property were sold with no gain or loss during the third quarter and fourth quarter of 2008 for $1,355,000, and the carrying value of the remaining OREO was $4,059,000 at December 31, 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.

Problem Credits from the 2nd Quarter, 2008

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 the nonperforming loans during the second quarter of 2008. As of December 31, 2008 the larger of the two loans with a balance of $7,262,000 when identified as impaired is a mixed-use construction loan located in Sonoma County with a remaining balance of $3,846,000 and continues on nonaccrual. During the third quarter of 2008, this loan decreased $2,756,000 from the June 30, 2008 balance of $7,262,000 as 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. The decrease of $660,000 from the September 30, 2008 balance of $4,506,000 is a result of collections from the borrower. This loan has a specific reserve of $250,000. The other loan was a residential development project located in Placer County with an original loan balance of $2,939,000 when identified as impaired and a balance of $2,259,000 at September 30, 2008, net of a specific reserve of $680,000 which was charged off in the third quarter of 2008. This property was taken into OREO through foreclosure during the fourth quarter of 2008 at its carrying value of $2,259,000 with no further charge to the allowance.

Problem Credits from the 3rd Quarter, 2008

As discussed in the Company's third quarter earnings release and Form 10-Q for the period ended September 30, 2008, there was an 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 was a $1,125,000 residential lot development loan located in Shasta County. The principal balance of the loan was reduced by $74,000 to $1,051,000 during the fourth quarter of 2008 from collections from the borrower. This property was taken into OREO through a deed in lieu of foreclosure during the fourth quarter of 2008 at a carrying value of $1,051,000 with no charge to the allowance.

Discussion of Credits during the 4th Quarter, 2008

Gross loan and lease charge offs for the fourth quarter of 2008 were $1,724,000 and recoveries totaled $92,000 resulting in net charge offs of $1,632,000. Gross charge offs for the year ended December 31, 2008 were $11,805,000 and recoveries totaled $277,000 resulting in net charge offs of $11,528,000.

The total dollar amount of reductions in nonperforming loans during the fourth quarter of 2008 was $8,829,000 due primarily to the paydowns, transfers to OREO, and charge-offs. This decrease was offset by the addition of $7,575,000 of nonaccrual loans during the fourth quarter of 2008, which was made up primarily of four relationships. The largest relationship of this group represents $3,773,000 of residential lot development and residential construction loans located in Solano County. No specific reserve has been established for these loans as the collateral value less estimated costs to sell is in excess of the loan balance. The second relationship in this group is a residential land loan located in Sutter County.