North Valley Bancorp Reports Second Quarter Results

Market Wire, July, 2007

North Valley Bancorp (NASDAQ: NOVB), a bank holding company with $892 million in assets, today reported results for the quarter and six months ended June 30, 2007. North Valley Bancorp ("the Company") is the parent company for North Valley Bank ("NVB").

The Company reported net income for the second quarter ended June 30, 2007 of $1,720,000, or $0.22 per diluted share, compared to $2,294,000, or $0.30 per diluted share, for the same period in 2006. This represents a decrease in net income of $574,000, or 25.0%, compared to the second quarter of 2006. For the second quarter of 2007, the Company realized an annualized return on average shareholders' equity of 8.81% and an annualized return on average assets of 0.77%, as compared to 12.82% and 1.03%, respectively, for the second quarter of 2006. On a GAAP basis, the Company reported net income for the six months ended June 30, 2007 of $3,924,000, or $0.51 per diluted share, down $499,000 or 11.3% and $0.06 or 10.5%, compared to $4,423,000, or $0.57 per diluted share, for the same period in 2006. For the three and six-month periods ended June 30, 2007, the Company had $950,000 and $1,060,000, respectively, of merger related expenses resulting from the pending merger with and into Sterling Financial Corporation, announced on April 11, 2007, which is not included in the non-GAAP income calculation. On a non-GAAP basis, the Company reported net income for the second quarter ended June 30, 2007 of $2,366,000, or $0.31 per diluted share, and $4,645,000, or $0.61 per diluted share, for the six months ended June 30, 2007.

As announced by the Company on April 11, 2007 and reported on the Company's Current Report on Form 8-K, filed with the Commission on April 11, 2007 (the "Current Report"), the Company has entered into an Agreement and Plan of Merger dated April 10, 2007 (the "Merger Agreement"), pursuant to which the Company will merge with and into Sterling Financial Corporation, a Washington corporation ("Sterling"), with Sterling being the surviving corporation. A copy of the Merger Agreement (together with certain other information regarding the proposed merger) is provided in the Current Report. The transaction is expected to close in the third quarter of 2007, pending approval of the merger by the shareholders of the Company, the receipt of all necessary regulatory approvals, and the satisfaction of other closing conditions which are customary for such transactions. A special meeting of the Company's shareholders to vote on the proposed merger is scheduled for July 31, 2007. Regulatory applications are still pending.

"We are pleased with our progress in moving forward with our plan to partner with Sterling Financial Corporation (NASDAQ: STSA)," stated Michael J. Cushman, President & CEO. "This partnering will expand the array of products, technology, delivery systems, lending capabilities and significant market presence in the Western United States. Also, it will allow us to serve a broader segment of the Northern California market, thereby providing for future growth opportunities."

At June 30, 2007, total assets were $891,730,000, up slightly from the $891,266,000 at June 30, 2006. The loan portfolio increased $38,780,000, or 6.1% compared to June 30, 2006, and totaled $678,397,000 at June 30, 2007. The loan to deposit ratio at June 30, 2007 was 91.7% as compared to 88.5% at June 30, 2006. Total deposits grew $17,520,000, or 2.4%, to total $739,931,000 at June 30, 2007, driven by an increase in time deposits of $44,239,000, somewhat offset by decreases in noninterest bearing demand, interest bearing demand and savings and money market deposits of $14,863,000, $7,369,000 and $4,487,000, respectively. When compared to December 31, 2006, total assets decreased from $905,673,000. Deposits decreased by $10,357,000, or 1.4%, from $750,288,000 at December 31, 2006, due to noninterest bearing deposits decreasing by $23,313,000, savings and money market by $9,557,000 and interest bearing demand by $1,390,000, somewhat offset by the increase in time deposits of $23,903,000. Loans increased by $18,604,000, or 2.8%, from $659,793,000 at December 31, 2006.

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 $603,000, or 5.6%, for the three months ended June 30, 2007 compared to the same period in 2006. While interest income increased by $590,000, this was more than offset by an increase in interest expense of $1,193,000. The increase in interest income was primarily due to an increase in average loans of $32,387,000 and an increase in the yield on the loan portfolio of 10 basis points. The increase in average total loans was primarily funded by the decrease in average investments of $33,358,000. Average yields on earning assets increased 16 basis points from the quarter ended June 30, 2006, to 7.36% for the quarter ended June 30, 2007. The increase in interest expense was due to the increase in the level of average deposits and the change in mix to more time deposits along with the increase in the average rates paid on interest-bearing liabilities which increased by 75 basis points to 2.86%. The increase in asset yields was primarily due to average loan yields, which increased from 7.80% for second quarter 2006 to 7.90% in second quarter 2007. The Company's net interest margin for the quarter ended June 30, 2007 was 5.11%, a decrease from the 5.52% for the second quarter in 2006 and a decrease from the 5.33% net interest margin for the linked quarter ended March 31, 2007. "Our net interest margin remains strong, although we continue to feel the pressure from competition and the interest rate environment as evidenced by the 22 basis point margin contraction from the first quarter," commented Kevin R. Watson, Chief Financial Officer.