SOURCE: North Valley Bancorp

April 26, 2007 09:00 ET

North Valley Bancorp Reports First Quarter Results

REDDING, CA -- (MARKET WIRE) -- April 26, 2007 --North Valley Bancorp (NASDAQ: NOVB), a bank holding company with $907 million in assets, today reported results for the quarter ended March 31, 2007. North Valley Bancorp ("the Company") is the parent company for North Valley Bank ("NVB").

Key Financial Highlights…

--  Diluted Earnings per Share Increased 7.4% to $0.29 for First Quarter
    2007 over the $0.27 for First Quarter 2006
    
--  Net Income Increased 3.5% to $2,204,000 for First Quarter 2007 over
    First Quarter 2006
    
--  Loan Portfolio Credit Quality Remained Outstanding
    
The Company reported net income for the first quarter ended March 31, 2007 of $2,204,000, or $0.29 per diluted share, compared to $2,129,000, or $0.27 per diluted share, for the same period in 2006. This represents an increase in net income of $75,000, or 3.5%, compared to the first quarter of 2006. For the first quarter, the Company realized an annualized return on average shareholders' equity of 11.69% and an annualized return on average assets of 1.00%, as compared to 11.96% and 0.96%, respectively, for the first quarter of 2006.

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.

"We're obviously very pleased with our plan to partner with Sterling Financial Corporation (NASDAQ: STSA)," stated Michael J. Cushman, President & CEO. "Sterling's size, array of products, technology, delivery systems, lending capabilities and significant market presence in the Western United States will allow us to serve a broader segment of the Northern California market, thereby providing for future growth opportunities."

At March 31, 2007, total assets were $906,744,000, up slightly from the $905,604,000 at March 31, 2006. The loan portfolio increased $23,016,000, or 3.7% compared to March 31, 2006, and totaled $650,563,000 at March 31, 2007. The loan to deposit ratio at March 31, 2007 was 85.5% as compared to 84.0% at March 31, 2006. Total deposits grew $13,609,000, or 1.8%, to total $760,699,000 at March 31, 2007. When compared to December 31, 2006, total assets increased slightly from $905,673,000. Deposits increased by $10,411,000, or 1.4%, from $750,288,000 at December 31, 2006, while loans decreased by $9,230,000, or 1.4%, 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 $56,000, or 0.5%, for the three months ended March 31, 2007 compared to the same period in 2006. While interest income increased by $869,000, this was more than offset by an increase in interest expense of $925,000. The increase in interest income was primarily due to an increase in average loans of $28,831,000 and an increase in the yield on the loan portfolio of 34 basis points. The increase in average total loans was primarily funded by the decrease in average investments of $35,357,000. Average yields on earning assets increased 47 basis points from the quarter ended March 31, 2006, to 7.44% for the quarter ended March 31, 2007 and the average rate paid on interest-bearing liabilities increased by 65 basis points to 2.70%. The increase in asset yields was primarily due to average loan yields, which increased from 7.62% for first quarter 2006 to 7.96% in first quarter 2007. The Company's net interest margin for the quarter ended March 31, 2007 was 5.33%, consistent with the 5.34% for the first quarter in 2006 and a decrease from the 5.41% net interest margin for the linked quarter ended December 31, 2006. "Our net interest margin contracted in the first quarter from the linked quarter by 8 basis points as we experienced an increase in our cost of funds, most notably on time deposits. Our margin continues to be strong in this challenging and competitive deposit and loan pricing environment." commented Kevin R. Watson, Chief Financial Officer.

Noninterest income for the quarter ended March 31, 2007 was $3,134,000 compared to $2,798,000 for the same period in 2006. Other fees and charges increased by $190,000 to $892,000 for the first quarter of 2007 compared to $702,000 for the first quarter of 2006, while service charges on deposits increased by $167,000 to $1,644,000 for the quarter compared to $1,477,000 for the same period in 2006.

Noninterest expense increased $214,000 to $10,230,000 for the first quarter of 2007 from $10,016,000 for the first quarter in 2006. Salaries and employee benefits decreased $78,000 while occupancy expense increased $62,000. Other expenses increased $228,000, primarily due to an increase in data processing expense and nonrecurring professional services expense associated with the planned merger with Sterling Financial Corporation.

The Company did not record a provision for loan and lease losses for the quarters ended March 31, 2007 or 2006. The allowance for loan and lease losses at March 31, 2007 was $8,815,000, or 1.35% of total loans, compared to $8,831,000, or 1.34% of total loans at December 31, 2006 and $7,832,000, or 1.25% of total loans, at March 31, 2006. The increase in the level of allowance to total loans is reflective of the decrease in the Company's loan portfolio during the quarter from $659,793,000 at December 31, 2006 to $650,563,000 at March 31, 2007.

The provision for income taxes for the quarter ended March 31, 2007 was $1,037,000, resulting in an effective tax rate of 32%, compared to $1,046,000, or an effective tax rate of 33%, for the quarter ended March 31, 2006.

Nonperforming loans (defined as nonaccrual loans and loans 90 days or more past due and still accruing interest) decreased $543,000 to $519,000, or 0.08%, of total loans at March 31, 2007 from $1,062,000, or 0.17%, of total loans at March 31, 2006. Other real estate owned at March 31, 2007 was $902,000, consisting of land originally purchased for bank expansion, which management has listed for sale as the land is no longer needed due to the acquisition of Yolo Community Bank in 2004.

ADDITIONAL INFORMATION ABOUT NORTH VALLEY'S PENDING MERGER WITH STERLING AND WHERE TO FIND IT

Sterling Financial Corporation intends to file with the Securities and Exchange Commission (the "SEC") a registration statement on Form S-4, and North Valley Bancorp intends to mail a proxy statement/prospectus to its security holders, containing information about the proposed merger transaction. Investors and security holders of Sterling and North Valley are urged to read the proxy statement/prospectus and other relevant materials when they become available in order to obtain important information about Sterling, North Valley and the proposed merger. In addition to the registration statement to be filed by Sterling and the proxy statement/prospectus to be mailed to the security holders of North Valley, Sterling and North Valley file annual, quarterly and current reports, proxy statements and other information with the SEC. Investors and security holders may obtain a free copy of the proxy statement/prospectus and other relevant documents (when they become available) and any other documents filed with the SEC at its website at www.sec.gov. These documents may also be obtained free of charge from Sterling by requesting them in writing at Sterling Financial Corporation, 111 North Wall Street, Spokane, WA 99201, or by telephone at (509) 227-5389. In addition, investors and security holders may access copies of the documents filed with the SEC by Sterling on its website at www.sterlingfinancialcorporation-spokane.com. The documents filed by North Valley may also be obtained by requesting them in writing at North Valley Bancorp, 300 Park Marina Circle, Redding, California 96001, or by telephone at (530) 226-2900. In addition, investors and security holders may access copies of the documents filed with the SEC by North Valley through its website at www.novb.com.

Sterling, North Valley and their respective officers and directors may be deemed to be participants in the solicitation of proxies from the security holders of North Valley with respect to the transactions contemplated by the proposed merger. Information regarding Sterling's officers and directors is included in Sterling's proxy statement for its 2007 annual meeting of shareholders filed with the SEC on March 15, 2007. Information regarding North Valley's officers and directors is included in North Valley's Form 10-K/A - Amendment No. 1 to Form 10-K Annual Report filed with the SEC on April 24, 2007. A description of the interests of the directors and executive officers of Sterling and North Valley in the proposed merger will be set forth in the proxy statement/prospectus and other relevant documents filed with the SEC when they become available.

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
                                     March 31,
Statement of Income Data         2007       2006     $ Change   % Change
                               ---------- ---------- ---------  ---------
Interest income
  Loans and leases (including
   fees)                       $   12,824 $   11,746 $   1,078        9.2%
  Investment securities             1,535      1,776      (241)     (13.6%)
  Federal funds sold and other        137        105        32       30.5%
                               ---------- ---------- ---------  ---------
      Total interest income        14,496     13,627       869        6.4%
                               ---------- ---------- ---------  ---------
Interest expense
  Interest on deposits              3,256      2,010     1,246       62.0%
  Subordinated debentures             608        627       (19)      (3.0%)
  Other borrowings                    295        597      (302)     (50.6%)
                               ---------- ---------- ---------  ---------
      Total interest expense        4,159      3,234       925       28.6%
                               ---------- ---------- ---------  ---------
Net interest income                10,337     10,393       (56)    (0.5%)
Provision for loan and lease
 losses                                 -          -         -          -
                               ---------- ---------- ---------  ---------
Net interest income after
 provision for loan and lease
 losses                            10,337     10,393       (56)    (0.5%)
                               ---------- ---------- ---------  ---------

Noninterest income
  Service charges on deposit
   accounts                         1,644      1,477       167       11.3%
  Other fees and charges              892        702       190       27.1%
  Other                               598        619       (21)      (3.4%)
                               ---------- ---------- ---------  ---------
      Total noninterest income      3,134      2,798       336       12.0%
                               ---------- ---------- ---------  ---------

Noninterest expenses
  Salaries and employee
   benefits                         5,559      5,637       (78)      (1.4%)
  Occupancy                           769        707        62        8.8%
  Furniture and equipment             535        533         2        0.4%
  Other                             3,367      3,139       228        7.3%
                               ---------- ---------- ---------  ---------
      Total noninterest
       expenses                    10,230     10,016       214        2.1%
                               ---------- ---------- ---------  ---------
      Income before provision
       for income taxes             3,241      3,175        66        2.1%
Provision for income taxes          1,037      1,046        (9)      (0.9%)
                               ---------- ---------- ---------  ---------
      Net income               $    2,204 $    2,129 $      75        3.5%
                               ========== ========== =========  =========

Common Share Data

  Earnings per share
    Basic                      $     0.30 $     0.28 $    0.02        7.1%
    Diluted                    $     0.29 $     0.27 $    0.02        7.4%

  Weighted average shares
   outstanding                  7,340,456  7,506,916
  Weighted average shares
   outstanding - diluted        7,635,369  7,824,140
  Book value per share         $    10.62 $     9.73
  Tangible book value          $     8.32 $     7.40
  Shares outstanding            7,352,625  7,539,654





                           NORTH VALLEY BANCORP
                  CONDENSED CONSOLIDATED FINANCIAL DATA
                                (Unaudited)
                          (Dollars in thousands)


                                 March 31,    December 31,     March 31,
Balance Sheet Data                 2007           2006           2006
                               -------------  -------------  -------------
Assets
  Cash and due from banks      $      27,593  $      30,826  $      37,519
  Federal funds sold and other        33,295         10,670         12,128
  Available-for-sale
   securities - at fair value        124,765        133,571        156,757
  Held-to-maturity securities
   - at amortized cost                    67             82             88

  Loans and leases net of
   deferred loan fees                650,563        659,793        627,547
    Allowance for loan and
     lease losses                     (8,815)        (8,831)        (7,832)
                               -------------  -------------  -------------
    Net loans and leases             641,748        650,962        619,715

  Premises and equipment, net         13,838         13,797         14,997
  Other real estate owned                902            902            898
  Goodwill and core deposit
   intangibles, net                   16,911         17,073         17,561
  Accrued interest receivable
   and other assets                   47,625         47,790         45,941
                               -------------  -------------  -------------
Total assets                   $     906,744  $     905,673  $     905,604
                               =============  =============  =============

Liabilities and Shareholders'
 Equity
  Deposits:
    Demand, noninterest
     bearing                   $     186,209  $     194,842  $     192,125
    Demand, interest bearing         167,899        160,939        199,400
    Savings and money market         198,715        196,833        185,057
    Time                             207,876        197,674        170,508
                               -------------  -------------  -------------
        Total deposits               760,699        750,288        747,090
  Other borrowed funds                25,000         37,500         43,500
  Accrued interest payable and
   other liabilities                  10,973         10,433          9,669
  Subordinated debentures             31,961         31,961         31,961
                               -------------  -------------  -------------
Total liabilities                    828,633        830,182        832,220
  Shareholders' equity                78,111         75,491         73,384
                               -------------  -------------  -------------
Total liabilities and
 shareholders' equity          $     906,744  $     905,673  $     905,604
                               =============  =============  =============

Asset Quality
  Nonaccrual loans and leases  $         459  $          72  $         127
  Loans and leases past due 90
   days and accruing interest             60            403            935
  Other real estate owned                902            902            898
                               -------------  -------------  -------------
    Total nonperforming assets $       1,421  $       1,377  $       1,960
                               =============  =============  =============

  Allowance for loan and lease
   losses to total loans                1.35%          1.34%          1.25%
  Allowance for loan and lease
   losses to NPL's                   1698.46%       1859.16%        737.48%
  Allowance for loan and lease
   losses to NPA's                    620.34%        641.32%        399.59%




                           NORTH VALLEY BANCORP
                  CONDENSED CONSOLIDATED FINANCIAL DATA
                                (Unaudited)
                          (Dollars in thousands)


                                                     Three Months Ended
                                                          March 31,
Selected Financial Ratios                             2007         2006
                                                  -----------  -----------
  Return on average total assets                         1.00%        0.96%
  Return on average shareholders' equity                11.69%       11.96%
  Net interest margin (tax equivalent basis)             5.33%        5.34%
  Efficiency ratio                                      75.94%       75.93%

Selected Average Balances
  Loans                                           $   653,710  $   624,879
  Taxable investments                                 113,306      146,969
  Tax-exempt investments                               21,789       23,483
  Federal funds sold and other                         10,294        8,768
                                                  -----------  -----------
    Total earning assets                          $   799,099  $   804,099
                                                  -----------  -----------
    Total assets                                  $   891,070  $   903,075
                                                  -----------  -----------

  Demand deposits - interest bearing              $   160,598  $   192,771
  Savings and money market                            199,529      184,893
  Time deposits                                       202,795      170,440
  Other borrowings                                     60,757       91,573
                                                  -----------  -----------
    Total interest bearing liabilities            $   623,679  $   639,677
                                                  -----------  -----------
  Demand deposits - noninterest bearing           $   178,232  $   180,440
                                                  -----------  -----------
  Shareholders' equity                            $    76,457  $    72,215
                                                  -----------  -----------





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


                                          For the Quarter Ended
                                -------------------------------------------
                                  March    December   September    June
                                  2007       2006       2006       2006
                                ---------- ---------- ---------- ----------
Interest income                 $   14,496 $   15,036 $   14,506 $   14,010
Interest expense                     4,159      4,140      3,996      3,315
                                ---------- ---------- ---------- ----------
  Net interest income               10,337     10,896     10,510     10,695

Provision for loan and lease
 losses                                  -         50        555        370
Noninterest income                   3,134      3,239      3,598      3,015
Noninterest expense                 10,230      9,860      9,859      9,880
                                ---------- ---------- ---------- ----------

Income before provision for
 income taxes                        3,241      4,225      3,694      3,460
Provision for income taxes           1,037      1,171        775      1,166
                                ---------- ---------- ---------- ----------
  Net income                    $    2,204 $    3,054 $    2,919 $    2,294
                                ========== ========== ========== ==========

Earnings per share:
  Basic                         $     0.30 $     0.42 $     0.40 $     0.31
                                ========== ========== ========== ==========
  Diluted                       $     0.29 $     0.40 $     0.39 $     0.30
                                ========== ========== ========== ==========

Contact Information

  • For further information contact:
    Michael J. Cushman
    President & Chief Executive Officer
    (530) 226-2900
    Fax: (530) 221-4877
    or
    Kevin R. Watson
    Executive Vice President & Chief Financial Officer
    (530) 226-2900
    Fax: (530) 221-4877