REDDING -- North Valley Bancorp, the parent company of North Valley Bank, raised $40 million in capital through private placement of preferred stock with investors.

This comes after the bank and the Federal Reserve Bank of San Francisco entered into an agreement earlier this year that the bank will reduce the concentration of credit risk, will improve assets and come up with a capital plan among other things.

"We are very pleased with this capital raise, which confirms investor confidence in our franchise, employees and business plan," said Michael Cushman, president and chief executive officer. "This is an important step in positioning our company as we work through the challenges of the current economic environment and prepare for future opportunities. Our team's primary goal is to maintain a strong financial position to support our clients and communities while being poised for opportunities that reward shareholders."

The company will issue 40,000 shares of Series A Preferred Stock to the investors at a price of $1,000 per share. 

Each share of the preferred stock will initially be convertible into 666.67 shares of common stock, based on the initial conversion price of $1.50 per share. This is subject to possible adjustments. The preferred stock will convert into shares of common stock once the pending shareholder approval on or before July 30, 2010. 

North Valley, which reported $884 million in assets as of the end of 2009, has a branch in Santa Rosa.