Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
NOVB > SEC Filings for NOVB > Form 10-Q on 6-Aug-2013All Recent SEC Filings

Show all filings for NORTH VALLEY BANCORP | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for NORTH VALLEY BANCORP


6-Aug-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Certain statements in this Form 10-Q (excluding statements of fact or historical financial information) involve forward-looking information within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the "safe harbor" created by those sections. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors:
competitive pressure in banking industry increases significantly; changes in the interest rate environment reduce margins; general economic conditions, either nationally or regionally, are less favorable than expected, resulting in, among other things, a deterioration in credit quality and an increase in the provision for possible loan losses; changes in the regulatory environment; changes in business conditions, particularly in the Northern California region; volatility of rate sensitive deposits; operational risks including data processing system failures or fraud; asset/liability matching risks and liquidity risks; California state budget problems; the U.S. "war on terrorism" and military action by the U.S. in the Middle East; and changes in the securities markets.

Critical Accounting Policies

General

North Valley Bancorp's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The financial information contained within our financial statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. We use historical loss factors as one factor in determining the probable incurred losses that may be present in our loan portfolio. Actual losses could differ significantly from the historical factors that we use. Another estimate that we use is related to the expected useful lives of our depreciable assets. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would impact our transactions could change.

Allowance for Loan Losses.The allowance for loan losses is an estimate of probable incurred loan losses in the Company's loan portfolio as of the balance-sheet date. The allowance is established through a provision for loan losses which is charged to expense. Additions to the allowance are expected to maintain the adequacy of the total allowance after loan losses and loan growth. Credit exposures determined to be uncollectible are charged against the allowance. Cash received on previously charged off amounts is recorded as a recovery to the allowance. The overall allowance consists of two primary components, specific reserves related to impaired loans and general reserves for inherent losses related to non-impaired loans. Non-impaired loans are evaluated collectively for impairment as a group by loan type and common risk characteristics.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the original agreement. Loans determined to be impaired are individually evaluated for impairment. When a loan is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the loan's effective interest rate, except that as a practical expedient, it may measure impairment based on a loan's observable market price, or the fair value of the collateral if the loan is collateral dependent. A loan is collateral dependent if the repayment of the loan is expected to be provided solely by the underlying collateral. For further information on the allowance for loan losses, see Note 4 to the Notes to Condensed Consolidated Financial Statements in Item I above.

Allowance for Loan Losses on Off-Balance-Sheet Credit Exposures. The Company also maintains a separate allowance for off-balance-sheet commitments. Management estimates anticipated losses using historical data and utilization assumptions. The allowance for off-balance-sheet commitments is included in accrued interest payable and other liabilities on the consolidated balance sheet.

Other Real Estate Owned ("OREO"). OREO represents properties acquired through foreclosure or physical possession. Write-downs to fair value at the time of transfer to OREO are charged to allowance for loan losses. Subsequent to foreclosure, management periodically evaluates the value of OREO held for sale and records a valuation allowance for any subsequent declines in fair value less selling costs. Subsequent declines in value are charged to operations. The reported value of OREO is based on our assessment of information available to us at the end of a reporting period and depends upon a number of factors, including our historical experience, economic conditions, and issues specific to individual properties. Management's evaluation of these factors involves subjective estimates and judgments that may change.

Share Based Compensation. At June 30, 2013, the Company had two stock-based compensation plans: the 1998 Employee Stock Incentive Plan and the 2008 Stock Incentive Plan, which are described more fully in Note 10 to the Notes to Condensed Consolidated Financial Statements. Compensation cost is recognized on all share-based payments over the requisite service periods of the awards based on the grant-date fair value of the options determined using the Black-Scholes-Merton based option valuation model. Critical assumptions that are assessed in computing the fair value of share-based payments include stock price volatility, expected dividend rates, the risk free interest rate and the expected lives of such options. Compensation cost recorded is net of estimated forfeitures expected to occur prior to vesting. For further information on the computation of the fair value of share-based payments, see Note 10 to the Notes to Condensed Consolidated Financial Statements on page 19 .

Impairment of Investment Securities. An investment security is impaired when its carrying value is greater than its fair value. Investment securities that are impaired are evaluated on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether such a decline in their fair value is other than temporary. Management utilizes criteria such as the magnitude and duration of the decline and the intent and ability of the Company to retain its investment in the securities for a period of time sufficient to allow for an anticipated recovery in fair value, in addition to the reasons underlying the decline, to determine whether the loss in value is other than temporary. The term "other than temporary" is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other than temporary, and management does not intend to sell the security or it is more likely than not that the Company will not be required to sell the security before recovery, only the portion of the impairment loss representing credit exposure is recognized as a charge to earnings, with the balance recognized as a charge to other comprehensive income. If management intends to sell the security or it is more likely than not that the Company will be required to sell the security before recovering its forecasted cost, the entire impairment loss is recognized as a charge to earnings.

Accounting for Income Taxes. The Company files its income taxes on a consolidated basis with its subsidiary. The allocation of income tax expense (benefit) represents each entity's proportionate share of the consolidated provision for income taxes.

The Company applies the asset and liability method to account for income taxes. Deferred tax assets and liabilities are calculated by applying applicable tax laws to the differences between the financial statement basis and the tax basis of assets and liabilities. The effect on deferred taxes of changes in tax laws and rates is recognized in operations in the period that includes the enactment date. On the consolidated balance sheet, net deferred tax assets are included in other assets.

The Company accounts for uncertainty in income taxes by recording only tax positions that met the more likely than not recognition threshold, that the tax position would be sustained in a tax examination with the assumption that the examination will occur.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

The Company evaluates deferred income tax assets for recoverability based on all available evidence. This process involves significant management judgment about assumptions that are subject to change from period to period based on changes in tax laws, our ability to successfully implement tax planning strategies, or variances between our future projected operating performance and our actual results. The Company is required to establish a valuation allowance for deferred tax assets if we determine, based on available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining the more-likely-than-not criterion, we evaluate all positive and negative available evidence as of the end of each reporting period. Future adjustments to the deferred tax asset valuation allowance, if any, will be determined based upon changes in the expected realization of net deferred tax assets. The realization of deferred tax assets ultimately depends on the existence of sufficient taxable income in the carry back and carry forward periods under the tax law.

Business Organization

North Valley Bancorp (the "Company") is a California corporation and a bank holding company for North Valley Bank, a California state-chartered, Federal Reserve member bank ("NVB"). NVB operates out of its main office located at 300 Park Marina Circle, Redding, California 96001, with twenty-two branches, including two supermarket branches in eight counties in Northern California. The Company views its service area as having four distinct markets: the Redding market, the Coastal market, the I-80 Corridor market and the Santa Rosa market.

The Company's principal business consists of attracting deposits from the general public and using the funds to originate commercial, real estate and installment loans to customers, who are predominately small and middle market businesses and middle income individuals. The Company's primary source of revenues is interest income from its loan and investment securities portfolios. The Company is not dependent on any single customer for more than ten percent of its revenues.

Overview



Financial Results



  (in thousands except per
       share amounts)              Three months ended June 30,             Six months ended June 30,
                                    2013                2012               2013                2012
Net interest income             $       7,578       $       7,329      $      15,014       $      14,721
Provision for loan losses                   -               1,000                  -               1,400
Noninterest income                      3,651               4,687              7,980               7,946
Noninterest expense                     9,936               9,228             19,824              18,884
Provision for income taxes                399                 527              1,015                 642
Net income                      $         894       $       1,261      $       2,155       $       1,741

Per Share Amounts
Basic Income Per Share          $        0.13       $        0.18      $        0.32       $        0.25
Diluted Income Per Share        $        0.13       $        0.18      $        0.31       $        0.25

Annualized Return on Average
Assets                                   0.40 %              0.56 %             0.48 %              0.38 %
Annualized Return on Average
Equity                                   3.69 %              5.47 %             4.49 %              3.81 %

The Company had net income of $894,000, or $0.13 per diluted share, and $2,155,000, or $0.31 per diluted share, for the three and six months ended June 30, 2013, respectively. This compares to net income of $1,261,000, or $0.18 per diluted share, and $1,741,000, or $0.25 per diluted share, for the three and six months ended June 30, 2012. The decrease in net income for three months ended June 30, 2013 compared to the three months ended June 30, 2012 was primarily attributed to a decrease in gains on sale of securities, an increase in other real estate owned expenses, partially offset by an increase on gain on sale of loans and a decrease in the provision for loan losses. The Company did not record a provision for loan losses for the quarter ended June 30, 2013 compared to a provision for loan losses of $1,000,000 for the quarter ended June 30, 2012. Net interest income increased $249,000 for the three months ended June 30, 2013, compared to the same period in 2012. Noninterest income decreased $1,036,000 for the three months ended June 30, 2013 compared to the same period in 2012 primarily due to the reduction in gains on sale of securities. Noninterest expense increased $708,000 for the three months ended June 30, 2013 compared to the three months ended June 30, 2012 due primarily to the increase in other real estate owned expenses.

Net interest income increased $293,000 for the six months ended June 30, 2013, compared to the same period in 2012, and noninterest income increased $34,000 for the six months ended June 30, 2013 compared to the same period in 2012. Noninterest expense increased $940,000 for the six months ended June 30, 2013 compared to the six months ended June 30, 2012 due primarily to the recording of $560,000 in additional reserves for expenses to be incurred during 2013 in connection with NVB's settlement of a compliance exam conducted by the Federal Reserve Bank of San Francisco in 2010. At June 30, 2013, the total amount reserved for this purpose was $1,260,000.

On June 26, 2013, the Company announced that its Board of Directors has authorized the repurchase of up to 5% of the Company's outstanding common shares, or approximately 340,000 shares. During the six month period ended June 30, 2013, there were no repurchases of common shares. Future repurchases will be made from time to time by the Company in the open market, or privately negotiated transactions, as conditions allow. All open market transactions will be structured to comply with Securities and Exchange Commission Rule 10b-18 and all shares repurchased under this program will be retired. The number, price and timing of the repurchases shall be at the Company's sole discretion and the program will be re-evaluated from time to time depending on market conditions, liquidity needs or other factors. The Board of Directors, based on such re-evaluations, may suspend, terminate, modify or cancel the program at any time without notice.

Results of Operation

Net Interest Income and Net Interest Margin (fully taxable equivalent basis)

Net interest income is the difference between interest earned on loans and investments and interest paid on deposits and borrowings, and is the primary revenue source for the Company. Net interest margin is net interest income expressed as a percentage of average earning assets. These items have been adjusted to give effect to $45,000 and $70,000 in taxable-equivalent interest income on tax-free investments for the three month periods ended June 30, 2013 and 2012, respectively.

Net interest income for the three months ended June 30, 2013 was $7,623,000, a $224,000, or 3.0%, increase from net interest income of $7,399,000 for the same period in 2012. Interest income decreased $464,000, or 5.5%, to $8,026,000 for the three month period ended June 30, 2013 compared to the same period in 2012, due primarily to both a decrease in rates earned on loans and securities and a decrease in average securities which was partially offset by an increase in average loan balances. The Company had foregone interest income for the loans placed on nonaccrual status of $50,000 during the three months ended June 30, 2013 compared to $203,000 for the same period in 2012. Average loans outstanding during the three months ended June 30, 2013 increased $42,037,000, or 9.4%, to $491,252,000 compared to the same period in 2012. This higher loan volume increased interest income by $594,000. The average yield earned on the loan portfolio decreased 41 basis points to 5.24% for the three months ended June 30, 2013. This decrease in yield decreased interest income for the three months ended June 30, 2013 by $502,000. The total increase to interest income from the loan portfolio was $92,000 for the three months ended June 30, 2013. The average balance of the investment portfolio decreased $33,692,000, or 10.1%, which accounted for a $247,000 reduction in interest income and a decrease in average yield of the investment portfolio of 44 basis points reduced interest income by $304,000.

Interest expense for the three months ended June 30, 2013 compared to the same period in 2012, decreased $688,000, or 63.1%, to $403,000. The average rate paid on other borrowed funds decreased 381 basis points to 2.30% for the period ended June 30, 2013 compared to 6.11% for the same period in 2012, resulting in a decrease to interest expense of $221,000 along with a decrease in average other borrowed funds of $8,614,000 which reduced interest expense by $132,000. The average rates paid on time deposits decreased 44 basis points to 0.44% and reduced interest expense by $176,000 along with a decrease in average time deposits of $42,851,000 which reduced interest expense by $94,000 for the period ended June 30, 2013.

The net interest margin for the three months ended June 30, 2013 increased 10 basis points to 3.77% from 3.67% for the same period in 2012 and a 4 basis point decrease from the 3.81% net interest margin for the linked quarter ended March 31, 2013.

The following table sets forth the Company's consolidated condensed average daily balances and the corresponding average yields received and average rates paid of each major category of assets, liabilities, and stockholders' equity for the periods indicated:

Schedule of Average Daily Balance and Average Yields and Rates
(Dollars in thousands)
                                    Three months ended June 30, 2013                 Three months ended June 30, 2012
                                 Average           Yield/        Interest         Average           Yield/        Interest
                                 Balance            Rate          Amount          Balance            Rate          Amount

Assets
Earning assets:
Federal funds sold            $      20,786            0.23 %   $       12     $      27,049            0.25 %   $       17
Investment securities:
Taxable                             290,563            2.02 %        1,465           320,264            2.43 %        1,943
Tax exempt (1)                        8,238            6.48 %          133            12,229            6.76 %          206
Total investments                   298,801            2.15 %        1,598           332,493            2.59 %        2,149
Loans (2)(3)                        491,252            5.24 %        6,416           449,215            5.65 %        6,324
Total earning assets                810,839            3.97 %        8,026           808,757            4.21 %        8,490

Nonearning assets                   105,675                                          111,090
Allowance for loan losses            (9,591 )                                        (12,098 )
Total nonearning assets              96,084                                           98,992

Total assets                  $     906,923                                    $     907,749

Liabilities and
Stockholders' Equity
Interest bearing
liabilities:
Transaction accounts          $     194,034            0.04 %   $       18     $     179,726            0.08 %   $       34
Savings and money market            244,943            0.12 %           76           222,669            0.23 %          125
Time certificates                   159,564            0.44 %          175           202,415            0.88 %          445
Other borrowed funds                 23,347            2.30 %          134            31,961            6.11 %          487
Total interest
bearing liabilities                 621,888            0.26 %          403           636,771            0.69 %        1,091
Demand deposits                     167,757                                          157,268
Other liabilities                    20,088                                           21,299
Total liabilities                   809,733                                          815,338
Stockholders' equity                 97,190                                           92,411

Total liabilities
and stockholders' equity      $     906,923                                    $     907,749
Net interest income                                             $    7,623                                       $    7,399
Net interest spread                                    3.71 %                                           3.52 %
Net interest margin                                    3.77 %                                           3.67 %

(1) Tax-equivalent basis; non-taxable securities are exempt from federal taxation.
(2) Loans on nonaccrual status have been included in the computations of averages balances.
(3) Includes loan fees of $72 and $89 for the three months ended June 30, 2013 and 2012, respectively.

Net interest income for the six months ended June 30, 2013 was $15,114,000, a $249,000, or 1.7%, increase from net interest income of $14,865,000 for the same period in 2012. The Company had foregone interest income for the loans placed on nonaccrual status of $135,000 during the six months ended June 30, 2013 compared to $357,000 for the same period in 2012. The average loans outstanding during the six months ended June 30, 2013 increased $37,505,000, or 8.3%, to $487,852,000. This higher loan volume increased interest income by $1,069,000. The average yield earned on the loan portfolio decreased 42 basis points to 5.28% for the six months ended June 30, 2013. This decrease in yield decreased interest income by $1,081,000. The net decrease in interest income from the loan portfolio was $12,000. The average balance of the investment portfolio decreased $39,073,000, or 11.8%, which accounted for a $557,000 decrease in interest income and a decrease in average yield of the investment portfolio of 45 basis points reduced interest income by $641,000.

Interest expense for the six months ended June 30, 2013 decreased $1,473,000, or 63.8%, to $835,000 compared to the same period in 2012. The average rate paid on other borrowed funds decreased 370 basis points to 2.39% for the six month period ended June 30, 2013 compared to 6.09% for the same period in 2012, resulting in a decrease to interest expense of $415,000 along with a decrease in average other borrowed funds of $9,457,000 which reduced interest expense by $288,000. The average rates paid on time deposits decreased 48 basis points to 0.47% and reduced interest expense by $396,000 along with a decrease in average time deposits of $44,794,000 which reduced interest expense by $213,000 for the period ended June 30, 2013.

The net interest margin for the six months ended June 30, 2013 increased 14 basis points to 3.78% from 3.64% for the same period in 2012. The following table sets forth the Company's consolidated condensed average daily balances and the corresponding average yields received and average rates paid of each major category of assets, liabilities, and stockholders' equity for the periods indicated (these items have been adjusted to give effect to $100,000 and $144,000 in taxable-equivalent interest income on tax-free investments for the six month periods ended June 30, 2013 and 2012, respectively):

Schedule of Average Daily Balance and Average Yields and Rates
(Dollars in thousands)
                                            Six months ended June 30, 2013                          Six months ended June 30, 2012
                                    Average                                                 Average
                                    Balance          Yield/Rate       InterestAmount        Balance          Yield/Rate       InterestAmount

Assets
Earning assets:
Federal funds sold                $    26,916                0.23 %   $            31     $    38,000                0.24 %   $            45
Investment securities:
Taxable                               283,020                2.02 %             2,841         318,520                2.46 %             3,910
Tax exempt (1)                          9,034                6.59 %               295          12,607                6.74 %               424
Total investments                     292,054                2.17 %             3,136         331,127                2.62 %             4,334
Loans (2)(3)                          487,852                5.28 %            12,782         450,347                5.70 %            12,794
Total earning assets                  806,822                3.99 %            15,949         819,474                4.20 %            17,173

Nonearning assets                     105,291                                                 104,851
Allowance for loan losses             (10,036 )                                               (12,363 )
Total nonearning assets                95,255                                                  92,488

Total assets                      $   902,077                                             $   911,962

Liabilities and Stockholders'
Equity
Interest bearing liabilities:
Transaction accounts              $   191,102                0.04 %   $            36     $   177,863                0.09 %   $            81
Savings and money market              242,690                0.13 %               154         221,199                0.24 %               270
Time certificates                     162,863                0.47 %               378         207,657                0.95 %               987
Other borrowed funds                   22,504                2.39 %               267          31,961                6.09 %               970
Total interest bearing
liabilities                           619,159                0.27 %               835         638,680                0.72 %             2,308
. . .
  Add NOVB to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for NOVB - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.