North Valley Bancorp Reports Results for the Quarter and Nine Months Ended September 30, 2012

Marketwired

REDDING, CA--(Marketwire - Oct 30, 2012) - North Valley Bancorp (NASDAQ: NOVB), a bank holding company with approximately $895 million in assets, today reported results for the third quarter and nine months ended September 30, 2012. North Valley Bancorp ("the Company") is the parent company for North Valley Bank ("the Bank").

The Company reported net income for the third quarter ended September 30, 2012 of $5,351,000, or $0.78 per diluted share, compared to net income of $1,320,000, or $0.19 per diluted share for the same period in 2011. The Company reported net income for the nine months ended September 30, 2012 of $7,092,000, or $1.04 per diluted share, compared to net income of $2,238,000, or $0.33 per diluted share, for the same period in 2011. Net income for the three and nine months ended September 30, 2012 included a $4,277,000 release of the deferred tax asset valuation allowance that was established in the third quarter of 2010. "We continue to make progress and execute our plan to rebuild the value of the Company for shareholders. The Company's already strong capital position increased as the valuation allowance for the deferred tax assets was eliminated. We will continue to focus on capital management, efficiency, reduction of nonperforming assets and loan production, as we plan for 2013," stated Michael J. Cushman, President and CEO.

The Company recorded provisions for loan losses of $700,000 and $2,100,000 for the third quarter and nine months ended September 30, 2012, respectively, compared to provisions for loan losses of $400,000 and $2,650,000 for the third quarter and nine months ended September 30, 2011, respectively. The allowance for loan losses at September 30, 2012 was $11,427,000, or 2.33% of total loans, compared to $12,656,000, or 2.77% of total loans at December 31, 2011 and $13,671,000, or 2.90% of total loans at September 30, 2011. 

At September 30, 2012, total assets were $894,551,000, a decrease of $16,738,000, or 1.8%, from $911,289,000 at September 30, 2011. The loan portfolio totaled $489,900,000 at September 30, 2012, an increase of $18,142,000, or 3.9%, compared to $471,758,000 at September 30, 2011. The increase in the loan portfolio was due to the purchase of $33,325,000 of jumbo residential mortgages during the third quarter ended September 30, 2012. The loan to deposit ratio at September 30, 2012 was 64.6% as compared to 61.3% at September 30, 2011, and 59.5% at December 31, 2011. Total deposits decreased $10,932,000, or 1.4%, to $758,476,000 at September 30, 2012 compared to $769,408,000 at September 30, 2011. When compared to December 31, 2011, total assets at September 30, 2012 decreased $10,415,000 from $904,966,000, loans increased by $33,685,000 from $456,215,000 and deposits decreased by $7,763,000 from $766,239,000. Available-for-sale investment securities and Federal funds sold decreased $13,180,000 and $39,805,000, respectively, from December 31, 2011 to September 30, 2012 resulting from the increase in loans. 

At September 30, 2012, the Company's Total Risk-based Capital was $112,076,000, and its risk-based capital ratios were: Total Risk-based Capital ratio - 18.4%; Tier 1 risk-based Capital ratio - 17.1%; and Tier 1 Leverage ratio - 11.6%. The Bank's Total Risk-based Capital at September 30, 2012 was $112,148,000, and its risk-based capital ratios were: Total Risk-based Capital ratio - 18.4%; Tier 1 risk-based Capital ratio - 17.2%; and Tier 1 Leverage ratio - 11.6%. 

Credit Quality

Nonperforming loans (defined as nonaccrual loans and loans 90 days or more past due and still accruing interest) decreased $563,000 to $11,579,000 at September 30, 2012 from $12,142,000 at September 30, 2011, and decreased $6,832,000 when compared to the December 31, 2011 balance of $18,411,000. Nonperforming loans as a percentage of total loans were 2.36% at September 30, 2012, compared to 2.57% at September 30, 2011, and 4.04% at December 31, 2011. 

The overall level of nonperforming loans decreased $5,192,000 to $11,579,000 at September 30, 2012 from $16,771,000 at June 30, 2012. During the third quarter of 2012, the Company identified eight loans totaling $3,298,000 as additional nonperforming loans. These additions were offset by reductions in nonperforming loans totaling $8,490,000 due primarily to transfers to OREO of six properties totaling $6,909,000, and secondarily due to charge-offs and collections received on certain loans. Of the eight loans totaling $3,298,000 identified as nonaccrual loans and added to nonperforming loans during the third quarter of 2012, one loan represents $1,952,000 of the total. This loan is for a special-use commercial real estate building located in Sacramento County. A specific reserve of $417,000 has been established on this loan. The remaining seven loans in this group of nonperforming loans total $1,346,000 and specific reserves totaling $50,000 have been established. 

Gross loan charge-offs for the third quarter of 2012 were $1,094,000 and recoveries totaled $89,000 resulting in net charge-offs of $1,005,000 compared to gross loan charge-offs for the third quarter of 2011 of $1,571,000 and recoveries of $96,000 resulting in net charge-offs of $1,475,000. Gross charge-offs for the nine months ended September 30, 2012 were $3,651,000 and recoveries totaled $322,000 resulting in net charge-offs of $3,329,000, compared to gross charge-offs for the nine months ended September 30, 2011 of $4,374,000 and recoveries of $402,000 resulting in net charge-offs of $3,972,000. 

Nonperforming assets (nonperforming loans and OREO) totaled $33,268,000 at September 30, 2012, an increase of $238,000 from the September 30, 2011 balance of $33,030,000, and a $5,249,000 decrease from the December 31, 2011 balance of $38,517,000. Nonperforming assets as a percentage of total assets were 3.72% at September 30, 2012 compared to 3.62% at September 30, 2011 and 4.26% at December 31, 2011. 

The Company's OREO properties increased $6,041,000 to $21,689,000 at September 30, 2012 from $15,648,000 at June 30, 2012. The increase in OREO was due to transfer of six properties into OREO totaling $6,909,000. The increase in OREO was partially offset by the sale of one property totaling $130,000, and a net write-down of certain other OREO properties during the quarter ended September 30, 2012 of $738,000. 

Operating Results

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 $134,000, or 1.7%, for the three months ended September 30, 2012 compared to the same period in 2011. Interest income decreased by $812,000, primarily due to the decrease in interest income on loans due to the decrease in yield on average loan balances. The Company had foregone interest income of $138,000 related to loans currently on nonaccrual status for the three months ended September 30, 2012 compared to $89,000 for the same period in 2011. Average loans increased $1,184,000 in the third quarter of 2012 compared to the third quarter of 2011, while the yield on the loan portfolio decreased 41 basis points to 5.56% for the third quarter of 2012. Partially offsetting this decrease in interest income was a decrease in interest expense of $678,000, or 48.7%, primarily due to a decrease in the rates paid on deposits and secondarily to a decrease in interest expense on its subordinated debentures. Overall, average earning assets increased $10,637,000 in the third quarter of 2012 compared to the third quarter of 2011. Average yields on earning assets decreased 46 basis points from the quarter ended September 30, 2011, to 4.13% for the quarter ended September 30, 2012 while the average rate paid on interest-bearing liabilities decreased by 43 basis points to 0.45%. The Company's net interest margin for the quarter ended September 30, 2012 was 3.78%, a decrease of 12 basis points from the margin of 3.90% for the third quarter in 2011 and an increase of 11 basis points from the 3.67% net interest margin for the quarter ended June 30, 2012. Net interest income decreased $1,377,000 for the nine months ended September 30, 2012 compared to the same period in 2011. Total interest income decreased by $2,811,000 for the nine months ended September 30, 2012 compared to the same period in 2011, primarily due to a decrease in income on loans of $2,521,000 as a result of both the decrease in the average balance of loans and a decrease in yield on loans. Interest expense decreased $1,434,000 due primarily to a decrease on rates paid on deposits for the nine months ended September 30, 2012 compared to the same period in 2011. The net interest margin for the nine months ended September 30, 2012 decreased 30 basis points to 3.70% from the net interest margin of 4.00% for the nine months ended September 30, 2011.

Noninterest income for the quarter ended September 30, 2012 increased $192,000, or 4.8%, to $4,204,000 from $4,012,000 for the same period in 2011. Service charges on deposits decreased $119,000 to $1,086,000 for the third quarter of 2012 compared to $1,205,000 for the third quarter of 2011, and other fees and charges decreased by $102,000 to $1,102,000 for the third quarter of 2012 compared to $1,204,000 for the same period in 2011. The Company recorded gains on the sale of loans of $769,000 for the third quarter of 2012, an increase of $587,000 from $182,000 for the same period in 2011 as the activity of the Company's real estate mortgage department continues to grow. The Company recorded a gain on the sale of securities of $697,000 for the third quarter ended September 30, 2012, a decrease of $162,000 from $859,000 for the same period in 2011. Noninterest income for the nine months ended September 30, 2012 increased $1,502,000 to $12,150,000 from $10,648,000 for the same period in 2011. Service charges on deposits decreased $269,000 to $3,274,000 for the nine months ended September 30, 2012 compared to $3,543,000 for the same period in 2011, while other fees and charges increased by $137,000 to $3,620,000 for the nine months ended September 30, 2012 compared to $3,483,000 for the same period in 2011. The Company recorded gains on the sale of loans of $1,858,000 for the nine months ended September 30, 2012, an increase of $901,000 from $957,000 for the same period in 2011, and the Company recorded a gain on the sale of securities of $1,656,000 for the nine months ended September 30, 2012, an increase of $807,000 from $849,000 for the same period in 2011.

Noninterest expense increased $162,000 to $9,759,000 for the third quarter of 2012 from $9,597,000 for the third quarter of 2011. Salaries and employee benefits increased $303,000 to $5,005,000 for the third quarter of 2012 compared to the third quarter of 2011 due primarily to the expansion of the Company's real estate department and the development of incentive plans. The increase in salaries and benefits expense was partially offset by a decrease in occupancy and equipment expense of $73,000, a decrease in other real estate owned expense of $60,000, and a decrease in FDIC insurance premiums and state assessments of $82,000. Noninterest expense for the nine months ended September 30, 2012 was $28,643,000, a decrease of $160,000 compared to $28,803,000 for the same period in 2011. For the nine months ended September 30, 2012, salaries and employee benefits increased $1,219,000 while occupancy and equipment expense decreased $323,000. Other real estate owned expense was $1,793,000 for the first nine months of 2012 compared to $2,506,000 for the first nine months of 2011 and FDIC insurance premiums and state assessments were $701,000 for the first nine months of 2012 compared to $1,040,000 for the first nine months of 2011.

The Company recorded a benefit for income taxes for the quarter and nine months ended September 30, 2012 of $3,893,000 and $3,251,000, respectively, which was the result of the reversal of the $4,277,000 deferred tax asset valuation allowance (the Company had recorded a provision for income taxes of $1,026,000 in 2012). The deferred tax asset valuation allowance was established in the third quarter of 2010 when it was determined to be more likely than not that a portion of the Company's deferred tax asset would not be realized due to the Company's previous losses and the uncertainty of the Company's ability to generate sufficient future taxable income. To determine if the benefit of its net deferred tax asset will more likely than not be realized, the Company's management analyzed both positive and negative evidence that may affect the realization of the deferred tax asset. This evidence includes sustained pre-tax income for eight consecutive quarters as of September 30, 2012. Other evidence considered by management includes the termination of the supervisory agreement by and among North Valley Bancorp, North Valley Bank, and the Federal Reserve Bank of San Francisco, effective April 16, 2012; the approval by the Federal Reserve Bank of San Francisco and the California Department of Financial Institutions allowing North Valley Bank upstream $16.5 million to the Company to pay all deferred interest on its subordinated debentures and to fully redeem its North Valley Capital Trust I subordinated notes in the amount of $10.3 million; the redemption of the Company's North Valley Capital Trust I on July 25, 2012; estimates of sustained future earnings; and the length of the carryforward period in which the Company must utilize its net operating losses and tax credits. During the quarter ended December 31, 2011, the Company reversed the Federal portion of its valuation allowance in the amount of $223,000, and in the quarter ended September 30, 2012, the Company reversed the remaining valuation allowance of $4,277,000. 

North Valley Bancorp is a bank holding company headquartered in Redding, California. Its subsidiary, North Valley Bank ("NVB"), operates twenty-four commercial banking offices in Shasta, Humboldt, Del Norte, Mendocino, Yolo, Sonoma, Placer and Trinity Counties in Northern California, including two in-store supermarket branches and six 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, except as required by law.

   
NORTH VALLEY BANCORP  
CONDENSED CONSOLIDATED FINANCIAL DATA  
(Unaudited)  
(Dollars in thousands, except share and per share data)  
                       
    Three Months Ended      
    September 30,      
Statement of Income   2012     2011   $ Change     % Change  
Interest income                            
  Loans (including fees)   $ 6,663     $ 7,134   $ (471 )   (6.60 %)
  Investment securities     1,753       2,082     (329 )   (15.80 %)
  Federal funds sold and other     10       22     (12 )   (54.55 %)
    Total interest income     8,426       9,238     (812 )   (8.79 %)
Interest expense                            
  Interest on deposits     462       940     (478 )   (50.85 %)
  Subordinated debentures     243       451     (208 )   (46.12 %)
  Other borrowings     8       -     8     -  
    Total interest expense     713       1,391     (678 )   (48.74 %)
Net interest income     7,713       7,847     (134 )   (1.71 %)
Provision for loan losses     700       400     300     75.00 %
Net interest income after provision for loan losses     7,013       7,447     (434 )   (5.83 %)
                             
Noninterest income                            
  Service charges on deposit accounts     1,086       1,205     (119 )   (9.88 %)
  Other fees and charges     1,102       1,204     (102 )   (8.47 %)
  Gain on sale of loans, net     769       182     587     322.53 %
  Gain on sales of securities, net     697       859     (162 )   (18.86 %)
  Other     550       562     (12 )   (2.14 %)
    Total noninterest income     4,204       4,012     192     4.79 %
                             
Noninterest expenses                            
  Salaries and employee benefits     5,005       4,702     303     6.44 %
  Occupancy     651       732     (81 )   (11.07 %)
  Furniture and equipment     237       229     8     3.49 %
  Other real estate owned expense     817       877     (60 )   (6.84 %)
  FDIC and state assessments     212       294     (82 )   (27.89 %)
  Other     2,837       2,763     74     2.68 %
    Total noninterest expenses     9,759       9,597     162     1.69 %
    Income before (benefit) provision for income taxes     1,458       1,862     (404 )   (21.70 %)
(Benefit) provision for income taxes     (3,893 )     542     (4,435 )   (818.27 %)
    Net income   $ 5,351     $ 1,320   $ 4,031     305.38 %
                             
Common Share Data                            
  Basic and diluted earnings per share   $ 0.78     $ 0.19   $ 0.59     310.53 %
                             
  Shares outstanding     6,835,192       6,833,369              
  Basic weighted average shares outstanding     6,834,769       6,834,369              
  Dilutive weighted average shares outstanding     6,835,769       6,834,369              
  Book value per share   $ 14.47     $ 13.28              
  Tangible book value   $ 14.43     $ 13.22              
                             
                             
   
NORTH VALLEY BANCORP  
CONDENSED CONSOLIDATED FINANCIAL DATA  
(Unaudited)  
(Dollars in thousands, except share and per share data)  
                       
    Nine Months Ended            
    September 30,            
Statement of Income   2012     2011   $ Change     % Change  
Interest income                            
  Loans (including fees)   $ 19,457     $ 21,978   $ (2,521 )   (11.47 %)
  Investment securities     5,943       6,251     (308 )   (4.93 %)
  Federal funds sold and other     55       37     18     48.65 %
    Total interest income     25,455       28,266     (2,811 )   (9.94 %)
Interest expense                            
  Interest on deposits     1,800       3,034     (1,234 )   (40.67 %)
  Subordinated debentures     1,213       1,420     (207 )   (14.58 %)
  Other borrowings     8       1     7     700.00 %
    Total interest expense     3,021       4,455     (1,434 )   (32.19 %)
Net interest income     22,434       23,811     (1,377 )   (5.78 %)
Provision for loan losses     2,100       2,650     (550 )   (20.75 %)
Net interest income after provision for loan losses     20,334       21,161     (827 )   (3.91 %)
                             
Noninterest income                            
  Service charges on deposit accounts     3,274       3,543     (269 )   (7.59 %)
  Other fees and charges     3,620       3,483     137     3.93 %
  Gain on sale of loans, net     1,858       957     901     94.15 %
  Gain on sales of securities, net     1,656       849     807     95.05 %
  Other     1,742       1,816     (74 )   (4.07 %)
    Total noninterest income     12,150       10,648     1,502     14.11 %
                             
Noninterest expenses                            
  Salaries and employee benefits     15,113       13,894     1,219     8.77 %
  Occupancy     1,911       2,124     (213 )   (10.03 %)
  Furniture and equipment     709       819     (110 )   (13.43 %)
  Other real estate owned expense     1,793       2,506     (713 )   (28.45 %)
  FDIC and state assessments     701       1,040     (339 )   (32.60 %)
  Other     8,416       8,420     (4 )   (0.05 %)
    Total noninterest expenses     28,643       28,803     (160 )   (0.56 %)
    Income before (benefit) provision for income taxes     3,841       3,006     835     27.78 %
(Benefit) provision for income taxes     (3,251 )     768     (4,019 )   (523.31 %)
    Net income   $ 7,092     $ 2,238   $ 4,854     216.89 %
                             
Common Share Data                            
  Basic and diluted earnings per share   $ 1.04     $ 0.33   $ 0.71     215.15 %
                             
  Shares outstanding     6,835,192       6,833,752              
  Basic weighted average shares outstanding     6,834,095       6,832,787              
  Dilutive weighted average shares outstanding     6,835,095       6,832,787              
  Book value per share   $ 14.47     $ 13.28              
  Tangible book value   $ 14.43     $ 13.22              
                               
                               
                   
NORTH VALLEY BANCORP  
CONDENSED CONSOLIDATED FINANCIAL DATA  
(Unaudited)  
(Dollars in thousands)  
                   
   September 30,    December 31,    September 30, 
Balance Sheet Data   2012     2011     2011  
Assets                        
  Cash and due from banks   $ 19,436     $ 18,758     $ 21,662  
  Federal funds sold     405       40,210       68,535  
  Time deposits at other financial institutions     2,210       1,959       459  
  Available-for-sale securities - at fair value     299,025       312,205       272,880  
  Held-to-maturity securities - at amortized cost     6       6       6  
                         
  Loans net of deferred loan fees     489,900       456,215       471,758  
  Allowance for loan losses     (11,427 )     (12,656 )     (13,671 )
    Net loans     478,473       443,559       458,087  
                         
  Premises and equipment, net     9,303       8,661       8,158  
  Other real estate owned     21,689       20,106       20,888  
  Core deposit intangibles, net     292       401       437  
  Accrued interest receivable and other assets     63,712       59,101       60,177  
Total assets   $ 894,551     $ 904,966     $ 911,289  
                         
Liabilities and Shareholders' Equity                        
  Deposits:                        
  Demand, noninterest bearing   $ 166,968     $ 167,506     $ 163,241  
  Demand, interest bearing     181,302       170,124       169,030  
  Savings and money market     232,865       216,299       219,438  
  Time     177,341       212,310       217,699  
    Total deposits     758,476       766,239       769,408  
                         
  Accrued interest payable and other liabilities     15,510       17,301       19,170  
  Subordinated debentures     21,651       31,961       31,961  
Total liabilities     795,637       815,501       820,539  
  Shareholders' equity     98,914       89,465       90,750  
Total liabilities and shareholders' equity   $ 894,551     $ 904,966     $ 911,289  
                         
Asset Quality                        
  Nonaccrual loans   $ 11,573     $ 18,359     $ 11,953  
  Loans past due 90 days and accruing interest     6       52       189  
  Other real estate owned     21,689       20,106       20,888  
    Total nonperforming assets   $ 33,268     $ 38,517     $ 33,030  
                         
  Classified assets   $ 49,921     $ 59,742     $ 67,691  
  Bank Tier 1 Capital + ALLL   $ 115,852     $ 126,323     $ 127,382  
  Classified assets ratio     43.09 %     47.29 %     53.14 %
                         
  Allowance for loan losses to total loans     2.33 %     2.77 %     2.90 %
  Allowance for loan losses to NPL's     98.69 %     68.74 %     112.59 %
                         
                         
                         
NORTH VALLEY BANCORP  
CONDENSED CONSOLIDATED FINANCIAL DATA  
(Unaudited)  
(Dollars in thousands)  
                         
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
Selected Financial Ratios   2012     2011     2012     2011  
  Return on average total assets     2.32 %     0.58 %     1.04 %     0.33 %
  Return on average shareholders' equity     22.59 %     5.85 %     10.23 %     3.45 %
  Net interest margin (tax equivalent basis)     3.78 %     3.90 %     3.70 %     4.00 %
  Efficiency ratio     81.89 %     80.93 %     82.82 %     83.59 %
                                 
Selected Average Balances                                
  Loans   $ 475,600     $ 474,416     $ 458,826     $ 489,692  
  Taxable investments     311,736       279,548       313,546       278,685  
  Tax-exempt investments     11,663       14,092       12,290       14,283  
  Federal funds sold and other     17,770       38,076       31,207       21,394  
    Total earning assets   $ 816,769     $ 806,132     $ 815,869     $ 804,054  
    Total assets   $ 913,239     $ 898,452     $ 912,386     $ 895,754  
                                 
  Demand deposits - interest bearing   $ 180,431     $ 163,610     $ 178,725     $ 163,140  
  Savings and money market     226,630       221,669       223,022       220,911  
  Time deposits     184,802       211,521       199,983       216,650  
  Subordinated debentures     24,116       31,961       29,327       31,961  
  Other borrowings     11,056       -       3,749       -  
    Total interest bearing liabilities   $ 627,035     $ 628,761     $ 634,806     $ 632,662  
  Demand deposits - noninterest bearing   $ 168,658     $ 161,939     $ 161,464     $ 157,923  
  Shareholders' equity   $ 93,957     $ 89,446     $ 92,365     $ 86,743  
                                 
                                 
                     
NORTH VALLEY BANCORP  
CONDENSED CONSOLIDATED FINANCIAL DATA  
(Unaudited)  
(Dollars in thousands, except per share data)  
       
    For the Quarter Ended  
    September     June   March   December  
    2012     2012   2012   2011  
Interest income   $ 8,426     $ 8,420   $ 8,609   $ 8,879  
Interest expense     713       1,091     1,217     1,331  
  Net interest income     7,713       7,329     7,392     7,548  
                             
Provision for loan losses     700       1,000     400     -  
Noninterest income     4,204       4,687     3,259     3,717  
Noninterest expense     9,759       9,228     9,656     10,912  
                             
Income before (benefit) provision for income taxes     1,458       1,788     595     353  
(Benefit) provision for income taxes     (3,893 )     527     115     (456 )
  Net income   $ 5,351     $ 1,261   $ 480   $ 809  
                             
Common Share Data                            
  Basic and diluted earnings per share   $ 0.78     $ 0.18   $ 0.07   $ 0.12  
                               
                               
Contact:
For further information contact:

Michael J. Cushman
President & Chief Executive Officer
(530) 226-2900
Fax: (530) 221-4877

Kevin R. Watson
Executive Vice President & Chief Financial Officer
(530) 226-2900
Fax: (530) 221-4877
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