SOURCE: North Valley Bancorp

January 29, 2008 08:30 ET

North Valley Bancorp Reports Results for the Fourth Quarter and Year Ended December 31, 2007

REDDING, CA--(Marketwire - January 29, 2008) - North Valley Bancorp (NASDAQ: NOVB), a bank holding company with $949 million in assets, today reported results for the quarter and year ended December 31, 2007. North Valley Bancorp ("the Company") is the parent company for North Valley Bank ("NVB").

During 2007, total assets increased $43,346,000, or 4.8%, to $949,019,000 at December 31, 2007. The Company was successful in shifting more of its earning assets into the loan portfolio as loans increased $86,460,000, or 13.1%, totaling $746,253,000 at December 31, 2007. The increase in loans was funded primarily from paydowns, maturities and calls of investment securities. The loan to deposit ratio at year end 2007 was 101.3% as compared to 87.9% at year end 2006. Total deposits decreased $13,549,000, or 1.8%, to total $736,739,000 at December 31, 2007, resulting from a decrease in noninterest bearing and interest bearing demand and savings deposits of $56,751,000 offset by increases in time deposits of $43,202,000.

On a GAAP basis, the Company reported net income for the year ended December 31, 2007 of $6,534,000, or $0.86 per diluted share, compared to $10,396,000, or $1.36 per diluted share, for the year ended December 31, 2006. This represents a decrease in net income $3,862,000, or 37.1%, and $0.50 per diluted share, or 36.8%, compared to the year ended December 31, 2006. For the year ended December 31, 2007, the Company realized a return on average stockholders' equity of 8.31% and a return on average assets of 0.72%, as compared to 14.48% and 1.15%, respectively, for 2006. On a GAAP basis, the Company reported net income for the fourth quarter ended December 31, 2007 of $390,000, or $0.05 per diluted share, compared to $3,054,000, or $0.40 per diluted share, for the same period in 2006. This represents a decrease in net income of $2,664,000, or 87.2%, compared to the fourth quarter of 2006. For the fourth quarter of 2007, the Company realized an annualized return on average shareholders' equity of 1.91% and an annualized return on average assets of 0.17%, as compared to 16.48% and 1.33%, respectively, for the fourth quarter of 2006. For the quarter and year ended December 31, 2007, the Company recorded $156,000 and $1,242,000, respectively, of pre-tax merger related expenses resulting from the expected merger with Sterling Financial Corporation, which was terminated on December 1, 2007, as well as a $1,716,000 pre-tax write-down of a FNMA Preferred Stock investment identified as impaired, which are not included in the following non-GAAP net income calculations. On a non-GAAP basis, the Company reported net income for the fourth quarter ended December 31, 2007 of $1,663,000, or $0.22 per diluted share, and $8,546,000, or $1.12 per diluted share, for the year ended December 31, 2007.

2007 Financial Performance

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 $1,608,000, or 3.8%, for the year ended December 31, 2007 compared to 2006. This was due to an increase in interest expense of $3,953,000 which was partially offset by an increase in interest income of $2,345,000. The increase in interest income was mostly due to an increase in average total loans of $42,339,000. This increase was primarily funded by the decrease in average investments of $30,788,000. Average yields on earning assets increased 15 basis points to 7.38% for 2007 while the average rate paid on interest-bearing liabilities increased by 59 basis points to 2.91%. The increase in asset yields was primarily due to the growth and change in the mix of earning assets consisting of a higher proportion of loans for 2007 compared to 2006. The Company's net interest margin in 2007 was 5.09%, a decrease from 5.22% in 2006. During the fourth quarter of 2007, the Company's net interest margin was 4.89%, a decrease from the 5.40% net interest margin in the fourth quarter of 2006, and a decrease from the 5.06% net interest margin for the linked quarter. The decrease in the net interest margin was primarily due to the increase in rates paid and the change in the mix of deposits. "We continue to feel pressure on our net interest margin due to the increase in our cost of funds as a result of a highly competitive deposit pricing environment," commented Kevin Watson, Chief Financial Officer.

Noninterest income for the quarter ended December 31, 2007 was $1,505,000 compared to $3,239,000 for the same quarter in 2006. Other fees and charges increased by $81,000 to $933,000 for the fourth quarter of 2007 compared to $852,000 for the fourth quarter of 2006, while service charges on deposits increased by $117,000 to $1,748,000 for the quarter compared to $1,631,000 for the same period in 2006. Other noninterest income for the quarter ended December 31, 2007 decreased by $1,932,000. During the fourth quarter of 2007, the Company recognized impairment on its FNMA Preferred Stock of $1,716,000. The Company had purchased 100,000 shares of this security in June 2003 at par, $50.00 per share, and took a write-down to its December 31, 2007 market value of $32.84. This impairment was the primary reason for the decrease in noninterest income for the quarter ended December 31, 2007.

Noninterest income decreased to $11,159,000 for the year ended December 31, 2007 compared to $12,650,000 for the year ended December 31, 2006. Service charges on deposits increased by $433,000 in 2007 while other fees and charges increased $544,000 in 2007 compared to 2006 due to increased servicing fees. Earnings on the cash surrender value of life insurance policies increased from $1,211,000 in 2006 to $1,276,000 in 2007 due to higher market rates associated with those policies. Other noninterest income decreased $2,533,000 compared to 2006 due primarily to the write-down of the security mentioned in the preceding paragraph, and secondarily due to decreases in the amount of gain on loan sales, decreases in income from sales of annuity and security products, and a gain on the sale of Bank property in 2006.

Noninterest expense increased $83,000 to $9,943,000 for the fourth quarter of 2007 from $9,860,000 for the fourth quarter of 2006. In the fourth quarter of 2007, salaries and employee benefits increased $17,000, furniture and equipment expense decreased $66,000, and other expenses increased $121,000, while occupancy expense increased $11,000. The Company had $156,000 of merger and acquisition expense in the fourth quarter of 2007 associated with the terminated merger with Sterling Financial Corporation.

Noninterest expense totaled $40,386,000 for the year 2007 compared to $39,615,000 for the year 2006 which is an increase of $771,000 or 1.9%. Salaries and benefits decreased by $101,000, or 0.5%, from 2006 levels. Equipment expense decreased from $2,153,000 in 2006 to $2,029,000 in 2007. Occupancy expense increased from $3,023,000 in 2006 to $3,075,000 in 2007. Other expenses, which include professional services, data processing, and marketing expenses, increased by $944,000 in 2007 compared to 2006 due primarily to the merger and acquisition expenses of $1,242,000 associated with the terminated merger with Sterling Financial Corporation.

The Company recorded a provision for loan and lease losses for the quarter ended December 31, 2007 of $1,200,000, an increase of $1,150,000 compared to the $50,000 recorded for the quarter ended December 31, 2006. A provision for loan and lease losses of $2,050,000 was recorded for the year ended December 31, 2007, a $1,075,000 increase from the $975,000 recorded for 2006. The increase in provision for loan and lease losses for the year 2007 compared to 2006 reflected continued growth in the Company's loan portfolio and the inherent risks and uncertainties in the current economic environment.

The provision for income taxes for the year ended December 31, 2007 was $3,075,000, resulting in an effective tax rate of 32%, compared to $4,158,000, or an effective tax rate of 29%, for the year ended December 31, 2006. The increase in the effective tax rate is due to a change in the estimated tax rate applied to 2006 net income to reflect greater California jobs credits and a lowering of the expected Federal statutory rate on the Company's taxable income for the year 2006.

Credit Quality

Nonperforming loans (defined as nonaccrual loans and loans 90 days or more past due and still accruing interest) increased $1,289,000 to $1,764,000, or 0.24%, of total loans at December 31, 2007 from $475,000, or 0.07%, of total loans at December 31, 2006. Other real estate owned at December 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. The allowance for loan and lease losses at December 31, 2007 was $10,755,000, or 1.44% of total loans, compared to $8,831,000, or 1.34% of total loans, at December 31, 2006. The Company had net charge-offs for the twelve months ended December 31, 2007 of $126,000 compared to net charge-offs of $9,000 for the year 2006.

Summary

"Our management team has done an excellent job preserving our franchise value under difficult circumstances. The team is stronger and our business is secure as we look forward to the future. We are focused intently on the need for strong underwriting and close monitoring of real estate loan activity. We can't change the market, but we can mitigate our risks in the business we produce. Our commitment is to recognize problems early, manage them expertly, and maintain ALLL and capital levels that support the safety and soundness of the Company and the long-term value of our franchise," stated Michael J. Cushman, President & CEO.

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, 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
                                    December 31,
Statement of Income Data          2007       2006     $ Change   % Change
                                ---------  ---------- ---------  ---------
Interest income:
   Loans and leases (including
    fees)                       $  14,090  $   13,379 $     711        5.3%
   Investment securities            1,248       1,573      (325)     -20.7%
   Federal funds sold and other         7          84       (77)     -91.7%
                                ---------  ---------- ---------  ---------
      Total interest income        15,345      15,036       309        2.1%
                                ---------  ---------- ---------  ---------
Interest expense:
   Deposits                         3,873       3,113       760       24.4%
   Subordinated debentures            609         613        (4)      -0.7%
   Other borrowings                   651         414       237       57.2%
                                ---------  ---------- ---------  ---------
      Total interest expense        5,133       4,140       993       24.0%
                                ---------  ---------- ---------  ---------
Net interest income                10,212      10,896      (684)      -6.3%
Provision for loan and lease
 losses                             1,200          50     1,150     2300.0%
                                ---------  ---------- ---------  ---------
Net interest income after
 provision for loan and lease
 losses                             9,012      10,846    (1,834)     -16.9%
                                ---------  ---------- ---------  ---------

Noninterest income:
   Service charges on deposit
    accounts                        1,748       1,631       117        7.2%
   Other fees and charges             933         852        81        9.5%
   Loss on investment
    securities                     (1,716)          -    (1,716)       N/A
   Other                              540         756      (216)     -28.6%
                                ---------  ---------- ---------  ---------
      Total noninterest income      1,505       3,239    (1,734)     -53.5%
                                ---------  ---------- ---------  ---------

Noninterest expenses:
   Salaries and employee
    benefits                        5,334       5,317        17        0.3%
   Occupancy                          779         768        11        1.4%
   Furniture and equipment            477         543       (66)     -12.2%
   Other                            3,353       3,232       121        3.7%
                                ---------  ---------- ---------  ---------
      Total noninterest
       expenses                     9,943       9,860        83        0.8%
                                ---------  ---------- ---------  ---------
Income before provision for
 income taxes                         574       4,225    (3,651)     -86.4%
Provision for income taxes            184       1,171      (987)     -84.3%
                                ---------  ---------- ---------  ---------
      Net income                $     390  $    3,054 $  (2,664)     -87.2%
                                =========  ========== =========  =========

Common Share Data
  Earnings per share
    Basic                       $    0.05  $     0.42 $   (0.37)     -88.1%
    Diluted                     $    0.05  $     0.40 $   (0.35)     -87.5%

  Weighted average shares
   outstanding                  7,380,519   7,287,827
  Weighted average shares
   outstanding - diluted        7,586,999   7,546,364
  Book value per share          $   10.99  $    10.34
  Tangible book value           $    8.77  $     8.00
  Shares outstanding            7,413,066   7,300,914





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


                                Twelve Months Ended
                                    December 31,
Statement of Income Data          2007       2006     $ Change   % Change
                                ---------  ---------  ---------  ---------
Interest income:
   Loans and leases (including
    fees)                       $  53,712  $  50,241  $   3,471        6.9%
   Investment securities            5,414      6,658     (1,244)     -18.7%
   Federal funds sold and other       398        280        118       42.1%
                                ---------  ---------  ---------  ---------
      Total interest income        59,524     57,179      2,345        4.1%
                                ---------  ---------  ---------  ---------
Interest expense:
   Deposits                        14,497     10,026      4,471       44.6%
   Subordinated debentures          2,438      2,456        (18)      -0.7%
   Other borrowings                 1,703      2,203       (500)     -22.7%
                                ---------  ---------  ---------  ---------
      Total interest expense       18,638     14,685      3,953       26.9%
                                ---------  ---------  ---------  ---------
Net interest income                40,886     42,494     (1,608)      -3.8%
Provision for loan and lease
 losses                             2,050        975      1,075      110.3%
                                ---------  ---------  ---------  ---------
Net interest income after
 provision for loan and lease
 losses                            38,836     41,519     (2,683)      -6.5%
                                ---------  ---------  ---------  ---------

Noninterest income:
   Service charges on deposit
    accounts                        6,870      6,437        433        6.7%
   Other fees and charges           3,730      3,186        544       17.1%
   Loss on investment
    securities                     (1,752)        (3)    (1,749)   58300.0%
   Other                            2,311      3,030       (719)     -23.7%
                                ---------  ---------  ---------  ---------
      Total noninterest income     11,159     12,650     (1,491)     -11.8%
                                ---------  ---------  ---------  ---------

Noninterest expenses:
   Salaries and employee
    benefits                       21,674     21,775       (101)      -0.5%
   Occupancy                        3,075      3,023         52        1.7%
   Furniture and equipment          2,029      2,153       (124)      -5.8%
   Other                           13,608     12,664        944        7.5%
                                ---------  ---------  ---------  ---------
      Total noninterest
       expenses                    40,386     39,615        771        1.9%
                                ---------  ---------  ---------  ---------
Income before provision for
 income taxes                       9,609     14,554     (4,945)     -34.0%
Provision for income taxes          3,075      4,158     (1,083)     -26.0%
                                ---------  ---------  ---------  ---------
      Net income                $   6,534  $  10,396  $  (3,862)     -37.1%
                                =========  =========  =========  =========

Common Share Data
  Earnings per share
    Basic                       $    0.89  $    1.41  $   (0.52)     -36.9%
    Diluted                     $    0.86  $    1.36  $   (0.50)     -36.8%

  Weighted average shares
   outstanding                  7,361,409  7,379,959
  Weighted average shares
   outstanding - diluted        7,634,221  7,637,623
  Book value per share          $   10.99  $   10.34
  Tangible book value           $    8.77  $    8.00
  Shares outstanding            7,413,066  7,300,914





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


                                                December 31,  December 31,
Balance Sheet Data                                  2007          2006
                                                ------------  ------------
Assets
  Cash and due from banks                       $     28,569  $     30,826
  Federal funds sold and other                         6,237        10,670
  Available-for-sale securities - at fair value      104,341       133,571
  Held-to-maturity securities - at amortized
   cost                                                   31            82

Loans and leases, net of deferred loan fees          746,253       659,793
    Less: Allowance for loan and lease losses        (10,755)       (8,831)
                                                ------------  ------------
    Net loans and leases                             735,498       650,962

  Premises and equipment, net                         12,431        13,797
  Other real estate owned                                902           902
  Goodwill and core deposit intangibles, net          16,423        17,074
  Accrued interest receivable and other assets        44,587        47,789
                                                ------------  ------------
Total assets                                    $    949,019  $    905,673
                                                ============  ============

Liabilities and Stockholders' Equity
  Deposits:
    Demand, noninterest bearing                 $    167,615  $    194,842
    Demand, interest bearing                         147,056       160,939
    Savings and money market                         181,192       196,833
    Time                                             240,876       197,674
                                                ------------  ------------
        Total deposits                               736,739       750,288
  Other borrowed funds                                87,192        37,500
  Accrued interest payable and other
   liabilities                                        11,656        10,433
  Subordinated debentures                             31,961        31,961
                                                ------------  ------------
Total liabilities                                    867,548       830,182
  Stockholders' equity                                81,471        75,491
                                                ------------  ------------
Total liabilities and stockholders' equity      $    949,019  $    905,673
                                                ============  ============

Asset Quality
  Nonaccrual loans and leases                   $      1,608  $         72
  Loans and leases past due 90 days and
   accruing interest                                     156           403
  Other real estate owned                                902           902
                                                ------------  ------------
    Total nonperforming assets                  $      2,666  $      1,377
                                                ============  ============

  Allowance for loan and lease losses to total
   loans and leases                                     1.44%         1.34%
  Allowance for loan and lease losses to NPL's        609.69%      1859.16%
  Allowance for loan and lease losses to NPA's        403.41%       641.32%





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


                                 Three Months Ended   Twelve Months Ended
                                    December 31,          December 31,
Selected Financial Ratios         2007       2006       2007       2006
                                ---------  ---------  ---------  ---------
  Return on average total
   assets                            0.17%      1.33%      0.72%      1.15%
  Return on average
   stockholders' equity              1.91%     16.48%      8.31%     14.48%
  Net interest margin (tax
   equivalent basis)                 4.89%      5.40%      5.09%      5.22%
  Efficiency ratio                  84.86%     69.76%     77.60%     71.84%

Selected Average Balances
  Loans                         $ 726,157  $ 663,917  $ 684,506  $ 642,167
  Taxable investments              92,064    119,115    101,102    129,943
  Tax-exempt investments           20,651     22,101     20,917     22,864
  Federal funds sold and other        623      6,785      7,586      5,747
                                ---------  ---------  ---------  ---------
    Total earning assets        $ 839,495  $ 811,918  $ 814,111  $ 800,721
                                ---------  ---------  ---------  ---------
    Total assets                $ 929,281  $ 907,937  $ 905,286  $ 901,273
                                ---------  ---------  ---------  ---------

  Demand deposits - interest
   bearing                      $ 152,194  $ 162,207  $ 157,197  $ 166,156
  Savings and money market        187,698    202,326    193,498    202,722
  Time deposits                   235,360    192,987    219,685    179,832
  Other borrowings                 91,280     72,621     70,540     84,751
                                ---------  ---------  ---------  ---------
    Total interest bearing
     liabilities                $ 666,532  $ 630,141  $ 640,920  $ 633,461
                                ---------  ---------  ---------  ---------
  Demand deposits - noninterest
   bearing                      $ 170,291  $ 192,071  $ 174,457  $ 185,281
                                ---------  ---------  ---------  ---------
  Stockholders' equity          $  80,951  $  73,504  $  78,667  $  71,795
                                ---------  ---------  ---------  ---------





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


                                            For the Quarter Ended
                                    ---------------------------------------
                                    December  September   June      March
                                      2007      2007      2007      2007
                                    --------- --------- --------- ---------
Interest income                     $  15,345 $  15,083 $  14,600 $  14,496
Interest expense                        5,133     4,838     4,508     4,159
                                    --------- --------- --------- ---------
  Net interest income                  10,212    10,245    10,092    10,337
Provision for loan and lease losses     1,200       850         -         -
Noninterest income                      1,505     3,350     3,170     3,134
Noninterest expense                     9,943     9,481    10,732    10,230
                                    --------- --------- --------- ---------
Income before provision for income
 taxes                                    574     3,264     2,530     3,241
Provision for income taxes                184     1,044       810     1,037
                                    --------- --------- --------- ---------
  Net Income                        $     390 $   2,220 $   1,720 $   2,204
                                    ========= ========= ========= =========
Earnings per share:
  Basic                             $    0.05 $    0.30 $    0.23 $    0.30
                                    ========= ========= ========= =========
  Diluted                           $    0.05 $    0.29 $    0.22 $    0.29
                                    ========= ========= ========= =========

Contact Information

  • 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