North Valley Bancorp Reports Results for the Quarter and Nine Months Ended September 30, 2013

REDDING, CA--(Marketwired - Oct 29, 2013) - North Valley Bancorp (NASDAQ: NOVB), a bank holding company with approximately $912 million in assets, today reported results for the third quarter and nine months ended September 30, 2013. 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, 2013 of $580,000, or $0.08 per diluted share, compared to net income of $4,004,000, or $0.59 per diluted share for the same period in 2012. The Company reported net income for the nine months ended September 30, 2013 of $2,735,000, or $0.40 per diluted share, compared to net income of $5,745,000, or $0.84 per diluted share, for the same period in 2012. Net income for the three and nine months ended September 30, 2012 included a $2,930,000 benefit for income taxes as a result of the $4,277,000 release of the deferred tax asset valuation allowance that was established in the third quarter of 2010. "On October 29, 2013, the Bank was successful in selling eight OREO properties at their recorded value of $9,885,000. After considering this sale of OREO properties, our nonperforming assets, as a percentage of total assets on a pro forma basis as of September 30, 2013, equaled 1.14%. It has been six years since we have had this level of excellent credit quality. The Bank continues to be primarily focused on growth and profitability, which is achieved by delivering excellent service and products to new and existing customers," stated Michael J. Cushman, President and CEO.

Continued improvement in the overall credit quality of the Company's loan portfolio resulted in no provision for loan losses being recorded for the third quarter and nine months ended September 30, 2013 compared to provisions for loan losses of $700,000 and $2,100,000 for the third quarter and nine months ended September 30, 2012, respectively. The allowance for loan losses at September 30, 2013 was $9,312,000, or 1.83% of total loans, compared to $10,458,000, or 2.12% of total loans at December 31, 2012 and $11,427,000, or 2.33% of total loans at September 30, 2012.

At September 30, 2013, total assets were $912,447,000, an increase of $19,393,000, or 2.2%, from $893,054,000 at September 30, 2012. The loan portfolio totaled $509,092,000 at September 30, 2013, an increase of $19,192,000, or 3.9%, compared to $489,900,000 at September 30, 2012. The loan to deposit ratio at September 30, 2013 was 65.3% as compared to 64.6% at September 30, 2012, and 64.0% at December 31, 2012. Total deposits increased $21,294,000, or 2.8%, to $779,770,000 at September 30, 2013 compared to $758,476,000 at September 30, 2012. When compared to December 31, 2012, total assets at September 30, 2013 increased $10,104,000 from $902,343,000, loans increased by $16,881,000 from $492,211,000 and deposits increased by $11,190,000 from $768,580,000. Available-for-sale investment securities increased $7,812,000 while Federal funds sold decreased $13,520,000, from December 31, 2012 to September 30, 2013.

At September 30, 2013, the Company's Total Risk-based Capital was $117,597,000, and its risk-based capital ratios were: Total Risk-based Capital ratio - 18.6%; Tier 1 risk-based Capital ratio - 17.3%; and Tier 1 Leverage ratio - 12.2%. The Bank's Total Risk-based Capital at September 30, 2013 was $117,171,000, and its risk-based capital ratios were: Total Risk-based Capital ratio - 18.5%; Tier 1 risk-based Capital ratio - 17.3%; and Tier 1 Leverage ratio - 12.2%.

Credit Quality

Nonperforming loans (defined as nonaccrual loans and loans 90 days or more past due and still accruing interest) decreased $6,363,000 to $5,216,000 at September 30, 2013 from $11,579,000 at September 30, 2012, and decreased $619,000 when compared to the December 31, 2012 balance of $5,835,000. Nonperforming loans as a percentage of total loans were 1.02% at September 30, 2013, compared to 2.36% at September 30, 2012, and 1.19% at December 31, 2012.

The overall level of nonperforming loans decreased $655,000 to $5,216,000 at September 30, 2013 from $5,871,000 at June 30, 2013. During the third quarter of 2013, the Company identified seven loans totaling $863,000 as additional nonperforming loans. The additions were offset by reductions in nonperforming loans totaling $1,518,000 due primarily to charge-offs and collections received on certain loans and the transfer of one property to OREO totaling $41,000. Of the seven loans totaling $863,000 identified as nonaccrual loans and added to nonperforming loans during the third quarter of 2013, the largest loan was a $639,000 commercial real estate loan secured by property in Shasta County. No specific reserve has been established for this loan. The remaining six loans in this group of nonperforming loans total $224,000 and specific reserves totaling $16,000 have been established.

Gross loan charge-offs for the third quarter of 2013 were $290,000 and recoveries totaled $75,000 resulting in net charge-offs of $215,000 compared to gross loan charge-offs for the third quarter of 2012 of $1,094,000 and recoveries of $89,000 resulting in net charge-offs of $1,005,000. Gross charge-offs for the nine months ended September 30, 2013 were $1,491,000 and recoveries totaled $345,000 resulting in net charge-offs of $1,146,000, compared to gross charge-offs for the nine months ended September 30, 2012 of $3,651,000 and recoveries of $322,000 resulting in net charge-offs of $3,329,000. These continued improvement trends in credit quality, partially offset by growth in the loan portfolio, resulted in management's determination that the allowance for loan losses of $9,312,000 or 1.83% of total loans at September 30, 2013 was adequate as an estimate of the probable incurred losses in the portfolio. The allowance for loan losses at December 31, 2012 was $10,458,000 or 2.12% of total loans compared to the September 30, 2012 balance of $11,427,000 or 2.33% of total loans.

Nonperforming assets (nonperforming loans and OREO) totaled $20,261,000 at September 30, 2013, a decrease of $13,007,000 from the September 30, 2012 balance of $33,268,000, and a $7,997,000 decrease from the December 31, 2012 balance of $28,258,000. Nonperforming assets as a percentage of total assets were 2.22% at September 30, 2013 compared to 3.72% at September 30, 2012 and 3.13% at December 31, 2012.

The Company's OREO properties decreased $1,279,000 to $15,045,000 at September 30, 2013 from $16,324,000 at June 30, 2013. The decrease in OREO was due to the sale of two properties totaling $179,000, loss on sale of OREO of $2,000, and a net write-down of certain other OREO properties during the quarter ended September 30, 2013 of $1,139,000 as a result of recent offers for purchase received on those properties and their anticipated sale in the fourth quarter of 2013. The decrease in OREO was partially offset by the transfer of one property into OREO totaling $41,000. Subsequent to September 30, 2013, the Company sold eight OREO properties located in Sonoma County at their recorded value of $9,885,000 which resulted in no additional gain or loss. The transaction closed on October 29, 2013.

Operating Results

Net interest income, which represents the Company's largest component of revenues and is the difference between interest earned on loans, investments, and other earning assets and interest paid on deposits and borrowings, increased $61,000, or 0.8%, for the three months ended September 30, 2013 compared to the same period in 2012. Interest income decreased by $261,000, 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 $36,000 related to loans currently on nonaccrual status for the three months ended September 30, 2013 compared to $138,000 for the same period in 2012. Average loans increased $24,320,000 in the third quarter of 2013 compared to the third quarter of 2012, while the yield on the loan portfolio decreased 43 basis points to 5.13% for the third quarter of 2013. Offsetting this decrease in interest income was a decrease in interest expense of $322,000, or 45.2%, primarily due to a decrease in the rates paid on deposits and secondarily to a decrease in interest expense on the Company's subordinated debentures. Overall, average earning assets decreased $4,654,000 in the third quarter of 2013 compared to the third quarter of 2012. Average yields on earning assets decreased 12 basis points from the quarter ended September 30, 2012, to 4.01% for the quarter ended September 30, 2013 while the average rate paid on interest-bearing liabilities decreased by 20 basis points to 0.25%. The Company's net interest margin for the quarter ended September 30, 2013 was 3.82%, an increase of 4 basis points from the margin of 3.78% for the third quarter in 2012 and an increase of 5 basis points from the 3.77% net interest margin for the quarter ended June 30, 2013. Net interest income increased $354,000 for the nine months ended September 30, 2013 compared to the same period in 2012. Total interest income decreased by $1,441,000 for the nine months ended September 30, 2013 compared to the same period in 2012, primarily due to a decrease in interest income on investment securities of $1,207,000 as a result of a decrease in the average balance of investment securities. Interest expense decreased $1,795,000 due primarily to both a decrease on rates paid on deposits and a decrease in interest expense on the Company's subordinated debentures for the nine months ended September 30, 2013 compared to the same period in 2012. The net interest margin for the nine months ended September 30, 2013 increased 9 basis points to 3.79% from the net interest margin of 3.70% for the nine months ended September 30, 2012.

Noninterest income for the quarter ended September 30, 2013 decreased $995,000, or 23.7%, to $3,209,000 from $4,204,000 for the same period in 2012. Service charges on deposits decreased $127,000 to $959,000 for the third quarter of 2013 compared to $1,086,000 for the third quarter of 2012, while other fees and charges increased by $50,000 to $1,152,000 for the third quarter of 2013 compared to $1,102,000 for the same period in 2012. The Company recorded gains on the sale of mortgage loans of $574,000 for the third quarter of 2013, a decrease of $159,000 from $733,000 for the same period in 2012 as the activity of the Company's real estate mortgage department, consistent with industry trends, slowed at the end of the third quarter of 2013. The Company recorded a gain on the sale of securities of $5,000 for the third quarter ended September 30, 2013, a decrease of $692,000 from $697,000 for the same period in 2012. Noninterest income for the nine months ended September 30, 2013 decreased $961,000 to $11,189,000 from $12,150,000 for the same period in 2012. Service charges on deposits decreased $392,000 to $2,882,000 for the nine months ended September 30, 2013 compared to $3,274,000 for the same period in 2012, and other fees and charges decreased by $240,000 to $3,380,000 for the nine months ended September 30, 2013 compared to $3,620,000 for the same period in 2012. The Company recorded gains on the sale of mortgage loans of $2,031,000 for the nine months ended September 30, 2013, an increase of $315,000 from $1,716,000 for the same period in 2012, and the Company recorded gains on the sale of SBA loans of $410,000 for the nine months ended September 30, 2013, an increase of $268,000 from $142,000 for the same period in 2012. The Company recorded a gain on the sale of securities of $548,000 for the nine months ended September 30, 2013, a decrease of $1,108,000 from $1,656,000 for the same period in 2012.

Noninterest expense increased $277,000 to $10,036,000 for the third quarter of 2013 from $9,759,000 for the third quarter of 2012. Salaries and employee benefits increased $79,000 to $5,084,000 for the third quarter of 2013 compared to the third quarter of 2012, and other real estate owned expense increased $409,000 to $1,226,000 for the third quarter of 2013 compared to the third quarter of 2012. These increases were partially offset by a decrease in occupancy and equipment expense of $36,000, a decrease in FDIC insurance premiums and state assessments of $5,000, and a decrease in other expenses of $170,000. Noninterest expense for the nine months ended September 30, 2013 was $29,860,000, an increase of $1,217,000 compared to $28,643,000 for the same period in 2012. For the nine months ended September 30, 2013, salaries and employee benefits increased $210,000 and other real estate owned expense increased by $799,000, while occupancy and equipment expense decreased $98,000, and FDIC insurance premiums and state assessments decreased by $63,000 compared to the first nine months of 2012. Other expenses increased by $369,000 to $8,785,000 for the first nine months of 2013 compared to $8,416,000 for the first nine months of 2012.

The Company recorded provisions for income taxes for the quarter and nine months ended September 30, 2013 of $367,000 and $1,382,000, respectively, resulting in an effective tax rate of 38.7% for the quarter ended September 30, 2013, and an effective tax rate of 33.5% for the nine months ended September 30, 2013. The Company recorded a benefit for income taxes for the quarter and nine months ended September 30, 2012 of $2,546,000 and $1,904,000, respectively, which was the result of the reversal of the $4,277,000 deferred tax asset valuation established in 2010.

North Valley Bancorp is a bank holding company headquartered in Redding, California. Its subsidiary, North Valley Bank ("NVB"), operates twenty-two 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 per share data)
				Three Months Ended
				September 30,
Statement of Income				2013			2012				$ Change				% Change
Interest income
	Loans (including fees)			$	6,462		$	6,663			$	(201	)		(3.02	%)
	Investment securities				1,700			1,753				(53	)		(3.02	%)
	Federal funds sold and other				3			10				(7	)		(70.00	%)
		Total interest income			8,165			8,426				(261	)		(3.10	%)
Interest expense
	Interest on deposits				257			462				(205	)		(44.37	%)
	Other borrowings				-			8				(8	)		(100.00	%)
	Subordinated debentures				134			243				(109	)		(44.86	%)
		Total interest expense			391			713				(322	)		(45.16	%)
Net interest income					7,774			7,713				61			0.79	%
Provision for loan losses					-			700				(700	)		(100.00	%)
Net interest income after provision for loan losses					7,774			7,013				761			10.85	%
Noninterest income
	Service charges on deposit accounts				959			1,086				(127	)		(11.69	%)
	Other fees and charges				1,152			1,102				50			4.54	%
	Gain on sales of mortgage loans				574			733				(159	)		(21.69	%)
	Gain on sales of SBA loans				22			36				(14	)		(38.89	%)
	Gain on sales of securities, net				5			697				(692	)		(99.28	%)
	Other				497			550				(53	)		(9.64	%)
		Total noninterest income			3,209			4,204				(995	)		(23.67	%)
Noninterest expenses
	Salaries and employee benefits				5,084			5,005				79			1.58	%
	Occupancy				629			651				(22	)		(3.38	%)
	Furniture and equipment				223			237				(14	)		(5.91	%)
	Other real estate owned expense				1,226			817				409			50.06	%
	FDIC and state assessments				207			212				(5	)		(2.36	%)
	Other				2,667			2,837				(170	)		(5.99	%)
		Total noninterest expenses			10,036			9,759				277			2.84	%
		Income before provision (benefit) for income taxes			947			1,458				(511	)		(35.05	%)
Provision (benefit) for income taxes					367			(2,546	)			2,913			(114.41	%)
		Net income		$	580		$	4,004			$	(3,424	)		(85.51	%)
Common Share Data
Earnings per share
	Basic			$	0.08		$	0.59			$	(0.51	)		(86.44	%)
	Diluted			$	0.08		$	0.59			$	(0.51	)		(86.44	%)
Weighted average shares outstanding					6,835,380			6,834,769
Weighted average shares outstanding - diluted					6,860,617			6,835,769
Book value per share				$	13.91		$	14.27
Tangible book value per share				$	13.89		$	14.23
Shares outstanding					6,836,632			6,835,192

NORTH VALLEY BANCORP
CONDENSED CONSOLIDATED FINANCIAL DATA
(Unaudited)
(Dollars in thousands, except per share data)
				Nine Months Ended
				September 30,
Statement of Income				2013			2012				$ Change				% Change
Interest income
	Loans (including fees)			$	19,244		$	19,457			$	(213	)		(1.09	%)
	Investment securities				4,736			5,943				(1,207	)		(20.31	%)
	Federal funds sold and other				34			55				(21	)		(38.18	%)
		Total interest income			24,014			25,455				(1,441	)		(5.66	%)
Interest expense
	Interest on deposits				825			1,800				(975	)		(54.17	%)
	Other borrowings				1			8				(7	)		(87.50	%)
	Subordinated debentures				400			1,213				(813	)		(67.02	%)
		Total interest expense			1,226			3,021				(1,795	)		(59.42	%)
Net interest income					22,788			22,434				354			1.58	%
Provision for loan losses					-			2,100				(2,100	)		(100.00	%)
Net interest income after provision for loan losses					22,788			20,334				2,454			12.07	%
Noninterest income
	Service charges on deposit accounts				2,882			3,274				(392	)		(11.97	%)
	Other fees and charges				3,380			3,620				(240	)		(6.63	%)
	Gain on sales of mortgage loans				2,031			1,716				315			18.36	%
	Gain on sales of SBA loans				410			142				268			188.73	%
	Gain on sales of securities, net				548			1,656				(1,108	)		(66.91	%)
	Other				1,938			1,742				196			11.25	%
		Total noninterest income			11,189			12,150				(961	)		(7.91	%)
Noninterest expenses
	Salaries and employee benefits				15,323			15,113				210			1.39	%
	Occupancy				1,877			1,911				(34	)		(1.78	%)
	Furniture and equipment				645			709				(64	)		(9.03	%)
	Other real estate owned expense				2,592			1,793				799			44.56	%
	FDIC and state assessments				638			701				(63	)		(8.99	%)
	Other				8,785			8,416				369			4.38	%
		Total noninterest expenses			29,860			28,643				1,217			4.25	%
		Income before provision (benefit) for income taxes			4,117			3,841				276			7.19	%
Provision for income (benefit) taxes					1,382			(1,904	)			3,286			(172.58	%)
		Net income		$	2,735		$	5,745			$	(3,010	)		(52.39	%)
Common Share Data
Earnings per share
	Basic			$	0.40		$	0.84			$	(0.44	)		(52.38	%)
	Diluted			$	0.40		$	0.84			$	(0.44	)		(52.38	%)
Weighted average shares outstanding					6,835,255			6,834,095
Weighted average shares outstanding - diluted					6,853,452			6,835,095
Book value per share				$	13.91		$	14.27
Tangible book value per share				$	13.89		$	14.23
Shares outstanding					6,836,632			6,835,192

NORTH VALLEY BANCORP
CONDENSED CONSOLIDATED FINANCIAL DATA
(Unaudited)
(Dollars in thousands)
					September 30,				December 31,				September 30,
Balance Sheet Data					2013				2012				2012
Assets
	Cash and due from banks				$	23,780			$	22,654			$	19,436
	Federal funds sold					2,345				15,865				405
	Time deposits at other financial institutions					2,219				2,219				2,210
	Available-for-sale securities - at fair value					293,627				285,815				299,025
	Held-to-maturity securities - at amortized cost					6				6				6
	Loans					509,092				492,211				489,900
	Allowance for loan losses					(9,312	)			(10,458	)			(11,427	)
		Net loans				499,780				481,753				478,473
	Premises and equipment, net					8,572				9,181				9,303
	Other real estate owned					15,045				22,423				21,689
	Core deposit intangibles, net					146				255				292
	Accrued interest receivable and other assets					66,927				62,172				62,215
Total assets					$	912,447			$	902,343			$	893,054
Liabilities and Shareholders' Equity
	Deposits:
		Demand, noninterest bearing			$	184,471			$	177,855			$	166,968
		Demand, interest bearing				197,647				185,315				181,302
		Savings and money market				244,039				233,034				232,865
		Time				153,613				172,376				177,341
			Total deposits			779,770				768,580				758,476
	Accrued interest payable and other liabilities					15,952				15,951				15,360
	Other borrowings					-				-				-
	Subordinated debentures					21,651				21,651				21,651
Total liabilities						817,373				806,182				795,487
	Shareholders' equity					95,074				96,161				97,567
Total liabilities and shareholders' equity					$	912,447			$	902,343			$	893,054
Asset Quality
	Nonaccrual loans				$	5,216			$	5,835			$	11,573
	Loans past due 90 days and accruing interest					-				-				6
	Other real estate owned					15,045				22,423				21,689
		Total nonperforming assets			$	20,261			$	28,258			$	33,268
	Classified assets				$	28,842			$	45,297			$	49,921
	Bank Tier 1 Capital + ALLL				$	118,564			$	115,580			$	115,852
	Classified assets ratio					24.33	%			39.19	%			43.09	%
	Allowance for loan losses to total loans					1.83	%			2.12	%			2.33	%
	Allowance for loan losses to NPL's					178.53	%			179.23	%			98.69	%

NORTH VALLEY BANCORP
CONDENSED CONSOLIDATED FINANCIAL DATA
(Unaudited)
(Dollars in thousands)
				Three Months Ended								Nine Months Ended
				September 30,								September 30,
Selected Financial Ratios				2013				2012				2013				2012
	Return on average total assets				0.25	%			1.74	%			0.40	%			0.84	%
	Return on average shareholders' equity				2.46	%			16.91	%			3.82	%			8.29	%
	Net interest margin (tax equivalent basis)				3.82	%			3.78	%			3.79	%			3.70	%
	Efficiency ratio				91.38	%			81.89	%			87.88	%			82.82	%
Selected Average Balances
	Loans			$	499,920			$	475,600			$	491,919			$	458,826
	Taxable investments				299,956				311,736				288,727				313,546
	Tax-exempt investments				7,594				11,663				8,549				12,290
	Federal funds sold and other				4,645				17,770				19,410				31,207
		Total earning assets		$	812,115			$	816,769			$	808,605			$	815,869
		Total assets		$	907,394			$	913,239			$	903,867			$	912,386
	Demand deposits - interest bearing			$	194,608			$	180,431			$	192,284			$	178,725
	Savings and money market				244,571				226,630				243,324				223,022
	Time deposits				155,453				184,802				160,366				199,983
	Other borrowings				25,664				35,172				23,569				33,076
		Total interest bearing liabilities		$	620,296			$	627,035			$	619,543			$	634,806
	Demand deposits - noninterest bearing			$	177,400			$	168,658			$	170,906			$	161,464
	Shareholders' equity			$	93,527			$	93,957			$	95,724			$	92,365

NORTH VALLEY BANCORP
CONDENSED CONSOLIDATED FINANCIAL DATA
(Unaudited)
(Dollars in thousands, except per share data)
			For the Quarter Ended
			September			June			March			December
			2013			2013			2013			2012
Interest income			$	8,165		$	7,981		$	7,868		$	8,276
Interest expense				391			403			432			504
	Net interest income			7,774			7,578			7,436			7,772
Provision for loan losses				-			-			-			-
Noninterest income				3,209			3,651			4,329			4,269
Noninterest expense				10,036			9,936			9,888			11,336
Income before provision for income taxes				947			1,293			1,877			705
Provision for income taxes				367			399			616			160
	Net income		$	580		$	894		$	1,261		$	545
Earnings per common share:
	Basic		$	0.08		$	0.13		$	0.18		$	0.08
	Diluted		$	0.08		$	0.13		$	0.18		$	0.08