UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

xS	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the period ended ~~March 31,~~June 30, 2013.

o£	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the Quarterly Transition Period ~~From_______________~~From _______________ to _______________

Commission file number0-10652


	~~NORTH VALLEY BANCORP~~
~~(Exact name of registrant as specified in its charter)~~

NORTH VALLEY BANCORP

(Exact name of registrant as specified in its charter)

California		94-2751350
(State or other jurisdiction of incorporation or organization)		(IRS Employer ID Number)
~~of incorporation or organization)~~

300 Park Marina Circle, Redding, CA		96001
(Address of principal executive offices)		(Zip code)

~~Registrant’s~~

Registrant's telephone number, including area code (530) 226-2900

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ~~Yes~~xS Noo£

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YesxS Noo£

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):


	Large accelerated filero£	Accelerated filerxS

	Non-accelerated filero£	Smaller reporting companyo£

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso£ NoxS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock – 6,835,192 shares as of ~~May 8,~~August 2, 2013.

~~INDEX~~

INDEX

NORTH VALLEY BANCORP AND SUBSIDIARIES


PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets—~~March 31,~~June 30, 2013 and December 31, 2012	3
	Condensed Consolidated Statements of Income—For the three and six months ended ~~March 31,~~June 30, 2013 and 2012	4
	Consolidated Statements of Comprehensive (Loss) Income—For the three and six months ended ~~March 31,~~June 30, 2013 and 2012	5 6
	Condensed Consolidated Statements of Cash Flows—For the ~~three~~six months ended ~~March 31,~~June 30, 2013 and 2012	6 7
	Notes to Condensed Consolidated Financial Statements	7 8

Item 2.	~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations	24 27

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41 46

Item 4.	Controls and Procedures	41 46

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	41 46

Item 1A.	Risk Factors	41 46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41 46

Item 3.	Defaults Upon Senior Securities	41 46

Item 4.	Mine Safety Disclosures	42 46

Item 5.	Other Information	42 47

Item 6.	Exhibits	42 47

SIGNATURES		43 47

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share data) (Unaudited)
	June 30,			December 31,
	2013			2012
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	21,431		$	22,654
Federal funds sold		—			15,865
Total cash and cash equivalents		21,431			38,519

Time deposits at other financial institutions		2,219			2,219
Investment securities available-for-sale, at fair value		306,300			285,815
Investment securities held-to-maturity, at amortized cost		6			6

Loans		504,274			492,211
Less: Allowance for loan losses		(9,527	)		(10,458	)
Net loans		494,747			481,753

Premises and equipment, net		8,704			9,181
Accrued interest receivable		2,257			2,217
Other real estate owned		16,324			22,423
FHLB and FRB stock and other nonmarketable securities		8,402			8,313
Bank-owned life insurance policies		36,675			36,045
Core deposit intangibles, net		182			255
Other assets		20,511			15,597

TOTAL ASSETS	$	917,758		$	902,343

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Deposits:
Noninterest-bearing	$	173,119		$	177,855
Interest-bearing		591,936			590,725
Total deposits		765,055			768,580

Accrued interest payable and other liabilities		16,281			15,951
Other borrowed funds		22,025			—
Subordinated debentures		21,651			21,651
Total liabilities		825,012			806,182

Commitments and contingencies

STOCKHOLDERS’ EQUITY:
Preferred stock, no par value: authorized 5,000,000 shares; no shares outstanding at June 30, 2013 and December 31, 2012		—			—
Common stock, no par value: authorized 60,000,000 shares; outstanding 6,835,192 at June 30, 2013 and December 31, 2012, respectively		98,686			98,495
Accumulated deficit		(1,845	)		(4,000	)
Accumulated other comprehensive (loss) income, net of tax		(4,095	)		1,666
Total stockholders’ equity		92,746			96,161

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	917,758		$	902,343

The accompanying notes are an integral part of these consolidated financial statements.

NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data) (Unaudited)
	For the three months ended June 30,
	2013		2012
Interest income
Loans, including fees	$	6,416	$	6,324
Taxable securities		1,465		1,943
Tax exempt securities		88		136
Federal funds sold and repurchase agreements		12		17
Total interest income		7,981		8,420

Interest expense
Deposits		269		604
Other borrowed funds		1		—
Subordinated debentures		133		487
Total interest expense		403		1,091

Net interest income		7,578		7,329

Provision for loan losses		—		1,000

Net interest income after provision for loan losses		7,578		6,329

Noninterest income
Service charges on deposit accounts		971		1,136
Other fees and charges		1,108		1,321
Earnings on cash surrender value of life insurance policies		319		359
Gain on sale of loans, net		920		684
Gain on sales or calls of securities, net		—		968
Other		333		219
Total noninterest income		3,651		4,687

Noninterest expense
Salaries and employee benefits		5,077		5,051
Occupancy expense		615		620
Furniture and equipment expense		202		227
FDIC and state assessments		213		176
Other real estate owned expense		990		342
Other		2,839		2,812
Total noninterest expenses		9,936		9,228

Income before provision for income taxes		1,293		1,788

Provision for income taxes		399		527

Net income	$	894	$	1,261

Earnings per share
Basic and diluted income per share	$	0.13	$	0.18

The accompanying notes are an integral part of these consolidated financial statements.

NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data) (Unaudited)
	For the six months ended June 30,
	2013		2012
Interest income
Loans, including fees	$	12,782	$	12,794
Taxable securities		2,841		3,910
Tax exempt securities		195		280
Federal funds sold and repurchase agreements		31		45
Total interest income		15,849		17,029

Interest expense
Deposits		568		1,338
Other borrowed funds		1		—
Subordinated debentures		266		970
Total interest expense		835		2,308

Net interest income		15,014		14,721

Provision for loan losses		—		1,400

Net interest income after provision for loan losses		15,014		13,321

Noninterest income
Service charges on deposit accounts		1,923		2,188
Other fees and charges		2,228		2,518
Earnings on cash surrender value of life insurance policies		782		683
Gain on sale of loans, net		1,845		1,089
Gain on sales or calls of securities, net		543		959
Other		659		509
Total noninterest income		7,980		7,946

Noninterest expense
Salaries and employee benefits		10,239		10,108
Occupancy expense		1,248		1,260
Furniture and equipment expense		422		472
FDIC and state assessments		431		489
Other real estate owned expense		1,366		976
Other		6,118		5,579
Total noninterest expenses		19,824		18,884

Income before provision for income taxes		3,170		2,383

Provision for income taxes		1,015		642

Net income	$	2,155	$	1,741

Earnings per share
Basic income per share	$	0.32	$	0.25
Diluted income per share	$	0.31	$	0.25

The accompanying notes are an integral part of these consolidated financial statements.

NORTH VALLEY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS COMPREHENSIVE (LOSS) INCOME
(In thousands) (Unaudited)

	For three months ended June 30,						For six months ended June 30,
	2013			2012			2013			2012
Net income	$	894		$	1,261		$	2,155		$	1,741
Other comprehensive (loss) income:
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains arising during the period		(9,870	)		2,115			(10,517	)		3,808
Tax effect		4,047			(867	)		4,312			(1,561	)
Reclassification adjustment for gains included in gain on sales or calls of securities, net		—			(968	)		(543	)		(959	)
Provision for income taxes		—			397			223			393
Net of tax		(5,823	)		677			(6,525	)		1,681
Defined benefit pension plans
Net gain (loss) arising during the period		977			35			1,146			—
Tax effect		(400	)		(14	)		(470	)		—
Reclassification adjustment for amortization of prior service cost and net gain included in salaries and employee benefits		74			34			148			69
(Benefit) provision for income taxes		(30	)		(14	)		(60	)		(28	)
Net of tax		621			41			764			41
Total other comprehensive (loss) income		(5,202	)		718			(5,761	)		1,722
Comprehensive (loss) income	$	(4,308	)	$	1,979		$	(3,606	)	$	3,463

The accompanying notes are an integral part of these consolidated financial statements.

NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share data) (Unaudited)
March 31, December 31,
2013 2012
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 15,890 $ 22,654
Federal funds sold 35,925 15,865
Total cash and cash equivalents 51,815 38,519

Time deposits at other financial institutions 2,219 2,219
Investment securities available-for-sale, at fair value 283,721 285,815
Investment securities held-to-maturity, at amortized cost 6 6

Loans 488,606 492,211
Less: Allowance for loan losses (9,651 ) (10,458 )
Net loans 478,955 481,753

Premises and equipment, net 8,978 9,181
Accrued interest receivable 2,182 2,217
Other real estate owned 21,365 22,423
FHLB and FRB stock and other nonmarketable securities 8,313 8,313
Bank-owned life insurance policies 36,433 36,045
Core deposit intangibles, net 219 255
Other assets 16,528 15,597

TOTAL ASSETS $ 910,734 $ 902,343

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES:
Deposits:
Noninterest-bearing $ 174,496 $ 177,855
Interest-bearing 601,424 590,725
Total deposits 775,920 768,580

Accrued interest payable and other liabilities 16,217 15,951
Subordinated debentures 21,651 21,651
Total liabilities 813,788 806,182

Commitments and contingencies

STOCKHOLDERS’ EQUITY:
Preferred stock, no par value: authorized 5,000,000 shares; no shares outstanding at March 31, 2013 and December 31, 2012 — —
Common stock, no par value: authorized 60,000,000 shares; outstanding 6,835,192 at March 31, 2013 and December 31, 2012, respectively 98,578 98,495
Accumulated deficit (2,739 ) (4,000 )
Accumulated other comprehensive income, net of tax 1,107 1,666
Total stockholders’ equity 96,946 96,161

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 910,734 $ 902,343

NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands except per share data) (Unaudited)
	For the six months ended June 30,
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,155		$	1,741
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		507			537
Amortization of premium on securities, net		897			1,030
Amortization of core deposit intangible		73			73
Provision for loan losses		—			1,400
Net losses on sale and write-down of other real estate owned		1,132			749
Gain on sale of loans		(1,845	)		(1,089	)
Gain on sales or calls of securities		(543	)		(959	)
(Gain) loss on sale of premises and equipment		(75	)		1
Stock-based compensation expense		191			89
Effect of changes in:
Accrued interest receivable		(40	)		187
Other assets		(1,538	)		(1,506	)
Accrued interest payable and other liabilities		1,623			2,631
Proceeds from sales of loan orginated for sale		51,225			38,002
Loans originated for sale		(52,477	)		(38,208	)
Net cash provided by operating activities		1,285			4,678

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities		(91,054	)		(95,172	)
Proceeds from sales/calls of available-for-sale securities		17,085			78,439
Proceeds from maturities of available-for-sale securities		42,070			26,338
Purchases of FHLB and FRB stock and other securities		(89	)		(269	)
Net increase in loans		(10,674	)		(647	)
Proceeds from sales of other real estate owned		5,744			4,284
Purchases of premises and equipment		(251	)		(1,239	)
Proceeds from sales of premises and equipment		296			—
Net cash (used in) provided by investing activities		( 36,873	)		11,734

CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits		(3,525	)		(2,968	)
Net change in other borrowed funds		22,025			—
Net cash provided by (used in) financing activities		18,500			(2,968	)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(17,088	)		13,444
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		38,519			58,968
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	21,431		$	72,412

Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest	$	849		$	1,354
Income taxes paid	$	210		$	122

Noncash investing and financing activities:
Transfer from loans to other real estate owned	$	777		$	575

The accompanying notes are an integral part of these consolidated financial statements.

~~The accompanying notes are an integral part of these consolidated financial statements.~~

NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT S OF INCOME
(In thousands except per share data) (Unaudited)
For the three months ended March 31,
2013 2012
Interest income
Loans, including fees $ 6,366 $ 6,470
Taxable securities 1,376 1,967
Tax exempt securities 107 144
Federal funds sold and repurchase agreements 19 28
   Total interest income 7,868 8,609

Interest expense
Deposits 299 734
Subordinated debentures 133 483
   Total interest expense 432 1,217

Net interest income 7,436 7,392

Provision for loan losses — 400

Net interest income after provision for loan losses 7,436 6,992

Noninterest income
Service charges on deposit accounts 952 1,052
Other fees and charges 1,120 1,197
Earnings on cash surrender value of life insurance policies 463 324
Gain on sale of loans, net 925 405
Gain (loss) on sales or calls of securities, net 543 (9 )
Other 326 290
   Total noninterest income 4,329 3,259

Noninterest expense
Salaries and employee benefits 5,162 5,057
Occupancy expense 633 640
Furniture and equipment expense 220 245
FDIC and state assessments 218 313
Other real estate owned expense 376 634
Other 3,279 2,767
   Total noninterest expenses 9,888 9,656

Income before provision for income taxes 1,877 595

Provision for income taxes 616 115

Net income $ 1,261 $ 480

Per share amounts
Basic and diluted income per share $ 0.18 $ 0.07

~~The accompanying notes are an integral part of these consolidated financial statements.~~

NORTH VALLEY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT S COMPREHENSIVE INCOME
(In thousands) (Unaudited)
For three months ended March 31,
2013 2012
Net income $ 1,261 $ 480
Other comprehensive (loss) income:
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains arising during the period (647 ) 1,694
Tax effect 265 (695 )
Reclassification adjustment for (gains) losses included in net income (543 ) 9
Tax effect 223 (4 )
Net of tax (702 ) 1,004
Defined benefit pension plans
Net gain (loss) arising during the period 168 (125 )
Tax effect (69 ) 51
Reclassification adjustment for amortization of prior service cost and net gain
included in net periodic pension cost 74 125
Tax effect (30 ) (51 )
Net of tax 143 —
Total other comprehensive (loss) income (559 ) 1,004
Comprehensive income $ 702 $ 1,484

~~The accompanying notes are an integral part of these consolidated financial statements.~~

NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands except per share data) (Unaudited)
For the three months ended March 31,
2013 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,261 $ 480
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization 254 272
Amortization of premium on securities, net 446 448
Amortization of core deposit intangible 36 37
Provision for loan losses — 400
Net losses on sale and write-down of other real estate owned 234 478
Gain on sale of loans (925 ) (405 )
(Gain) loss on sales or calls of securities (543 ) 9
(Gain) loss on sale of premises and equipment (7 ) 8
Stock-based compensation expense 83 40
Effect of changes in:
Accrued interest receivable 35 (42 )
Other assets (931 ) (1,067 )
Accrued interest payable and other liabilities 996 914
Proceeds from sales of loan orginated for sale 27,999 16,122
Loans originated for sale (29,397 ) (16,419 )
Net cash (used in) provided by operating activities (459 ) 1,275

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (37,800 ) (53,437 )
Proceeds from sales/calls of available-for-sale securities 17,085 1,449
Proceeds from maturities of available-for-sale securities 21,716 11,284
Net decrease in loans 4,519 7,151
Proceeds from sales of other real estate owned 939 3,056
Purchases of premises and equipment (55 ) (357 )
Proceeds from sales of premises and equipment 11 —
Net cash provided by (used in) investing activities 6,415 (30,854 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 7,340 6,325
Net cash provided by financing activities 7,340 6,325

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 13,296 (23,254 )
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 38,519 58,968
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 51,815 $ 35,714

Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest $ 447 $ 743
Income taxes paid $ — $ 80

Noncash investing and financing activities:
Transfer from loans to other real estate owned $ 602 $ 335

~~The accompanying notes are an integral part of these consolidated financial statements.~~

NORTH VALLEY BANCORP AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of North Valley Bancorp and subsidiaries (the “Company”) have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, certain information and notes required by accounting principles generally accepted in the United States for annual financial statements are not included herein. Management believes that the disclosures are adequate to make the information not misleading. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) considered necessary for a fair presentation of the results for the interim periods presented have been included. For further information, refer to the consolidated financial statements and notes thereto included in the ~~Company’s~~Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2012. Operating results for the three and six months ended ~~March 31,~~June 30, 2013 are not necessarily indicative of the results that may be expected for any subsequent period or for the year ended December 31, 2013.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries North Valley Bank, a California banking corporation (“NVB”) and North Valley Trading Company, a California corporation, which is inactive. Significant intercompany items and transactions have been eliminated in consolidation. The Company owns the common stock of three business trusts that have issued trust preferred securities fully and unconditionally guaranteed by the Company. North Valley Capital Trust II, North Valley Capital Trust III and North Valley Capital Statutory Trust IV are unconsolidated subsidiaries and have issued an aggregate of $21,651,000 in trust preferred securities, which are reflected as debt on the Company’s condensed consolidated balance sheets.

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Management has determined that since all of the banking products and services offered by the Company are available in each branch of NVB, all branches are located within the same economic environment and management does not allocate resources based on the performance of different lending or transaction activities, it is appropriate to aggregate NVB branches and report them as a single operating segment. No single customer accounts for more than ten percent of revenues for the Company or NVB.

NOTE 2 – INVESTMENT SECURITIES

The amortized cost of securities and their approximate fair value were as follows (in thousands):

			Gross		Gross			Estimated		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
March 31, 2013
June 30, 2013
Available-for-Sale:
Obligations of U.S. government sponsored agencies	$	24,670	$	37	$	—		$	24,707	$	19,669	$	—	$	(1,117	)	$	18,552
Obligations of state and political subdivisions		8,223		409		—			8,632		8,262		229		(60	)		8,431
Government sponsored agency mortgage-backed securities		237,447		5,558		(589	)		242,416		274,858		2,580		(5,860	)		271,578
Corporate debt securities		6,000		—		(1,125	)		4,875		6,000		—		(1,238	)		4,762
Equity securities		3,000		91		—			3,091		3,000		—		(23	)		2,977
	$	279,340	$	6,095	$	(1,714	)	$	283,721	$	311,789	$	2,809	$	(8,298	)	$	306,300
Held-to-Maturity:
Government sponsored agency mortgage-backed securities	$	6	$	—	$	—		$	6	$	6	$	—	$	—		$	6

December 31, 2012
Available-for-Sale:
Obligations of U.S. government sponsored agencies	$	21,003	$	115	$	—		$	21,118	$	21,003	$	115	$	—		$	21,118
Obligations of state and political subdivisions		10,698		499		—			11,197		10,698		499		—			11,197
Government sponsored agency mortgage-backed securities		239,543		6,152		(64	)		245,631		239,543		6,152		(64	)		245,631
Corporate debt securities		6,000		—		(1,244	)		4,756		6,000		—		(1,244	)		4,756
Equity securities		3,000		113		—			3,113		3,000		113		—			3,113
	$	280,244	$	6,879	$	(1,308	)	$	285,815	$	280,244	$	6,879	$	(1,308	)	$	285,815
Held-to-Maturity:
Government sponsored agency mortgage-backed securities	$	6	$	—	$	—		$	6	$	6	$	—	$	—		$	6

For the three months ended ~~March 31,~~June 30, 2013 ~~there were $543,000 in gross realized gains on sales or calls of available for sale securities. For the three months ended March 31, 2012~~ there were no gross realized gains on sales or calls of available for sale securities. For the three months ended ~~March 31,~~June 30, 2012 there were $968,000 gross realized gains on sales or calls of available for sale securities. For the three months ended June 30, 2013 and 2012 there were no gross realized losses on sales or calls of securities categorized as available for sale securities. For the three months ended ~~March 31, 2012~~June 30, 2013 there were ~~$9,000 in~~no gross ~~realized losses on~~proceeds from sales or calls of ~~securities categorized as~~ available for sale securities. For the three months ended ~~March 31, 2013 and~~June 30, 2012 there were ~~$17,085,000 and $1,449,000, respectively,~~$76,989,000 in gross proceeds from sales or calls of available for sale securities. There were no sales or transfers of held to maturity securities for the three months ended ~~March 31,~~June 30, 2013 and 2012. For the three months ended ~~March 31,~~June 30, 2013 and 2012, ,there were no gross proceeds from maturities or calls of held to maturity securities.

For the six months ended June 30, 2013 and 2012 there were $543,000 and $968,000, respectively, in gross realized gains on sales or calls of available for sale securities. For the six months ended June 30, 2013 there were no gross realized losses on sales or calls of securities categorized as available for sale securities. For the six months ended June 30, 2012 there were $9,000 in gross realized losses on sales or calls of securities categorized as available for sale securities. For the six months ended June 30, 2013 and 2012 there were $17,085,000 and $78,439,000, respectively, in gross proceeds from sales or calls of available for sale securities. There were no sales or transfers of held to maturity securities for the six months ended June 30, 2013 and 2012. For the six months ended June 30, 2013 and 2012, there were no gross proceeds from maturities or calls of held to maturity securities. Expected ~~m aturities~~maturities of all investment securities are consistent with those reported in the December 31, 2012 Form 10-K.

At ~~March 31,~~June 30, 2013 and December 31, 2012, securities having fair value amounts of approximately ~~$275,901,000~~$300,983,000 and $276,308,000, respectively, were pledged to secure public deposits, short-term borrowings, treasury, tax and loan balances and for other purposes required by law or contract. ~~Although the Company had no short-term borrowings at March 31, 2013 and December 31, 2012, the~~The Company pledges most of its securities at the Federal Home Loan Bank (“FHLB”) to provide borrowing capacity. See “Liquidity” on page ~~39.~~44.

Investment securities are evaluated for other-than-temporary impairment on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in their value below amortized cost 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 issues 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”~~"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. For debt securities, the credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

A summary of investments securities in an unrealized loss for less than twelve months and twelve months or longer is as follows (in thousands).

	As of March 31, 2013
	Less than 12 Months					12 Months or Longer					Total						As of June 30, 2013
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized				Less than 12 Months					12 Months or Longer					Total
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses				Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
Description of Securities																Description of Securities
Obligations of U.S. government sponsored agencies																	$	18,552	$	(1,117	)	$	—	$	—			18,552		(1,117	)
Obligations of state and political subdivisions																		1,108		(60	)		—		—			1,108		(60	)
Government sponsored agency mortgage-backed securities	$	67,461	$	(589	)	$	—	$	—		$	67,461	$	(589	)			175,628		(5,860	)		—		—			175,628		(5,860	)
Corporate debt securities		—		—			4,875		(1,125	)		4,875		(1,125	)			—		—			4,762		(1,238	)		4,762		(1,238	)
Equity securities																		2,977		(23	)		—		—			2,977		(23	)
Total impaired securities	$	67,461	$	(589	)	$	4,875	$	(1,125	)	$	72,336	$	(1,714	)		$	198,265	$	(7,060	)	$	4,762	$	(1,238	)	$	203,027	$	(8,298	)

	As of December 31, 2012
	Less than 12 Months					12 Months or Longer					Total						As of December 31, 2012
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized				Less than 12 Months						12 Months or Longer					Total
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses				Estimated Fair Value			Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
Description of Securities																Description of Securities
Government sponsored agency mortgage-backed securities	$	34,878	$	(64	)	$	—	$	—		$	34,878	$	(64	)		$	34,878	��	$	(64	)	$	—	$	—		$	34,878	$	(64	)
Corporate debt securities		—		—			4,756		(1,244	)		4,756		(1,244	)			—			—			4,756		(1,244	)		4,756		(1,244	)
Total impaired securities	$	34,878	$	(64	)	$	4,756	$	(1,244	)	$	39,634	$	(1,308	)		$	34,878		$	(64	)	$	4,756	$	(1,244	)	$	39,634	$	(1,308	)

As of ~~March 31,~~June 30, 2013 and December 31, 2012, there were two corporate debt securities in a loss position for twelve months or more. There is a current active market for these securities and management believes that the unrealized losses on the Company’s investment in these corporate debt securities is due to the yield of the securities and is not attributable to changes in credit quality. The two corporate debt securities are each a $3,000,000 single-issuer trust preferred security issued by two separate large publicly-traded financial institutions. The securities are tied to the front-end of the yield curve, three-month LIBOR (a short-term interest rate) and have a spread over that. In addition, the payments on both of these securities have been made as agreed and are considered current. The Company does not intend to sell and does not believe it will be required to sell these securities and expects a full recovery of value. The Company ~~does~~did not consider these investments to be other-than-temporarily impaired at ~~March 31,~~June 30, 2013 or December 31, 2012.

Management periodically evaluates each investment security for other-than-temporary impairment, relying primarily on industry analyst reports, observation of market conditions and interest rate fluctuations. Management has the ability and intent to hold securities with established maturity dates until recovery of fair value, which may be at maturity, and believes it will be able to collect all amounts due according to the contractual terms for all of the underlying investment securities; therefore, management does not consider these investments to be other-than-temporarily impaired.

NOTE 3 – LOANS

The Company originates loans for business, consumer and real estate activities and for equipment purchases. Such loans are concentrated in the Company’s market areas which consist of Yolo, Placer, Sonoma, Shasta, Humboldt, Mendocino, Trinity and Del Norte Counties and neighboring communities. Major classifications of loans were as follows (in thousands):

March 31, December 31,
2013 2012
Commercial $ 48,300 $ 46,078
Real estate - commercial 297,516 295,630
Real estate - construction 21,438 23,003
Real estate - mortgage 70,514 74,353
Installment 6,012 6,689
Other 44,462 45,941
Gross loans 488,242 491,694
Deferred loan fees, net 364 517
Allowance for loan losses (9,651 ) (10,458 )
Total loans, net $ 478,955 $ 481,753

	June 30,			December 31,
	2013			2012
Commercial	$	49,054		$	46,078
Real estate - commercial		319,206			295,630
Real estate - construction		18,535			23,003
Real estate - mortgage		68,637			74,353
Installment		6,026			6,689
Other		42,547			45,941
Gross loans		504,005			491,694
Deferred loan fees, net		269			517
Allowance for loan losses		(9,527	)		(10,458	)
Total loans, net	$	494,747		$	481,753

Certain real estate loans receivable are pledged as collateral for available borrowings with the FHLB, FRB, and certain correspondent banks. Pledged loans totaled ~~$106,380,000~~$101,239,000 and $116,929,000 at ~~March 31,~~June 30, 2013 and December 31, 2012, respectively.

The following table presents impaired loans and the related allowance for loan losses as of the dates indicated (in thousands):

	As of March 31, 2013						As of December 31, 2012
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related		As of June 30, 2013						As of December 31, 2012
	Investment		Balance		Allowance		Investment		Balance		Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no allocated allowance
Commercial	$	50	$	50	$	—	$	585	$	586	$	—	$	175	$	175	$	—	$	585	$	586	$	—
Real estate - commercial		5,695		5,947		—		2,778		2,974		—		5,002		5,309		—		2,778		2,974		—
Real estate - construction		1,186		1,249		—		1,210		1,273		—		860		870		—		1,210		1,273		—
Real estate - mortgage		1,231		1,256		—		684		736		—		1,173		1,203		—		684		736		—
Installment		121		136		—		122		138		—		116		134		—		122		138		—
Other		155		165		—		111		120		—		253		266		—		111		120		—
Subtotal		8,438		8,803		—		5,490		5,827		—		7,579		7,957		—		5,490		5,827		—

With allocated allowance
Commercial		513		519		287		—		—		—		473		485		88		—		—		—
Real estate - commercial		—		—		—		184		217		171		—		—		—		184		217		171
Real estate - construction		—		—		—		161		161		18		—		—		—		161		161		18
Real estate - mortgage														164		164		164		—		—		—
Other														140		140		140		—		—		—
Subtotal		513		519		287		345		378		189		777		789		392		345		378		189
Total Impaired Loans	$	8,951	$	9,322	$	287	$	5,835	$	6,205	$	189	$	8,356	$	8,746	$	392	$	5,835	$	6,205	$	189

The following table presents the average balance and interest income recognized related to impaired loans for the period indicated (in thousands):

	Three Months ended March 31,								For the three months ended June 30,
	2013				2012				2013				2012
	Average Book		Interest Income		Average Book		Interest Income
	Balance		Recognized		Balance		Recognized			Average Book Balance		Interest Income Recognized		Average Book Balance		Interest Income Recognized

Commercial	$	571	$	—	$	1,202	$	—	$	438	$	—	$	1,143	$	—
Real estate - commercial		5,540		21		4,564		—		5,357		21		5,989		—
Real estate - construction		916		7		8,867		—		874		6		8,388		—
Real estate - mortgage		819		10		921		—		1,371		10		950		—
Installment		96		1		166		—		144		1		140		—
Other		158		—		138		—		407		—		124		—
Total	$	8,100	$	39	$	15,858	$	—	$	8,591	$	38	$	16,734	$	—

	For the six months ended June 30,
	2013				2012
	Average Book Balance		Interest IncomeRecognized		Average Book Balance		Interest Income Recognized

Commercial	$	455	$	—	$	1,173	$	—
Real estate - commercial		5,370		41		6,119		—
Real estate - construction		877		13		8,394		—
Real estate - mortgage		1,379		20		964		—
Installment		145		2		144		—
Other		408		—		138		—
Total	$	8,634	$	76	$	16,932	$	—

Nonperforming loans include all such loans that are either on nonaccrual status or are 90 days past due as to principal or interest but still accrue interest because such loans are well-secured and in the process of collection. Nonperforming loans are summarized as follows (in thousands):

March 31, December 31,
2013 2012
Nonaccrual loans $ 6,449 $ 5,835
Loans 90 days past due or more but still accruing interest — —
Total nonperforming loans $ 6,449 $ 5,835

Nonaccrual loans to total gross loans 1.32 % 1.19 %
Nonperforming loans to total gross loans 1.32 % 1.19 %

	June 30, 2013			December 31, 2012
Nonaccrual loans	$	5,871		$	5,835
Loans 90 days past due or more but still accruing interest		—			—
Total nonperforming loans	$	5,871		$	5,835

Nonaccrual loans to total gross loans		1.16	%		1.19	%
Nonperforming loans to total gross loans		1.16	%		1.19	%

If interest on nonaccrual loans had been accrued, such income would have approximated ~~$85,000~~$135,000 and ~~$155,000~~$357,000 for the ~~three~~six months ended ~~March 31,~~June 30, 2013 and 2012, respectively.

The following table shows an aging analysis of the loan portfolio by the amount of time past due (in thousands):

	As of March 31, 2013										As of June 30, 2013
												Accruing Interest
												Current		30-89 DaysPast Due		Greater than90 DaysPast Due		Nonaccrual		Total

Commercial											$	48,406	$	—	$	—	$	648	$	49,054
Real estate - commercial												315,464		73		—		3,669		319,206
Real estate - construction												18,085		—		—		450		18,535
Real estate - mortgage												67,993		22		—		622		68,637
Installment												5,890		47		—		89		6,026
Other												42,154		—		—		393		42,547
Total											$	497,992	$	142	$	—	$	5,871	$	504,005
	Accruing Interest
					Greater than							As of December 31, 2012
			30-89 Days		90 Days							Accruing Interest
	Current		Past Due		Past Due		Nonaccrual		Total			Current		30-89 DaysPast Due		Greater than 90 DaysPast Due		Nonaccrual		Total

Commercial	$	47,737	$	—	$	—	$	563	$	48,300	$	45,473	$	20	$	—	$	585	$	46,078
Real estate - commercial		293,075		86		—		4,355		297,516		292,505		163		—		2,962		295,630
Real estate - construction		20,668		—		—		770		21,438		21,436		196		—		1,371		23,003
Real estate - mortgage		69,979		22		—		513		70,514		72,907		762		—		684		74,353
Installment		5,894		25		—		93		6,012		6,529		38		—		122		6,689
Other		44,134		173		—		155		44,462		45,581		249		—		111		45,941
Total	$	481,487	$	306	$	—	$	6,449	$	488,242	$	484,431	$	1,428	$	—	$	5,835	$	491,694

As of December 31, 2012
Accruing Interest
Greater than
30-89 Days 90 Days
Current Past Due Past Due Nonaccrual Total

Commercial $ 45,473 $ 20 $ — $ 585 $ 46,078
Real estate - commercial 292,505 163 — 2,962 295,630
Real estate - construction 21,436 196 — 1,371 23,003
Real estate - mortgage 72,907 762 — 684 74,353
Installment 6,529 38 — 122 6,689
Other 45,581 249 — 111 45,941
Total $ 484,431 $ 1,428 $ — $ 5,835 $ 491,694

A troubled debt restructuring (“~~TDR”~~TDRs”) is a formal modification of the terms of a loan when the lender, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

At ~~March~~June 30, 2013, accruing TDRs were $2,485,000 and non-accrual TDRs were $1,170,000 compared to accruing TDRs of $2,414,000 and non-accrual TDRs of $1,072,000 at December 31, 2012. At June 30, 2013, there were no specific reserves allocated to customers whose loan terms were modified in troubled debt restructurings. There are no commitments to lend additional amounts at ~~March 31,~~June 30, 2013 to customers with outstanding loans that are classified as troubled debt restructurings. There were no TDR’s that subsequently defaulted during the twelve months following the modification of terms. The following table shows information related to troubled debt restructurings as of March 31, 2013 (dollars in thousands):

Accruing TDRs Non Accruing TDRs
Pre-Modification Post-Modification Pre-Modification Post-Modification
Number Outstanding Outstanding Number Outstanding Outstanding
of Recorded Recorded of Recorded Recorded
Contracts Investment Investment Contracts Investment Investment
Commercial — $ — $ — 2 $ 563 $ 563
Real estate-commercial 5 $ 1,340 $ 1,340 1 $ 303 $ 303
Real estate - construction 2 $ 416 $ 416 1 $ 320 $ 320
Real estate-mortgage 2 $ 718 $ 718 1 $ 202 $ 202
Installment 1 $ 28 $ 28 3 $ 92 $ 92
Other — $ — $ — 1 $ 24 $ 24

The following table present loans that were modified and recorded as TDR’s for the three months ended March 31, 2013. There were no loans modified or recorded as TDR’s for the three months ended March 31, 2012.

Three Months ended March 31, 2013
Pre-Modification Post-Modification
Number Outstanding Outstanding
of Recorded Recorded
Contracts Investment Investment
Commercial 1 $ 50 $ 50
Real estate-commercial 1 $ 303 $ 303
Real estate-mortgage 1 $ 202 $ 202

The following table shows the post-modification recorded investment by class for TDR’s restructured during the three months ended March 31, 2013 by the primary type of concession granted. There were no loans modified or recorded as TDR’s for the three months ended March 31, 2012.

Rate
Reduction
Number and
of Rate Maturity Maturity
Contracts Reduction Extention Extention Total
Commercial 1 $ — $ 50 $ — $ 50
Real estate-commercial 1 $ — $ — $ 303 $ 303
Real estate-mortgage 1 $ 202 $ — $ — $ 202

~~The following table shows information related to troubled debt restructurings as of December 31, 2012 (dollars in thousands):~~

Accruing TDRs Non Accruing TDRs
Pre-Modification Post-Modification Pre-Modification Post-Modification
Number Outstanding Outstanding Number Outstanding Outstanding
of Recorded Recorded of Recorded Recorded
Contracts Investment Investment Contracts Investment Investment
Commercial — $ — $ — 1 $ 529 $ 529
Real estate - commercial 5 $ 1,350 $ 1,350 — $ — $ —
Real estate - construction 1 $ 343 $ 343 2 $ 398 $ 398
Real estate - mortgage 2 $ 721 $ 721 — $ — $ —
Installment — $ — $ — 4 $ 120 $ 120
Other — $ — $ — 1 $ 25 $ 25

~~A summary of TDR’s by type of loans and by accrual/nonaccrual status as of December 31, 2012 is shown below (in thousands):~~

Accruing TDRs Non Accruing TDRs
Rate Rate
Reduction Reduction
and and
Maturity Maturity Maturity Maturity
Extention Extention Total Extention Extention Total
Commercial $ — $ — $ — $ 529 $ — $ 529
Real estate - commercial $ 273 $ — $ 273 $ — $ — $ —
Real estate - construction $ — $ — $ — $ — $ 327 $ 327
Real estate - mortgage $ — $ 423 $ 423 $ — $ — $ —
Installment $ — $ — $ — $ 120 $ — $ 120
Other $ — $ — $ — $ 25 $ — $ 25

At December 31, 2012, there were no specific reserves allocated to customers whose loan terms were modified in troubled debt restructurings. There are no commitments to lend additional amounts at December 31, 2012 to customers with outstanding loans that are classified as troubled debt restructurings. There were no TDR’sTDRs that subsequently defaulted during the twelve months following the modification of terms.

AtThe following table present loans that were modified and recorded as TDRs for the three and six months ended June 30, 2013 and 2012.

	For the three months ended June 30,2013						For the six months ended June 30, 2013
		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number ofContracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial		—	$	—	$	—		1	$	45	$	45
Real estate - commercial		—	$	—	$	—		1	$	290	$	290
Real estate-construction		—	$	—	$	—		1	$	77	$	77
Real estate - mortgage		1	$	201	$	201		1	$	201	$	201
Other		1	$	48	$	48		1	$	48	$	48

	For the three months ended June 30, 2012						For the six months ended June 30, 2012
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial		1	$	1,076	$	1,076		1	$	1,076	$	1,076
Real estate - commercial		2	$	278	$	278		2	$	278	$	278
Installment		1	$	25	$	25		2	$	73	$	73

A summary of TDRs by type of concession and by type of loan as of June 30, 2013 and December 31, 2012, there were twelve loans to customers whose loan terms were modified in troubled debt restructurings. Of those twelve loans there were eight modifications involving a reduction of the stated interest rate and extension of the maturity date: two at 5.50% with a one-year extension to the maturity date, one at 4.50% with a 14-month maturity date, one at 3.00% with a 15-year maturity date, one at 8.00% with a three-month extension of the maturity date, one at 7.00% with a 10-year maturity date, and one at 4.00% with a 10-year maturity date; there were two modifications involving an extension only of the maturity dates: one for 90 days and one for 12 months; and there were two loans that did not have modifications during the last twelve months. The recorded investment in the ten loans was reduced in the aggregate amount of $665,000 during the year. is shown below:

	June 30, 2013
Accruing TDRs	Number of Contracts		Rate Reduction		Maturity Extension		Rate Reduction and Maturity Extension		Total
Real estate - commercial		5	$	—	$	199	$	1,133	$	1,332
Real estate - construction		2	$	—	$	411	$	—	$	411
Real estate - mortgage		2	$	—	$	295	$	420	$	715
Installment		1	$	—	$	—	$	27	$	27

	June 30, 2013
Nonaccrual TDRs	Number of Contracts		Rate Reduction		MaturityExtension		Rate Reduction and Maturity Extension		Total
Commercial		2	$	—	$	—	$	518	$	518
Real estate - commercial		1	$	—	$	—	$	290	$	290
Real estate - mortgage		1	$	—	$	—	$	201	$	201
Installment		3	$	—	$	—	$	89	$	89
Other		2	$	—	$	—	$	72	$	72

	December 31, 2012
Accruing TDRs		Number of Contracts		Rate Reduction		Maturity Extension		Rate Reduction and Maturity Extension		Total
Real estate - commercial		5	$	202	$	—	$	1,148	$	1,350
Real estate-construction		1	$	—	$	343	$	—	$	343
Real estate - mortgage		2	$	—	$	298	$	423	$	721

	December 31, 2012
Nonaccrual TDRs		Number of Contracts		Rate Reduction		Maturity Extension		Rate Reduction and Maturity Extension		Total
Commercial		1	$	—	$	—	$	529	$	529
Real estate-construction		2	$	327	$	71	$	—	$	398
Installment		4	$	—	$	—	$	120	$	120
Other		1	$	—	$	—	$	25	$	25

NOTE 4 – ALLOWANCE FOR LOAN LOSSES

The following table shows the changes in the allowance for loan losses (in thousands):

	For the three months ended March 31, 2013																								For the three months ended June 30, 2013
				Real Estate			Real Estate			Real Estate																		Real Estate			Real Estate			Real Estate
	Commercial			Commercial			Construction			Mortgage			Installment			Other			Unallocated			Total			Commercial			Commercial			Construction			Mortgage			Installment			Other				Unallocated	Total

Allowance for Loan Losses
Balance December 31, 2012	$	843		$	6,295		$	690		$	982		$	98		$	721		$	829		$	10,458
Balance March 31, 2013																									$	1,170		$	5,720		$	595		$	938		$	87		$	676		$	465	$	9,651
Charge-offs		(83	)		(437	)		(369	)		(156	)		(11	)								(1,056	)		(26	)		(3	)		—			(46	)		(17	)		(55	)				(147	)
Recoveries		242			—			2			—			5			—			—			249			16			—			1			2			4			—					23
Provisions for loan losses		168			(138	)		272			112			(5	)		(45	)		(364	)		—			(313	)		(230	)		(157	)		26			93			299			282		—
Balance March 31, 2013	$	1,170		$	5,720		$	595		$	938		$	87		$	676		$	465		$	9,651
Balance June 30, 2013																									$	847		$	5,487		$	439		$	920		$	167		$	920		$	747	$	9,527

As of March 31, 2013
Reserve to impaired loans $ 287 $ — $ — $ — $ — $ — $ — $ 287
Reserve to non-impaired loans $ 883 $ 5,720 $ 595 $ 938 $ 87 $ 676 $ 465 $ 9,364

	For the three months ended June 30, 2012
				Real Estate			Real Estate			Real Estate
	Commercial			Commercial			Construction			Mortgage			Installment			Other			Unallocated			Total

Allowance for Loan Losses
Balance March 31, 2012	$	1,376		$	6,847		$	1,350		$	1,045		$	154		$	811		$	691		$	12,274
Charge-offs		(86	)		(1,178	)		(126	)		(190	)		(45	)		(47	)					(1,672	)
Recoveries		14			2			37			36			41			—						130
Provisions for loan losses		(44	)		915			126			34			(9	)		4			(26	)		1,000
Balance June 30, 2012	$	1,260		$	6,586		$	1,387		$	925		$	141		$	768		$	665		$	11,732

	For the three months ended March 31, 2012																							For the six months ended June 30, 2013
				Real Estate			Real Estate			Real Estate																	Real Estate			Real Estate			Real Estate
	Commercial			Commercial			Construction			Mortgage		Installment			Other			Unallocated			Total			Commercial			Commercial			Construction			Mortgage			Installment			Other			Unallocated			Total

Allowance for Loan Losses
Balance December 31, 2011	$	1,333		$	7,528		$	1,039		$	935	$	185		$	736		$	900		$	12,656
Balance December 31, 2012																								$	843		$	6,295		$	690		$	982		$	98		$	721		$	829		$	10,458
Charge-offs		(120	)		(439	)		(204	)		—		(97	)		(25	)		—			(885	)		(109	)		(440	)		(369	)		(202	)		(28	)		(55	)					(1,203	)
Recoveries		12			61			—			—		24			6			—			103			258			—			3			2			9			—						272
Provisions for loan losses		151			(303	)		515			110		42			94			(209	)		400			(145	)		(368	)		115			138			88			254			(82	)		—
Balance March 31, 2012	$	1,376		$	6,847		$	1,350		$	1,045	$	154		$	811		$	691		$	12,274
Balance June 30, 2013																								$	847		$	5,487		$	439		$	920		$	167		$	920		$	747		$	9,527

																									As of June 30, 2013
Reserve to impaired loans																								$	88		$	—		$	—		$	164		$	—		$	140					$	392
Reserve to non-impaired loans																								$	759		$	5,487		$	439		$	756		$	167		$	780		$	747		$	9,135

As of March 31, 2012
Reserve to impaired loans $ 371 $ 2 $ 520 $ 47 $ — $ 34 $ 974
Reserve to non-impaired loans $ 1,005 $ 6,845 $ 830 $ 998 $ 154 $ 777 $ 691 $ 11,300

																	For the six months ended June 30, 2012
																				Real Estate			Real Estate			Real Estate
																	Commercial			Commercial			Construction			Mortgage			Installment			Other			Unallocated			Total

Allowance for Loan Losses
Balance December 31, 2011																	$	1,333		$	7,528		$	1,039		$	935		$	185		$	736		$	900		$	12,656
Charge-offs																		(206	)		(1,617	)		(330	)		(190	)		(142	)		(72	)					(2,557	)
Recoveries																		26			63			37			36			65			6						233
Provisions for loan losses																		107			612			641			144			33			98			(235	)		1,400
Balance June 30, 2012																	$	1,260		$	6,586		$	1,387		$	925		$	141		$	768		$	665		$	11,732

	As of December 31, 2012																	As of June 30, 2012
Reserve to impaired loans	$	—	$	171	$	18	$	—	$	—	$	—			$	189	$	240		$	99		$	529		$	35		$	—		$	—					$	903
Reserve to non-impaired loans	$	843	$	6,124	$	672	$	982	$	98	$	721	$	829	$	10,269	$	1,020		$	6,487		$	858		$	890		$	141		$	768		$	665		$	10,829

																		As of December 31, 2012
Reserve to impaired loans																	$	—		$	171		$	18		$	—		$	—		$	—					$	189
Reserve to non-impaired loans																	$	843		$	6,124		$	672		$	982		$	98		$	721		$	829		$	10,269

The following table shows the loan portfolio by segment as follows (in thousands):

	As of March 31, 2013														As of June 30, 2013
			Real Estate		Real Estate		Real Estate										Real Estate		Real Estate		Real Estate
Loans	Commercial		Commercial		Construction		Mortgage		Installment		Other		Total
															Commercial		Commercial		Construction		Mortgage		Installment		Other		Total

Total Loans	$	48,300	$	297,516	$	21,438	$	70,514	$	6,012	$	44,462	$	488,242	$	49,054	$	319,206	$	18,535	$	68,637	$	6,026	$	42,547	$	504,005
Impaired Loans	$	563	$	5,695	$	1,186	$	1,231	$	121	$	155	$	8,951	$	648	$	5,002	$	860	$	1,337	$	116	$	393	$	8,356
Non-impaired loans	$	47,737	$	291,821	$	20,252	$	69,283	$	5,891	$	44,307	$	479,291	$	48,406	$	314,204	$	17,675	$	67,300	$	5,910	$	42,154	$	495,649

	As of December 31, 2012
			Real Estate		Real Estate		Real Estate
	Commercial		Commercial		Construction		Mortgage		Installment		Other		Total

Total Loans	$	46,078	$	295,630	$	23,003	$	74,353	$	6,689	$	45,941	$	491,694
Impaired Loans	$	585	$	2,962	$	1,371	$	684	$	122	$	111	$	5,835
Non-impaired loans	$	45,493	$	292,668	$	21,632	$	73,669	$	6,567	$	45,830	$	485,859

The following table shows the loan portfolio allocated by ~~management’s~~management's internal risk ratings as defined in Footnote 1 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (in thousands):

	As of March 31, 2013										As of June 30, 2013
	Pass		Special Mention		Substandard		Doubtful		Total		Pass		Special Mention		Substandard		Doubtful		Total
Commercial	$	45,850	$	989	$	1,461	$	—	$	48,300	$	46,828	$	1,035	$	1,191	$	—	$	49,054
Real estate - commercial		280,970		2,815		13,731		—		297,516		304,743		2,780		11,683		—		319,206
Real estate - construction		20,619		—		819		—		21,438		18,037		—		498		—		18,535
Real estate - mortgage		69,437		—		1,077		—		70,514		67,596		—		1,041		—		68,637
Installment		5,886		—		126		—		6,012		5,907		—		119		—		6,026
Other		44,177		—		285		—		44,462		41,957		—		590		—		42,547
Total	$	466,939	$	3,804	$	17,499	$	—	$	488,242	$	485,068	$	3,815	$	15,122	$	—	$	504,005

		As of December 31, 2012
		Pass		Special Mention		Substandard		Doubtful		Total
Commercial	$	44,486	$	129	$	1,463	$	—	$	46,078
Real estate - commercial		278,834		—		16,796		—		295,630
Real estate - construction		21,386		—		1,617		—		23,003
Real estate - mortgage		71,973		—		2,380		—		74,353
Installment		6,562		—		127		—		6,689
Other		45,658		—		283		—		45,941
Total	$	468,899	$	129	$	22,666	$	—	$	491,694

The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the probable incurred losses in the loan portfolio. In determining levels of risk, management considers a variety of factors, including, but not limited to, asset classifications, economic trends, industry experience and trends, geographic concentrations, estimated collateral values, historical loan loss experience, and the Company’s underwriting policies. ~~The Company utilizes~~At June 30, 2013, there was a ~~twelve rolling quarter look-back period to calculate its~~change in the Bank’s method of calculating the historical loss ~~factors. For~~factors applied to loans identified as “homogenous segments” of the ~~period ended March 31, 2013,~~loan portfolio as follows: Losses from the past twelve quarters are applied to loan pools based on a “Migration Analysis” method. The method calculates Net Charge Offs (charge offs less corresponding recoveries) and measures them against average balances in loan pools based on the risk grade in effect on charged-off loans four quarters prior to the actual charge off date. The logic behind this four quarter “look back” is to account for management’s estimate of the typical time lapse between the recognition of the problem loan and the recognition of some or all of the loan as uncollectable. In addition, the loss ~~look back period began~~ratios are calculated using “factored” logic which systematically reduces the Net Charge Off value so that charge offs occurring in older periods do not have as much weight as more recent charge offs. Previously, management utilized a methodology which also utilized the Company’s charge-off history from the previous twelve quarters but did not consider the risk grade of those loans related to the charge-off. This modification had the effect of increasing the quantitative loss component of the allowance by $1,446,000. Management of the Company believes that, given the recent trends in historical losses and the correlation of those losses with a loans identified risk grade, that incorporation of a migration analysis in the ~~first quarter~~current and future analyses was a prudent refinement of ~~2010 and ended~~the allowance methodology. In addition, management believe that the decreases in the overall level of the allowance for loan losses over the past several quarters is directionally consistent with the ~~most recent quarter.~~improving credit quality trends of the loan portfolio. The allowance for loan losses is maintained at an amount management considers adequate to cover the probable incurred losses in loans receivable. While management uses the best information available to make these estimates, future adjustments to allowances may be necessary due to economic, operating, regulatory, and other conditions that may be beyond the Company’s control. The Company also engages a third party credit review consultant to analyze the Company’s loan loss adequacy periodically. In addition, the regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on judgments different from those of management.

The allowance for loan losses is comprised of several components including the specific, formula and unallocated allowance relating to loans in the loan portfolio. Our methodology for determining the allowance for loan losses consists of several key elements, which include:

●

Specific Allowances. A specific allowance is established when management has identified unique or particular risks that were related to a specific loan that demonstrated risk characteristics consistent with impairment. Specific allowances are established when management can estimate the amount of an impairment of a loan.

●

Formula Allowance. The formula allowance is calculated ~~by applying loss factors through the assignment of loss factors~~using a “Migration Analysis” method as defined above applied to homogenous pools of loans. Changes in risk grades of both performing and nonperforming loans affect the amount of the formula allowance. Loss factors are based on our historical loss experience and such other data as management believes to be pertinent. Management, also, considers a variety of subjective factors, including regional economic and business conditions that impact important segments of our portfolio, loan growth rates, the depth and skill of lending staff, the interest rate environment, and the results of bank regulatory examinations and findings of our internal credit examiners to establish the formula allowance.

●

Unallocated Allowance. The unallocated loan loss allowance represents an amount for imprecision or uncertainty that is inherent in estimates used to determine the allowance.

The Company also maintains a separate allowance for off-balance-sheet commitments. A reserve for unfunded commitments is maintained at a level that, in the opinion of management, is adequate to absorb probable losses associated with commitments to lend funds under existing agreements, for example, the Bank’s commitment to fund advances under lines of credit. The reserve amount for unfunded commitments is determined based on our methodologies described above with respect to the formula allowance. The allowance for off-balance-sheet commitments is included in accrued interest payable and other liabilities on the consolidated balance sheet and was $146,000 and $143,000 for the periods ended ~~March 31,~~June 30, 2013 and December 31, 2012, respectively.

NOTE 5 – OTHER REAL ESTATE OWNED

The Company had ~~$21,365,000~~$16,324,000 and $22,423,000 in other real estate owned (“OREO”) at ~~March 31,~~June 30, 2013 and December 31, 2012, respectively. Below is a table with details of the changes in OREO (in thousands):

	March 31,			December 31,			June 30,			December 31,
	2013			2012			2013			2012
Beginning Balance	$	22,423		$	20,106		$	22,423		$	20,106
Properties transferred in		602			12,239			777			12,239
Sales of property		(1,426	)		(6,889	)		(5,744	)		(6,889	)
Loss on sale or writedown of property		(234	)		(3,033	)		(1,132	)		(3,033	)
Total	$	21,365		$	22,423		$	16,324		$	22,423

The following table presents the components of OREO expense (in thousands):

	March 31,					Three months ended June 30,				Six months ended June 30,
	2013			2012		2013		2012		2013		2012
Operating expenses	$	142		$	156	$	92	$	72	$	234	$	227
Provision for losses		261			396		623		165		884		561
Net, loss(gain) on disposal		(27	)		82
Net, loss on disposal							275		105		248		188
Total other real estate owned expense	$	376		$	634	$	990	$	342	$	1,366	$	976

NOTE 6 –OTHER BORROWED FUNDS

Other borrowed funds included FHLB advances and Federal Funds purchased. The Bank had outstanding secured overnight FHLB advances as of June 30, 2013 of $22,025,000 at an interest rate of 0.08%. The Bank did not have any other borrowed funds as of December 31, 2012.

NOTE 67 – SUBORDINATED DEBENTURES

The Company owns the common stock of three business trusts that have issued an aggregate of $21.0 million in trust preferred securities fully and unconditionally guaranteed by the Company. The entire proceeds of each respective issuance of trust preferred securities were invested by the separate business trusts into junior subordinated debentures issued by the Company, with identical maturity, repricing and payment terms as the respective issuance of trust preferred securities. The aggregate amount of junior subordinated debentures issued by the Company is $21,651,000, with the maturity dates for the respective debentures ranging from 2033 through 2036. Subject to regulatory approval, the Company may redeem the respective junior subordinated debentures earlier than the maturity date, based on their respective redemption dates. The respective junior subordinated debentures became redeemable in April 2008, July 2009 and March 2011.

The trust preferred securities issued by the trusts are currently included in Tier 1 capital in the amount of $21,000,000 for purposes of determining Leverage, Tier 1 and Total Risk-Based capital ratios for the periods ending ~~March 31,~~June 30, 2013 and December 31, 2012.

The following table summarizes the terms of each subordinated debenture issuance for the periods ending ~~March 31,~~June 30, 2013 and December 31, 2012 (dollars in thousands):

Fixed or

Date

Variable

Current

Rate

Redemption

Date

Variable

Current

Rate

Redemption

Series

Issued

Maturity

Rate

Index

Date

Amount

Issued

Maturity

Rate

Index

Date

Amount

North Valley Capital Trust II

4/10/03

4/24/33

Variable

3.55

LIBOR + 3.25%

4/24/08

6,186

4/10/03

4/24/33

Variable

3.52

LIBOR + 3.25%

4/24/08

6,186

North Valley Capital Trust III

5/5/04

4/24/34

Variable

3.10

LIBOR + 2.80%

7/23/09

5,155

5/5/04

4/24/34

Variable

3.08

LIBOR + 2.80%

7/23/09

5,155

North Valley Capital Statutory Trust IV

12/29/05

3/15/36

Variable

1.61

LIBOR + 1.33%

3/15/11

10,310

12/29/05

3/15/36

Variable

1.60

LIBOR + 1.33%

3/15/11

10,310

21,651

At ~~March 31,~~June 30, 2013 and December 31, 2012, the Company had recorded accrued and unpaid interest payments on junior subordinated debentures of ~~$78,000~~$76,000 and $79,000, respectively.

NOTE 78 – INCOME TAXES

The Company files its income taxes on a consolidated basis with NVB. The allocation of income tax expense (benefit) represents each ~~entity’s~~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 income 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 onlytax positions that met the more likely than not recognition threshold, that the tax position would be sustained in a tax examination.

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. At ~~March 31,~~June 30, 2013 and December 31, 2012, unrecognized tax benefits totaled $519,000.

Net deferred tax assets totaled ~~$12,735,000~~$16,351,000 and $12,346,000 at ~~March 31,~~June 30, 2013 and December 31, 2012, respectively.

NOTE 89 - PENSION PLAN BENEFITS

The Company has a supplemental retirement plan for key executives and a supplemental retirement plan for certain retired key executives and directors. These plans are nonqualified defined benefit plans and are unsecured. Total contributions paid were $63,000 for the three months ended ~~March 31,~~June 30, 2013 and 2012. Effective October 1, 2009, the Company entered into an agreement to “freeze” the vested benefits under the North Valley Bancorp Salary Continuation Plan (amended and restated effective January 1, 2007) with each active officer currently participating in the Plan. Each agreement provided that vested accrued benefits under the Plan would remain fixed at the amount determined as of September 30, 2009 until such time as the Board of Directors might elect to recommence accruals. On July 28, 2012, the Board of Directors determined that Plan accruals should recommence, with retroactive effect to September 30, 2009. Components of net periodic benefit cost for the Company’s supplemental nonqualified defined benefit plans for the three and six months ended ~~March 31,~~June 30, 2013 and 2012 are presented in the following table (in thousands):

	Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
Components of net periodic benefits cost:	2013		2012		2013		2012		2013		2012
Service cost	$	170	$	150	$	171	$	151	$	341	$	301
Interest cost		93		84		93		83		186		167
Prior service amortization		25		25		24		24		49		49
Recognized net actuarial loss		49		10		49		10		98		20
Total components of net periodic cost	$	337	$	269	$	337	$	268	$	674	$	537

March 31, 2013 December 31, 2012
Total Liability of Pension Plan Benefits $ 9,475 $ 9,443

		June 30, 2013		December 31, 2012

Total Liability of Pension Plan Benefits	$	8,699	$	9,443

NOTE 910 – STOCK-BASED COMPENSATION

Stock Option Plans

At ~~March 31,~~June 30, 2013, the Company had two shareholder approved stock-based compensation plans: the 1998 Employee Stock Incentive Plan and the 2008 Stock Incentive Plan. A total of 601,925 shares were authorized under all plans at ~~March 31,~~June 30, 2013. The plans do not provide for the settlement of awards in cash and new shares are issued upon exercise of the options. The North Valley Bancorp 1998 Employee Stock Incentive Plan provides for awards in the form of options (which may constitute incentive stock options (“ISOs”) or non-statutory stock options (“NSOs”) to key employees) and also provides for the award of shares of Common Stock to outside directors. As provided in the 1998 Employee Stock Incentive Plan, the authorization to award incentive stock options terminated on February 19, 2008. Pursuant to the 1998 Employee Stock Incentive Plan there were outstanding options to purchase 51,930 shares of Common Stock at ~~March 31,~~June 30, 2013. The North Valley Bancorp 2008 Stock Incentive Plan was adopted by the Company’s Board of Directors on February 27, 2008, effective that date, and was approved by the Company’s shareholders at the annual meeting, May 22, 2008. The terms of the 2008 Stock Incentive Plan are substantially the same as the North Valley Bancorp 1998 Employee Stock Incentive Plan. The 2008 Stock Incentive Plan provides for the grant to key employees of stock options, which may consist of NSOs and ISOs.Under the 2008 Stock Incentive Plan, options may not be granted at a price less than the fair market value at the date of the grant. Under all plans, options may be exercised over a ten year term.The vesting period is generally four years; however the vesting period can be modified at the discretion of the Company’s Board of Directors, and for all options granted after the fourth quarter in 2008 the vesting period is five years.The 2008 Stock Incentive Plan also provides for the grant to outside directors, and to consultants and advisers to the Company, of stock options, all of which must be NSOs. The shares of Common Stock authorized to be granted as options under the 2008 Stock Incentive Plan consist 549,995 shares of Common Stock reserved for issuance under the terms of the 2008 Stock Incentive Plan, consisting of 302,780 shares to be issued upon the exercise of options granted and still outstanding as of that date, 4,140 shares issued as stock awards and 243,075 shares reserved for future stock option grants and director stock awards at ~~March 31,~~June 30, 2013. Effective January 1, 2009, and on each January 1 thereafter for the remaining term of the 2008 Stock Incentive Plan, the aggregate number of shares of Common Stock which are reserved for issuance pursuant to options granted under the terms of the 2008 Stock Incentive Plan shall be increased by a number of shares of Common Stock equal to 2% of the total number of the shares of Common Stock of the Company outstanding at the end of the most recently concluded calendar year. Any shares of Common Stock that have been reserved but not issued as options during any calendar year shall remain available for grant during any subsequent calendar year. Each outside director of the Company shall also be eligible to receive a stock award of 180 shares of Common Stock as part of his or her annual retainer paid by the Company for his or her services as a director. Each stock award shall be fully vested when granted to the outside director. The number of shares of Common Stock available as stock awards to outside directors shall equal the number of shares of Common Stock to be awarded to such outside directors. Outstanding options under the plans are exercisable until their expiration.

Stock-based Compensation

There were ~~114,234 and 75,408~~no options granted in the three month period ended ~~March 31,~~June 30, 2013. There were 2,500 options granted for the three month period ended June 30, 2012. There were 114,234 and 77,908 options granted for the six month period ended June 30, 2013 and 2012, respectively. For the three month periods ended ~~March 31,~~June 30, 2013 and 2012, the compensation cost recognized for share based compensation was ~~$83,000~~$108,000 and ~~$40,000,~~$49,000, respectively. For the six month periods ended June 30, 2013 and 2012, the compensation cost recognized for share based compensation was $191,000 and $89,000, respectively At ~~March 31,~~June 30, 2013, the total unrecognized compensation cost related to stock-based awards granted to employees under the Company’s stock option plans was ~~$1,724,000.~~$1,615,000. This cost is expected to be amortized on a straight-line basis over a weighted average period of approximately ~~4.4~~4.1 years and will be adjusted for subsequent changes in estimated forfeitures. The following table summarizes the weighted average grant date fair value of options granted for the three and six month periods ended ~~March 31,~~June 30, 2013 and 2012, ~~were $9.53 and $6.25, respectively,~~ based on the following assumptions used in a Black-Scholes Merton model.

	For three months ended March 31,						For three months ended June 30,					For six months ended June 30,
	2013			2012			2013		2012			2013			2012
Weighted average grant date fair value per share of options granted	$	9.53		$	6.25

Weighted average grant date fair value per share of option granted								N/A	$	7.08		$	9.53		$	6.28
Significant weighted average assumptions used in calculating fair value:
Expected term		6.32 years			6.49 years					6.61 years			6.32 years			6.49 years
Expected annual volatility		60	%		58	%				58	%		60	%		59	%
Expected annual dividend yield		N/A			N/A					N/A			N/A			N/A
Risk-free interest rate		1.38	%		1.40	%				1.38	%		1.38	%		1.40	%

A summary of outstanding stock options follows:

						Weighted
				Weighted		Average
				Average		Remaining	Exercise		Aggregate
				Exercise		Contractual	Price		Intrinsic
	Shares			Price		Term	Range		Value ($000)		Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Exercise Price Range		Aggregate Intrinsic Value ($000)

Outstanding at January 1, 2013		248,822		$	29.40	7 years		$9.97-$103.10	$	492		248,822		$	29.40		7 years		$9.97-$103.10	$	822

Granted		114,234		$	16.80							114,234		$	16.80				$16.80-16.80
Exercised		—										—			—				—
Expired or Forfeited		(8,346	)	$	63.32							(8,346	)	$	63.32				$23.95-$65.30

Outstanding at March 31, 2013		354,710		$	24.55	8 years		$9.97-$103.10	$	1,089
Fully vested and exercisable at March 31, 2013		116,508		$	45.76	5 years		$9.97-$103.10	$	195
Options expected to vest at March 31, 2013		238,202		$	14.17	9 years		$9.97-$23.95	$	895
Outstanding at June 30, 2013												354,710		$	24.55		8 years		$9.97-$103.10	$	822
Fully vested and exercisable at June 30, 2013												117,008		$	45.62		5 years		$9.97-$103.10	$	164
Options expected to vest at June 30, 2013												237,702		$	14.17		9 years		$9.97-$23.95	$	658

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock as of ~~March 31,~~June 30, 2013. There were no options exercised during the three and six month periods ended ~~March 31,~~June 30, 2013 and 2012.

NOTE 1011 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in each component of accumulated other comprehensive income (loss) for the three and six month periods ended June 30, 2013 and June 30, 2012 were as follows (in thousands):

Net
Unrealized
Gains
(Losses) on
Securities Adjustments
Related to
Defined
Benefit
Pension Plan Accumulated
Other
Comprehensive
Income

Balance at December 31, 2011 $ 2,369 $ (899 ) $ 1,470
Net unrealized losses on securities available for sale, net of tax, $695 999 — 999
Reclassification adjustment for gains on securities, net of tax, $4 5 — 5
Net losses arising during the period, net of tax $51 — 74 74
Reclassification adjustment for amortization of prior service cost and net gain included in net periodic pension cost, net of tax $(51) — (74 ) (74 )
Balance at March 31, 2012 $ 3,373 $ (899 ) $ 2,474

Balance at December 31, 2012 $ 3,287 $ (1,621 ) $ 1,666
Net unrealized losses on securities available for sale, net of tax, $265 (382 ) — (382 )
Reclassification adjustment for gains on securities, net of tax, $223 (320 ) — (320 )
Net losses arising during the period, net of tax $69 — 99 99
Reclassification adjustment for amortization of prior service cost and net gain included in net periodic pension cost, net of tax $30 — 44 44
Balance at March 31, 2013 $ 2,585 $ (1,478 ) $ 1,107

	Net Unrealized Gains (Losses) on Securities			Adjustments Related to Defined Benefit Pension Plan			Accumulated Other Comprehensive Income (Loss)

Balance at March 31, 2013	$	2,585		$	(1,478	)	$	1,107
Net unrealized losses on securities available for sale, net of tax, $(4,047)		(5,823	)		—			(5,823	)
Reclassification adjustment for gains on securities, net of tax,		—			—			—
Net gains arising during the period, net of tax $400		—			577			577
Reclassification adjustment for amortization of prior service cost and net gain included in salaries and employee benefits, net of tax $30		—			44			44
Balance at June 30, 2013	$	(3,238	)	$	(857	)	$	(4,095	)

Balance at March 31, 2012	$	3,374		$	(899	)	$	2,475
Net unrealized gains on securities available for sale, net of tax, $867		1,247			—			1,247
Reclassification adjustment for losses on securities, net of tax, $(397)		(571	)		—			(571	)
Net gains arising during the period, net of tax $ 14		—			21			21
Reclassification adjustment for amortization of prior service cost and net gain included in salaries and employee benefits, net of tax $ 14		—			20			20
Balance at June 30, 2012	$	4,050		$	(858	)	$	3,192

~~Reclassification Out of Accumulated Other Comprehensive Income~~

		Net Unrealized Gains (Losses) on Securities			Adjustments Related to Defined Benefit Pension Plan			Accumulated Other Comprehensive Income (Loss)

Balance at December 31, 2012	$	3,287		$	(1,621	)	$	1,666
Net unrealized losses on securities available for sale, net of tax, $(4,312)		(6,205	)		—			(6,205	)
Reclassification adjustment for losses on securities, net of tax, $(223)		(320	)		—			(320	)
Net gains arising during the period, net of tax $470		—			676			676
Reclassification adjustment for amortization of prior service cost and net gain included in salaries and employee benefits, net of tax $60		—			88			88
Balance at June 30, 2013	$	(3,238	)	$	(857	)	$	(4,095	)

Balance at December 31, 2011	$	2,369		$	(899	)	$	1,470
Net unrealized gains on securities available for sale, net of tax, $1,561		2,247			—			2,247
Reclassification adjustment for losses on securities, net of tax, $(393)		(566	)		—			(566	)
Net losses arising during the period, net of tax		—			—			—
Reclassification adjustment for amortization of prior service cost and net gain included in salaries and employee benefits, net of tax $ 28		—			41			41
Balance at June 30, 2012	$	4,050		$	(858	)	$	3,192

Changes in each component of accumulated other comprehensive income were as follows (in thousands):

~~As March 31, 2013~~
~~Details About Accumulated Other~~ ~~Comprehensive Income Components~~	~~Amount Reclassified~~ ~~From Accumulated Other~~ ~~Comprehensive Income~~			~~Affected Line Item in the Statement~~ ~~Where Net Income is Presented~~

~~Gains on investment securities~~	$	~~543~~		~~Gain (loss) on sales or calls of securities, net~~
~~Amortization of prior service cost and net gain included in net periodic pension cost~~		~~(74~~	)	~~Salaries and employee benefits~~
		~~469~~		~~Total before tax~~
		~~(193~~	)	~~Provision for income taxes~~
	$	~~276~~		~~Net of tax~~

Three months ended June 30, 2013
Details About Accumulated Other Comprehensive Income Components		Amount Reclassified From Accumulated Other Comprehensive Income		Affected Line Item in the Statement Where Net Income is Presented
Amortization of prior service cost and net gain included in net periodic pension cost	$	(74	)	Salaries and employee benefits
		(74	)	Total before tax
		30		Benefit for income tax
	$	(44	)	Net of tax

~~As March 31, 2012~~
~~Details About Accumulated Other~~ ~~Comprehensive Income Components~~	~~Amount Reclassified~~ ~~From Accumulated Other~~ ~~Comprehensive Income~~			~~Affected Line Item in the Statement~~ ~~Where Net Income is Presented~~

~~Loss on investment securities~~	$	(9	)	~~Gain (loss) on sales or calls of securities, net~~
~~Amortization of prior service cost and net gain included in net periodic pension cost~~		~~(125~~	)	~~Salaries and employee benefits~~
		~~(134~~	)	~~Total before tax~~
		55		~~Provision for income taxes~~
	$	~~(79~~	)	~~Net of tax~~

Three months ended June 30, 2012
Details About Accumulated Other Comprehensive Income Components		Amount Reclassified From Accumulated Other Comprehensive Income		Affected Line Item in the Statement Where Net Income is Presented
Gain on investment securities	$	968		Gain on sales or calls of securities, net
Amortization of prior service cost and net gain included in net periodic pension cost		(34	)	Salaries and employee benefits
		934		Total before tax
		(383	)	Provision for income tax
	$	551		Net of tax

Six months ended June 30, 2013
Details About Accumulated Other Comprehensive Income Components		Amount Reclassified From Accumulated Other Comprehensive Income		Affected Line Item in the Statement Where Net Income is Presented
Gain on investment securities	$	543		Gain on sales or calls of securities, net
Amortization of prior service cost and net gain included in net periodic pension cost		(148	)	Salaries and employee benefits
		395		Total before tax
		(163	)	Provision for income tax
	$	232		Net of tax

Six months ended June 30, 2012
Details About Accumulated Other Comprehensive Income Components		Amount Reclassified From Accumulated Other Comprehensive Income		Affected Line Item in the Statement Where Net Income is Presented
Gain on investment securities	$	959		Gain on sales or calls of securities, net
Amortization of prior service cost and net gain included in net periodic pension cost		(69	)	Salaries and employee benefits
		890		Total before tax
		(365	)	Provision for income tax
	$	525		Net of tax

NOTE 1112 – EARNINGS PER SHARE

Basic earnings per share (“EPS”), which excludes dilution, is computed by dividing income or loss available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, result in the issuance of common stock which shares in the earnings of the Company. The treasury stock method has been applied to determine the dilutive effect of stock options in computing diluted EPS. Stock options for 214,302 and ~~254,785~~255,285 shares of common stock were not considered in computing diluted earnings per common share for the three months ended ~~March 31,~~June 30, 2013 and ~~2011~~2012 respectively, because they were anti-dilutive. Stock options for 214,302 and 256,285 shares of common stock were not considered in computing diluted earnings per common share for the six months ended June 30, 2013 and 2012 respectively, because they were anti-dilutive.

March 31,
2013 2012
Calculation of basic earnings per share:
Numerator - net income $ 1,261 $ 480
Denominator -
Weighted average common shares outstanding 6,835 6,834
Basic earnings per share $ 0.18 $ 0.07

Calculation of diluted earnings per share:
Numerator - net income $ 1,261 $ 480
Denominator -
Weighted average common shares outstanding 6,835 6,834
Dilutive effect of outstanding options 10 —
Weighted average common shares outstanding and common stock equivalents 6,845 6,834
Diluted earnings per share $ 0.18 $ 0.07

1821

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Calculation of basic earnings per share:
Numerator - net income	$	894	$	1,261	$	2,155	$	1,741
Denominator -
Weighted average common shares outstanding		6,835		6,834		6,835		6,834
Basic earnings per share	$	0.13	$	0.18	$	0.32	$	0.25

Calculation of diluted earnings per share:
Numerator - net income	$	894	$	1,261	$	2,155	$	1,741
Denominator -
Weighted average common shares outstanding		6,835		6,834		6,835		6,834
Dilutive effect of outstanding options		18		—		15		—
Weighted average common shares outstanding and common stock equivalents		6,853		6,834		6,850		6,834
Diluted earnings per share	$	0.13	$	0.18	$	0.31	$	0.25

NOTE 1213 – COMMITMENTS AND CONTINGENCIES

The Company is involved in legal actions arising from normal business activities. Management, based upon the advice of legal counsel, believes that the ultimate resolution of all pending legal actions will not have a material effect on the ~~Company’s~~Company's financial position, results of its operations or its cash flows.

The Company was contingently liable under letters of credit issued on behalf of its customers in the amount of ~~$4,936,000~~$4,758,000 and $4,713,000 at ~~March 31,~~June 30, 2013 and December 31, 2012, respectively. At ~~March 31,~~June 30, 2013, commercial and consumer lines of credit and real estate loans of approximately ~~$44,364,000~~$39,862,000 and ~~$30,304,000,~~$30,407,000, respectively, were undisbursed. At December 31, 2012, commercial and consumer lines of credit and real estate loans of approximately $47,350,000 and $31,925,000, respectively, were undisbursed.

Loan commitments are typically contingent upon the borrower meeting certain financial and other covenants and such commitments typically have fixed expiration dates and require payment of a fee. As many of these commitments are expected to expire without being drawn upon, the total commitments do not necessarily represent future cash requirements. The Company evaluates each potential borrower and the necessary collateral on an individual basis. Collateral varies, but may include real property, bank deposits, debt securities, equity securities or business or personal assets.

Standby letters of credit are conditional commitments written by the Company to guarantee the performance of a customer to a third party. These guarantees are issued primarily relating to real estate projects and inventory purchases by the Company’s commercial customers and such guarantees are typically short term. Credit risk is similar to that involved in extending loan commitments to customers and the Company, accordingly, uses evaluation and collateral requirements similar to those for loan commitments. Most of such commitments are collateralized. The fair value of the liability related to these standby letters of credit, which represents the fees received for issuing the guarantees, was not significant at ~~March 31,~~June 30, 2013 and December 31, 2012. The Company recognizes these fees as revenues over the term of the commitment or when the commitment is used.

Loan commitments and standby letters of credit involve, to varying degrees, elements of credit and market risk in excess of the amounts recognized in the balance sheet and do not necessarily represent the actual amount subject to credit loss. At ~~March~~June 30, 2013 and December 31, ~~2013,~~2012, the Company had a reserve for unfunded commitments of ~~$143,000.~~$146,000 and $143,000, respectively.

A large portion of the loan portfolio of the Company is collateralized by real estate. At ~~March 31,~~June 30, 2013, real estate served as the principal source of collateral with respect to approximately ~~80%~~81% of the Company’s loan portfolio. At ~~March 31,~~June 30, 2013, real estate construction loans totaled ~~$21,438,000,~~$18,535,000, or 4% of the total loan portfolio, commercial loans secured by real estate totaled ~~$297,516,000,~~$319,206,000, or ~~61%~~63% of the total loan portfolio, and real estate mortgage loans totaled ~~$70,514,000,~~$68,637,000, or ~~15%~~14% of the total loan portfolio. See the discussion under “Loan Portfolio” starting on page ~~31.~~35. A further decline in the state and national economy, in general, combined with further deterioration in real estate values in the Company’s primary operating market areas, would have an adverse effect on the value of real estate as well as other collateral securing loans, plus the ability of certain borrowers to repay their outstanding loans and the overall demand for new loans, and this could have a material impact on the Company’s financial position, results of operations or its cash flows.

~~North Valley Bank~~NVB has ~~not received~~established a ~~final report~~reserve for the anticipated settlement of ~~examination for~~criticisms in conjunction with a compliance examination ~~of the Bank~~ conducted by the Federal Reserve Bank of San Francisco in 2010. During the three month period ending June 30, 2013, NVB received the final 2010 report of examination and ~~the Bank has established a reserve for the anticipated settlement of criticisms expected to be contained~~ in ~~the report, when received. At March 31, 2013 and December 31, 2012, the reserves for this anticipated settlement totaled $1,200,000 and $700,000, respectively.~~ ~~Based on recent discussions~~accordance with ~~and additional information received from~~an agreement reached with the Federal Reserve Bank of San Francisco, ~~North Valley Bank expects to receive~~finalized the ~~final 2010 report~~amount of ~~examination during 2013.~~this reserve at $1,260,000. This amount is included in accrued interest payable and other liabilities on the balance sheet.

NOTE 1314 – FAIR VALUE MEASUREMENTS

The Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

●

Quoted prices in active markets for identical assets (Level 1): Inputs that are quoted unadjusted prices in active markets for identical assets that the Company has the ability to access at the measurement date. An active market for the asset is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

●

Significant other observable inputs (Level 2): Inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity including quoted prices for similar assets or liabilities, quoted prices for securities in inactive markets and inputs derived principally from, or corroborated by, observable market data by correlation or other means.

●

Significant unobservable inputs (Level 3): Inputs that reflect the reporting ~~entity’s~~entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

Assets Recorded at Fair Value on a Recurring Basis:

The table below presents assets measured at fair value on a recurring basis (in thousands).

	As of March 31, 2013								As of June 30, 2013
	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Available-for-sale securities:
Obligations of U.S. government sponsored agencies	$	24,707	$	—	$	24,707	$	—	$	18,552	$	—	$	18,552	$	—
Obligations of state and political subdivisions		8,632		—		8,632		—		8,431		—		8,431		—
Government sponsored agency mortgage-backed securities		242,416		—		242,416		—		271,578		—		271,578		—
Corporate debt securities		4,875		—		4,875		—		4,762		—		4,762		—
Equity securities		3,091		—		3,091		—		2,977		—		2,977		—
	$	283,721	$	—	$	283,721	$	—	$	306,300	$	—	$	306,300	$	—

	At December 31, 2012
	Fair Value		Level 1		Level 2		Level 3
Available-for-sale securities:
Obligations of U.S. government sponsored agencies	$	21,118	$	—	$	21,118	$	—
Obligations of state and political subdivisions		11,197		—		11,197		—
Government sponsored agency mortgage-backed securities		245,631		—		245,631		—
Corporate debt securities		4,756		—		4,756		—
Equity securities		3,113		—		3,113		—
	$	285,815	$	—	$	285,815	$	—

Fair values for available-for-sale investment securities are based on quoted market prices for similar securities at ~~March 31,~~June 30, 2013 and December 31, 2012. During the ~~quarter~~three and six month period s ended ~~March 31,~~June 30, 2013, there were no transfers between Levels 1 and 2.

Assets Recorded at Fair Value on a Nonrecurring Basis:

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-fair value accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis that were still held in the balance sheet at quarter end, the following table provides the level of valuation assumptions used to determine each adjustment and the carrying value of the related assets at quarter end (in thousands).

Total Losses
As of March 31, 2013 For three months ended March 31,
Fair Value Level 1 Level 2 Level 3 2013 2012
Impaired loans:
Commercial $ 226 $ — $ — $ 226 $ 287 $ 199
Real estate - commercial 1,067 — — 1,067 437 179
Real estate - construction 450 — — 450 357 211
Real estate - mortgage 164 — — 164 86 9
Real estate - other — — — — — 34
OREO:
Real estate - commercial 3,192 — — 3,192 215 275
Real estate - construction 138 — — 138 46 46
Real estate - mortgage — — — — — 75
Total assets measured at fair value on a nonrecurring basis $ 5,237 $ — $ — $ 5,237 $ 1,428 $ 1,028

									Total Losses					Total Losses
	As of June 30, 2013								For three months ended June 30,					For six months ended June 30,
	Fair Value		Level 1		Level 2		Level 3		2013			2012		2013		2012
Impaired loans:
Commercial	$	385	$	—	$	—	$	385	$	(198	)	$	—	$	88	$	—
Real estate - commercial		625		—		—		625		—			1,278		239		1,457
Real estate - construction		450		—		—		450		—			9		357		25
Real estate - mortgage		118		—		—		118		186			70		272		70
Other		109		—		—		109		140			—		177		—
OREO:
Real estate - commercial		181		—		—		181		104			—		123		—
Real estate - construction		651		—		—		651		518			87		518		133
Real estate - mortgage		—		—		—		—		—			77		—		152
Total assets measured at fair value on a nonrecurring basis	$	2,519	$	—	$	—	$	2,519	$	750		$	1,521	$	1,774	$	1,837


	As of December 31, 2012								As of December 31, 2012
	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3

Impaired loans:
Commercial	$	585	$	—	$	—	$	585	$	585	$	—	$	—	$	585
Real estate - commercial		2,222		—		—		2,222		2,222		—		—		2,222
Real estate - construction		143		—		—		143		143		—		—		143
Real estate - mortgage		464		—		—		464		464		—		—		464
Installment		75		—		—		75		75		—		—		75
Other		25		—		—		25		25		—		—		25
OREO:
Real estate - construction		7,360		—		—		7,360		7,360		—		—		7,360
Real estate - mortgage		184		—		—		184		184		—		—		184
Total assets measured at fair value on a nonrecurring basis	$	11,058	$	—	$	—	$	11,058
Total assets measured at fair value
on a nonrecurring basis									$	11,058	$	—	$	—	$	11,058

Impaired Loans - The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available, and additional discounts by management for known market factors and time since the last appraisal. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Other Real Estate Owned – Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (OREO) are measured at fair value, less costs to sell. Fair values are based on recent real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis (in thousands): There were no adjustments for ~~Commercial and Other~~“Commercial” impaired loans.

As of ~~March 31,~~June 30, 2013

Range
(Weighted

Fair Value

Valuation Techniques

Unobservable Inputs

Range (Weighted Average)

Fair Value

Valuation Techniques

Unobservable Inputs

Average)

Impaired loans:

Real estate - commercial

1,067

Comparable sales approach

Discount adjustment for differences between comparable sales

6% to 11% (9%)

625

Comparable sales approach

Discount adjustment for differences between comparable sales

6% to 11% (9%)

Real estate - construction

450

Comparable sales approach

Discount adjustment for differences between comparable sales

2% to 3% (3%)

450

Comparable sales approach

Discount adjustment for differences between comparable sales

2% to 3% (3%)

Real estate - mortgage

164

Comparable sales approach

Discount adjustment for differences between comparable sales

6% to 11% (9%)

118

Comparable sales approach

Discount adjustment for differences between comparable sales

6% to 11% (9%)

Other

109

Comparable sales approach

Discount adjustment for differences between comparable sales

6% to 11% (9%)

OREO:

Real estate - commercial

3,192

Comparable sales approach

Discount adjustment for differences between comparable sales

6% to 11% (9%)

181

Comparable sales approach

Discount adjustment for differences between comparable sales

6% to 11% (9%)

Real estate - construction

138

Comparable sales approach

Discount adjustment for differences between comparable sales

0% to 6% (6%)

651

Comparable sales approach

Discount adjustment for differences between comparable sales

0% to 6% (6%)

As of December 31, 2012

Range
(Weighted
Fair Value Valuation Techniques Unobservable Inputs Average)
Impaired loans:
Real estate - commercial $ 2,222 Comparable sales approach Discount adjustment for differences between comparable sales 6% to 11% (9%)
Real estate - construction $ 143 Comparable sales approach Discount adjustment for differences between comparable sales 2% to 3% (3%)
Real estate - mortgage $ 464 Comparable sales approach Discount adjustment for differences between comparable sales 6% to 11% (9%)
OREO:
Real estate - construction $ 7,360 Comparable sales approach Discount adjustment for differences between comparable sales 0% to 6% (6%)
Real estate - mortgage $ 184 Comparable sales approach Discount adjustment for differences between comparable sales 6% to 11% (9%)

Fair Value

Valuation Techniques

Unobservable Inputs

Range (Weighted Average)

Impaired loans:

Real estate - commercial

2,222

Comparable sales approach

Discount adjustment for differences between comparable sales

6% to 11% (9%)

Real estate - construction

143

Comparable sales approach

Discount adjustment for differences between comparable sales

2% to 3% (3%)

Real estate - mortgage

464

Comparable sales approach

Discount adjustment for differences between comparable sales

6% to 11% (9%)

OREO:

Real estate - commercial

7,360

Comparable sales approach

Discount adjustment for differences between comparable sales

6% to 11% (9%)

Real estate - construction

184

Comparable sales approach

Discount adjustment for differences between comparable sales

0% to 6% (6%)

Disclosures about Fair Value of Financial Instruments

The fair values presented represent the Company’s best estimate of fair value using the methodologies discussed below. The fair values of financial instruments which have a relatively short period of time between their origination and their expected realization were valued using historical cost. The values assigned do not necessarily represent amounts which ultimately may be realized. In addition, these values do not give effect to discounts to fair value which may occur when financial instruments are sold in larger quantities.

The following assumptions were used as of ~~March 31,~~June 30, 2013 and December 31, 2012 to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.

Cash and Due From Banks - The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.

Federal Funds Sold - The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.

Time Deposits at Other Financial Institutions - The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level ~~2 .~~2.

FHLB, FRB Stock and Other Securities - It was not practicable to determine the fair value of FHLB or FRB stock due to the restrictions placed on its transferability

Investment Securities – The fair value of investment securities are based on quoted market prices, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. Available-for-sale securities are carried at fair value.

	f)	Loans - Commercial loans, residential mortgages, construction loans and direct financing leases are segmented by fixed and adjustable rate interest terms, by maturity, and by performing and nonperforming categories.

		The fair value of performing loans are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

		The fair value of nonperforming loans is estimated by discounting estimated future cash flows using current interest rates with an additional risk adjustment reflecting the individual characteristics of the loans, or using the fair value of underlying collateral for collateral dependent loans as a practical expedient.

The fair value of performing loans are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

The fair value of nonperforming loans is estimated by discounting estimated future cash flows using current interest rates with an additional risk adjustment reflecting the individual characteristics of the loans, or using the fair value of underlying collateral for collateral dependent loans as a practical expedient.

Deposits – The fair values disclosed for noninterest-bearing and interest-bearing demand deposits and savings and money market accounts are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. Fair values for certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

Subordinated Debentures - The fair values of the Company’s Subordinated Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

Commitments to Fund Loans/Standby Letters of Credit - The fair values of commitments are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The differences between the carrying value of commitments to fund loans or standby letters of credit and their fair value are not significant and therefore not included in the following table.

Accrued Interest Receivable/Payable – The carrying amounts of accrued interest approximate fair value and therefore follow the same classification as the related asset or liability.

The carrying amounts and estimated fair values of the Company’s financial instruments are as follows (in thousands):

			Fair Value Measurements at June 30, 2013, Using
	Carrying Amount		Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS
Cash and due from banks	$	21,431	$	21,431	$	—	$	—	$	21,431
Federal funds sold		—		—		—		—		—
Time deposits at other financial institutions		2,219		—		2,219		—		2,219
FHLB, FRB and other securities		8,402								N/A
Securities:
Available-for-sale		306,300		—		306,300		—		306,300
Held-to-maturity		6		—		6		—		6
Loans		494,747		—		—		503,363		503,363
Accrued interest receivable		2,257		—		794		1,463		2,257

FINANCIAL LIABILITIES
Deposits:
Nonmaturity deposits	$	607,135	$	607,135	$	—	$	—	$	607,135
Time deposits		157,920		—		158,090		—		158,090
Other borrowed funds		22,025		22,025		—		—		22,025
Subordinated debentures		21,651		—		—		8,081		8,081
Accrued interest payable		123		4		42		77		123

Fair Value Measurements at
March 31, 2013, Using
Carrying
Amount Level 1 Level 2 Level 3 Total
FINANCIAL ASSETS
Cash and due from banks $ 15,890 $ 15,890 $ — $ — $ 15,890
Federal funds sold 35,925 35,925 — — 35,925
Time deposits at other financial institutions 2,219 — 2,219 — 2,219
FHLB, FRB and other securities 8,313 — — — N/A
Securities:
Available-for-sale 283,721 — 283,721 — 283,721
Held-to-maturity 6 — 6 — 6
Loans 478,955 — — 495,150 495,150
Accrued interest receivable 2,182 — 730 1,452 2,182

FINANCIAL LIABILITIES
Deposits:
Nonmaturity deposits $ 613,435 $ 613,435 $ — $ — $ 613,435
Time deposits 162,485 — 162,833 — 162,833
Subordinated debentures 21,651 — — 8,720 8,720
Accrued interest payable 121 4 39 78 121

			Fair Value Measurements at
			December 31, 2012, Using
	Carrying													Fair Value Measurements at December 31, 2012, Using
	Amount		Level 1		Level 2			Level 3		Total		CarryingAmount		Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS
Cash and due from banks	$	22,654	$	22,654	$	—		$	—	$	22,654	$	22,654	$	22,654	$	—	$	—	$	22,654
Federal funds sold		15,865		15,865		—			—		15,865		15,865		15,865		—		—		15,865
Time deposits at other financial institutions		2,219		—		2,219			—		2,219		2,219		—		2,219		—		2,219
FHLB, FRB and other securities		8,313		—		—			—		N/A		8,313		—		—		—		N/A
Securities:
Available-for-sale		285,815		—		285,815			—		285,815		285,815		—		285,815		—		285,815
Held-to-maturity		6		—		6			—		6		6		—		6		—		6
Loans		481,753		—		—			500,689		500,689		481,753		—		—		500,689		500,689
Accrued interest receivable		2,217		—		767			1,450		2,217		2,217		—		767		1,450		2,217
							��
FINANCIAL LIABILITIES
Deposits:
Nonmaturity deposits	$	596,204	$	596,204	$	—		$	—	$	596,204	$	596,204	$	596,204	$	—	$	—	$	596,204
Time deposits		172,376		—		172,805			—		172,805		172,376		—		172,805		—		172,805
Subordinated debentures		21,651		—		—			9,018		9,018		21,651		—		—		9,018		9,018
Accrued interest payable		136		2		54			80		136		136		2		54		80		136

ITEM 2. ~~MANAGEMENT’S~~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 ~~inherent loss~~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~~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~~loan's effective interest rate, except that as a practical expedient, it may measure impairment based on a ~~loan’s~~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 ~~evaluate~~evaluates the value of OREO held for sale and ~~record~~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 ~~March 31,~~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 910 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 910 to the Notes to Condensed Consolidated Financial Statements ~~in Item I above.~~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~~"other than ~~temporary”~~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~~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 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 ~~carries~~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 March 31,						Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012			2013			2012
Net interest income	$	7,436		$	7,392		$	7,578		$	7,329		$	15,014		$	14,721
Provision for loan losses		—			400			—			1,000			—			1,400
Noninterest income		4,329			3,259			3,651			4,687			7,980			7,946
Noninterest expense		9,888			9,656			9,936			9,228			19,824			18,884
Provision for income taxes		616			115			399			527			1,015			642
Net income	$	1,261		$	480		$	894		$	1,261		$	2,155		$	1,741

Per Share Amounts
Basic and Diluted Income Per Share	$	0.18		$	0.07
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		0.57	%		0.21	%		0.40	%		0.56	%		0.48	%		0.38	%
Annualized Return on Average Equity		5.30	%		2.12	%		3.69	%		5.47	%		4.49	%		3.81	%

The Company had net income of ~~$1,261,000~~$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 ~~March 31,~~June 30, 2013, ~~compared~~respectively. This compares to ~~$480,000~~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 ~~March 31,~~June 30, 2012. The ~~increase~~decrease in net income for three months ended ~~March 31,~~June 30, 2013 compared to the three months ended ~~March 31,~~June 30, 2012 was primarily attributed to ~~an increase~~a decrease in gains on sale of ~~loans,~~securities, an increase in ~~gains~~other real estate owned expenses, partially offset by an increase on gain on sale of ~~securities~~loans and a decrease in the provision for loan losses. The Company did not record a provision for loan losses for the quarter ended ~~March 31,~~June 30, 2013 compared to a provision for loan losses of ~~$400,000~~$1,000,000 for the quarter ended ~~March 31, 2012 .~~June 30, 2012. Net interest income increased ~~$44,000~~$249,000 for the three months ended ~~March 31,~~June 30, 2013, compared to the same period in 2012. Noninterest income ~~increased $1,070,000~~decreased $1,036,000 for the three months ended ~~March 31,~~June 30, 2013 compared to the same period in 2012 primarily due to the ~~recording of gains on sale of real estate loans and~~reduction in gains on sale of securities. Noninterest expense increased ~~$232,000~~$708,000 for the three months ended ~~March 31,~~June 30, 2013 compared to the three months ended ~~March 31,~~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 ~~a $500,000~~$560,000 in additional ~~reserve~~reserves for expenses ~~expected~~ to be incurred during 2013 in connection with ~~the anticipated~~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 ~~$55,000~~$45,000 and ~~$74,000~~$70,000 in taxable-equivalent interest income on tax-free investments for the three month periods ended ~~March 31,~~June 30, 2013 and 2012, respectively.

Net interest income for the three months ended ~~March 31,~~June 30, 2013 was ~~$7,491,000,~~$7,623,000, a ~~$25,000,~~$224,000, or ~~0.3%~~3.0%, increase from net interest income of ~~$7,466,000~~$7,399,000 for the same period in 2012. Interest income decreased ~~$760,000,~~$464,000, or ~~8.8%~~5.5%, to ~~$7,923,000~~$8,026,000 for the three month period ended ~~March 31,~~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 ~~$85,000~~$50,000 during the three months ended ~~March 31,~~June 30, 2013 compared to ~~$155,000~~$203,000 for the same period in 2012. ~~The average~~Average loans outstanding during the three months ended ~~March 31,~~June 30, 2013 increased ~~$32,936,000,~~$42,037,000, or ~~7.3%~~9.4%, to ~~$484,415,000~~$491,252,000 compared to the same period in 2012. This higher loan volume increased interest income by ~~$473,000.~~$594,000. The average yield earned on the loan portfolio decreased 4241 basis points to ~~5.33%~~5.24% for the three months ended ~~March 31,~~June 30, 2013. This decrease in yield decreased interest income for the three months ended ~~March 31,~~June 30, 2013 by ~~$577,000.~~$502,000. The total ~~decrease~~increase to interest income from the loan portfolio was ~~$104,000~~$92,000 for the three months ended ~~March 31,~~June 30, 2013. The average balance of the investment portfolio decreased ~~$49,428,000,~~$33,692,000, or ~~15.0%~~10.1%, which accounted for a ~~$341,000 decrease~~$247,000 reduction in interest income and a decrease in average yield of the investment portfolio of 4344 basis points reduced interest income by ~~$306,000.~~$304,000.

Interest expense for the three months ended ~~March 31,~~June 30, 2013 compared to the same period in 2012, decreased ~~$785,000,~~$688,000, or ~~64.5%~~63.1%, to $432,000. The decrease was primarily related to the average rates paid on time deposits which decreased 52 basis points to 0.50% and reduced interest expense by $220,000 along with a decrease in average time deposits of $46,702,000 which reduced interest expense by $119,000 for the period ended March 31, 2013$403,000. The average rate paid on other borrowed funds decreased ~~357~~381 basis points to ~~2.49%~~2.30% for the period ended ~~March 31,~~June 30, 2013 compared to ~~6.06%~~6.11% for the same period in 2012, resulting in a decrease to interest expense of ~~$194,000~~$221,000 along with a decrease in average other borrowed funds of ~~$10,310,000~~$8,614,000 which reduced interest expense by ~~$156,000.~~$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 ~~March 31,~~June 30, 2013 increased 2010 basis points to ~~3.81%~~3.77% from ~~3.61%~~3.67% for the same period in 2012 and a 124 basis point decrease from the ~~3.93%~~3.81% net interest margin for the linked quarter ended ~~December~~March 31, ~~2012.~~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.

~~Schedule~~

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 ~~Average Daily Balance~~$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 ~~Average Yields and Rates~~

~~(Dollars~~a decrease in ~~thousands)~~average yield of the investment portfolio of 45 basis points reduced interest income by $641,000.

Three months ended March 31, 2013 Three months ended March 31, 2012
Average Yield/ Interest Average Yield/ Interest
Balance Rate Amount Balance Rate Amount

Assets
Earning assets:
Federal funds sold $ 33,113 0.23 % $ 19 $ 48,950 0.23 % $ 28
Investment securities:
Taxable 270,493 2.06 % 1,376 316,776 2.49 % 1,967
Tax exempt (1) 9,840 6.68 % 162 12,985 6.73 % 218
Total investments 280,333 2.23 % 1,538 329,761 2.66 % 2,185
Loans (2)(3) 484,415 5.33 % 6,366 451,479 5.75 % 6,470
Total earning assets 797,861 4.03 % 7,923 830,190 4.20 % 8,683

Nonearning assets 109,804 98,614
Allowance for loan losses (10,487 ) (12,628 )
Total nonearning assets 99,317 85,986

Total assets $ 897,178 $ 916,176

Liabilities and Stockholders’ Equity
Interest bearing liabilities:
Transaction accounts $ 188,138 0.04 % $ 18 $ 175,999 0.11 % $ 47
Savings and money market 238,785 0.13 % 78 219,729 0.26 % 145
Time certificates 166,198 0.50 % 203 212,900 1.02 % 542
Other borrowed funds 21,651 2.49 % 133 31,961 6.06 % 483
Total interest bearing liabilities 614,772 0.28 % 432 640,589 0.76 % 1,217
Demand deposits 169,080 158,384
Other liabilities 16,843 26,478
Total liabilities 800,695 825,451
Stockholders’ equity 96,483 90,725
Total liabilities and stockholders’ equity $ 897,178 $ 916,176
Net interest income $ 7,491 $ 7,466
Net interest spread 3.75 % 3.44 %
Net interest margin 3.81 % 3.61 %

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.

~~(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 $118 and $38 for the three months ended March 31, 2013 and 2012, respectively.~~

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
	AverageBalance			Yield/Rate			InterestAmount		AverageBalance			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
Demand deposits		167,606								157,826
Other liabilities		18,473								23,888
Total liabilities		805,238								820,394
Stockholders' equity		96,839								91,568
Total liabilities and stockholders' equity	$	902,077							$	911,962
Net interest income							$	15,114							$	14,865
Net interest spread					3.72	%							3.48	%
Net interest margin					3.78	%							3.64	%


(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 $190 and $127 for the six months ended June 30, 2013 and 2012, respectively.

The following table sets forth a summary of the changes in interest income and interest expense due to changes in average asset and liability balances (volume) and changes in average interest rates for the periods indicated. The change in interest due to both rate and volume has been allocated to the change in rate.

~~Changes in Volume/Rate~~

~~(Dollars in thousands)~~

	Three months ended March 31, 2013
	compared with
	Three months ended March 31, 2012
							Total
	Average			Average			Increase
Changes in Volume/Rate										Changes in Volume/Rate
(Dollars in thousands)											Three months ended June 30, 2013 compared with Three months ended June 30, 2012									Six months ended June 30, 2013 compared with Six months ended June 30, 2012
	Volume			Yield/Rate			(Decrease)				Average Volume			Average Yield/Rate			Total Increase (Decrease)			Average Volume			Average Yield/Rate			Total Increase (Decrease)
Interest Income
Interest on Federal funds sold	$	(9	)	$	—		$	(9	)		$	(4	)	$	(1	)	$	(5	)	$	(13	)	$	(1	)	$	(14	)
Interest on investments:
Taxable securities		(288	)		(303	)		(591	)			(180	)		(298	)		(478	)		(437	)		(632	)		(1,069	)
Tax exempt securities (1)		(53	)		(3	)		(56	)			(67	)		(6	)		(73	)		(120	)		(9	)		(129	)
Total investments		(341	)		(306	)		(647	)			(247	)		(304	)		(551	)		(557	)		(641	)		(1,198	)
Interest on loans		473			(577	)		(104	)			594			(502	)		92			1,069			(1,081	)		(12	)
Total interest income		123			(883	)		(760	)			343			(807	)		(464	)		499			(1,723	)		(1,224	)

Interest Expense
Transaction accounts	$	3		$	(32	)	$	(29	)		$	3		$	(19	)	$	(16	)	$	6		$	(51	)	$	(45	)
Savings and money market		12			(79	)		(67	)			13			(62	)		(49	)		26			(142	)		(116	)
Time deposits		(119	)		(220	)		(339	)			(94	)		(176	)		(270	)		(213	)		(396	)		(609	)
Other borrowed funds		(156	)		(194	)		(350	)			(132	)		(221	)		(353	)		(288	)		(415	)		(703	)
Total interest expense		(260	)		(525	)		(785	)			(210	)		(478	)		(688	)		(469	)		(1,004	)		(1,473	)

Total change in net interest income	$	383		$	(358	)	$	25			$	553		$	(329	)	$	224		$	968		$	(719	)	$	249

(1) Taxable equivalent										(1) Taxable equivalent

~~(1)~~

~~Taxable equivalent.~~

Provision for Loan Losses

The provision for loan losses reflects changes in the credit quality of the entire loan portfolio. The provision for loan losses is recorded to bring the allowance for loan losses to a level considered appropriate by management based on factors which are discussed under “Allowance for Loan Losses” starting on page ~~37.~~41.

The Company did not record a provision for loan losses for the ~~quarter~~three and six months ended ~~March 31,~~June 30, 2013 compared to a provision for loan losses of ~~$400,000~~$1,000,000 and $1,400,000 for the ~~quarter ended March 31,~~same periods in 2012. The process for determining allowance adequacy and the resultant provision for loan losses includes a comprehensive analysis of the loan portfolio. Factors in the analysis include size and mix of the loan portfolio, nonperforming loan levels, charge-off/recovery activity and other qualitative factors including economic environment and activity. The decision to not record a provision for the three months ended ~~March 31,~~June 30, 2013 reflects management’s assessment of the overall adequacy of the allowance for loan losses including the consideration of the level of nonperforming loans, other trends in the quality and ~~the overall effect~~performance of ~~a sluggish economy, particularly in real estate.~~our loan portfolio, and other general economic factors. Management believes that the current level of allowance for loan losses as of ~~March 31,~~June 30, 2013 of ~~$9,651,000,~~$9,527,000, or ~~1.98%~~1.89% of total loans, is adequate at this time. The allowance for loan losses was $10,458,000, or 2.12% of total loans, at December 31, 2012. For further information regarding our allowance for loan losses, see “Allowance for Loan Losses” starting on page ~~37.~~41.

Noninterest Income

The following table is a summary of the Company’s noninterest income for the periods indicated (in thousands):

	Three months ended March 31,					Three months ended June 30,				Six months ended June 30,
	2013		2012			2013		2012		2013		2012
Service charges on deposit accounts	$	952	$	1,052		$	971	$	1,136	$	1,923	$	2,188
Other fees and charges		1,120		1,197			1,108		1,321		2,228		2,518
Gain on sale of loans		925		405			920		684		1,845		1,089
Gain (loss) on sales or calls of securities, net		543		(9	)
Gain on sales or calls of securities, net							—		968		543		959
Increase in cash value of life insurance		463		324			319		359		782		683
Other		326		290			333		219		659		509
Total	$	4,329	$	3,259		$	3,651	$	4,687	$	7,980	$	7,946

Noninterest income for the ~~quarter~~three months ended ~~March 31,~~June 30, 2013 ~~increased $1,070,000,~~decreased $1,036,000, or ~~32.8%~~22.1%, to ~~$4,329,000~~$3,651,000 compared to ~~$3,259,000~~$4,687,000 for the same period in 2012. Service charges on deposits decreased by ~~$100,000~~$165,000 to ~~$952,000~~$971,000 for the ~~first quarter of~~three months ended June 30, 2013 compared to ~~$1,052,000~~$1,136,000 for the same period in 2012 and other fees and charges decreased $213,000 to $1,108,000 for the three months ended June 30, 2013 compared to $1,321,000 for the same period in 2012. The Company had a ~~$925,000~~$920,000 gain on sale of loans for the quarter ended ~~March 31,~~June 30, 2013, an increase of ~~$520,000~~$236,000 compared to ~~$405,000~~$684,000 for the same period in 2012. Of the $920,000 gain on sale of loans for the second quarter of 2013, the sale of mortgage loans was $700,000 and the sale of SBA loans was $220,000 compared to the sale of mortgage loans of $620,000 and the sale of SBA loans of $64,000 for the same period in 2012. The Company did not record gains on sale of securities for the three months ended June 30, 2013 compared to a $968,000 gain on sale of securities for the same period in 2012.

Noninterest income for the six months ended June 30, 2013 increased $34,000 to $7,980,000 compared to $7,946,000 for the same period in 2012. Service charges on deposits decreased by $265,000 to $1,923,000 for the six months ended June 30, 2013 compared to $2,188,000 for the same period in 2012 and other fees and charges decreased $290,000 to $2,228,000 for the six months ended June 30, 2013 compared to $2,518,000 for the same period in 2012. The Company had a $1,845,000 gain on sale of loans for the quarter ended June 30, 2013, an increase of $756,000 compared to $1,089,000 for the same period in 2012 due primarily to a gain on sale of mortgage loans. Of the ~~$925,000~~$1,845,000 gain on sale of loans for the ~~first~~second quarter of 2013, the sale of mortgage loans was ~~$757,000~~$1,457,000 and the sale of SBA loans was ~~$168,000~~$388,000 compared to the sale of mortgage loans of ~~$361,000~~$983,000 and the sale of SBA loans of ~~$43,000~~$106,000 for the ~~first quarter of~~same period in 2012. The Company had a $543,000 gain on sale of securities for the ~~three~~six months ended ~~March 31,~~June 30, 2013, ~~an increase of $552,000~~as compared to a ~~loss~~gain on sale of securities of ~~$9,000~~$959,000 for the same period in 2012.

Noninterest Expense

The following table is a summary of the Company’s noninterest expense for the periods indicated (in thousands):

	Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012		2013		2012
Salaries and employee benefits	$	5,162	$	5,057	$	5,077	$	5,051	$	10,239	$	10,108
Other real estate owned expense						990		342		1,366		976
Data processing		661		617		666		632		1,327		1,249
Occupancy expense		633		640		615		620		1,248		1,260
Other real estate owned expense		376		634
Professional services						295		334		564		621
Loan expense		305		128		249		217		554		345
Professional services		269		287
Director expense						227		160		420		298
FDIC and state assessments						213		176		431		489
Furniture and equipment expense		220		245		202		227		422		472
FDIC and state assessments		218		313
Director expense		193		138
Marketing expense		150		195		136		138		286		333
ATM and on-line banking		139		250		129		211		268		461
Operations expense						118		123		234		240
Printing and supplies		127		124		117		116		244		240
Postage		122		121		117		123		239		244
Operations expense		116		117
Messenger		106		113		103		115		209		228
Amortization of intangibles		36		36		37		37		73		73
Other		1,055		641		645		606		1,700		1,247
Total	$	9,888	$	9,656	$	9,936	$	9,228	$	19,824	$	18,884

Noninterest expense increased ~~$232,000,~~$708,000, or ~~2.4%~~7.7%, to ~~$9,888,000~~$9,936,000 for the ~~first~~second quarter of 2013 from ~~$9,656,000~~$9,228,000 for the ~~first~~second quarter in 2012. ~~Salaries and employee benefits~~OREO expense increased ~~$105,000,~~$648,000 to $990,000, for the ~~first~~second quarter of 2013 compared to ~~the first quarter of 2012 due primarily to incentive compensation for production personnel. OREO expense decreased $258,000 to $376,000,~~$342,000 for the ~~first~~same period in 2012, and FDIC and state assessments increased $37,000 to $213,000 for the second quarter of 2013, compared to ~~$634,000~~$176,000 for the same period in 2012. All other expenses increased $23,000 to $8,733,000 for the second quarter 2013 compared to $8,710,000 for the same period in 2012.

Noninterest expense increased $940,000, or 5.0%, to $19,824,000 for the six months ended June 30, 2013 from $18,884,000 for the same period in 2012. OREO expense increased $390,000 to $1,366,000, for the six months ended June 30, 2013 compared to $976,000 for the same period in 2012, and FDIC and state assessments decreased ~~$95,000~~$58,000 to ~~$218,000~~$431,000 for the ~~first quarter of~~six months ended June 30, 2013, compared to ~~$313,000~~$489,000 for the same period in 2012. Increases in OREO expenses primarily related to an increase in provisioning for losses to $884,000 compared to $561,000 for the six months ended June 30, 2013 and 2012, respectively, due to deterioration in the appraised value of real estate. All other expenses increased ~~$480,000~~$608,000 to ~~$4,132,000~~$18,027,000 for the ~~first quarter~~six months ended June 30, 2013 compared to ~~$3,652,000~~$17,419,000 for the same period in 2012 due to the recording of ~~a $500,000~~$560,000 in additional ~~reserve~~reserves for expenses ~~expected~~ to be incurred during 2013 asin connection with the settlement of a ~~result of recent discussions and additional information received from~~compliance exam conducted by the Federal Reserve Bank of San Francisco in ~~connection with the anticipated settlement of a compliance exam conducted in~~ 2010. ~~North Valley Bank expects to receive the~~The final report of examination was received by NVB during the quarter ended June 30, 2013 ~~based on recent discussions with~~and the ~~Federal Reserve Bank of San Francisco.~~total reserve has been set at $1,260,000.

Income Taxes

The Company recorded a provision for income taxes ~~for the quarter ended March 31, 2013~~ of ~~$616,000,~~$399,000 and $1,015,000, resulting in an effective tax rate of ~~32.8%, compared~~30.9% and 32.0% for the three and six months ended June 30, 2013, respectively. This compares to a provision for income taxes of ~~$115,000, or~~$527,000 and $642,000, resulting in an effective tax rate of ~~19.3%,~~29.5% and 26.9% for the ~~quarter~~three and six months ended ~~March 31, 2012.~~June 30, 2012, respectively. The difference in the effective tax rate compared to the statutory tax rate is primarily the result of the Company’s investment in municipal securities and Company-owned life insurance policies whose income is exempt from Federal taxes. In addition, the Company receives certain tax benefits from the State of California Franchise Tax Board for operating and providing loans, as well as jobs, in designated “Enterprise Zones”.

Management evaluates the Company’s deferred tax assets quarterly for recoverability using a consistent approach which considers the relative impact of negative and positive evidence, including the Company’s historical profitability and projections of future taxable income. Management also considered available tax planning strategies, the scheduled reversal of deferred tax assets and liabilities, and the nature and amount of historical and projected future taxable income that provide positive evidence that some of the tax benefits will be realizable.

The deferred tax assets will continue to be analyzed quarterly for changes affecting realizability and the valuation allowance may be adjusted in future periods accordingly. At ~~March 31,~~June 30, 2013 and December 31, ~~2013,~~2012, there was no valuation allowance recorded against deferred tax assets.

Financial Condition as of ~~March 31,~~June 30, 2013 As Compared to December 31, 2012

Overview

Total assets at ~~March 31,~~June 30, 2013 increased ~~$8,391,000,~~$15,415,000, or ~~1.0%~~1.7%, to ~~$910,734,000,~~$917,758,000, compared to $902,343,000 at December 31, 2012. Loans, net of deferred loan fees, ~~decreased $3,605,000,~~increased $12,063,000, or ~~0.7%~~2.5%, to ~~$488,606,000~~$504,274,000 at ~~March 31,~~June 30, 2013 from $492,211,000 at December 31, 2012. Investment securities ~~decreased $2,094,000,~~increased $20,485,000, or ~~0.8%~~7.2%, to ~~$283,721,000~~$306,300,000 at ~~March 31,~~June 30, 2013 from $285,815,000 at December 31, 2012. The Company did not sell Fed Funds as of June 30, 2013 as compared to $15,865,000 at December 31, 2012, and ~~Federal~~had other borrowed funds ~~sold increased~~of $22,025,000 at June 30, 2013 compared to ~~$35,925,000 at March 31, 2013 from $15,865,000~~zero at December 31, 2012.

Loan Portfolio

The Company originates loans for business, consumer and real estate activities for equipment purchases. Such loans are concentrated in the primary markets in which the Company operates. Substantially all loans are collateralized. Generally, real estate loans are secured by real property. Commercial and other loans are secured by bank deposits or business or personal assets and leases are generally secured by equipment. The Company’s policy for requiring collateral is through analysis of the borrower, the borrower’s industry and the economic environment in which the loan would be granted. The loans are expected to be repaid from cash flows or proceeds from the sale of selected assets of the borrower.

Loans, the ~~Company’s major~~Company's primary component of earning assets, ~~decreased $3,605,000~~increased $12,063,000 during the ~~first three~~six months ofended June 30, 2013 to ~~$488,606,000~~$504,274,000 at ~~March 31,~~June 30, 2013 from $492,211,000 at December 31, 2012. Commercial loans increased by ~~$2,222,000~~$2,976,000 and real estate commercial loans increased by ~~$1,886,000 while~~$23,576,000. These increases were partially offset by decreases in real estate construction loans ~~decreased by $1,565,000,~~of $4,468,000, real estate mortgage loans ~~decreased by $3,839,000 and~~of $5,716,000, other loans, primarily home equity loans, ~~decreased $1,479,000. The remaining loan categories remained relatively unchanged from their December 31, 2012 balances.~~of $3,394,000, and installment loans of $663,000.

The ~~Company’s~~Company's average loan to deposit ratio was ~~63.6%~~64.11% for the ~~quarter~~six months ended ~~March 31,~~June 30, 2013 compared to 62.9% for the quarter ended December 31, 2012. The increase in the Company’s average loan to deposit ratio iswas driven by the increase in total average loans of ~~$32,936,000.~~$9,254,000.

Major classifications of loans are summarized as follows (in thousands):

	March 31,			December 31,
	2013			2012			June 30, 2013			December 31, 2012
Commercial	$	48,300		$	46,078		$	49,054		$	46,078
Real estate - commercial		297,516			295,630			319,206			295,630
Real estate - construction		21,438			23,003			18,535			23,003
Real estate - mortgage		70,514			74,353			68,637			74,353
Installment		6,012			6,689			6,026			6,689
Other		44,462			45,941			42,547			45,941
Gross loans		488,242			491,694			504,005			491,694
Deferred loan fees, net		364			517			269			517
Allowance for loan losses		(9,651	)		(10,458	)		(9,527	)		(10,458	)
Total loans, net	$	478,955		$	481,753		$	494,747		$	481,753

Impaired, Nonaccrual, Past Due and Restructured Loans and Other Nonperforming Assets

The Company considers a loan impaired if, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the original contractual terms of the loan agreement. The measurement of impaired loans is generally based on the present value of expected future cash flows discounted at the historical effective interest rate, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral.

The following table presents impaired loans and the related allowance for loan losses as of the dates indicated (in thousands):

As of March 31, 2013 As of December 31, 2012
Unpaid Unpaid
Recorded Principal Related Recorded Principal Related
Investment Balance Allowance Investment Balance Allowance
With no allocated allowance
Commercial $ 50 $ 50 $ — $ 585 $ 586 $ —
Real estate - commercial 5,695 5,947 — 2,778 2,974 —
Real estate - construction 1,186 1,249 — 1,210 1,273 —
Real estate - mortgage 1,231 1,256 — 684 736 —
Installment 121 136 — 122 138 —
Other 155 165 — 111 120 —
Subtotal 8,438 8,803 — 5,490 5,827 —

With allocated allowance
Commercial 513 519 287 — — —
Real estate - commercial — — — 184 217 171
Real estate - construction — — — 161 161 18
Subtotal 513 519 287 345 378 189
Total Impaired Loans $ 8,951 $ 9,322 $ 287 $ 5,835 $ 6,205 $ 189

	As of June 30, 2013						As of December 31, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no allocated allowance
Commercial	$	175	$	175	$	—	$	585	$	586	$	—
Real estate - commercial		5,002		5,309		—		2,778		2,974		—
Real estate - construction		860		870		—		1,210		1,273		—
Real estate - mortgage		1,173		1,203		—		684		736		—
Installment		116		134		—		122		138		—
Other		253		266		—		111		120		—
Subtotal		7,579		7,957		—		5,490		5,827		—

With allocated allowance
Commercial		473		485		88		—		—		—
Real estate - commercial		—		—		—		184		217		171
Real estate - construction		—		—		—		161		161		18
Real estate - mortgage		164		164		164		—		—		—
Other		140		140		140		—		—		—
Subtotal		777		789		392		345		378		189
Total Impaired Loans	$	8,356	$	8,746	$	392	$	5,835	$	6,205	$	189

The following table presents the average balance related to impaired loans for the period indicated (in thousands):

	Three Months ended March 31,
	2013				2012				For the three months ended June 30,
	Average Book		Interest Income		Average Book		Interest Income		2013				2012
	Balance		Recognized		Balance		Recognized		Average Book Balance		Interest Income Recognized		Average Book Balance		Interest Income Recognized

Commercial	$	571	$	—	$	1,202	$	—	$	438	$	—	$	1,143	$	—
Real estate - commercial		5,540		21		4,564		—		5,357		21		5,989		—
Real estate - construction		916		7		8,867		—		874		6		8,388		—
Real estate - mortgage		819		10		921		—		1,371		10		950		—
Installment		96		1		166		—		144		1		140		—
Other		158		—		138		—		407		—		124		—
Total	$	8,100	$	39	$	15,858	$	—	$	8,591	$	38	$	16,734	$	—

		For the six months ended June 30,
	2013				2012
	Average Book Balance		Interest Income Recognized		Average Book Balance		Interest Income Recognized

Commercial	$	455	$	—	$	1,173	$	—
Real estate - commercial		5,370		41		6,119		—
Real estate - construction		877		13		8,394		—
Real estate - mortgage		1,379		20		964		—
Installment		145		2		144		—
Other		408		—		138		—
Total	$	8,634	$	76	$	16,932	$	—

Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest on loans is discontinued either when reasonable doubt exists as to the full and timely collection of interest or principal, or when a loan becomes contractually past due by 90 days or more with respect to interest or principal (except that when management believes a loan is well secured and in the process of collection, interest accruals are continued on loans deemed by management to be fully collectible). When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is probable. Interest accruals are resumed on such loans when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and ~~interest.~~interest and borrower has made timely payments for a minimum period of six months.

Nonperforming assets are summarized as follows (in thousands):

	March 31,			December 31,
	2012			2012			June 30, 2012			December 31, 2012
Nonaccrual loans	$	6,449		$	5,835		$	5,871		$	5,835

Loans past due 90 days or more and still accruing interest		—			—			—			—
Total nonperforming loans		6,449			5,835			5,871			5,835
Other real estate owned		21,365			22,423			16,324			22,423
Total nonperforming assets	$	27,814		$	28,258		$	22,195		$	28,258

Nonaccrual loans to total gross loans		1.32	%		1.19	%		1.16	%		1.19	%
Nonperforming loans to total gross loans		1.32	%		1.19	%		1.16	%		1.19	%
Total nonperforming assets to total assets		3.05	%		3.13	%		2.42	%		3.13	%

At ~~March 31,~~June 30, 2013 and December 31, 2012, the recorded investment in nonperforming loans (defined as nonaccrual loans and loans 90 days or more past due and still accruing interest) was approximately ~~$6,449,000~~$5,871,000 and $5,835,000, respectively. The Company had ~~$287,000~~$392,000 of specific allowance for loan losses on impaired loans of ~~$513,000~~$777,000 at ~~March 31,~~June 30, 2013 as compared to $189,000 of specific allowance for loan losses on impaired loans of $345,000 at December 31, 2012. Nonperforming assets (nonperforming loans and OREO) totaled ~~$27,814,000~~$22,195,000 at ~~March 31,~~June 30, 2013, a decrease of ~~$444,000~~$6,063,000 from the total at December 31, 2012.

If interest on nonaccrual loans had been accrued, such income would have approximated ~~$85,000~~$135,000 and ~~$155,000,~~$357,000, respectively for the ~~three~~six month periods ended ~~March 31,~~June 30, 2013 and 2012.

At ~~March 31,~~June 30, 2013 there were no commitments to lend additional funds to borrowers whose loans were classified as nonaccrual.

The composition of nonaccrual loans as of June 30, 2013, March 31, 2013, December 31, 2012, ~~September 30, 2012~~ and ~~June~~September 30, 2012 was as follows (in thousands):

March December September June
2013 2012 2012 2012
% of % of % of % of
Amount total Amount total Amount total Amount total
Commercial $ 563 8.7 % $ 585 10.0 % $ 800 6.9 % $ 1,113 6.7 %
Real estate - commercial 4,355 67.5 % 2,962 50.8 % 7,663 66.2 % 5,945 35.8 %
Real estate - construction 770 11.9 % 1,371 23.5 % 1,760 15.2 % 8,381 50.4 %
Real estate - mortgage 513 8.0 % 684 11.7 % 966 8.3 % 941 5.7 %
Installment 93 1.4 % 122 2.1 % 109 0.9 % 136 0.8 %
Other 155 2.4 % 111 1.9 % 275 2.4 % 111 0.7 %
Total nonaccrual loans $ 6,449 100.0 % $ 5,835 100.0 % $ 11,573 100.0 % $ 16,627 100.0 %

	June 2013					March 2013					December 2012					September 2012
			% of					% of					% of					% of
	Amount		total			Amount		total			Amount		total			Amount		total
Commercial	$	648		11.0	%	$	563		8.7	%	$	585		10.0	%	$	800		6.9	%
Real estate - commercial		3,669		62.5	%		4,355		67.5	%		2,962		50.8	%		7,663		66.2	%
Real estate - construction		450		7.7	%		770		11.9	%		1,371		23.5	%		1,760		15.2	%
Real estate - mortgage		622		10.6	%		513		8.0	%		684		11.7	%		966		8.3	%
Installment		89		1.5	%		93		1.4	%		122		2.1	%		109		0.9	%
Other		393		6.7	%		155		2.4	%		111		1.9	%		275		2.4	%
Total nonaccrual loans	$	5,871		100.0	%	$	6,449		100.0	%	$	5,835		100.0	%	$	11,573		100.0	%

At ~~March 31,~~June 30, 2013, ~~nonaccrual real-estate-construction~~there were eight real-estate-commercial loans ~~totaled $770,000,~~totaling $3,669,000, or ~~11.9%~~62.5%, of the nonaccrual loans. There are three loans that make up the balance. Charge-offs of $357,000 have been taken on these loans and no specific reserves established for these loans as of March 31, 2013. There was one commercial land loan totaling $125,000. Charge-offs of $71,000 have been taken on this loan and no specific reserve has been established. The remaining two loans were residential construction loans totaling $645,000. Charge-offs of $286,000 have been taken on these loans and no specific reserves have been established.

~~At March 31, 2013, there were eleven real-estate-commercial loans totaling $4,355,000, or 67.5%, of the nonperforming~~ loans. The largest real estate-commercial loan is for a commercial real estate property located in Sacramento County for $1,231,000. Charge-offs of $720,000 have been taken on this loan and no specific reserve has been established for this loan. The remaining ~~ten~~seven real estate-commercial loans total ~~$3,124,000~~$2,438,000 (approximate average loan balance of ~~$312,000)~~$348,000). Charge-offs of ~~$1,008,000~~$583,000 have been taken on these loans and no specific reserves have been established for these loans.

At ~~March 31,~~June 30, 2013, nonaccrual real-estate-construction loans totaled $450,000, or 7.7%, of the nonaccrual loans. There are two loans that make up the balance. The first loan is a residential construction loan for $325,000. Charge-offs of $286,000 have been taken on this loan and no specific reserve has been established. The second loan is a commercial land loan totaling $125,000. Charge-offs of $71,000 have been taken on this loan and no specific reserve has been established.

At June 30, 2013, net carrying value of other real estate owned decreased ~~$1,058,000~~$6,099,000 to ~~$21,365,000~~$16,324,000 from $22,423,000 at December 31, 2012. During the ~~three~~six month period ending ~~March 31,~~June 30, 2013, the Company transferred ~~three~~five properties into OREO totaling ~~$602,000,~~$777,000, sold ~~three~~eight properties totaling ~~$1,426,000,~~$5,745,000, had write-downs of OREO of ~~$261,000,~~$883,000, and recorded ~~gain~~loss on sale of OREO of ~~$27,000.~~$248,000. As part of the financial close process, valuations of OREO are performed by management and write-downs are recorded as warranted. At ~~March 31,~~June 30, 2013, OREO was comprised of ~~twenty-three~~twenty properties which consisted of the following: ~~four~~three residential construction properties totaling ~~$3,225,000, eleven~~$3,064,000, nine residential land parcels totaling ~~$12,683,000,~~$11,141,000, one commercial land parcel for ~~$382,000, two~~$301,000, one commercial construction property totaling $161,000, three non-farm non-residential properties totaling ~~$3,192,000~~$181,000 and ~~five~~three residential properties totaling ~~$1,883,000.~~$1,476,000.

The following table shows an aging analysis of the loan portfolio by the amount of time past due (in thousands):

	As of March 31, 2013
	Accruing Interest
					Greater than						As of June 30, 2013
			30-89 Days		90 Days							Accruing Interest
	Current		Past Due		Past Due		Nonaccrual		Total			Current		30-89 DaysPast Due		Greater than90 DaysPast Due		Nonaccrual		Total

Commercial	$	47,737	$	—	$	—	$	563	$	48,300	$	48,406	$	—	$	—	$	648	$	49,054
Real estate - commercial		293,075		86		—		4,355		297,516		315,464		73		—		3,669		319,206
Real estate - construction		20,668		—		—		770		21,438		18,085		—		—		450		18,535
Real estate - mortgage		69,979		22		—		513		70,514		67,993		22		—		622		68,637
Installment		5,894		25		—		93		6,012		5,890		47		—		89		6,026
Other		44,134		173		—		155		44,462		42,154		—		—		393		42,547
Total	$	481,487	$	306	$	—	$	6,449	$	488,242	$	497,992	$	142	$	—	$	5,871	$	504,005

	As of December 31, 2012
	Accruing Interest
					Greater than							As of December 31, 2012
			30-89 Days		90 Days							Accruing Interest
	Current		Past Due		Past Due		Nonaccrual		Total			Current		30-89 DaysPast Due		Greater than 90 DaysPast Due		Nonaccrual		Total

Commercial	$	45,473	$	20	$	—	$	585	$	46,078	$	45,473	$	20	$	—	$	585	$	46,078
Real estate - commercial		292,505		163		—		2,962		295,630		292,505		163		—		2,962		295,630
Real estate - construction		21,436		196		—		1,371		23,003		21,436		196		—		1,371		23,003
Real estate - mortgage		72,907		762		—		684		74,353		72,907		762		—		684		74,353
Installment		6,529		38		—		122		6,689		6,529		38		—		122		6,689
Other		45,581		249		—		111		45,941		45,581		249		—		111		45,941
Total	$	484,431	$	1,428	$	—	$	5,835	$	491,694	$	484,431	$	1,428	$	—	$	5,835	$	491,694

~~The following table shows information related to troubled debt restructurings as of December 31, 2012 (dollars in thousands):~~

Accruing TDRs Non Accruing TDRs
Pre-Modification Post-Modification Pre-Modification Post-Modification
Number Outstanding Outstanding Number Outstanding Outstanding
of Recorded Recorded of Recorded Recorded
Contracts Investment Investment Contracts Investment Investment
Commercial — $ — $ — 1 $ 529 $ 529
Real estate - commercial 5 $ 1,350 $ 1,350 — $ — $ —
Real estate - construction 1 $ 343 $ 343 2 $ 398 $ 398
Real estate - mortgage 2 $ 721 $ 721 — $ — $ —
Installment — $ — $ — 4 $ 120 $ 120
Other — $ — $ — 1 $ 25 $ 25

~~A summary of TDR’s by type of loans and by accrual/nonaccrual status as of December 31, 2012 is shown below (in thousands):~~

AtThe following table present loans that were modified and recorded as TDRs for the three and six months ended June 30, 2013 and 2012.

	For the three months ended June 30, 2013						For the six months ended June 30, 2013
		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number ofContracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial		—	$	—	$	—		1	$	45	$	45
Real estate - commercial		—	$	—	$	—		1	$	290	$	290
Real estate-construction		—	$	—	$	—		1	$	77	$	77
Real estate - mortgage		1	$	201	$	201		1	$	201	$	201
Other		1	$	48	$	48		1	$	48	$	48

	For the three months ended June 30, 2012						For the six months ended June 30, 2012
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial		1	$	1,076	$	1,076		1	$	1,076	$	1,076
Real estate - commercial		2	$	278	$	278		2	$	278	$	278
Installment		1	$	25	$	25		2	$	73	$	73

	June 30, 2013

Accruing TDRs	Number of Contracts		Rate Reduction		Maturity Extension		Rate Reduction and Maturity Extension		Total
Real estate - commercial		5	$	—	$	199	$	1,133	$	1,332
Real estate - construction		2	$	—	$	411	$	—	$	411
Real estate - mortgage		2	$	—	$	295	$	420	$	715
Installment		1	$	—	$	—	$	27	$	27

	June 30, 2013
Nonaccrual TDRs	Number of Contracts		Rate Reduction		Maturity Extension		Rate Reduction and Maturity Extension		Total
Commercial		2	$	—	$	—	$	518	$	518
Real estate - commercial		1	$	—	$	—	$	290	$	290
Real estate - mortgage		1	$	—	$	—	$	201	$	201
Installment		3	$	—	$	—	$	89	$	89
Other		2	$	—	$	—	$	72	$	72

	December 31, 2012
Accruing TDRs		Number of Contracts		Rate Reduction		Maturity Extension		Rate Reduction and Maturity Extension		Total
Real estate - commercial		5	$	202	$	—	$	1,148	$	1,350
Real estate-construction		1	$	—	$	343	$	—	$	343
Real estate - mortgage		2	$	—	$	298	$	423	$	721

	December 31, 2012
Nonaccrual TDRs		Number of Contracts		Rate Reduction		Maturity Extension		Rate Reduction and Maturity Extension		Total
Commercial		1	$	—	$	—	$	529	$	529
Real estate-construction		2	$	327	$	71	$	—	$	398
Installment		4	$	—	$	—	$	120	$	120
Other		1	$	—	$	—	$	25	$	25

3640

Allowance for Loan Losses

The following table shows the changes in the allowance for loan losses were as follows (in thousands):


	For the three months ended March 31, 2013																								For the three months ended June 30, 2013
				Real Estate			Real Estate			Real Estate																		Real Estate			Real Estate			Real Estate
	Commercial			Commercial			Construction			Mortgage			Installment			Other			Unallocated			Total			Commercial			Commercial			Construction			Mortgage			Installment			Other				Unallocated	Total

Allowance for Loan Losses
Balance December 31, 2012	$	843		$	6,295		$	690		$	982		$	98		$	721		$	829		$	10,458
Balance March 31, 2013																									$	1,170		$	5,720		$	595		$	938		$	87		$	676		$	465	$	9,651
Charge-offs		(83	)		(437	)		(369	)		(156	)		(11	)		—						(1,056	)		(26	)		(3	)		—			(46	)		(17	)		(55	)				(147	)
Recoveries		242			—			2			—			5			—						249			16			—			1			2			4			—					23
Provisions for loan losses		168			(138	)		272			112			(5	)		(45	)		(364	)		—			(313	)		(230	)		(157	)		26			93			299			282		—
Balance March 31, 2013	$	1,170		$	5,720		$	595		$	938		$	87		$	676		$	465		$	9,651
Balance June 30, 2013																									$	847		$	5,487		$	439		$	920		$	167		$	920		$	747	$	9,527

As of March 31, 2013
Reserve to impaired loans $ 287 $ — $ — $ — $ — $ — $ — $ 287
Reserve to non-impaired loans $ 883 $ 5,720 $ 595 $ 938 $ 87 $ 676 $ 465 $ 9,364

	For the three months ended June 30, 2012
				Real Estate			Real Estate			Real Estate
	Commercial			Commercial			Construction			Mortgage			Installment			Other			Unallocated			Total

Allowance for Loan Losses
Balance March 31, 2012	$	1,376		$	6,847		$	1,350		$	1,045		$	154		$	811		$	691		$	12,274
Charge-offs		(86	)		(1,178	)		(126	)		(190	)		(45	)		(47	)					(1,672	)
Recoveries		14			2			37			36			41			—						130
Provisions for loan losses		(44	)		915			126			34			(9	)		4			(26	)		1,000
Balance June 30, 2012	$	1,260		$	6,586		$	1,387		$	925		$	141		$	768		$	665		$	11,732

	For the three months ended March 31, 2012																							For the six months ended June 30, 2013
				Real Estate			Real Estate			Real Estate																	Real Estate			Real Estate			Real Estate
	Commercial			Commercial			Construction			Mortgage		Installment			Other			Unallocated			Total			Commercial			Commercial			Construction			Mortgage			Installment			Other			Unallocated			Total

Allowance for Loan Losses
Balance December 31, 2011	$	1,333		$	7,528		$	1,039		$	935	$	185		$	736		$	900		$	12,656
Balance December 31, 2012																								$	843		$	6,295		$	690		$	982		$	98		$	721		$	829		$	10,458
Charge-offs		(120	)		(439	)		(204	)		—		(97	)		(25	)					(885	)		(109	)		(440	)		(369	)		(202	)		(28	)		(55	)					(1,203	)
Recoveries		12			61			—			—		24			6						103			258			—			3			2			9			—						272
Provisions for loan losses		151			(303	)		515			110		42			94			(209	)		400			(145	)		(368	)		115			138			88			254			(82	)		—
Balance March 31, 2012	$	1,376		$	6,847		$	1,350		$	1,045	$	154		$	811		$	691		$	12,274
Balance June 30, 2013																								$	847		$	5,487		$	439		$	920		$	167		$	920		$	747		$	9,527

																									As of June 30, 2013
Reserve to impaired loans																								$	88		$	—		$	—		$	164		$	—		$	140					$	392
Reserve to non-impaired loans																								$	759		$	5,487		$	439		$	756		$	167		$	780		$	747		$	9,135

As of March 31, 2012
Reserve to impaired loans $ 371 $ 2 $ 520 $ 47 $ — $ 34 $ 974
Reserve to non-impaired loans $ 1,005 $ 6,845 $ 830 $ 998 $ 154 $ 777 $ 691 $ 11,300

																	For the six months ended June 30, 2012
																				Real Estate			Real Estate			Real Estate
																	Commercial			Commercial			Construction			Mortgage			Installment			Other			Unallocated			Total

Allowance for Loan Losses
Balance December 31, 2011																	$	1,333		$	7,528		$	1,039		$	935		$	185		$	736		$	900		$	12,656
Charge-offs																		(206	)		(1,617	)		(330	)		(190	)		(142	)		(72	)					(2,557	)
Recoveries																		26			63			37			36			65			6						233
Provisions for loan losses																		107			612			641			144			33			98			(235	)		1,400
Balance June 30, 2012																	$	1,260		$	6,586		$	1,387		$	925		$	141		$	768		$	665		$	11,732

	As of December 31, 2012																	As of June 30, 2012
Reserve to impaired loans	$	—	$	171	$	18	$	—	$	—	$	—			$	189	$	240		$	99		$	529		$	35		$	—		$	—					$	903
Reserve to non-impaired loans	$	843	$	6,124	$	672	$	982	$	98	$	721	$	829	$	10,269	$	1,020		$	6,487		$	858		$	890		$	141		$	768		$	665		$	10,829

																		As of December 31, 2012
Reserve to impaired loans																	$	—		$	171		$	18		$	—		$	—		$	—					$	189
Reserve to non-impaired loans																	$	843		$	6,124		$	672		$	982		$	98		$	721		$	829		$	10,269

The following table shows the loan portfolio by segment was as follows (in thousands):

As of March 31, 2013
Real Estate Real Estate Real Estate
Loans Commercial Commercial Construction Mortgage Installment Other Total

Total Loans $ 48,300 $ 297,516 $ 21,438 $ 70,514 $ 6,012 $ 44,462 $ 488,242
Impaired Loans $ 563 $ 5,695 $ 1,186 $ 1,231 $ 121 $ 155 $ 8,951
Non-impaired loans $ 47,737 $ 291,821 $ 20,252 $ 69,283 $ 5,891 $ 44,307 $ 479,291

	As of June 30, 2013
			Real Estate		Real Estate		Real Estate
	Commercial		Commercial		Construction		Mortgage		Installment		Other		Total

Total Loans	$	49,054	$	319,206	$	18,535	$	68,637	$	6,026	$	42,547	$	504,005
Impaired Loans	$	648	$	5,002	$	860	$	1,337	$	116	$	393	$	8,356
Non-impaired loans	$	48,406	$	314,204	$	17,675	$	67,300	$	5,910	$	42,154	$	495,649

	As of December 31, 2012
			Real Estate		Real Estate		Real Estate
	Commercial		Commercial		Construction		Mortgage		Installment		Other		Total

Total Loans	$	46,078	$	295,630	$	23,003	$	74,353	$	6,689	$	45,941	$	491,694
Impaired Loans	$	585	$	2,962	$	1,371	$	684	$	122	$	111	$	5,835
Non-impaired loans	$	45,493	$	292,668	$	21,632	$	73,669	$	6,567	$	45,830	$	485,859

The following table shows the loan portfolio allocated by ~~management’s~~management's internal risk ratings (in thousands):

	As of March 31, 2013										As of June 30, 2013
	Pass		Special Mention		Substandard		Doubtful		Total			Pass		Special Mention		Substandard		Doubtful		Total
Commercial	$	45,850	$	989	$	1,461	$	—	$	48,300	$	46,828	$	1,035	$	1,191	$	—	$	49,054
Real estate - commercial		280,970		2,815		13,731		—		297,516		304,743		2,780		11,683		—		319,206
Real estate - construction		20,619		—		819		—		21,438		18,037		—		498		—		18,535
Real estate - mortgage		69,437		—		1,077		—		70,514		67,596		—		1,041		—		68,637
Installment		5,886		—		126		—		6,012		5,907		—		119		—		6,026
Other		44,177		—		285		—		44,462		41,957		—		590		—		42,547
Total	$	466,939	$	3,804	$	17,499	$	—	$	488,242	$	485,068	$	3,815	$	15,122	$	—	$	504,005

	As of December 31, 2012
		Pass		Special Mention		Substandard		Doubtful		Total
Commercial	$	44,486	$	129	$	1,463	$	—	$	46,078
Real estate - commercial		278,834		—		16,796		—		295,630
Real estate - construction		21,386		—		1,617		—		23,003
Real estate - mortgage		71,973		—		2,380		—		74,353
Installment		6,562		—		127		—		6,689
Other		45,658		—		283		—		45,941
Total	$	468,899	$	129	$	22,666	$	—	$	491,694

The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the probable incurred losses in the loan portfolio. In determining levels of risk, management considers a variety of factors, including, but not limited to, asset classifications, economic trends, industry experience and trends, geographic concentrations, estimated collateral values, historical loan loss experience, and the Company’s underwriting policies. ~~The Company utilizes~~At June 30, 2013, there was a ~~twelve rolling quarter look-back period to calculate its~~change in the Bank’s method of calculating the historical loss ~~factors. For~~factors applied to loans identified as “homogenous segments” of the ~~period ended March 31, 2013,~~loan portfolio as follows: Losses from the past twelve quarters are applied to loan pools based on a “Migration Analysis” method. The method calculates Net Charge Offs (charge offs less corresponding recoveries) and measures them against average balances in loan pools based on the risk grade in effect on charged-off loans four quarters prior to the actual charge off date. The logic behind this four quarter “look back” is to account for management’s estimate of the typical time lapse between the recognition of the problem loan and the recognition of some or all of the loan as uncollectable. In addition, the loss ~~look back period began~~ratios are calculated using “factored” logic which systematically reduces the Net Charge Off value so that charge offs occurring in older periods do not have as much weight as more recent charge offs. Previously, management utilized a methodology which also utilized the Company’s charge-off history from the previous twelve quarters but did not consider the risk grade of those loans related to the charge-off. This modification had the effect of increasing the quantitative loss component of the allowance by $1,446,000. Management of the Company believes that, given the recent trends in historical losses and the correlation of those losses with a loans identified risk grade, that incorporation of a migration analysis in the ~~first quarter~~current and future analyses was a prudent refinement of ~~2010 and ended~~the allowance methodology. In addition, management believe that the decreases in overall level of the allowance for loan losses over the past several quarters is directionally consistent with the ~~most recent quarter.~~improving credit quality trends of the loan portfolio. The allowance for loan losses is maintained at an amount management considers adequate to cover the probable incurred losses in loans receivable. While management uses the best information available to make these estimates, future adjustments to allowances may be necessary due to economic, operating, regulatory, and other conditions that may be beyond the Company’s control. The Company also engages a third party credit review consultant to analyze the Company’s loan loss adequacy periodically. In addition, the regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on judgments different from those of management.

●

Unallocated Allowance. The unallocated loan loss allowance represents an amount for imprecision or uncertainty that is inherent in estimates used to determine the allowance.

Deposits

Total deposits ~~increased $7,340,000~~decreased $3,525,000 to ~~$775,920,000~~$765,055,000 at ~~March 31,~~June 30, 2013 compared to $768,580,000 at December 31, 2012. During the ~~three~~six months ended ~~March 31,~~June 30, 2013, savings and money market deposits increased ~~$12,060,000~~$6,910,000 and interest-bearing demand deposits increased ~~$8,531,000,~~$8,757,000, while noninterest-bearing demand deposits decreased ~~$3,360,000~~$4,736,000 and certificates of deposit decreased ~~$9,891,000.~~$14,456,000. There were no changes in the deposit products or deposit promotions offered by the Company during the ~~three~~six months ended ~~March 31,~~June 30, 2013.

	March 31,		December 31,
	2013		2012		June 30, 2013		December 31, 2012
Noninterest-bearing demand	$	174,495	$	177,855	$	173,119	$	177,855
Interest-bearing demand		193,846		185,315		194,072		185,315
Savings and money market		245,094		233,034		239,944		233,034
Time certificates		162,485		172,376		157,920		172,376
Total deposits	$	775,920	$	768,580	$	765,055	$	768,580

Capital Resources

The Company maintains capital to support future growth and maintain financial strength while trying to effectively manage the capital on hand. From the depositor standpoint, a greater amount of capital on hand relative to total assets is generally viewed as positive. At the same time, from the standpoint of the shareholder, a greater amount of capital on hand may not be viewed as positive because it limits the Company’s ability to earn a high rate of return on stockholders’ equity (ROE). ~~Stockholders’~~Stockholders' equity ~~increased $785,000~~decreased $3,415,000 to ~~$96,946,000~~$92,746,000 as of ~~March 31,~~June 30, 2013, as compared to $96,161,000 at December 31, 2012. The ~~increase~~decrease was the result of net income of ~~$1,261,000,~~$2,155,000, a change in accumulated other comprehensive loss of ~~$559,000~~$5,761,000 and stock based compensation expense of ~~$83,000,~~$191,000, all during the first ~~three~~six months of 2013. Under current regulations, management believes that the Company meets all capital adequacy requirements.

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 stock. 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.

The Company’s and ~~North Valley Bank’s~~NVB’s capital amounts and risk-based capital ratios are presented below (in thousands).

To be Well Capitalized
For Capital Under Prompt Corrective
Adequacy Purposes Action Provisions
Actual Minimum Minimum Minimum Minimum
Amount Ratio Amount Ratio Amount Ratio
Company ��
As of March 31, 2013
Total capital (to risk weighted assets) $ 115,023 18.62 % $ 49,419 8.00 % N/A N/A
Tier 1 capital (to risk weighted assets) $ 107,233 17.35 % $ 24,722 4.00 % N/A N/A
Tier 1 capital (to average assets) $ 107,233 12.08 % $ 35,508 4.00 % N/A N/A

As of December 31, 2012:
Total capital (to risk weighted assets) $ 113,028 18.28 % $ 49,465 8.00 % N/A N/A
Tier 1 capital (to risk weighted assets) $ 105,211 17.01 % $ 24,741 4.00 % N/A N/A
Tier 1 capital (to average assets) $ 105,211 11.77 % $ 35,756 4.00 % N/A N/A

North Valley Bank
As of March 31, 2013:
Total capital (to risk weighted assets) $ 115,381 18.68 % $ 49,414 8.00 % $ 61,767 10.00 %
Tier 1 capital (to risk weighted assets) $ 107,595 17.42 % $ 24,706 4.00 % $ 37,059 6.00 %
Tier 1 capital (to average assets) $ 107,595 12.12 % $ 35,510 4.00 % $ 44,387 5.00 %

As of December 31, 2012:
Total capital (to risk weighted assets) $ 112,938 18.26 % $ 49,480 8.00 % $ 61,850 10.00 %
Tier 1 capital (to risk weighted assets) $ 105,122 17.00 % $ 24,735 4.00 % $ 37,102 6.00 %
Tier 1 capital (to average assets) $ 105,122 11.76 % $ 35,756 4.00 % $ 44,695 5.00 %

						For CapitalAdequacy Purposes					To be Well Capitalized Under Prompt Corrective Action Provisions
	Actual					Minimum		Minimum			Minimum		Minimum
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Company
As of June 30, 2013
Total capital (to risk weighted assets)	$	116,607		18.58	%	$	50,208		8.00	%		N/A		N/A
Tier 1 capital (to risk weighted assets)	$	108,740		17.33	%	$	25,099		4.00	%		N/A		N/A
Tier 1 capital (to average assets)	$	108,740		12.11	%	$	35,917		4.00	%		N/A		N/A

As of December 31, 2012:
Total capital (to risk weighted assets)	$	113,028		18.28	%	$	49,465		8.00	%		N/A		N/A
Tier 1 capital (to risk weighted assets)	$	105,211		17.01	%	$	24,741		4.00	%		N/A		N/A
Tier 1 capital (to average assets)	$	105,211		11.77	%	$	35,756		4.00	%		N/A		N/A

North Valley Bank
As of June 30, 2013:
Total capital (to risk weighted assets)	$	115,864		18.48	%	$	50,158		8.00	%	$	62,697		10.00	%
Tier 1 capital (to risk weighted assets)	$	108,005		17.23	%	$	25,074		4.00	%	$	37,611		6.00	%
Tier 1 capital (to average assets)	$	108,005		12.04	%	$	35,882		4.00	%	$	44,853		5.00	%

As of December 31, 2012:
Total capital (to risk weighted assets)	$	112,938		18.26	%	$	49,480		8.00	%	$	61,850		10.00	%
Tier 1 capital (to risk weighted assets)	$	105,122		17.00	%	$	24,735		4.00	%	$	37,102		6.00	%
Tier 1 capital (to average assets)	$	105,122		11.76	%	$	35,756		4.00	%	$	44,695		5.00	%

Liquidity

The objective of liquidity management is to ensure the continuous availability of funds to meet the demands of depositors and borrowers. Collection of principal and interest on loans, the liquidations and maturities of investment securities, deposits with other banks, customer deposits and short term borrowings, when needed, are primary sources of funds that contribute to liquidity. As of ~~March 31,~~June 30, 2013, $21,651,000 was outstanding in the form of subordinated ~~debt~~debentures issued by the Company. Unused lines of credit with correspondent banks to provide federal funds of $10,000,000 as of ~~March 31,~~June 30, 2013 were also available to provide liquidity. In addition, NVB is a member of the Federal Home Loan Bank providing additional unused borrowing capacity of ~~$272,984,000~~$260,527,000 secured by certain loans and investment securities as of ~~March 31,~~June 30, 2013. The Company also has an unused line of credit with the Federal Reserve Bank of San Francisco of ~~$3,068,000~~$2,632,000 secured by investment securities.

The Company manages both assets and liabilities by monitoring asset and liability mixes, volumes, maturities, yields and rates in order to preserve liquidity and earnings stability. Total liquid assets (cash and due from banks, Federal funds sold and available for sale investment securities) totaled ~~$335,536,000~~$327,731,000 and $324,334,000 (or ~~36.8%~~35.7% and 35.9% of total assets) at ~~March 31,~~June 30, 2013 and December 31, 2012, respectively.

Core deposits, defined as demand deposits, interest bearing demand deposits, regular savings, money market deposit accounts and time deposits of less than $100,000, continue to provide a relatively stable and low cost source of funds. Core deposits totaled ~~$700,916,000~~$691,109,000 and $686,544,000 at ~~March 31,~~June 30, 2013 and December 31, 2012, respectively.

In assessing liquidity, historical information such as seasonal loan demand, local economic cycles and the economy in general are considered along with current ratios, management goals and unique characteristics of the Company. Management believes the Company is in compliance with its policies relating to liquidity.

Interest Rate Sensitivity

Overview.The Company constantly monitors earning asset and deposit levels, developments and trends in interest rates, liquidity, capital adequacy and marketplace opportunities with the view towards maximizing shareholder value and earnings while maintaining a high quality balance sheet without exposing the Company to undue market risk. Management responds to all of these to protect and possibly enhance net interest income while managing risks within acceptable levels as set forth in the Company’s policies. In addition, alternative business plans and contemplated transactions are also analyzed for their impact. This process, known as asset/liability management is carried out by changing the maturities and relative proportions of the various types of loans, investments, deposits and other borrowings.

Market Risk. Market risk results from the fact that the market values of assets or liabilities on which the interest rate is fixed will increase or decrease with changes in market interest rates. If the Company invests in a fixed-rate, long term security and then interest rates rise, the security is worth less than a comparable security just issued because the older security pays less interest than the newly issued security. If the security had to be sold before maturity, then the Company would incur a loss on the sale. Conversely, if interest rates fall after a fixed-rate security is purchased, its value increases, because it is paying at a higher rate than newly issued securities. The fixed rate liabilities of the Company, like certificates of deposit and fixed-rate borrowings, also change in value with changes in interest rates. As rates drop, they become more valuable to the depositor and hence more costly to the Company. As rates rise, they become more valuable to the Company. Therefore, while the value changes when rates move in either direction, the adverse impacts of market risk to the Company’s fixed-rate assets are due to rising rates and for the Company’s fixed-rate liabilities, they are due to falling rates. In general, the change in market value due to changes in interest rates is greater in financial instruments that have longer remaining maturities. Therefore, the exposure to market risk of assets is lessened by managing the amount of fixed-rate assets and by keeping maturities relatively short. These steps, however, must be balanced against the need for adequate interest income because variable-rate and shorter-term assets generally yield less interest than longer-term or fixed-rate assets.

Mismatch Risk. The second interest-related risk, mismatched risk, arises from the fact that when interest rates change, the changes do not occur equally in the rates of interest earned and paid because of differences in the contractual terms of the assets and liabilities held. A difference in the contractual terms, a mismatch, can cause adverse impacts on net interest income.

The Company has a certain portion of its loan portfolio tied to the national prime rate. If these rates are lowered because of general market conditions, e.g., the prime rate decreases in response to a rate decrease by the Federal Reserve Open Market Committee (“FOMC”), these loans will be repriced. If the Company were at the same time to have a large proportion of its deposits in long-term fixed-rate certificates, interest earned on loans would decline while interest paid on the certificates would remain at higher levels for a period of time until they mature. Therefore, net interest income would decrease immediately. A decrease in net interest income could also occur with rising interest rates if the Company had a large portfolio of fixed-rate loans and securities that was funded by deposit accounts on which the rate is steadily rising.

This exposure to mismatch risk is managed by attempting to match the maturities and repricing opportunities of assets and liabilities. This may be done by varying the terms and conditions of the products that are offered to depositors and borrowers. For example, if many depositors want shorter-term certificates while most borrowers are requesting longer-term fixed rate loans, the Company will adjust the interest rates on the certificates and loans to try to match up demand for similar maturities. The Company can then partially fill in mismatches by purchasing securities or borrowing funds from the Federal Home Loan Bank with the appropriate maturity or repricing characteristics.

Basis Risk. The third interest-related risk, basis risk, arises from the fact that interest rates rarely change in a parallel or equal manner. The interest rates associated with the various assets and liabilities differ in how often they change, the extent to which they change, and whether they change sooner or later than other interest rates. For example, while the repricing of a specific asset and a specific liability may occur at roughly the same time, the interest rate on the liability may rise one percent in response to rising market rates while the asset increases only one-half percent. While the Company would appear to be evenly matched with respect to mismatch risk, it would suffer a decrease in net interest income. This exposure to basis risk is the type of interest risk least able to be managed, but is also the least dramatic. Avoiding concentrations in only a few types of assets or liabilities is the best means of increasing the chance that the average interest received and paid will move in tandem. The wider diversification means that many different rates, each with their own volatility characteristics, will come into play.

Net Interest Income and Net Economic Value Simulations. The tool used to manage and analyze the interest rate sensitivity of a financial institution is known as a simulation model and is performed with specialized software built for this specific purpose for financial institutions. This model allows management to analyze the three specific types of risks; market risk, mismatch risk, and basis risk.

To quantify the extent of all of these risks both in its current position and in transactions it might make in the future, the Company uses computer modeling to simulate the impact of different interest rate scenarios on net interest income and on net economic value. Net economic value or the market value of portfolio equity is defined as the difference between the market value of financial assets and liabilities. These hypothetical scenarios include both sudden and gradual interest rate changes, and interest rate changes in both directions. This modeling is the primary means the Company uses for interest rate risk management decisions.

The hypothetical impact of sudden interest rate shocks applied to the Company’s asset and liability balances are modeled quarterly. The results of this modeling indicate how much of the Company’s net interest income and net economic value are “at risk” (deviation from the base level) from various sudden rate changes. This exercise is valuable in identifying risk exposures. The results for the Company’s most recent simulation analysis indicate that the Company’s net interest income at risk over a one-year period and net economic value at risk from 2% shocks are within normal expectations for sudden changes and do not materially differ from those of ~~March 31,~~June 30, 2013.

For this simulation analysis, the Company has made certain assumptions about the duration of its non-maturity deposits that are important to determining net economic value at risk.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In management’s opinion, there has not been a material change in the Company’s market risk profile for the ~~three~~six months ended ~~March 31,~~June 30, 2013 compared to December 31, 2012. Please see discussion under the caption “Interest Rate Sensitivity” on page ~~39.~~44.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls and procedures are designed with the objective of ensuring that information required to be disclosed in reports filed by the Company under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Evaluation of Disclosure Controls and Procedures

The ~~Company’s~~Company's management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the ~~Company’s~~Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of ~~March 31,~~June 30, 2013. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the ~~Company’s~~Company's disclosure controls and procedures are effective.

Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended ~~March 31,~~June 30, 2013 that has materially affected or is reasonable likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are no material legal proceedings pending against the Company or against any of its property. The Company, because of the nature of its business, is generally subject to various legal actions, threatened or filed, which involve ordinary, routine litigation incidental to its business. Although the amount of the ultimate exposure, if any, cannot be determined at this time, the Company does not expect that the final outcome of threatened or filed suits will have a materially adverse effect on its consolidated financial position.

ITEM 1A. RISK FACTORS

There have been no material changes from risk factors as previously disclosed by the Company in its response to Item 1A of Part 1 of Form 10-K for the fiscal year ended December 31, 2012.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

31	Rule 13a-14(a) / 15d-14(a) Certifications
32	Section 1350 Certifications
101.INS	XBRL Instance Document (furnished herewith)*
101.SCH	XBRL Taxonomy Extension Schema Document (furnished herewith)*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document (furnished herewith)*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document (furnished herewith)*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document (furnished herewith)*
101.PRE ~~XBRL~~	XBRL Taxonomy Extension Presentation Linkbase Document (furnished herewith)*

*The interactive data files listed above shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NORTH VALLEY BANCORP

(Registrant)

~~NORTH VALLEY BANCORP~~
~~(Registrant)~~

Date ~~May 10,~~ August 5, 2013

By:

/s/ Michael J. Cushman
Michael J. Cushman
President & Chief Executive Officer
(Principal Executive Officer)

/s/ Kevin R. Watson
Kevin R. Watson
Executive Vice President & Chief Financial Officer
(Principal Financial Officer & Principal Accounting ~~Officer)~~Officer)

NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share data) (Unaudited)
	March 31,			December 31,
		2013			2012
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	15,890		$	22,654
Federal funds sold		35,925			15,865
Total cash and cash equivalents		51,815			38,519

Time deposits at other financial institutions		2,219			2,219
Investment securities available-for-sale, at fair value		283,721			285,815
Investment securities held-to-maturity, at amortized cost		6			6

Loans		488,606			492,211
Less: Allowance for loan losses		(9,651	)		(10,458	)
Net loans		478,955			481,753

Premises and equipment, net		8,978			9,181
Accrued interest receivable		2,182			2,217
Other real estate owned		21,365			22,423
FHLB and FRB stock and other nonmarketable securities		8,313			8,313
Bank-owned life insurance policies		36,433			36,045
Core deposit intangibles, net		219			255
Other assets		16,528			15,597

TOTAL ASSETS	$	910,734		$	902,343

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES:
Deposits:
Noninterest-bearing	$	174,496		$	177,855
Interest-bearing		601,424			590,725
Total deposits		775,920			768,580

Accrued interest payable and other liabilities		16,217			15,951
Subordinated debentures		21,651			21,651
Total liabilities		813,788			806,182

Commitments and contingencies

STOCKHOLDERS’ EQUITY:
Preferred stock, no par value: authorized 5,000,000 shares; no shares outstanding at March 31, 2013 and December 31, 2012		—			—
Common stock, no par value: authorized 60,000,000 shares; outstanding 6,835,192 at March 31, 2013 and December 31, 2012, respectively		98,578			98,495
Accumulated deficit		(2,739	)		(4,000	)
Accumulated other comprehensive income, net of tax		1,107			1,666
Total stockholders’ equity		96,946			96,161

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	910,734		$	902,343

NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT S OF INCOME
(In thousands except per share data) (Unaudited)
	For the three months ended March 31,
	2013		2012
Interest income
Loans, including fees	$	6,366	$	6,470
Taxable securities		1,376		1,967
Tax exempt securities		107		144
Federal funds sold and repurchase agreements		19		28
Total interest income		7,868		8,609

Interest expense
Deposits		299		734
Subordinated debentures		133		483
Total interest expense		432		1,217

Net interest income		7,436		7,392

Provision for loan losses		—		400

Net interest income after provision for loan losses		7,436		6,992

Noninterest income
Service charges on deposit accounts		952		1,052
Other fees and charges		1,120		1,197
Earnings on cash surrender value of life insurance policies		463		324
Gain on sale of loans, net		925		405
Gain (loss) on sales or calls of securities, net		543		(9	)
Other		326		290
Total noninterest income		4,329		3,259

Noninterest expense
Salaries and employee benefits		5,162		5,057
Occupancy expense		633		640
Furniture and equipment expense		220		245
FDIC and state assessments		218		313
Other real estate owned expense		376		634
Other		3,279		2,767
Total noninterest expenses		9,888		9,656

Income before provision for income taxes		1,877		595

Provision for income taxes		616		115

Net income	$	1,261	$	480

Per share amounts
Basic and diluted income per share	$	0.18	$	0.07

NORTH VALLEY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT S COMPREHENSIVE INCOME
(In thousands) (Unaudited)
	For three months ended March 31,
	2013			2012
Net income	$	1,261		$	480
Other comprehensive (loss) income:
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains arising during the period		(647	)		1,694
Tax effect		265			(695	)
Reclassification adjustment for (gains) losses included in net income		(543	)		9
Tax effect		223			(4	)
Net of tax		(702	)		1,004
Defined benefit pension plans
Net gain (loss) arising during the period		168			(125	)
Tax effect		(69	)		51
Reclassification adjustment for amortization of prior service cost and net gain included in net periodic pension cost		74			125
Tax effect		(30	)		(51	)
Net of tax		143			—
Total other comprehensive (loss) income		(559	)		1,004
Comprehensive income	$	702		$	1,484

	Accruing TDRs					Non Accruing TDRs
		Pre-Modification		Post-Modification			Pre-Modification		Post-Modification
	Number	Outstanding		Outstanding		Number	Outstanding		Outstanding
	of	Recorded		Recorded		of	Recorded		Recorded
	Contracts	Investment		Investment		Contracts	Investment		Investment
Commercial	—	$	—	$	—	2	$	563	$	563
Real estate-commercial	5	$	1,340	$	1,340	1	$	303	$	303
Real estate - construction	2	$	416	$	416	1	$	320	$	320
Real estate-mortgage	2	$	718	$	718	1	$	202	$	202
Installment	1	$	28	$	28	3	$	92	$	92
Other	—	$	—	$	—	1	$	24	$	24

						Rate
						Reduction
	Number					and
	of	Rate		Maturity		Maturity
	Contracts	Reduction		Extention		Extention		Total
Commercial	1	$	—	$	50	$	—	$	50
Real estate-commercial	1	$	—	$	—	$	303	$	303
Real estate-mortgage	1	$	202	$	—	$	—	$	202

	As of March 31, 2012
Reserve to impaired loans	$	371	$	2	$	520	$	47	$	—	$	34			$	974
Reserve to non-impaired loans	$	1,005	$	6,845	$	830	$	998	$	154	$	777	$	691	$	11,300

	Net Unrealized Gains (Losses) on Securities			Adjustments Related to Defined Benefit Pension Plan			Accumulated Other Comprehensive Income

Balance at December 31, 2011	$	2,369		$	(899	)	$	1,470
Net unrealized losses on securities available for sale, net of tax, $695		999			—			999
Reclassification adjustment for gains on securities, net of tax, $4		5			—			5
Net losses arising during the period, net of tax $51		—			74			74
Reclassification adjustment for amortization of prior service cost and net gain included in net periodic pension cost, net of tax $(51)		—			(74	)		(74	)
Balance at March 31, 2012	$	3,373		$	(899	)	$	2,474

Balance at December 31, 2012	$	3,287		$	(1,621	)	$	1,666
Net unrealized losses on securities available for sale, net of tax, $265		(382	)		—			(382	)
Reclassification adjustment for gains on securities, net of tax, $223		(320	)		—			(320	)
Net losses arising during the period, net of tax $69		—			99			99
Reclassification adjustment for amortization of prior service cost and net gain included in net periodic pension cost, net of tax $30		—			44			44
Balance at March 31, 2013	$	2,585		$	(1,478	)	$	1,107

			Fair Value Measurements at
			March 31, 2013, Using
	Carrying
	Amount		Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS
Cash and due from banks	$	15,890	$	15,890	$	—	$	—	$	15,890
Federal funds sold		35,925		35,925		—		—		35,925
Time deposits at other financial institutions		2,219		—		2,219		—		2,219
FHLB, FRB and other securities		8,313		—		—		—		N/A
Securities:
Available-for-sale		283,721		—		283,721		—		283,721
Held-to-maturity		6		—		6		—		6
Loans		478,955		—		—		495,150		495,150
Accrued interest receivable		2,182		—		730		1,452		2,182

FINANCIAL LIABILITIES
Deposits:
Nonmaturity deposits	$	613,435	$	613,435	$	—	$	—	$	613,435
Time deposits		162,485		—		162,833		—		162,833
Subordinated debentures		21,651		—		—		8,720		8,720
Accrued interest payable		121		4		39		78		121

	March					December					September					June
	2013					2012					2012					2012
			% of					% of					% of					% of
	Amount		total			Amount		total			Amount		total			Amount		total
Commercial	$	563		8.7	%	$	585		10.0	%	$	800		6.9	%	$	1,113		6.7	%
Real estate - commercial		4,355		67.5	%		2,962		50.8	%		7,663		66.2	%		5,945		35.8	%
Real estate - construction		770		11.9	%		1,371		23.5	%		1,760		15.2	%		8,381		50.4	%
Real estate - mortgage		513		8.0	%		684		11.7	%		966		8.3	%		941		5.7	%
Installment		93		1.4	%		122		2.1	%		109		0.9	%		136		0.8	%
Other		155		2.4	%		111		1.9	%		275		2.4	%		111		0.7	%
Total nonaccrual loans	$	6,449		100.0	%	$	5,835		100.0	%	$	11,573		100.0	%	$	16,627		100.0	%

											To be Well Capitalized
						For Capital					Under Prompt Corrective
						Adequacy Purposes					Action Provisions
	Actual					Minimum		Minimum			Minimum		Minimum
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Company															��
As of March 31, 2013
Total capital (to risk weighted assets)	$	115,023		18.62	%	$	49,419		8.00	%		N/A		N/A
Tier 1 capital (to risk weighted assets)	$	107,233		17.35	%	$	24,722		4.00	%		N/A		N/A
Tier 1 capital (to average assets)	$	107,233		12.08	%	$	35,508		4.00	%		N/A		N/A

As of December 31, 2012:
Total capital (to risk weighted assets)	$	113,028		18.28	%	$	49,465		8.00	%		N/A		N/A
Tier 1 capital (to risk weighted assets)	$	105,211		17.01	%	$	24,741		4.00	%		N/A		N/A
Tier 1 capital (to average assets)	$	105,211		11.77	%	$	35,756		4.00	%		N/A		N/A

North Valley Bank
As of March 31, 2013:
Total capital (to risk weighted assets)	$	115,381		18.68	%	$	49,414		8.00	%	$	61,767		10.00	%
Tier 1 capital (to risk weighted assets)	$	107,595		17.42	%	$	24,706		4.00	%	$	37,059		6.00	%
Tier 1 capital (to average assets)	$	107,595		12.12	%	$	35,510		4.00	%	$	44,387		5.00	%

As of December 31, 2012:
Total capital (to risk weighted assets)	$	112,938		18.26	%	$	49,480		8.00	%	$	61,850		10.00	%
Tier 1 capital (to risk weighted assets)	$	105,122		17.00	%	$	24,735		4.00	%	$	37,102		6.00	%
Tier 1 capital (to average assets)	$	105,122		11.76	%	$	35,756		4.00	%	$	44,695		5.00	%