UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the period ended ~~June~~September 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 ~~_______________~~______________ to ~~_______________~~______________

Commission file number0-10652

NORTH VALLEY BANCORP

~~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.

YesSx No£o

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).

YesSx No£o

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 filer£	o	Accelerated filerSx

Non-accelerated filer£	o	Smaller reporting company£o

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

Yes£o NoSx

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~~6,836,632 shares as of ~~August 2,~~November 8, 2013.

INDEX

NORTH VALLEY BANCORP AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION

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

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

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		46

Item 4.	Controls and Procedures		46

PART II. OTHER INFORMATION

~~Item 1.~~	~~Legal Proceedings~~		46

Item ~~1A.~~1.	~~Risk Factors~~Legal Proceedings		46

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

Item 3.1A.	~~Defaults Upon Senior Securities~~Risk Factors		46

Item 4.2.	~~Mine Safety Disclosures~~Unregistered Sales of Equity Securities and Use of Proceeds		46

Item 3.	Defaults Upon Senior Securities		46

Item 4.	Mine Safety Disclosures		46

Item 5.	Other Information		46

Item 6.	Exhibits		47

~~Item 6.~~		~~Exhibits~~		47

SIGNATURES			47

~~PART~~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)

	September 30,			December 31,
	2013			2012
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	23,780		$	22,654
Federal funds sold		2,345			15,865
Total cash and cash equivalents		26,125			38,519

Time deposits at other financial institutions		2,219			2,219
Investment securities available-for-sale, at fair value		293,627			285,815
Investment securities held-to-maturity, at amortized cost		6			6

Loans		509,092			492,211
Less: Allowance for loan losses		(9,312	)		(10,458	)
Net loans		499,780			481,753

Premises and equipment, net		8,572			9,181
Accrued interest receivable		2,166			2,217
Other real estate owned		15,045			22,423
FHLB and FRB stock and other nonmarketable securities		8,402			8,313
Bank-owned life insurance policies		36,941			36,045
Core deposit intangibles, net		146			255
Other assets		19,418			15,597

TOTAL ASSETS	$	912,447		$	902,343

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES:
Deposits:
Noninterest-bearing	$	184,471		$	177,855
Interest-bearing		595,299			590,725
Total deposits		779,770			768,580

Accrued interest payable and other liabilities		15,952			15,951
Subordinated debentures		21,651			21,651
Total liabilities		817,373			806,182

Commitments and contingencies

STOCKHOLDERS’ EQUITY:
Preferred stock, no par value: authorized 5,000,000 shares; no shares outstanding at September 30, 2013 and December 31, 2012		—			—
Common stock, no par value: authorized 60,000,000 shares; outstanding 6,836,632 and 6,835,192 at September 30, 2013 and December 31, 2012, respectively		98,817			98,495
Accumulated deficit		(1,265	)		(4,000	)
Accumulated other comprehensive (loss) income, net of tax		(2,478	)		1,666
Total stockholders’ equity		95,074			96,161

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	912,447		$	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)

	Three months ended September 30,
	2013		2012
Interest income
Loans, including fees	$	6,462	$	6,663
Taxable securities		1,597		1,622
Tax exempt securities		103		131
Federal funds sold and repurchase agreements		3		10
Total interest income		8,165		8,426

Interest expense
Deposits		257		462
Other borrowed funds		—		8
Subordinated debentures		134		243
Total interest expense		391		713

Net interest income		7,774		7,713

Provision for loan losses		—		700

Net interest income after provision for loan losses		7,774		7,013

Noninterest income
Service charges on deposit accounts		959		1,086
Other fees and charges		1,152		1,102
Earnings on cash surrender value of life insurance policies		343		340
Gain on sale of loans, net		596		769
Gain on sales or calls of securities, net		5		697
Other		154		210
Total noninterest income		3,209		4,204

Noninterest expense
Salaries and employee benefits		5,084		5,005
Occupancy expense		629		651
Furniture and equipment expense		223		237
FDIC and state assessments		207		212
Other real estate owned expense		1,226		817
Other		2,667		2,837
Total noninterest expenses		10,036		9,759

Income before provision (benefit) for income taxes		947		1,458

Provision (benefit) for income taxes		367		(2,546	)

Net income	$	580	$	4,004

Earnings per share
Basic and diluted income per share	$	0.08	$	0.59

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)

	Nine months ended September 30,
	2013		2012
Interest income
Loans, including fees	$	19,244	$	19,457
Taxable securities		4,438		5,532
Tax exempt securities		298		411
Federal funds sold and repurchase agreements		34		55
Total interest income		24,014		25,455

Interest expense
Deposits		825		1,800
Other borrowed funds		1		8
Subordinated debentures		400		1,213
Total interest expense		1,226		3,021

Net interest income		22,788		22,434

Provision for loan losses		—		2,100

Net interest income after provision for loan losses		22,788		20,334

Noninterest income
Service charges on deposit accounts		2,882		3,274
Other fees and charges		3,380		3,620
Earnings on cash surrender value of life insurance policies		1,125		1,023
Gain on sale of loans, net		2,441		1,858
Gain on sales or calls of securities, net		548		1,656
Other		813		719
Total noninterest income		11,189		12,150

Noninterest expense
Salaries and employee benefits		15,323		15,113
Occupancy expense		1,877		1,911
Furniture and equipment expense		645		709
FDIC and state assessments		638		701
Other real estate owned expense		2,592		1,793
Other		8,785		8,416
Total noninterest expenses		29,860		28,643

Income before provision (benefit) for income taxes		4,117		3,841

Provision (benefit) for income taxes		1,382		(1,904	)

Net income	$	2,735	$	5,745

Earnings per share
Basic and diluted income per share	$	0.40	$	0.84

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 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.

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

	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012

Net income	$	580		$	4,004		$	2,735		$	5,745
Other comprehensive income (loss):
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period		2,674			1,471			(7,843	)		5,279
Tax effect		(1,096	)		(603	)		3,216			(2,164	)
Reclassification adjustment for gains included in gain on sales or calls of securities, net		(5	)		(697	)		(548	)		(1,656	)
Provision for income taxes		2			286			225			679
Net of tax		1,575			457			(4,950	)		2,138
Defined benefit pension plans
Net gain arising during the period		—			34			1,146			103
Tax effect		—			(14	)		(470	)		(42	)
Reclassification adjustment for amortization of prior service cost and net gain included in salaries and employee benefits		72			—			220			—
Benefit for income taxes		(30	)		—			(90	)		—
Net of tax		42			20			806			61
Total other comprehensive income (loss)		1,617			477			(4,144	)		2,199
Comprehensive income (loss)	$	2,197		$	4,481		$	(1,409	)	$	7,944

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)

	Nine months ended September 30,
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,735		$	5,745
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		760			808
Amortization of premium on securities, net		1,320			1,616
Amortization of core deposit intangible		109			109
Provision for loan losses		—			2,100
Net losses on sale and write-down of other real estate owned		2,273			1,487
Gain on sale of loans		(2,441	)		(1,858	)
Gain on sales or calls of securities		(548	)		(1,656	)
(Gain) loss on sale of premises and equipment		(73	)		1
Stock-based compensation expense		322			158
Effect of changes in:
Accrued interest receivable		51			261
Other assets		(1,837	)		(4,634	)
Accrued interest payable and other liabilities		1,854			(1,838	)
Proceeds from sales of loan originated for sale		69,922			64,882
Loans originated for sale		(70,514	)		(65,509	)
Net cash provided by operating activities		3,933			1,672

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of time deposits at other financial institutions		—			(251	)
Purchases of available-for-sale securities		(91,054	)		(142,049	)
Proceeds from sales/calls of available-for-sale securities		18,700			110,579
Proceeds from maturities of available-for-sale securities		55,380			48,314
Purchases of FHLB and FRB stock and other securities		(89	)		(269	)
Purchases of jumbo residential mortgages		—			(33,325	)
Net increase in loans		(15,812	)		(8,688	)
Proceeds from sales of other real estate owned		5,436			4,414
Purchases of premises and equipment		(375	)		(1,451	)
Proceeds from sales of premises and equipment		297			—
Net cash used in investing activities		(27,517	)		(22,726	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits		11,190			(7,763	)
Net change in other borrowed funds		—			(10,310	)
Net cash provided by (used in) financing activities		11,190			(18,073	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(12,394	)		(39,127	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		38,519			58,968
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	26,125		$	19,841

Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest	$	1,252		$	7,874
Income taxes paid	$	670		$	122

Noncash investing and financing activities:
Transfer from loans to other real estate owned	$	818		$	7,484

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~~nine months ended ~~June~~September 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):

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
June 30, 2013
Available-for-Sale:
Obligations of U.S. government sponsored agencies $ 19,669 $ — $ (1,117 ) $ 18,552
Obligations of state and political subdivisions 8,262 229 (60 ) 8,431
Government sponsored agency mortgage-backed securities 274,858 2,580 (5,860 ) 271,578
Corporate debt securities 6,000 — (1,238 ) 4,762
Equity securities 3,000 — (23 ) 2,977
$ 311,789 $ 2,809 $ (8,298 ) $ 306,300
Held-to-Maturity:
Government sponsored agency mortgage-backed securities $ 6 $ — $ — $ 6

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

			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
September 30, 2013
Available-for-Sale:
Obligations of U.S. government sponsored agencies	$	19,669	$	—	$	(991	)	$	18,678
Obligations of state and political subdivisions		6,692		192		(31	)		6,853
Government sponsored agency mortgage-backed securities		261,085		3,566		(4,308	)		260,343
Corporate debt securities		6,000		—		(1,230	)		4,770
Equity securities		3,000		—		(17	)		2,983
	$	296,446	$	3,758	$	(6,577	)	$	293,627
Held-to-Maturity:
Government sponsored agency mortgage-backed securities	$	6	$	—	$	—		$	6

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

For the three months ended ~~June~~September 30, 2013 and 2012 there were no$5,000 and $697,000, respectively, in gross realized gains on sales or calls of available for sale securities. For the three months ended ~~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~~September 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 ~~June~~September 30, 2013 ~~there were no gross proceeds from sales or calls of available for sale securities. For the three months ended June 30,~~and 2012 there were ~~$76,989,000~~$1,615,000 and $32,140,000 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 ~~June~~September 30, 2013 and 2012. For the three months ended ~~June~~September 30, 2013 and 2012, there were no gross proceeds from maturities or calls of held to maturity securities.

For the ~~six~~nine months ended ~~June~~September 30, 2013 and 2012 there were ~~$543,000~~$548,000 and ~~$968,000,~~$1,665,000, respectively, in gross realized gains on sales or calls of available for sale securities. For the ~~six~~nine months ended ~~June~~September 30, 2013 there were no gross realized losses on sales or calls of securities categorized as available for sale securities. For the ~~six~~nine months ended ~~June~~September 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~~nine months ended ~~June~~September 30, 2013 and 2012 there were ~~$17,085,000~~$18,700,000 and ~~$78,439,000,~~$110,579,000, 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~~nine months ended ~~June~~September 30, 2013 and 2012. For the ~~six~~nine months ended ~~June~~September 30, 2013 and 2012, there were no gross proceeds from maturities or calls of held to maturity securities. Expected maturities of all investment securities are consistent with those reported in the December 31, 2012 Form 10-K.

At ~~June~~September 30, 2013 and December 31, 2012, securities having fair value amounts of approximately ~~$300,983,000~~$285,444,000 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. The Company pledges most of its securities at the Federal Home Loan Bank (“FHLB”) to provide borrowing capacity. See “Liquidity” onpage ~~44.~~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 September 30, 2013
		As of June 30, 2013																	Less than 12 Months						12 Months or Longer						Total
		Less than 12 Months					12 Months or Longer					Total					Estimated			Unrealized			Estimated			Unrealized			Estimated			Unrealized
		Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Fair Value			Losses			Fair Value			Losses			Fair Value			Losses
Description of Securities	Description of Securities
Obligations of U.S. government sponsored agencies		$	18,552	$	(1,117	)	$	—	$	—			18,552		(1,117	)	$	18,678		$	(991	)	$	—		$	—			18,678			(991	)
Obligations of state and political subdivisions			1,108		(60	)		—		—			1,108		(60	)		1,151			(31	)		—			—			1,151			(31	)
Government sponsored agency mortgage-backed securities			175,628		(5,860	)		—		—			175,628		(5,860	)		138,511			(4,308	)		—			—			138,511			(4,308	)
Corporate debt securities			—		—			4,762		(1,238	)		4,762		(1,238	)		—			—			4,770			(1,230	)		4,770			(1,230	)
Equity securities			2,977		(23	)		—		—			2,977		(23	)		2,983			(17	)		—			—			2,983			(17	)
Total impaired securities		$	198,265	$	(7,060	)	$	4,762	$	(1,238	)	$	203,027	$	(8,298	)	$	161,323		$	(5,347	)	$	4,770		$	(1,230	)	$	166,093		$	(6,577	)

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

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

As of ~~June~~September 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 did not consider these investments to be other-than-temporarily impaired at ~~June~~September 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):

	June 30,			December 31,			September 30,			December 31,
	2013			2012			2013			2012
Commercial	$	49,054		$	46,078		$	48,903		$	46,078
Real estate - commercial		319,206			295,630			328,967			295,630
Real estate - construction		18,535			23,003			19,281			23,003
Real estate - mortgage		68,637			74,353			65,790			74,353
Installment		6,026			6,689			5,560			6,689
Other		42,547			45,941			40,771			45,941
Gross loans		504,005			491,694			509,272			491,694
Deferred loan fees, net		269			517
Deferred loan (fees) costs, net								(180	)		517
Allowance for loan losses		(9,527	)		(10,458	)		(9,312	)		(10,458	)
Total loans, net	$	494,747		$	481,753		$	499,780		$	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 ~~$101,239,000~~$95,107,000 and $116,929,000 at ~~June~~September 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 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

	As of September 30, 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	$	566	$	587	$	—	$	585	$	586	$	—
Real estate - commercial		4,283		4,348		—		2,778		2,974		—
Real estate - construction		843		864		—		1,210		1,273		—
Real estate - mortgage		1,171		1,194		—		684		736		—
Installment		110		127		—		122		138		—
Other		311		326		—		111		120		—
Subtotal		7,284		7,446		—		5,490		5,827		—

With allocated allowance
Commercial		16		16		16		—		—		—
Real estate - commercial		—		—		—		184		217		171
Real estate - construction		—		—		—		161		161		18
Real estate - mortgage		164		164		164		—		—		—
Subtotal		180		180		180		345		378		189
Total Impaired Loans	$	7,464	$	7,626	$	180	$	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):

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

Commercial	$	438	$	—	$	1,143	$	—	$	372	$	—	$	938	$	—
Real estate - commercial		5,357		21		5,989		—		4,704		21		7,780		—
Real estate - construction		874		6		8,388		—		869		6		1,766		—
Real estate - mortgage		1,371		10		950		—		1,393		13		986		—
Installment		144		1		140		—		138		—		123		—
Other		407		—		124		—		327		—		277		—
Total	$	8,591	$	38	$	16,734	$	—	$	7,803	$	40	$	11,870	$	—

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

Commercial	$	455	$	—	$	1,173	$	—	$	430	$	—	$	1,043	$	—
Real estate - commercial		5,370		41		6,119		—		4,722		35		7,942		—
Real estate - construction		877		13		8,394		—		874		19		1,780		—
Real estate - mortgage		1,379		20		964		—		1,404		33		1,006		—
Installment		145		2		144		—		140		—		133		—
Other		408		—		138		—		330		—		287		—
Total	$	8,634	$	76	$	16,932	$	—	$	7,900	$	87	$	12,191	$	—

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):

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 %

	September 30,			December 31,
	2013			2012
Nonaccrual loans	$	5,216		$	5,835
Loans 90 days past due or more but still accruing interest		—			—
Total nonperforming loans	$	5,216		$	5,835

Nonaccrual loans to total gross loans		1.02	%		1.19	%
Nonperforming loans to total gross loans		1.02	%		1.19	%

If interest on nonaccrual loans had been accrued, such income would have approximated ~~$135,000~~$36,000 and ~~$357,000~~$138,000 for the ~~six~~three months ended ~~June~~September 30, 2013 and 2012, respectively. If interest on nonaccrual loans had been accrued, such income would have approximated $171,000 and $495,000 for the nine months ended September 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 September 30, 2013
	Accruing Interest
					Greater than
			30-89 Days		90 Days
	Current		Past Due		Past Due		Nonaccrual		Total

Commercial	$	48,168	$	153	$	—	$	582	$	48,903
Real estate - commercial		325,503		73		—		3,391		328,967
Real estate - construction		18,843		—		—		438		19,281
Real estate - mortgage		64,766		612		—		412		65,790
Installment		5,469		9		—		82		5,560
Other		40,434		26		—		311		40,771
Total	$	503,183	$	873	$	—	$	5,216	$	509,272

	As of June 30, 2013										As of December 31, 2012
		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
		As of December 31, 2012													Greater than
		Accruing Interest											30-89 Days		90 Days
		Current		30-89 DaysPast Due		Greater than 90 DaysPast Due		Nonaccrual		Total	Current		Past Due		Past 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

A troubled debt restructuring (“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 ~~June~~September 30, 2013, accruing TDRs were ~~$2,485,000~~$2,248,000 and ~~non-accrual~~nonaccrual TDRs were ~~$1,170,000~~$952,000 compared to accruing TDRs of $2,414,000 and ~~non-accrual~~nonaccrual TDRs of $1,072,000 at December 31, 2012. At ~~June~~September 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 ~~June~~September 30, 2013 to customers with outstanding loans that are classified as troubled debt restructurings. There were no TDRs that subsequently defaulted during the twelve months following the modification of terms.

The following table ~~present~~presents loans that were modified and recorded as TDRs for the three and ~~six~~nine months ended ~~June~~September 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

	Three months ended September 30, 2013						Three months ended September 30, 2012
			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	$	140	$	140		—	$	—	$	—
Real estate - construction		1	$	114	$	114		—	$	—	$	—
Real estate - mortgage		1	$	116	$	116		1	$	425	$	425
Other		—	$	—	$	—		1	$	26	$	26

													Nine months ended September 30, 2013						Nine months ended September 30, 2012
															Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
													Number		Outstanding		Outstanding		Number		Outstanding		Outstanding
	For the three months ended June 30, 2012						For the six months ended June 30, 2012						of		Recorded		Recorded		of		Recorded		Recorded
	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		Contracts		Investment		Investment		Contracts		Investment		Investment
Commercial		1	$	1,076	$	1,076		1	$	1,076	$	1,076		3	$	181	$	181		1	$	800	$	800
Real estate - commercial		2	$	278	$	278		2	$	278	$	278		1	$	438	$	438		2	$	269	$	269
Real estate - construction														1	$	114	$	114		—	$	—	$	—
Real estate - mortgage														2	$	326	$	326		1	$	425	$	425
Installment		1	$	25	$	25		2	$	73	$	73		—	$	—	$	—		2	$	70	$	70
Other														1	$	47	$	47		1	$	26	$	26

A summary of TDRs by type of concession and by type of loan as of ~~June~~September 30, 2013 and December 31, 2012, 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

	September 30, 2013
Accruing TDRs						Rate
						Reduction
	Number					and
	of	Rate		Maturity		Maturity
	Contracts	Reduction		Extension		Extension		Total
Real estate - commercial	5	$	—	$	197	$	696	$	893
Real estate - construction	2	$	—	$	405	$	—	$	405
Real estate - mortgage	3	$	—	$	294	$	628	$	922
Installment	1	$	—	$	—	$	28	$	28

	June 30, 2013										September 30, 2013
Nonaccrual TDRs	Number of Contracts		Rate Reduction		MaturityExtension		Rate Reduction and Maturity Extension		Total							Rate
																Reduction
											Number					and
											of	Rate		Maturity		Maturity
											Contracts	Reduction		Extension		Extension		Total
Commercial		2	$	—	$	—	$	518	$	518	4	$	16	$	—	$	566	$	582
Real estate - commercial		1	$	—	$	—	$	290	$	290	—	$	—	$	—	$	—	$	—
Real estate - construction											1	$	—	$	114	$	—	$	114
Real estate - mortgage		1	$	—	$	—	$	201	$	201	1	$	—	$	—	$	116	$	116
Installment		3	$	—	$	—	$	89	$	89	3	$	—	$	—	$	70	$	70
Other		2	$	—	$	—	$	72	$	72	2	$	—	$	—	$	70	$	70

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

	December 31, 2012										December 31, 2012
Nonaccrual TDRs		Number of Contracts		Rate Reduction		Maturity Extension		Rate Reduction and Maturity Extension		Total						Rate
																Reduction
											Number					and
											of	Rate		Maturity		Maturity
											Contracts	Reduction		Extension		Extension		Total
Commercial		1	$	—	$	—	$	529	$	529	1	$	—	$	—	$	529	$	529
Real estate-construction		2	$	327	$	71	$	—	$	398	2	$	327	$	71	$	—	$	398
Installment		4	$	—	$	—	$	120	$	120	4	$	—	$	—	$	120	$	120
Other		1	$	—	$	—	$	25	$	25	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 June 30, 2013
Real Estate Real Estate Real Estate
Commercial Commercial Construction Mortgage Installment Other Unallocated Total

Allowance for Loan Losses
Balance March 31, 2013 $ 1,170 $ 5,720 $ 595 $ 938 $ 87 $ 676 $ 465 $ 9,651
Charge-offs (26 ) (3 ) — (46 ) (17 ) (55 ) (147 )
Recoveries 16 — 1 2 4 — 23
Provisions for loan losses (313 ) (230 ) (157 ) 26 93 299 282 —
Balance June 30, 2013 $ 847 $ 5,487 $ 439 $ 920 $ 167 $ 920 $ 747 $ 9,527

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 six months ended June 30, 2013
Real Estate Real Estate Real Estate
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
Charge-offs (109 ) (440 ) (369 ) (202 ) (28 ) (55 ) (1,203 )
Recoveries 258 — 3 2 9 — 272
Provisions for loan losses (145 ) (368 ) 115 138 88 254 (82 ) —
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


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

Allowance for Loan Losses
Balance June 30, 2013																									$	847		$	5,487		$	439		$	920		$	167		$	920		$	747		$	9,527
Charge-offs																										(22	)		—			(20	)		(34	)		(40	)		(174	)					(290	)
Recoveries																										18			48			—			1			8			—						75
Provisions for loan losses																										(93	)		138			16			(23	)		15			110			(163	)		—
Balance September 30, 2013																									$	750		$	5,673		$	435		$	864		$	150		$	856		$	584		$	9,312

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

Allowance for Loan Losses
Balance June 30, 2012																									$	1,260		$	6,586		$	1,387		$	925		$	141		$	768		$	665		$	11,732
Charge-offs																										(250	)		(113	)		(492	)		(143	)		(48	)		(48	)					(1,094	)
Recoveries																										13			—			43			1			29			3						89
Provisions for loan losses																										(261	)		435			(23	)		422			—			60			67			700
Balance September 30, 2012																									$	762		$	6,908		$	915		$	1,205		$	122		$	783		$	732		$	11,427

																									For the nine months ended September 30, 2013
																												Real Estate			Real Estate			Real Estate
																									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
Charge-offs																										(131	)		(438	)		(389	)		(236	)		(68	)		(229	)					(1,491	)
Recoveries																										276			46			3			3			17			—						345
Provisions for loan losses																										(238	)		(230	)		131			115			103			364			(245	)		—
Balance September 30, 2013																									$	750		$	5,673		$	435		$	864		$	150		$	856		$	584		$	9,312

																									As of September 30, 2013
Reserve to impaired loans																									$	16		$	—		$	—		$	164		$	—		$	—		$	—		$	180
Reserve to non-impaired loans																									$	734		$	5,673		$	435		$	700		$	150		$	856		$	584		$	9,132

	For the six months ended June 30, 2012																								For the nine months ended September 30, 2012
				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		$	1,333		$	7,528		$	1,039		$	935		$	185		$	736		$	900		$	12,656
Charge-offs		(206	)		(1,617	)		(330	)		(190	)		(142	)		(72	)					(2,557	)		(456	)		(1,730	)		(822	)		(333	)		(190	)		(120	)					(3,651	)
Recoveries		26			63			37			36			65			6						233			39			63			80			37			94			9						322
Provisions for loan losses		107			612			641			144			33			98			(235	)		1,400			(154	)		1,047			618			566			33			158			(168	)		2,100
Balance June 30, 2012	$	1,260		$	6,586		$	1,387		$	925		$	141		$	768		$	665		$	11,732
Balance September 30, 2012																									$	762		$	6,908		$	915		$	1,205		$	122		$	783		$	732		$	11,427

		As of June 30, 2012																							As of September 30, 2012
Reserve to impaired loans	$	240		$	99		$	529		$	35		$	—		$	—					$	903		$	—		$	417		$	—		$	50		$	—		$	—					$	467
Reserve to non-impaired loans	$	1,020		$	6,487		$	858		$	890		$	141		$	768		$	665		$	10,829		$	762		$	6,491		$	915		$	1,155		$	122		$	783		$	732		$	10,960

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

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

Total Loans	$	48,903	$	328,967	$	19,281	$	65,790	$	5,560	$	40,771	$	509,272
Impaired Loans	$	582	$	4,283	$	843	$	1,335	$	110	$	311	$	7,464
Non-impaired loans	$	48,321	$	324,684	$	18,438	$	64,455	$	5,450	$	40,460	$	501,808

	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 June 30, 2013										As of September 30, 2013
	Pass		Special Mention		Substandard		Doubtful		Total		Pass		Special Mention		Substandard		Doubtful		Total
Commercial	$	46,828	$	1,035	$	1,191	$	—	$	49,054	$	47,201	$	726	$	976	$	—	$	48,903
Real estate - commercial		304,743		2,780		11,683		—		319,206		315,132		3,238		10,597		—		328,967
Real estate - construction		18,037		—		498		—		18,535		18,843		—		438		—		19,281
Real estate - mortgage		67,596		—		1,041		—		68,637		64,750		—		1,040		—		65,790
Installment		5,907		—		119		—		6,026		5,448		—		112		—		5,560
Other		41,957		—		590		—		42,547		40,263		—		508		—		40,771
Total	$	485,068	$	3,815	$	15,122	$	—	$	504,005	$	491,637	$	3,964	$	13,671	$	—	$	509,272

	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. ~~At June 30,~~During the second quarter of 2013, there was a change in the Bank’s method of calculating the historical loss factors applied to loans identified as “homogenous segments” of the 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 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 current and future analyses was a prudent refinement of the allowance methodology. In addition, management ~~believe~~believes that the decreases in the overall level of the allowance for loan losses over the past several quarters is directionally consistent with the 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:

●

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 ~~June~~September 30, 2013 and December 31, 2012, respectively.

NOTE 5 – OTHER REAL ESTATE OWNED

The Company had ~~$16,324,000~~$15,045,000 and $22,423,000 in other real estate owned (“OREO”) at ~~June~~September 30, 2013 and December 31, 2012, respectively. Below is a table with details of the changes in OREO (in thousands):

	June 30,			December 31,			September 30,			December 31,
	2013			2012			2013			2012
Beginning Balance	$	22,423		$	20,106		$	22,423		$	20,106
Properties transferred in		777			12,239			818			12,239
Sales of property		(5,744	)		(6,889	)		(5,923	)		(6,889	)
Loss on sale or writedown of property		(1,132	)		(3,033	)		(2,273	)		(3,033	)
Total	$	16,324		$	22,423		$	15,045		$	22,423

Subsequent to September 30, 2013, the Company sold eight OREO properties located in Sonoma County at their recorded value of $9,885,000 which resulted in no additional gain or loss. The transaction closed on October 29, 2013.

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

Three months ended June 30, Six months ended June 30,
2013 2012 2013 2012
Operating expenses $ 92 $ 72 $ 234 $ 227
Provision for losses 623 165 884 561
Net, loss on disposal 275 105 248 188
Total other real estate owned expense $ 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.

	Three months ended September 30,					Nine months ended September 30,
	2013		2012			2013		2012
Operating expenses	$	85	$	79		$	319	$	306
Provision for losses		1,139		749			2,023		1,310
Net, loss (gain) on disposal		2		(11	)		250		177
Total other real estate owned expense	$	1,226	$	817		$	2,592	$	1,793

NOTE 76 – 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 ~~June~~September 30, 2013 and December 31, 2012.

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

Fixed or
Date Variable Current Rate Redemption
Series Issued Maturity Rate Rate Index Date Amount
North Valley Capital Trust II 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 3.08 % LIBOR + 2.80% 7/23/09 5,155
North Valley Capital Statutory Trust IV 12/29/05 3/15/36 Variable 1.60 % LIBOR + 1.33% 3/15/11 10,310
$ 21,651

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

Fixed or

Date

Variable

Current

Rate

Redemption

Series

Issued

Maturity

Rate

Index

Date

Amount

North Valley Capital Trust II

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

3.06%

LIBOR + 2.80%

7/23/09

5,155

North Valley Capital Statutory Trust IV

12/29/05

3/15/36

Variable

1.58%

LIBOR + 1.33%

3/15/11

10,310

21,651

NOTE 87 – 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 ~~June~~September 30, 2013 and December 31, 2012, unrecognized tax benefits totaled $519,000.

During the quarter ended September 30, 2012, the Company recorded a $2,546,000 income tax benefit, which was the net result of reversing the state deferred tax asset valuation allowance of $4,277,000 less a $1,347,000 increase in federal deferred tax liabilities against the three and nine months ended September 30, 2012 current period tax expense. The deferred tax asset valuation allowance was established in 2010 due to the Company’s prior net operating losses, its inability to meet its financial projections and because of elevated levels of credit losses. To determine if the benefit of its net deferred tax asset will more likely than not be realized, the Company’s management analyzed both positive and negative evidence that may affect the realization of the deferred tax asset. Management of the Company determined that it was more likely than not that all of its net deferred tax asset would be realized.

Net deferred tax assets totaled ~~$16,351,000~~$15,226,000 and $12,346,000 at ~~June~~September 30, 2013 and December 31, 2012, respectively.

NOTE ~~9 -~~8 – 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 ~~June~~September 30, 2013 and 2012. Components of net periodic benefit cost for the Company’s supplemental nonqualified defined benefit plans for the three and ~~six~~nine months ended ~~June~~September 30, 2013 and 2012 are presented in the following table (in thousands):

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

June 30, 2013 December 31, 2012

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

	Three months ended September 30,				Nine months ended September 30,
Components of net periodic benefits cost:	2013		2012		2013		2012
Service cost	$	171	$	150	$	512	$	451
Interest cost		93		84		279		251
Prior service amortization		25		25		74		74
Recognized net actuarial loss		48		10		146		30
Total components of net periodic cost	$	337	$	269	$	1,011	$	806

	September 30, 2013		December 31, 2012

Total Liability of Pension Plan Benefits	$	8,900	$	9,443

NOTE 109 – STOCK-BASED COMPENSATION

Stock Option Plans

At ~~June~~September 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 ~~June~~September 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 ~~June~~September 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~~5,580 shares issued as stock awards and ~~243,075~~241,635 shares reserved for future stock option grants and director stock awards at ~~June~~September 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. On September 18, 2013, the Board of Directors approved the 180 share stock award to each of the eight outside directors (total 1,440 shares) for the year 2013. The Company recognized director stock grant expense in the amount of $27,000 for the quarter ending September 30, 2013, relative to these 1,440 shares awarded to the eight outside directors. 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 no options granted in the three month period ended ~~June~~September 30, ~~2013. There were 2,500 options granted for the three month period ended June 30,~~2013 and 2012. There were ~~114,234~~114,234 and 77,908 options granted for the ~~six~~nine month ~~period~~periods ended ~~June~~September 30, 2013 and 2012, respectively. For the three month periods ended ~~June~~September 30, 2013 and 2012, the compensation cost recognized for share based compensation was ~~$108,000~~$131,000 and ~~$49,000,~~$69,000, respectively. For the ~~six~~nine month periods ended ~~June~~September 30, 2013 and 2012, the compensation cost recognized for share based compensation was ~~$191,000~~$322,000 and ~~$89,000,~~$158,000, respectively At ~~June~~September 30, 2013, the total unrecognized compensation cost related to stock-based awards granted to employees under the Company’s stock option plans was ~~$1,615,000.~~$1,512,000. This cost is expected to be amortized on a straight-line basis over a weighted average period of approximately ~~4.1~~3.9 years and will be adjusted for subsequent changes in estimated forfeitures. There were no options granted for the three month periods ended September 30, 2013 and 2012. The following table summarizes the weighted average grant date fair value of options granted for the ~~three and six~~nine month periods ended ~~June~~September 30, 2013 and 2012, based on the following assumptions used in a Black-Scholes Merton model.

For three months ended June 30, For six months ended June 30,
2013 2012 2013 2012

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 6.61 years 6.32 years 6.49 years
Expected annual volatility 58 % 60 % 59 %
Expected annual dividend yield N/A N/A N/A
Risk-free interest rate 1.38 % 1.38 % 1.40 %

	Three months ended September 30,				Nine months ended September 30,
	2013		2012		2013			2012
Weighted average grant date fair value per share of option granted		N/A		N/A	$	9.53		$	6.28
Significant weighted average assumptions used in calculating fair value:
Expected term						6.32 years			6.49 years
Expected annual volatility						60	%		59	%
Expected annual dividend yield						N/A			N/A
Risk-free interest rate						1.38	%		1.40	%

A summary of outstanding stock options follows:

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

Outstanding at January 1, 2013		248,822		$	29.40		7 years		$9.97-$103.10	$	822		248,822		$	29.40		7 years		$9.97-$103.10	$	1,160

Granted		114,234		$	16.80				$16.80-16.80				114,234		$	16.80				$16.80	$	240
Exercised		—			—				—				—			—				—
Expired or Forfeited		(8,346	)	$	63.32				$23.95-$65.30				(8,346	)	$	63.32				$23.95-$65.30

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
Outstanding at September 30, 2013													354,710		$	24.55		7 years		$9.97-$103.10	$	1,400
Fully vested and exercisable at September 30, 2013													130,008		$	42.10		5 years		$9.97-$103.10	$	344
Options expected to vest at September 30, 2013													224,702		$	14.39		9 years		$9.97-$23.95	$	1,056

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 ~~June~~September 30, 2013. There were no options exercised during the three and ~~six~~nine month periods ended ~~June~~September 30, 2013 and 2012.

NOTE 1110 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

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

	Net Unrealized Gains (Losses) on Securities			Adjustments Related to Defined Benefit Pension Plan			Accumulated Other Comprehensive Income (Loss)
Balance at June 30, 2013	$	(3,238	)	$	(857	)	$	(4,095	)
Net unrealized gains on securities available for sale, net of tax, $1,096		1,577			—			1,577
Reclassification adjustment for losses on securities, net of tax, $(2)		(3	)		—			(3	)
Net gains 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 $30		—			43			43
Balance at September 30, 2013	$	(1,664	)	$	(814	)	$	(2,478	)

Balance at June 30, 2012	$	4,050		$	(858	)	$	3,192
Net unrealized gains on securities available for sale, net of tax, $603		868			—			868
Reclassification adjustment for gains on securities, net of tax, $(286)		(411	)		—			(411	)
Net gains arising during the period, net of tax $14		—			20			20
Reclassification adjustment for amortization of prior service cost and net gain included in salaries and employee benefits, net of tax		—			—			—
Balance at September 30, 2012	$	4,507		$	(838	)	$	3,669

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

	Net Unrealized Gains (Losses) on Securities			Adjustments Related to Defined Benefit Pension Plan			Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2012	$	3,286		$	(1,620	)	$	1,666
Net unrealized losses on securities available for sale, net of tax, $(3,215)		(4,627	)		—			(4,627	)
Reclassification adjustment for gains on securities, net of tax, $(225)		(323	)		—			(323	)
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 $90		—			130			130
Balance at September 30, 2013	$	(1,664	)	$	(814	)	$	(2,478	)

Balance at December 31, 2011	$	2,369		$	(899	)	$	1,470
Net unrealized gains on securities available for sale, net of tax, $2,165		3,115			—			3,115
Reclassification adjustment for gains on securities, net of tax, $(679)		(977	)		—			(977	)
Net gains arising during the period, net of tax $42		—			61			61
Reclassification adjustment for amortization of prior service cost and net gain included in salaries and employee benefits, net of tax		—			—			—
Balance at September 30, 2012	$	4,507		$	(838	)	$	3,669

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

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

Three months ended September 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
Gains on investment securities	$	5		Gain on sales or calls of securities, net
Amortization of prior service cost and net gain included in net periodic pension cost	$	(73	)	Salaries and employee benefits
		(68	)	Total before tax
		28		Benefit for income tax
	$	(40	)	Net of tax

Three months ended June 30, 2012
Three months ended September 30, 2012					Three months ended September 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		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		$	697		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			—		Salaries and employee benefits
		934		Total before tax			697		Total before tax
		(383	)	Provision for income tax			(286	)	Provision for income tax
	$	551		Net of tax		$	411		Net of tax

Six months ended June 30, 2013
Nine months ended September 30, 2013					Nine months ended September 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		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		$	548		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			(220	)	Salaries and employee benefits
		395		Total before tax			328		Total before tax
		(163	)	Provision for income tax			(135	)	Provision for income tax
	$	232		Net of tax		$	193		Net of tax

Six months ended June 30, 2012
Nine months ended September 30, 2012					Nine months ended September 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		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		$	1,656		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			—		Salaries and employee benefits
		890		Total before tax			1,656		Total before tax
		(365	)	Provision for income tax			(679	)	Provision for income tax
	$	525		Net of tax		$	977		Net of tax

NOTE 1211 – 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~~211,802 and ~~255,285~~249,164 shares of common stock were not considered in computing diluted earnings per common share for the three months ended ~~June~~September 30, 2013 and 2012 respectively, because they were anti-dilutive. Stock options for 214,302 and ~~256,285~~249,164 shares of common stock were not considered in computing diluted earnings per common share for the ~~six~~nine months ended ~~June~~September 30, 2013 and 2012 respectively, because they were anti-dilutive.

	Three months ended June 30,				Six months ended June 30,				Three months ended September 30,				Nine months ended September 30,
	2013		2012		2013		2012		2013		2012		2013		2012
Calculation of basic earnings per share:
Numerator - net income	$	894	$	1,261	$	2,155	$	1,741	$	580	$	4,004	$	2,735	$	5,745
Denominator -
Weighted average common shares outstanding		6,835		6,834		6,835		6,834		6,835		6,835		6,835		6,834
Basic earnings per share	$	0.13	$	0.18	$	0.32	$	0.25	$	0.08	$	0.59	$	0.40	$	0.84

Calculation of diluted earnings per share:
Numerator - net income	$	894	$	1,261	$	2,155	$	1,741	$	580	$	4,004	$	2,735	$	5,745
Denominator -
Weighted average common shares outstanding		6,835		6,834		6,835		6,834		6,835		6,835		6,835		6,834
Dilutive effect of outstanding options		18		—		15		—		26		1		18		1
Weighted average common shares outstanding and common stock equivalents		6,853		6,834		6,850		6,834		6,861		6,836		6,853		6,835
Diluted earnings per share	$	0.13	$	0.18	$	0.31	$	0.25	$	0.08	$	0.59	$	0.40	$	0.84

NOTE 1312 – 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 ~~$4,758,000~~$5,003,000 and $4,713,000 at ~~June~~September 30, 2013 and December 31, 2012, respectively. At ~~June~~September 30, 2013, commercial and consumer lines of credit and real estate loans of approximately ~~$39,862,000~~$39,048,000 and ~~$30,407,000,~~$35,855,000, 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 ~~June~~September 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 ~~June~~September 30, 2013 and December 31, 2012, the Company had a reserve for unfunded commitments of $146,000 and $143,000, respectively.

A large portion of the loan portfolio of the Company is collateralized by real estate. At ~~June~~September 30, 2013, real estate served as the principal source of collateral with respect to approximately 81% of the Company’s loan portfolio. At ~~June~~September 30, 2013, real estate construction loans totaled ~~$18,535,000,~~$19,281,000, or 4% of the total loan portfolio, commercial loans secured by real estate totaled ~~$319,206,000,~~$328,967,000, or ~~63%~~65% of the total loan portfolio, and real estate mortgage loans totaled ~~$68,637,000,~~$65,790,000, or ~~14%~~13% of the total loan portfolio. See the discussion under “Loan Portfolio” starting onpage ~~35.~~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.

As previously reported, NVB ~~has~~ established a reserve in the amount of $1,260,000 for the ~~anticipated~~ settlement of criticisms identified in conjunction with a compliance examination conducted by the Federal Reserve Bank of San Francisco in 2010. During the ~~three month period ending June~~quarter ended September 30, 2013, ~~NVB received the final 2010 report of examination and~~ in accordance with the terms of an agreement reached with the Federal Reserve Bank of San Francisco, ~~finalized~~all of these funds were disbursed to the ~~amount~~affected parties, as agreed, thereby ending the reserve. NVB continues to comply with the terms of ~~this reserve at $1,260,000. This amount is included in accrued interest payable and other liabilities on~~ the ~~balance sheet.~~agreement reached to resolve criticisms raised by the Federal Reserve Bank of San Francisco.

NOTE 1413 – 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 June 30, 2013								As of September 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	$	18,552	$	—	$	18,552	$	—	$	18,678	$	—	$	18,678	$	—
Obligations of state and political subdivisions		8,431		—		8,431		—		6,853		—		6,853		—
Government sponsored agency mortgage-backed securities		271,578		—		271,578		—		260,343		—		260,343		—
Corporate debt securities		4,762		—		4,762		—		4,770		—		4,770		—
Equity securities		2,977		—		2,977		—		2,983		—		2,983		—
	$	306,300	$	—	$	306,300	$	—	$	293,627	$	—	$	293,627	$	—

	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 ~~June~~September 30, 2013 and December 31, 2012. During the three and ~~six~~nine month ~~period s~~periods ended ~~June~~September 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 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
Fair Value Level 1 Level 2 Level 3

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

									Total Losses				Total Losses
	As of September 30, 2013								Three months ended September 30,				Nine months ended September 30,
	Fair Value		Level 1		Level 2		Level 3		2013		2012		2013		2012
Impaired loans:
Commercial	$	—	$	—	$	—	$	—	$	16	$	—	$	16	$	—
Real estate - commercial		609		—		—		609		—		431		239		1,887
Real estate - construction		438		—		—		438		—		—		357		—
Real estate - mortgage		116		—		—		116		—		76		272		149
Installment		9		—		—		9		18		—		18		—
Other		171		—		—		171		34		—		71		—
OREO:
Real estate - commercial		—		—		—		—		—		92		—		92
Real estate - construction		1,644		—		—		1,644		1,100		657		1,618		790
Real estate - mortgage		219		—		—		219		39		—		39		140
Total assets measured at fair value on a nonrecurring basis	$	3,206	$	—	$	—	$	3,206	$	1,207	$	1,256	$	2,630	$	3,058

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

Impaired loans:
Commercial	$	585	$	—	$	—	$	585
Real estate - commercial		2,222		—		—		2,222
Real estate - construction		143		—		—		143
Real estate - mortgage		464		—		—		464
Installment		75		—		—		75
Other		25		—		—		25
OREO:
Real estate - construction		7,360		—		—		7,360
Real estate - mortgage		184		—		—		184
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” impaired loans.~~

As of ~~June~~September 30, 2013

Fair Value Valuation Techniques Unobservable Inputs Range (Weighted Average)

Impaired loans:
Real estate - commercial $ 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%)
Real estate - mortgage $ 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 $ 181 Comparable sales approach Discount adjustment for differences between comparable sales 6% to 11% (9%)
Real estate - construction $ 651 Comparable sales approach Discount adjustment for differences between comparable sales 0% to 6% (6%)

	Fair Value		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)

Impaired loans:
Real estate - commercial	$	609	Comparable sales approach	Discount adjustment for differences between comparable sales	6% to 11% (9%)
Real estate - construction	$	438	Comparable sales approach	Discount adjustment for differences between comparable sales	2% to 3% (3%)
Real estate - mortgage	$	116	Comparable sales approach	Discount adjustment for differences between comparable sales	6% to 11% (9%)
Other	$	171	Comparable sales approach	Discount adjustment for differences between comparable sales	6% to 11% (9%)
OREO:
Real estate - construction	$	1,644	Comparable sales approach	Discount adjustment for differences between comparable sales	0% to 11% (9%)
Real estate - mortgage	$	219	Comparable sales approach	Discount adjustment for differences between comparable sales	6% to 11% (9%)

As of December 31, 2012

Fair Value

Valuation Techniques

Unobservable Inputs

Range (Weighted Average)

Fair Value

Valuation Techniques

Unobservable Inputs

Range
(Weighted
Average)

Impaired loans:

Real estate - commercial

2,222

Comparable sales approach