United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Period Ended March 31, 1997.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Period From to
Commission file number 0-10652
NORTH VALLEY BANCORP
(Exact name of registrant as specified in its charter)
California 94-2751350
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
880 E. Cypress Ave.
Redding, CA 96002
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (916) 221-8400
Not applicable
Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934
during the preceding 12 months (or for such shorter periods that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Common Stock - - 1,823,688 shares as of March 31, 1997.
INDEX
NORTH VALLEY BANCORP AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--March 31, 1997 and
December 31, 1996
Condensed consolidated statements of income--Three months
ended March 31, 1997 and 1996
Condensed consolidated statement of cash flows--Three months
ended March 31, 1997 and 1996
Notes to condensed consolidated financial statements--
March 31, 1997
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8K
SIGNATURES PART I. FINANCIAL INFORMATION
NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS March 31 December 31
1997 1996
(unaudited) (Note)
ASSETS (000's omitted)
Cash and due from banks $ 8,773 $ 10,407
Federal funds sold 26,200 18,100
Securities:
Available for sale, at market 9,175 9,223
Held to maturity, at amortized cost 40,330 39,997
(market value of $41,469 and $41,871
at March 31, 1997 and December 31,
1996, respectively)
Loans receivable, net of deferred loan fees 167,006 168,237
Less: Allowance for loan losses 1,374 1,254
Net loans receivable 165,632 166,983
Premises and equipment owned, net 3,936 3,768
Other real estate owned 1,268 69
FHLB stock 745 734
Accrued interest receivable 1,764 1,765
Other assets 6,188 5,831
TOTAL ASSETS $264,011 $256,877
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing demand deposits $ 31,036 $ 28,314
Interest-bearing deposits 204,553 200,914
Total deposits 235,589 229,228
Accrued interest and other liabilities 3,510 3,749
Total liabilities 239,099 232,977
STOCKHOLDERS' EQUITY:
Preferred stock, no par value:
authorized, 20,000,000 shares; none outstanding
Common stock, no par value: authorized 20,000,000
shares; outstanding 1,823,688 for
March 31, 1997 and December 31, 1996 9,896 9,896
Retained earnings 14,801 13,703
Unrealized gain on securities available
for sale (net of tax effect) 215 301
Total stockholders' equity 24,912 23,900
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $264,011 $256,877
=======================================================================
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date.
=======================================================================
See notes to condensed consolidated financial statements (unaudited).
NORTH VALLEY BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
March 31
1997 1996
(000's omitted,
except per share data)
INTEREST INCOME:
Loans including fees $ 3,756 $ 3,475
Securities:
Taxable 150 167
Exempt from federal taxes 610 581
Interest on federal funds sold 275 262
Total interest income 4,791 4,485
INTEREST EXPENSE - DEPOSITS 2,102 1,995
NET INTEREST INCOME 2,689 2,490
PROVISION FOR LOAN LOSSES 180 105
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,509 2,385
NONINTEREST INCOME:
Service charges on deposit accounts 337 335
Other fees and charges 196 203
Gain on sale of loans 35 52
Gain on sale of available for sale securities 89 -0-
Other 76 42
Total noninterest income 733 632
NONINTEREST EXPENSES:
Salaries & employee benefits 996 985
Occupancy expense 113 106
Furniture & equipment expense 133 122
Other 523 408
Total noninterest expenses 1,765 1,621
INCOME BEFORE PROVISION FOR INCOME TAXES 1,477 1,396
PROVISION FOR INCOME TAXES 380 372
NET INCOME $ 1,097 $ 1,024
INCOME PER COMMON AND EQUIVALENT SHARE $ .59 $ .55
WEIGHTED AVERAGE SHARES USED TO COMPUTE
INCOME PER COMMON SHARE 1,848,002 1,866,789
====================================================================
See notes to condensed consolidated financial statements (unaudited).
NORTH VALLEY BANCORP AND SUBSIDIARIES Three Months Ended
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) March 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES: (000's omitted)
Net income $ 1,097 $ 1,024
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 108 101
Amortization of premium on securities 0 5
Provision for loan losses 180 105
Gain on sale of available for sale securities ( 89) 0
Gain on sales of loans ( 35) ( 52)
Provision for deferred taxes 5 16
Purchase of trading securities 0 ( 1,980)
Effect of changes in:
Accrued interest receivable 1 34
Other assets ( 1,522) ( 162)
Accrued interest and other liabilities 401 381
Net cash provided by (used in) operating activities 146 ( 528)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of FHLB stock ( 11) ( 40)
Purchase of available for sale securities ( 110) ( 1,465)
Proceeds from sales of available for sale securities 125 1
Proceeds from maturities of available for sale
securities 0 3,000
Purchase of held to maturity securities ( 560) ( 5,244)
Proceeds from maturities or calls of held to
maturity securities 225 1,970
Proceeds from sale of loans 2,124 4,516
Net increase in loans ( 918) ( 4,900)
Purchases of premises and equipment ( 276) ( 81)
Net cash provided by (used in) investing activities 599 ( 2,243)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in demand deposits, NOW accounts, and
savings accounts 3,638 2,394
Net increase in time certificates 2,723 672
Cash dividends paid ( 640) ( 497)
Cash received for stock options exercised 0 14
Net cash provided by financing activities 5,721 2,583
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,466 ( 188)
CASH AND CASH EQUIVALENTS:
Beginning of period 28,507 28,468
End of period $34,973 $28,280
ADDITIONAL INFORMATION:
Cash Payments:
Income tax payments $ 14 $ 121
Interest payments $ 2,094 $ 1,975
===========================================================================
See notes to condensed consolidated financial statements (unaudited).
NORTH VALLEY BANCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1997
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements of North Valley Bancorp and subsidiaries (the "Company")
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of
the results for the interim periods presented have been included.
They do not, however, include all the information and footnotes
required by generally accepted accounting principles for complete
financial statements. For further information, refer to the
consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-KSB for the fiscal year ended
December 31, 1996. Operating results for the three months ended
March 31, 1997 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1997.
The condensed consolidated financial statements include the accounts
of the Company. Significant intercompany items and transactions have
been eliminated.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Pronouncements
On January 1, 1997, the Company adopted Statement of Financial
Accounting Standard No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities. This
Statement provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities.
This standard is based on consistent application of a financial-components
approach that focuses on control. Under this approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets
when control has been surrendered, and derecognizes liabilities when
extinguished. The Company has determined that the adoption of this standard
does not have a material effect on the Company's financial position or results
of operations as of and for the quarter ended March 31, 1997.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" (SFAS 128). The Company is required to adopt SFAS 128 in the
fourth quarter of fiscal 1997 and will restate at that time earnings
per share (EPS) data for prior periods to conform with SFAS 128.
Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a
dual presentation of basic and diluted EPS. Basic EPS excludes
dilution and is computed by dividing net income by the weighted
average 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 were exercised or converted
into common stock.
If SFAS 128 had been in effect during the current and prior year
periods, basic EPS would have been $.60 and $.56 for the quarters
ended March 31, 1997 and 1996, respectively. Diluted EPS under SFAS
128 would not have been significantly different than primary EPS
currently reported for the periods.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDING MARCH 31, 1997.
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto included
elsewhere herein which are incorporated by reference herein. Since
the Company is a holding company whose principal asset is the Bank,
the following discussion relates principally to the financial
condition and results of operations of the Bank.
Overview
The Company's net income was $1,097,000, a 7.13% increase from
$1,024,000 for the period ending March 31, 1996. On a per share
basis, March 31, 1997 and 1996 profits were $.59 and $.55,
respectively.
Net Interest Income
Net interest income is the principal source of the Company's
earnings, which represents the difference between interest earned on
loans (including yield-related loan fees) and investments and
interest paid on deposits. Tax exempt interest income from
investment securities is adjusted to an amount which would have been
earned if such income were subject to federal income tax. Net
interest income on a fully taxable equivalent basis (FTE) was
$2,960,000 for the first quarter ending March 31, 1997, an increase
of 6.59% over $2,777,000 for the first quarter ending March 31, 1996.
The increase in loan balances and decreasing yields on time deposits
offset decreasing yields on interest earning assets.
Net interest income (FTE) expressed as a percentage of average
earning assets, is referred to as net interest margin. The net
interest margin for March 31, 1997, decreased to 5.03% from 5.13% for
the same period ending March 31, 1996.
Non-Interest Income
Non-interest income is primarily derived from fees earned by the
Company for deposit-related customer services. Total non-interest
income increased $101,000 to $733,000 in the first quarter ending
March 31, 1997, compared to $632,000 for first quarter ending March
31, 1996.
A summary of non-interest income for the three months ended March 31,
1997 and 1996, is presented below:
Non-Interest Income
(in thousands) March 31
1997 1996
Service charges on deposit accounts $ 337 $ 335
Other fees and charges 196 203
Gain on sale of loans 35 52
Gain on sale of securities 89 -0-
Other 76 42
Total Non-interest income $ 733 $ 632
Non-Interest Expense
Non-interest expense increased $144,000 in the first quarter 1997
compared to first quarter 1996.
Salaries and employee benefits expenses were $996,000 as of March 31,
1997, and $985,000 for the period ending March 31, 1996. The
increase in salary and benefit expense is attributed to normal salary
increases, increased employer taxes and an increase in the net
pension cost for the supplemental retirement plans for directors and
key executives.
The Company's efficiency ratio (derived by dividing total non-interest
expenses by net interest income exclusive of provision for
loan losses and non-interest income) was 51.6% compared to 51.9% in
1996. The efficiency ratio is a measurement as to how efficiently
the Company allocates its resources.
A summary of non-interest expense for the three months ended March
31, 1997 and 1996, is presented below:
Non-Interest Expense March 31
(in thousands) 1997 1996
Salaries & employee benefits $ 996 $ 985
Occupancy expense 113 106
Furniture & equipment expense 133 122
Professional services 31 9
Data processing expenses 85 55
Printing & supplies 56 56
Postage 48 47
Messenger expense 33 35
ATM expense 55 33
Other 215 173
Total Non-interest expense $ 1,765 $ 1,621
Income Taxes
The provision for income taxes for the first quarter 1997 was
$380,000 as compared to $372,000 for the same period in 1996.
Impaired, Nonaccrual, Past Due and Restructured Loans and Other Real
Estate Owned
At March 31, 1997 the recorded investment in loans for which
impairment has been recognized in accordance with SFAS No. 114,
Accounting by Creditors for Impairment of a Loan, was approximately
$1,653,000. Of that balance approximately $ -0- has a related
valuation allowance of $ -0-. For the quarter ended March 31, 1997,
the average recorded investment in loans for which impairment has
been recognized was approximately $2,133,000. During the portion of
the year that the loans were impaired the Company recognized
approximately $37,000 of interest income for cash payments received.
At December 31, 1996, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS No. 114,
Accounting by Creditors for Impairment of a Loan, was approximately
$2,612,000. Of that balance approximately $320,000 has a related
valuation allowance of $33,000. The remaining $2,292,000 did not
require a valuation allowance. For the year ended December 31, 1996,
the average recorded investment in loans for which impairment has
been recognized was approximately $2,244,000. During the portion of
the year that the loans were impaired the Company recognized
approximately $203,000 of interest income for cash payments received.
Nonaccrual loans are loans on which the accrual of interest has been
discontinued. Accrual of interest is discontinued on a loan when
management believes that borrowers' financial condition is such that
the collection of interest is doubtful, or when a loan becomes
contractually past due by 90 days or more with respect to interest or
principal. When a loan is placed on nonaccrual status, all interest
previously accrued but not collected is reversed against current
period interest income. Income on such loans is then recognized only
to the extent that cash is received and where the future collection
of principal is probable. Interest accruals are resumed on such
loans when in the judgement of management, the loans are estimated to
be fully collectible as to both principal and interest.
The Company's allowance for loan losses is maintained at a level
deemed by management to be adequate to provide for possible losses in
the loan portfolio based on the Bank's current loan portfolio
performance, anticipated growth in the portfolio, prevailing economic
conditions, historical credit loss experience, and other factors
deemed appropriate by management.
A summary of non-performing assets at March 31, 1997 and December 31,
1996, is as follows:
Non-Performing Assets March 31 December
(in thousands) 1997 1996
Nonaccrual loans $ 507 $ 1,190
Accruing loans past due 90 days
or more 52 14
Restructured loans -0- -0-
Other real estate owned 1,268 69
Total $ 1,827 $ 1,273
Allowance for Loan Losses
Management assesses the adequacy of the allowance for loan loss based
on loan loss experience, specific identification of potential losses
in the portfolio and economic conditions. Additions to the Allowance
are made by charges to operating expenses in the form of a provision
for possible loan losses. The Allowance for loan losses totaled
$1,374,000 or .82% of total loans at March 31, 1997, compared to
$1,254,000 or .75% at December 31, 1996. Net charge-offs were
$60,000 or .04% of average loans for the three months ended March 31,
1997. A provision for loan losses of $180,000 and $105,000 was
charged to income as of March 31, 1997 and 1996, respectively.
Management's continuing evaluation of the loan portfolio and
assessment of current economic conditions will dictate future funding
levels.
Liquidity and Interest Rate Sensitivity
Liquidity represents the Company's ability to satisfy cash flow
requirements created by fluctuations in deposits and to meet
borrowers' credit needs. Effective liquidity management insures that
sufficient funds are available to comply with demands from
depositors, borrowers and other commitments on a timely basis.
Collection of principal and interest on loans, the liquidations of
investment securities, deposit inflow and short term borrowing when
needed are primary sources of funds that contribute to liquidity.
Unused lines of credit from correspondent banks to provide federal
funds in the amount of $6,000,000 as of March 31, 1997, were
available to provide liquidity. In addition, the Bank is a member of
the Federal Home Loan Bank ("FHLB") system providing an additional
line of credit of $4,603,000 secured by first deeds of trust on
eligible 1-4 unit residential loans. The Company had not borrowed
from FHLB as of March 31, 1997.
The Company manages both assets and liabilities to preserve liquidity
and earnings stability. Total liquid assets (cash and due from
banks, federal funds sold, and investment securities) totaled
$84,478,000 and $77,727,000 (or 32.0% and 30.26% of total assets) at
March 31, 1997 and December 31, 1996, respectively. Total liquid
assets include investment securities classified as held to maturity
based on the Company's intent to hold such securities to maturity of
$40,330,000 and $39,997,000 for March 31, 1997 and December 31, 1996,
respectively.
The Company's ability to generate retail core deposits consisting of
demand deposits, NOW, regular savings, money market deposit accounts
and time deposits of less than $100,000 provides a continued source
of liquidity. Core deposits totaled $215,916,000 and $209,320,000 at
March 31, 1997 and December 31, 1996, respectively.
Management considers the Company's liquidity sufficient to satisfy
its funding demand for normal banking transactions for the next
twelve months.
Interest rate sensitivity management concentrates on reducing the
impact on net interest income due to shifts in interest rates.
The Company measures its interest rate sensitivity with an asset
liability simulation model. The model analyzes the mix and repricing
characteristics of interest rate sensitive assets and liabilities
using multipliers (how interest rates change when Fed Funds rate
changes by 1%) and lags (time it takes for rates to change after Fed
Funds rate changes). The model simulates the effects on net interest
income when the Fed Funds rate experiences a 1% increase or decrease
compared to current levels. In management's view, the Company has
low interest rate risk in the short term as measured by the model,
specifically the next twelve months.
The following table shows the interest sensitive assets and
liabilities gap, which is the measure of interest sensitive assets
over interest bearing liabilities, for each individual repricing
period on a cumulative basis:
March 31, 1997 Within 3 3 months 1-5 5+
(in thousands) months to 1 Year Years Years TOTAL
EARNING ASSETS:
Held to maturity
securities $ 55 $ 340 $13,264 $26,671 $ 40,330
Available for sale
securities -0- 260 2,565 5,275 8,100
Fed Funds Sold 26,200 -0- -0- -0- 26,200
Loans 46,566 19,944 47,441 53,055 167,006
Total earning assets $72,821 $20,544 $63,270 $85,001 $241,636
INTEREST BEARING LIABILITIES:
Interest bearing demand
deposits $ -0- 41,089 $ -0- $ -0- $ 41,089
Savings deposits -0- 46,700 -0- -0- 46,700
Time deposits 44,338 65,912 6,514 -0- 116,764
Total interest bearing
liabilities $44,338 $153,701 $ 6,514 $ -0- $204,553
INTEREST RATE SENSITIVITY
GAP $28,483 $(133,157)$ 56,756 $85,001
CUMULATIVE INTEREST RATE
SENSITIVITY GAP $28,483 $(104,674)$(47,918)$37,083
At March 31, 1997, the gap table indicates the Company as liability
sensitive in the twelve month period. Interest rate sensitivity
measured by the gap method does not consider the impact of different
multipliers (how interest rates change when Fed Funds rate changes by
1%) and lags (time it takes for rates to change after Fed Funds rate
changes). The Company's model analyzes the impact on earnings of
future rate changes by including factors for lags and multipliers for
key bank rates. Both methods of measuring interest rate sensitivity
do not take into account actions taken by management to modify the
effect to net interest income if interest rates were to rise or fall.
Even though the Bank had a negative gap in the twelve month period as
of March 31, 1997, the asset liability simulation model showed the
Bank was slightly asset sensitive in 1997.
Financial Condition
Total assets at March 31, 1997, were $264,011,000, representing an
increase of 2.78% over December 31, 1996 assets of $256,877,000.
During first quarter 1997, net loans decreased to $165,632,000, from
$166,983,000 at December 31, 1996. Loans are the major component of
earning assets. The Bank's average loan to deposit ratio was 71.94%
and 71.10% at March 31, 1997 and December 31, 1996, respectively.
Investment securities and federal funds sold totaled $75,705,000 at
March 31, 1997, compared to $67,320,000 at December 31, 1996.
Funding for increases in the investment activity came from increases
in deposits. Total deposits increased $6,361,000 as of March 31,
1997, to $235,589,000, as compared to $229,228,000 at December 31,
1996. The increase was primarily in interest-bearing instruments.
The Company maintains capital levels to support conservative internal
growth and to encourage confidence from depositors and investors.
Shareholders' equity increased to $24,912,000 as of March 31, 1997,
as compared to $23,900,000 for year end 1996.
The Company maintains capital to support capital needs, future growth
and dividend payouts while maintaining the confidence of depositors
and investors by increasing shareholders' value. The Company has
provided the majority of its capital requirements through the
retention of earnings.
The Company's and the Bank's regulatory capital ratios continue to be
strong and remain above regulatory minimums. The Company's total
risk based capital ratio at March 31, 1997 was 13.87% and its Tier 1
Risk Based Capital (RBC) ratio was 13.13%, exceeding the minimum
guidelines of 8% and 4%. The ratios at December 31, 1996 were 13.29%
and 12.58%, respectively.
The Company's leverage ratios were 9.42% and 8.98% at March 31, 1997
and December 31, 1996, exceeding the minimum guidelines of 4%.
Under current regulations adopted by federal regulatory agencies, a
"well-capitalized" institution must have a Tier 1 RBC ratio of at
least 6%, a total capital ratio of at least 10% and leverage ratio of
at least 5% and not be subject to a capital directive order. The
Bank had a Tier 1 RBC ratio of 12.52% and total capital ratio of
13.26% and a leverage ratio of 8.90% at March 31, 1997, compared with
12.04%, 12.72% and 8.56% at December 31, 1996, respectively.
The most recent notification from the Federal Deposit Insurance
Corporation for the Bank as of December 31, 1996 categorized the Bank
as well capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since that
notification that management believes have changed the Bank's
category.
Impact of Inflation
Impact of inflation on a financial institution differs significantly
from that exerted on an industrial concern, primarily because its
assets and liabilities consist largely of monetary items. The
relatively low proportion of the Company's fixed assets (less than
1.5% at March 31, 1997) reduces both the potential of inflated
earnings resulting from understated depreciation and the potential
understatement of absolute asset values.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K:
No reports on form 8-K were filed during the quarter ended March 31,
1997.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
North Valley Bancorp
(Registrant)
Date May 12, 1997 /s/ J. F. Cowee
J. F. Cowee
Chief Financial Officer