NOTE C - STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE C – STOCK-BASED COMPENSATION

Stock Option Plans

At September 30, 2011, the Company had two shareholder approved stock-based compensation plans: the 1998 Employee Stock Incentive Plan and the 2008 Stock Incentive Plan. 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. Pursuant to the 1998 Employee Stock Incentive Plan there were outstanding options to purchase 71,760 shares of Common Stock at September 30, 2011. As provided in the 1998 Employee Stock Incentive Plan, the authorization to award incentive stock options terminated on February 19, 2008. As of September 30, 2011, there were options outstanding under the 2008 Stock Incentive Plan for the purchase of 113,187 shares of Common Stock. A total of 160,728 shares of Common Stock were available for the grant of additional options and director stock awards under the 2008 Stock Incentive Plan at September 30, 2011.

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. 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. At September 30, 2011, a total of 276,615 shares of Common Stock were reserved for issuance under the terms of the 2008 Stock Incentive Plan, consisting of 113,187 shares to be issued upon the exercise of options granted and still outstanding as of that date, 2,700 shares issued as stock awards and 160,728 shares reserved for future stock option grants and director stock awards. 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. Outstanding options under the plans are exercisable until their expiration. Each outside director of the Company shall also be eligible to receive a stock award of 180 shares of Common Stock as part of his or her annual retainer paid by the Company for his or her services as a director. Each stock award shall be fully vested when granted to the outside director. The Board of Directors elected to forego their stock awards under the 2008 Stock Incentive Plan for years 2009 and 2010. On July 28, 2011, the Board of Directors approved the 180 share stock award to each of the seven outside directors (total 1,260 shares) for the year 2011. The Company recognized director stock grant expense in the amount of $13,000 for the quarter ending September 30, 2011, relative to these 1,260 shares awarded to the seven outside directors. 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.

Stock Option Compensation

There were 65,000 options granted in the three month period ended September 30, 2011. There were no options granted in the three month period ended September 30, 2010. For the three month periods ended September 30, 2011 and 2010, the compensation cost recognized for share based compensation was $45,000 and $43,000, respectively. For the nine month periods ended September 30, 2011 and 2010, the compensation cost recognized for share based compensation was $105,000 and $137,000, respectively. At September 30, 2011, the total unrecognized compensation cost related to stock-based awards granted to employees under the Company’s stock option plans was $474,000. This cost will be amortized on a straight-line basis over a weighted average period of approximately 4.2 years and will be adjusted for subsequent changes in estimated forfeitures.

Stock-Based Compensation

Under the Company’s 2008 Stock Incentive Plan as of September 30, 2011, 160,728 shares of the Company’s common stock are available for future grants to directors and employees of the Company. 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. A summary of outstanding stock options follows:

					Weighted
			Weighted		Average
			Average		Remaining		Exercise	Aggregate
			Exercise		Contractual		Price	Intrinsic
	Shares		Price		Term		Range	Value ($000)
Outstanding at January 1, 2011		152,095	$	51.02	5 years		$15.75-$123.75	$	—
Granted		66,000		10.38		—	$8.99-$10.40		1
Exercised		—		—		—	—		—
Expired or Forfeited		33,148		39.34		—	$15.75-$123.75		—
Outstanding at September 30, 2011		184,947	$	38.61	7 years		$8.99-$103.10	$	1
Fully vested and exercisable at September 30, 2011		85,740	$	63.77	5 years		$17.85-$103.10	$	—
Options expected to vest		99,207	$	16.86	9 years		$8.99-$65.05	$	1

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 September 30, 2011. There were no options exercised during the three months ended September 30, 2011 and 2010.