NOTE 10 - SUBORDINATED DEBENTURES

12 Months Ended

Dec. 31, 2012

Subordinated Borrowings Disclosure [Text Block]

10. 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 $22.0 million, 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, with certain of the debentures being redeemable beginning in April 2008, July 2009 and March 2011.

On November 9, 2009, the Company elected to defer the payment of interest on these securities. The Company is allowed to defer the payment of interest for up to 20 consecutive quarterly periods without triggering an event of default. The obligation to pay interest is cumulative and continued to accrue. On May 29, 2012, the Company received approval from the Federal Reserve Bank of San Francisco and on May 9, 2012, the Company received approval from the California Department of Financial Institutions to pay all deferred interest on its junior subordinated notes underlying its trust preferred securities in the amount of $5,854,000 and to fully redeem its North Valley Capital Trust I notes in the amount of $10,310,000, bearing an interest rate of 10.25%. On July 23, 2012, the Company paid all deferred interest on its junior subordinated notes and on July 25, 2012, it redeemed, in full, the notes associated with North Valley Capital Trust I.

The obligation to pay interest on the Debentures is cumulative and will continue to accrue, currently at a variable rate of 3.56% on the 2033 Debentures, variable rate of 3.12% on the 2034 Debentures and a variable rate of 1.64% on the 2036 Debentures.  Interest is generally set at variable rates based on the three-month LIBOR, reset and payable quarterly, plus 3.25% for the 2033 Debentures, plus 2.80% for the 2034 Debentures, and plus 1.33% for the 2036 Debentures. At December 31, 2012 and 2011, the Company had recorded accrued and unpaid interest payments of $79,000 and $4,854,000, respectively.

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 year ending December 31, 2012. The trust preferred securities issued by the trusts are currently included in Tier 1 capital in the amount of $29,331,000 and in Tier 2 capital in the amount of $1,669,000 for purposes of determining Leverage, Tier 1 and Total Risk-Based capital ratios for the year ending December 31, 2011.

The following table summarizes the terms of each subordinated debenture issuance (dollars in thousands):

Date

Fixed or Variable

Current

Rate

Redemption

Amount at December 31,

Series

Issued

Maturity

Rate

Rate

Index

Date

2012

2011

North Valley Capital Trust I

7/16/01

7/25/31

Fixed

10.25

%

N/A

7/25/11

—

$

10,310

North Valley Capital Trust II

4/10/03

4/24/33

Variable

3.56

%

LIBOR + 3.25%

4/24/08

6,186

6,186

North Valley Capital Trust III

5/5/04

4/24/34

Variable

3.12

%

LIBOR + 2.80%

7/23/09

5,155

5,155

North Valley Capital Statutory Trust IV

12/29/05

3/15/36

Variable

1.64

%

LIBOR + 1.33%

3/15/11

10,310

10,310

$

21,651

$

31,961

Deferred costs related to the Subordinated Debentures, which are included in other assets in the accompanying consolidated balance sheet, totaled $6,000 and $26,000 at December 31, 2012 and 2011, respectively. Amortization of the deferred costs was $20,000, $42,000 and $65,000 for the years ended December 31, 2012, 2011 and 2010, respectively.