NOTE 17 - REGULATORY MATTERS

12 Months Ended

Dec. 31, 2012

Regulatory Capital Requirements under Banking Regulations [Text Block]

17. REGULATORY MATTERS

The Company and NVB are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and, possibly, additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines, the Company and NVB must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. These quantitative measures are established by regulation and require that minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined) are maintained. Capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

NVB is also subject to additional capital guidelines under the regulatory framework for prompt corrective action. To be categorized as well capitalized, NVB must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below. The most recent notifications from the FDIC for NVB as of December 31, 2012 categorized NVB as well-capitalized under these guidelines. There are no conditions or events since that notification that management believes have changed NVB’s category.

Management believes, as of December 31, 2012 and 2011, that the Company and NVB met all capital adequacy requirements to which they are subject. There are no conditions or events since that management believes have changed the categories.

The Company’s and NVB's actual capital amounts (in thousands) and ratios are also presented in the following tables.

											To be Well Capitalized
						For Capital					Under Prompt Corrective
						Adequacy Purposes					Action Provisions
	Actual					Minimum		Minimum			Minimum		Minimum
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Company
As of December 31, 2012:
Total capital (to risk weighted assets)	$	113,028		18.28	%	$	49,465		8.00	%		N/A		N/A
Tier 1 capital (to risk weighted assets)	$	105,211		17.01	%	$	24,741		4.00	%		N/A		N/A
Tier 1 capital (to average assets)	$	105,211		11.77	%	$	35,756		4.00	%		N/A		N/A
As of December 31, 2011:
Total capital (to risk weighted assets)	$	116,464		19.53	%	$	47,707		8.00	%		N/A		N/A
Tier 1 capital (to risk weighted assets)	$	107,240		17.99	%	$	23,844		4.00	%		N/A		N/A
Tier 1 capital (to average assets)	$	107,240		11.82	%	$	36,291		4.00	%		N/A		N/A
North Valley Bank
As of December 31, 2012:
Total capital (to risk weighted assets)	$	112,938		18.26	%	$	49,480		8.00	%	$	61,850		10.00	%
Tier 1 capital (to risk weighted assets)	$	105,122		17.00	%	$	24,735		4.00	%	$	37,102		6.00	%
Tier 1 capital (to average assets)	$	105,122		11.76	%	$	35,756		4.00	%	$	44,695		5.00	%
As of December 31, 2011:
Total capital (to risk weighted assets)	$	121,221		20.33	%	$	47,701		8.00	%	$	59,627		10.00	%
Tier 1 capital (to risk weighted assets)	$	113,666		19.06	%	$	23,854		4.00	%	$	35,782		6.00	%
Tier 1 capital (to average assets)	$	113,666		12.54	%	$	36,257		4.00	%	$	45,321		5.00	%

The supervisory agreement signed on January 6, 2010 by and among North Valley Bancorp, North Valley Bank and the Federal Reserve Bank of San Francisco was terminated, effective as of April 16, 2012, and resolutions adopted by the Board of Directors of NVB at the request of the California Department of Financial Institutions were previously terminated, effective March 1, 2012. However, North Valley Bank has not received a final report of examination for a compliance examination of the Bank conducted by the Federal Reserve Bank of San Francisco in 2010 and the Bank has established a reserve for the anticipated settlement of criticisms expected to be contained in the report, when received.

As a California corporation, the Company’s ability to pay cash dividends is subject to restrictions set forth in the California General Corporation Law (the “Corporation Law”). The Corporation Law provides that neither a corporation nor any of its subsidiaries shall make a distribution to the corporation’s shareholders unless the board of directors has determined in good faith either of the following: (1) the amount of retained earnings of the corporation immediately prior to the distribution equals or exceeds the sum of (A) the amount of the proposed distribution plus (B) the preferential dividends arrears amount; or (2) immediately after the distribution, the value of the corporation’s assets would equal or exceed the sum of its total liabilities plus the preferential rights amount. The good faith determination of the board of directors may be based upon (1) financial statements prepared on the basis of reasonable accounting practices and principles, (2) a fair valuation, or (3) any other method reasonable under the circumstances; provided, that a distribution may not be made if the corporation or subsidiary making the distribution is, or is likely to be, unable to meet its liabilities (except those whose payment is otherwise adequately provided for) as they mature. The term “preferential dividends arrears amount” means the amount, if any, of cumulative dividends in arrears on all shares having a preference with respect to payment of dividends over the class or series to which the applicable distribution is being made, provided that if the articles of incorporation provide that a distribution can be made without regard to preferential dividends arrears amount, then the preferential dividends arrears amount shall be zero. The term “preferential rights amount” means the amount that would be needed if the corporation were to be dissolved at the time of the distribution to satisfy the preferential rights, including accrued but unpaid dividends, of other shareholders upon dissolution that are superior to the rights of the shareholders receiving the distribution, provided that if the articles of incorporation provide that a distribution can be made without regard to any preferential rights, then the preferential rights amount shall be zero.

The Company’s ability to pay dividends is also limited by certain covenants contained in the indentures relating to trust preferred securities that have been issued by three business trusts and corresponding junior subordinated debentures. The Company owns the common stock of the three business trusts. The indentures provide that if an Event of Default (as defined in the indentures) has occurred and is continuing, or if the Company is in default with respect to any obligations under our guarantee agreement which covers payments of the obligations on the trust preferred securities, or if the Company gives notice of any intention to defer payments of interest on the debentures underlying the trust preferred securities, then the Company may not, among other restrictions, declare or pay any dividends.

Dividends from the Bank to the Company are restricted under California law to the lesser of the Bank's retained earnings or the Bank's net income for the latest three fiscal years, less dividends previously declared during that period, or, with the approval of the DFI, to the greater of the retained earnings of the Bank, the net income of the Bank for its last fiscal year, or the net income of the Bank for its current fiscal year.