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7. SUBORDINATED DEBENTURES

6 Months Ended

Jun. 30, 2014

The Company owns the common stock of three business trusts that have issued an aggregate of $21.0 million in trust preferred securities that are 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 $21.7 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.

The obligation to pay interest on the Debentures is cumulative and will continue to accrue, currently at a variable rate of 3.48% on the 2033 Debentures, variable rate of 3.03% on the 2034 Debentures and a variable rate of 1.56% 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 June 30, 2014 and December 31, 2013, the Company had recorded accrued and unpaid interest payments of $76,000 and $77,000, 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 periods ending June 30, 2014 and December 31, 2013.

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

Fixed or

Date

Variable

Current

Rate

Redemption

June 30,

December 31,

Series

Issued

Maturity

Rate

Index

Date

2014

2013

North Valley Capital Trust II

4/10/03

4/24/33

Variable

3.48

%

LIBOR + 3.25%

4/24/08

6,186

North Valley Capital Trust III

5/5/04

4/24/34

Variable

3.03

%

LIBOR + 2.80%

7/23/09

5,155

North Valley Capital Statutory Trust IV

12/29/05

3/15/36

Variable

1.56

%

LIBOR + 1.33%

3/15/11

10,310

$

21,651

$

21,651

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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