NWYF Northway Financial Inc (QB)

Northway Financial, Inc. (the "Company") (OTCBB: NWYF) reported net income for the quarter ended September 30, 2012 of $2,229,000 compared to net income of $1,030,000 for the quarter ended September 30, 2011. For the nine months ended September 30, 2012, the Company reported net income of $4,635,000 compared to $4,777,000 for the same period in 2011. For the quarter ended September 30, 2012, net income available to common stockholders was $2,033,000, or $0.78 per common share and for the nine months ended September 30, 2012, net income available to common stockholders was $4,136,000, or $1.58 per common share.

CEO William J. Woodward said, "Our strategy to expand our market area continues to show positive results in that loans and deposits have increased 13.8% and 11.4%, respectively, over the prior year. Our sustained aggressive management of troubled assets has resulted in a decline of $4 million in the level of nonperforming loans from one year ago. I am pleased by the progress made by the Company over the last year. I am also pleased to report that our subsidiary, Northway Bank, has once again been recognized as a leading SBA lender in New Hampshire."

Financial Highlights

• Taking into account the level of net income for the nine months ended September 30, 2012, the Company's returns on average assets and average equity for this period were 0.74% and 7.96%, respectively, compared to 0.78% and 10.50% for the same period last year.
• For the nine months ended September 30, 2012, the Net Interest Margin was 3.45%, an increase of 11 basis points over the same period last year. This improvement is driven by a 22 basis point decrease in the Company's cost of interest-bearing liabilities year over year partially offset by a 12 basis point decrease in the tax equivalent yield on earning assets.
• As a result of our continued focused effort to resolve problem loans, the level of nonperforming loans decreased $4,087,000, or 22.8%, to $13,807,000 at September 30, 2012 from $17,894,000 at September 30, 2011. Nonperforming loans as a percentage of total loans at September 30, 2012 were 2.46% compared to 3.61% as of September 30, 2011.
• Net loans increased $66,912,000, or 13.8%, to $551,975,000 at September 30, 2012, compared to $485,063,000 at September 30, 2011. For the quarter ended September 30, 2012, commercial and industrial loans increased $44,895,000, which is an annualized growth rate of 65.0%. This growth is reflective of our efforts to increase small business lending throughout the state.
• Total deposits increased $67,901,000, or 11.4%, to $663,022,000 at September 30, 2012, compared to $595,121,000 at September 30, 2011. For the quarter ended September 30, 2012, core deposit growth was $10,475,000, an annualized growth rate of 8.5%
• Total stockholders' equity increased $3,850,000, or 5.0%, to $80,352,000 at September 30, 2012, compared to $76,502,000 at September 30, 2011. Equity increased as a result of net income for the twelve-month period ended September 30, 2012 of $4,969,000 as well as an increase in other comprehensive net income of $552,000, which was partially offset by dividend payments to common and preferred stockholders of $1,631,000.
• Regulatory capital ratios exceed requirements. The Company's total risk-based capital ratio is 18.06% compared to a regulatory requirement of 10.00%.

Earnings Summary

As noted above, the Company recorded net income of $4,635,000 for the nine months ended September 30, 2012 compared to $4,777,000 for the same period in 2011. For the nine months ended September 30, 2012, $4,136,000, or $1.58 per common share, was available to common stockholders compared to $4,048,000, or $1.55 per common share, for the same period last year.

For the quarter ended September 30, 2012, the Company recorded net income of $2,229,000 compared to $1,030,000 for the same period in 2011. For the quarter ended September 30, 2012, $2,033,000, or $0.78 per common share, was available to common stockholders compared to $623,000, or $0.24 per common share, for the same period last year.

Net interest and dividend income for the quarter ended September 30, 2012, increased $526,000 to $6,457,000 compared to $5,931,000 for the same period last year. The provision for loan losses for the quarter ended September 30, 2012 decreased $297,000 to $318,000 compared to $615,000 for the same period in 2011. Net gains on sales of securities were $1,141,000 compared to $941,000 for the quarter ended September 30, 2011, an increase of $200,000. Gains on sales of loans increased $782,000 as of September 30, 2012 compared to the same period last year; the 2012 quarterly gain included a one-time gain of $366,000 related to the sale of portfolio fixed rate loans totaling approximately $10,500,000. All other noninterest income increased $614,000 to $1,504,000 compared to $890,000 for the same period last year due primarily to a net gain on the cash surrender value of life insurance, an increase in gain on sale of OREO, and a reduction in the impairment on mortgage servicing assets. Total noninterest expense increased $604,000 to $6,639,000 for the quarter ended September 30, 2012, compared to $6,035,000 for the same period last year. This increase resulted primarily from an increase in pension expense and higher staffing levels. Income tax expense for the quarter ended September 30, 2012, increased $616,000 from the same period last year.

Net interest and dividend income for the nine months ended September 30, 2012, increased $1,144,000 to $19,091,000 compared to $17,947,000 for the same period last year. The provision for loan losses for the nine months ended September 30, 2012 decreased $1,451,000 to $1,794,000 compared to $3,245,000 for the same period in 2011. Net gains on sales of securities were $2,536,000 compared to $1,893,000 for the nine months ended September 30, 2011, an increase of $643,000. Gains on sales of loans increased $862,000 to $1,502,000 for the nine months ended September 30, 2012 compared to $640,000 for the same period last year. As mentioned above, the Company sold approximately $10,500,000 in fixed rate portfolio loans for a gain of $366,000. In May 2011, the Company recorded a $3,772,000 net gain on the sale of three banking centers. All other noninterest income increased $160,000 to $3,979,000 compared to $3,819,000 for the same period last year due primarily an increase in the net gain on the cash surrender value of life insurance partially offset by a decrease in service charges and fees on deposit accounts. Total noninterest expense increased $838,000 to $19,537,000 for the nine months ended September 30, 2012, compared to $18,699,000 for the same period last year. This increase resulted primarily from an increase in pension expense and higher staffing levels and advertising expense to support our expansion strategy which was partially offset by lower FDIC insurance, OREO write-down, consulting fees and legal fees. Income tax expense for the nine months ended September 30, 2012, decreased $208,000 from the same period last year.

Balance Sheet Summary

At September 30, 2012, the Company had total assets of $863,064,000 compared to $806,364,000 at September 30, 2011, an increase of $56,700,000, or 7.00%. Net loans at September 30, 2012, increased $66,912,000 to $551,975,000 compared to $485,063,000 at September 30, 2011. Securities available-for-sale increased $17,489,000 to $225,368,000 at September 30, 2012, compared to $207,879,000 at September 30, 2011. Cash and due from banks and interest-bearing deposits decreased $28,146,000 to $38,604,000 at September 30, 2012, compared to $66,750,000 at September 30, 2011.

Total deposits were $663,022,000 at September 30, 2012, compared to $595,121,000 at September 30, 2011, an increase of $67,901,000, or 11.40%. Securities sold under agreements to repurchase decreased $1,673,000 to $22,615,000 at September 30, 2012 compared to $24,288,000 at September 30, 2011. Other borrowings decreased $15,632,000 to $90,618,000 at September 30, 2012, compared to $106,250,000 at September 30, 2011.

Total stockholders' equity increased $3,850,000 to $80,352,000 at September 30, 2012 compared to $76,502,000 at September 30, 2011. Stockholders' equity available to common stockholders totaled $56,869,000, resulting in a book value per common share of $21.70 per share at September 30, 2012, based on 2,620,755 shares of common stock outstanding, an increase of $1.51, or 7.48% per share, from September 30, 2011. Tangible book value per common share increased $1.53, or 9.64%, to $17.40 at September 30, 2012 compared to $15.87 at September 30, 2011.

About Northway Financial, Inc.

Northway Financial, Inc., headquartered in North Conway, New Hampshire, is a bank holding company. Through its subsidiary bank, Northway Bank, the Company offers a broad range of financial products and services to individuals, businesses and the public sector from its 17 full-service banking offices and its loan production offices located in Bedford and Portsmouth, New Hampshire.

Forward-looking Statements

Statements included in this press release that are not historical or current fact are "forward-looking statements" made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995, and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. Northway Financial, Inc. disclaims any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements, or to reflect the occurrence of anticipated or unanticipated events or circumstances.

                          Northway Financial, Inc.
                        Selected Financial Highlights
                                 (Unaudited)

(Dollars in thousands, except
 per share data)                   Three Months Ended    Nine Months Ended
                                 --------------------- ---------------------
                                  9/30/2012  9/30/2011  9/30/2012  9/30/2011
                                 ---------- ---------- ---------- ----------

Interest and Dividend Income     $    8,052 $    7,994 $   24,352 $   24,356
Interest Expense                      1,595      2,063      5,261      6,409
Net Interest and Dividend Income      6,457      5,931     19,091     17,947
Provision for Loan Losses               318        615      1,794      3,245
Net Gain on Sale of Banking
 Centers                                  -          -          -      3,772
All Other Noninterest Income          3,562      1,966      8,017      6,352
Noninterest Expense                   6,639      6,035     19,537     18,699
Provision for Income Tax                833        217      1,142      1,350
Net Income                            2,229      1,030      4,635      4,777
Net Income Available to Common
 Stockholders                         2,033        623      4,136      4,048
Earnings per Common Share, Basic       0.78       0.24       1.58       1.55
Dividends Declared per Common
 Share                                 0.18       0.15       0.33       0.27



                                          9/30/2012   6/30/2012   9/30/2011
                                         ----------  ----------  ----------

Total Assets                             $  863,064  $  842,105  $  806,364
Cash and Due from Banks and Interest-
 Bearing Deposits                            38,604      40,343      66,750
Securities Available-for-Sale, at Fair
 Value                                      225,368     240,713     207,879
Loans, Net                                  551,975     513,263     485,063
Total Deposits                              663,022     647,240     595,121
Federal Home Loan Bank Advances              69,998      67,458      85,630
Securities Sold Under Agreements to
 Repurchase                                  22,615      22,461      24,288
Junior Subordinated Debentures               20,620      20,620      20,620
Stockholders' Equity                         80,352      77,906      76,502
Net Interest Margin                            3.45%       3.49%       3.34%
Yield on Earning Assets                        4.34        4.44        4.46
Cost of Interest Bearing Liabilities           1.03        1.09        1.25
Efficiency Ratio                              74.90       77.04       78.79
Book Value Per Share of Common Shares
 Outstanding                             $    21.70  $    20.77  $    20.19
Tangible Book Value Per Share of Common
 Shares Outstanding                           17.40       16.54       15.87
Tier 1 Core Capital to Average Assets         10.25%      10.68%      10.59%
Tier 1 Risk-Based Capital                     16.76       17.89       18.14
Total Risk-Based Capital                      18.06       19.18       19.40
Common Shares Outstanding                 2,620,755   2,620,755   2,620,755
Return on Average Assets                       0.74%       0.59%       0.78%
Return on Average Equity                       7.96        6.29       10.50
Nonperforming Loans as a % of Total
 Loans                                         2.46        2.95        3.61
Allowance for Loan Losses as a % of
 Nonperforming Loans                          75.07       70.33       57.07

Contact: Richard P. Orsillo Senior Vice President and Chief Financial Officer 603-752-1171