NWYF Northway Financial Inc (QB)

Northway Financial, Inc. (the "Company") (OTCBB: NWYF) reported net income for the nine months ended September 30, 2011 of $4,777,000 compared to net income of $3,075,000 for the same period in 2010, an increase of $1,702,000. For the quarter ended September 30, 2011, the Company reported net income of $1,030,000 compared to net income of $1,589,000 for the quarter ended September 30, 2010, a decrease of $559,000.

Recent Events

At June 30, 2011, the Company reported quarter-to-date and year-to-date net income of $2,605,000 and $3,610,000, respectively, which included an $870,000 pretax write-down of goodwill associated with the sale of the three banking centers to Union Bank on May 27, 2011. After review, it was determined that the goodwill reduction should have been $643,000 and reflected as a reduction in the net realized gain on the sale of the banking centers. After recording appropriate adjustments, net income quarter-to-date and year-to-date at June 30, 2011 was $2,742,000 and $3,747,000, respectively, an increase of $137,000 over the amount previously reported for each period. As a result, the Company restated second quarter and year-to-date net income at June 30, 2011 to reflect these adjustments. Total assets at June 30, 2011 had been reported at $783,194,000 and have been restated to $783,331,000, an increase of $137,000; further, total stockholders' equity at June 30, 2011 increased $137,000 to $76,502,000 from $76,365,000 as a result of the above adjustments.

On September 15, 2011, the Company received $23,593,000 from the Small Business Lending Fund ("SBLF"), for which the Company issued to the U.S. Department of the Treasury a new Series C Preferred Stock. The SBLF is a voluntary program intended to encourage small business lending by providing capital to qualified community banks and bank holding companies at favorable rates. The Company used $10,500,000 of the SBLF funds to redeem all of the outstanding shares of preferred stock previously issued to the U.S. Department of the Treasury under the TARP Capital Purchase Program.

Financial Highlights

• The Company earned $4,777,000 for the nine months ended September 30, 2011 compared to $3,075,000 for the nine months ended September 30, 2010. For the nine months ended September 30, 2011, net income available to common stockholders was $4,050,000, or $1.55 per common share, compared to $2,591,000, or $0.99 per common share, for the same period last year.
• Net interest and dividend income for the nine months ended September 30, 2011 was $17,947,000 compared to $18,345,000 for the same period in 2010.
• The Company's returns on average assets and average equity for the nine months ended September 30, 2011 were 0.78% and 10.50%, respectively, compared to 0.51% and 7.63% for the same period last year.
• Primarily as a result of the sale of the three banking centers, assets, net loans and total deposits decreased from one year ago as follows:
  • Total assets decreased $9,037,000, or 1.1%, to $806,364,000 at September 30, 2011 from $815,401,000 at September 30, 2010.
  • Net loans decreased $65,096,000, or 11.8% to $485,063,000 at September 30, 2011, compared to $550,159,000 at September 30, 2010.
  • Total deposits decreased $44,255,000, or 6.9% to $595,121,000 at September 30, 2011, compared to $639,376,000 at September 30, 2010.

Earnings Summary

The Company recorded net income of $4,777,000 for the first nine months of 2011 compared to $3,075,000 for the same period in 2010. For the nine months ended September 30, 2011, $4,050,000, or $1.55 per common share, was available to common stockholders compared to $2,591,000, or $0.99 per common share, for the same period last year.

Net interest and dividend income for the nine months ended September 30, 2011 decreased $398,000 to $17,947,000 compared to $18,345,000 for the same period last year. The provision for loan losses year-to-date 2011 increased $600,000 to $3,245,000 compared to $2,645,000 for the same period in 2010. For the nine months ended September 30, 2011, the Company recorded a net gain on the sale of the three banking centers of $3,772,000. Net gains on sales of securities were $1,893,000 compared to net losses on sales of securities of $305,000 for the nine months ended September 30, 2010, an increase of $2,198,000. All other noninterest income decreased $1,263,000 to $4,459,000 compared to $5,722,000 for the same period last year, driven primarily by a decrease in the cash surrender value of life insurance. Total noninterest expense increased $694,000 to $18,699,000 for the nine months ended September 30, 2011 compared to $18,005,000 for the same period last year. This increase resulted primarily from one-time costs associated with the sale of the three banking centers and costs associated with the Company's expansion into new markets - Concord, Meredith and Manchester, NH. Income tax expense for the nine months ended September 30, 2011 increased $1,313,000 from the same period last year.

Balance Sheet Summary

At September 30, 2011, the Company had total assets of $806,364,000 compared to $815,401,000 at September 30, 2010, a decrease of $9,037,000. Cash and due from banks and interest-bearing deposits decreased $15,822,000 to $66,750,000 at September 30, 2011 compared to $82,572,000 at September 30, 2010. Securities available-for-sale increased $79,340,000 to $207,879,000 at September 30, 2011 compared to $128,539,000 at September 30, 2010. The increase in securities available-for-sale was due primarily to a $23,000,000 leverage in January 2011 which locked in a positive interest income spread for a minimum of two years; as well as the redeployment of overnight funds during the year. Loans at September 30, 2011 decreased $63,658,000 to $495,275,000 compared to $558,933,000 at September 30, 2010. This decrease was the result of 1) the sale of $33,375,000 in loans as part of the banking center sale; 2) the sale of $29,600,000 in fixed-rate portfolio mortgages during the second half of 2010 as part of a strategy to reduce our exposure to long-term fixed-rate loans secured by residential real estate; and 3) the continued sale of newly originated long term fixed rate residential real estate loans in the secondary market.

Total deposits were $595,121,000 at September 30, 2011 compared to $639,376,000 at September 30, 2010, a decrease of $44,255,000 and securities sold under agreements to repurchase decreased $4,715,000 to $24,288,000 at September 30, 2011 compared to $29,003,000 at September 30, 2010. These decreases resulted from the sale of the three banking centers. Other borrowings increased $22,673,000 to $106,250,000 at September 30, 2011 compared to $83,577,000 at September 30, 2010 due primarily to the $23,000,000 leverage implemented in January 2011.

Total equity increased $21,089,000 to $76,502,000 at September 30, 2011 compared to $55,413,000 at September 30, 2010, of which $13,593,000 is the net proceeds from the Company's participation in the SBLF. Stockholders' equity available to common stockholders totaled $52,879,000, resulting in a book value per common share of $20.18 per share at September 30, 2011, based on 2,620,755 shares of common stock outstanding, an increase of $3.07, or 17.9% per share, from September 30, 2010.

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 new loan production office located in Bedford, 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)

                                   Three Months Ended    Nine Months Ended
(Dollars in thousands, except    --------------------- ---------------------
 per share data)                  9/30/2011  9/30/2010  9/30/2011  9/30/2010
                                 ---------- ---------- ---------- ----------

Interest and Dividend Income     $    7,994 $    8,712 $   24,356 $   26,069
Interest Expense                      2,063      2,455      6,409      7,724
Net Interest and Dividend Income      5,931      6,257     17,947     18,345
Provision for Loan Losses               615        990      3,245      2,645
Noninterest Income                    1,966      2,704     10,124      5,417
Noninterest Expense                   6,035      6,123     18,699     18,005
Provision for Income Tax                217        259      1,350         37
Net Income                            1,030      1,589      4,777      3,075
Net Income Available to Common
 Stockholders                           625      1,428      4,050      2,591
Earnings Per Common Share, Basic       0.24       0.55       1.55       0.99
Dividends Declared per Common
 Share                                 0.15       0.12       0.27       0.24

                                                9/30/2011      9/30/2010
                                              ------------   ------------

Total Assets                                  $    806,364   $    815,401
Cash and Due from Banks and Interest-Bearing
 Deposits                                           66,750         82,572
Securities Available-for-Aale, at Fair Value       207,879        128,539
Loans, Net                                         485,063        550,159
Total Deposits                                     595,121        639,376
Federal Home Loan Bank Advances                     85,630         62,957
Securities Sold Under Agreements to
 Repurchase                                         24,288         29,003
Junior Subordinated Debentures                      20,620         20,620
Stockholders' Equity                                76,502         55,413
Book Value of Common Shares Outstanding              20.18          17.11
Tangible Book Value of Common Shares
 Outstanding                                         15.94          12.62
Tier 1 Core Capital to Assets                        10.58%          7.98%
Common Shares Outstanding                        2,620,755      2,620,755
Return on Average Assets                              0.78%          0.51%
Return on Average Equity                             10.50           7.63
Nonperforming Loans as a % of Total Loans             3.61           3.17

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