NWYF Northway Financial Inc (QB)

Northway Financial, Inc. (the "Company") (OTCBB: NWYF) reported net income for the quarter ended June 30, 2012 of $923,000 compared to net income of $2,742,000 for the quarter ended June 30, 2011, a decrease of $1,819,000. For the six months ended June 30, 2012, the Company reported net income of $2,406,000 compared to $3,747,000 for the same period in 2011, a decrease of $1,341,000. Results for both the three- and six-month periods ended June 30, 2011 were favorably impacted by the $3,772,000 one-time net pre-tax gain on sale of three banking centers in May 2011. For the quarter ended June 30, 2012, net income available to common stockholders was $763,000, or $0.29 per common share and for the six months ended June 30, 2012, net income available to common stockholders was $2,103,000, or $0.80 per common share.

On July 26, 2012, the Company's Board of Directors declared a semi-annual common stock cash dividend of $0.18 per share, payable on August 15, 2012, to stockholders of record on August 8, 2012. This $0.18 per share dividend represents a 20.0% increase over the prior semi-annual dividend of $0.15 per share. In declaring this dividend, the Board of Directors considered the positive trend in earnings, exclusive of the one-time gain on the sale of three banking centers in May 2011. The payment of this level of dividend will result in a 22.4% payout ratio based on net income available to common stockholders. The Company's common stock is available through brokers and is traded on the OTC Bulletin Board under the stock symbol "NWYF." Based on recent trades of the Company's common stock, the semi-annual dividend, when annualized, results in a dividend yield of approximately 3.14% on its current market price per share.

CEO William J. Woodward said, "We are pleased with the continued growth of the Company and the positive trend of earnings. The improvement in the dividend payout ratio reflects our confidence in our overall performance. Our expansion into southern New Hampshire and our focus on commercial banking has strengthened our organization, and has reinforced our commitment to better serving our customers and communities in New Hampshire."

Other Financial Highlights

• Taking into account the level of net income for the six months ended June 30, 2012, the Company's returns on average assets and average equity for this period were 0.59% and 6.29%, respectively, compared to 0.92% and 12.95% for the same period last year. As noted above, last year's results were favorably impacted by the sale of three banking centers in May 2011, which resulted in the recording of a net pre-tax gain of approximately $3,772,000.
• Total deposits increased $61,334,000, or 10.5%, to $647,240,000 at June 30, 2012, compared to $585,906,000 at June 30, 2011. For the quarter ended June 30, 2012, core deposit growth was $20,000,000, an annualized growth rate of 17.8%
• Net loans increased $30,473,000, or 6.3%, to $513,263,000 at June 30, 2012, compared to $482,790,000 at June 30, 2011. For the quarter ended June 30, 2012, commercial and industrial loans increased $7,594,000, which is an annualized growth rate of 36.7%. This growth is reflective of our efforts to increase small business lending throughout the state.
• For the six months ended June 30, 2012, the Net Interest Margin was 3.49%, an increase of 16 basis points over the same period last year. This improvement is driven by a 16 basis point decrease in the Company's cost of interest-bearing liabilities year over year.
• Total stockholders' equity increased $16,067,000, or 26.0%, to $77,906,000 at June 30, 2012, compared to $61,839,000 at June 30, 2011. Approximately $13,000,000 of the increase was due to the Company's participation in the Small Business Lending Fund, a program designed to encourage lending to small businesses. This is described in greater detail in the Company's 2011 Annual Report. In addition, equity increased as a result of net income for the twelve month period ended June 30, 2012 of $3,800,000 as well as a reduction in other comprehensive net loss of $985,000, which was partially offset by dividend payments of approximately $1,500,000.
• Regulatory capital ratios exceed requirements. The Company's total risk-based capital ratio is 19.18% compared to a regulatory requirement of 10.00%.
• As a result of our continued focused effort to resolve problem loans, the level of nonperforming loans decreased $3,121,000, or 16.8%, to $15,450,000 at June 30, 2012 from $18,571,000 at June 30, 2011. Nonperforming loans as a percentage of total loans at June 30, 2012 was 2.09% compared to 3.77% as of June 30, 2011.

Earnings Summary

As noted above, the Company recorded net income of $2,406,000 for the six months ended June 30, 2012 compared to $3,747,000 for the same period in 2011. For the six months ended June 30, 2012, $2,103,000, or $0.80 per common share, was available to common stockholders compared to $3,425,000, or $1.31 per common share, for the same period last year.

For the quarter ended June 30, 2012, the Company recorded net income of $923,000 compared to $2,742,000 for the same period in 2011. For the quarter ended June 30, 2012, $763,000, or $0.29 per common share, was available to common stockholders compared to $2,581,000, or $0.99 per common share, for the same period last year.

Net interest and dividend income for the quarter ended June 30, 2012, increased $47,000 to $6,283,000 compared to $6,236,000 for the same period last year. The provision for loan losses for the quarter ended June 30, 2012 decreased $1,277,000 to $738,000 compared to $2,015,000 for the same period in 2011. Net gains on sales of securities were $335,000 compared to $646,000 for the quarter ended June 30, 2011, a decrease of $311,000. Gains on sales of loans increased $227,000 as of June 30, 2012 compared to the same period last year. During the second quarter of 2011, the Company recorded the net gain of $3,772,000 on the sale of banking centers. All other noninterest income decreased $268,000 to $1,271,000 compared to $1,531,000 for the same period last year due primarily to a decrease in gain on sale of OREO, service charges and fees on deposit accounts and the recording of a net loss on the cash surrender value of life insurance. Total noninterest expense increased $136,000 to $6,574,000 for the quarter ended June 30, 2012, compared to $6,438,000 for the same period last year. This increase resulted primarily from an increase in pension expense and higher staffing levels which was partially offset by lower FDIC insurance, legal fees, New Hampshire business enterprise tax and postage and shipping. Income tax expense for the quarter ended June 30, 2012, decreased $1,117,000 from the same period last year.

Net interest and dividend income for the six months ended June 30, 2012, increased $618,000 to $12,634,000 compared to $12,016,000 for the same period last year. The provision for loan losses for the six months ended June 30, 2012 decreased $1,154,000 to $1,476,000 compared to $2,630,000 for the same period in 2011. Net gains on sales of securities were $1,395,000 compared to $952,000 for the six months ended June 30, 2011, an increase of $443,000. Gains on sales of loans increased $80,000 to $585,000 for the six months ended June 30, 2012 compared to $505,000 for the same period last year. In May 2011, as previously referenced, the Company recorded a $3,772,000 net gain on the sale of three banking centers. All other noninterest income decreased $454,000 to $2,475,000 compared to $2,929,000 for the same period last year due primarily to a decrease in service charges and fees on deposit accounts as well as an increase in mortgage servicing impairment. Total noninterest expense increased $234,000 to $12,898,000 for the six months ended June 30, 2012, compared to $12,664,000 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, consulting fees and legal fees. Income tax expense for the six months ended June 30, 2012, decreased $824,000 from the same period last year.

Balance Sheet Summary

At June 30, 2012, the Company had total assets of $842,105,000 compared to $783,331,000 at June 30, 2011, an increase of $58,774,000, or 7.50%. Securities available-for-sale increased $35,030,000 to $240,713,000 at June 30, 2012, compared to $205,683,000 at June 30, 2011. Loans at June 30, 2012, increased $30,473,000 to $513,263,000 compared to $482,790,000 at June 30, 2011.

Total deposits were $647,240,000 at June 30, 2012, compared to $585,906,000 at June 30, 2011, an increase of $61,334,000. Securities sold under agreements to repurchase decreased $2,602,000 to $22,461,000 at June 30, 2012 compared to $25,063,000 at June 30, 2011. Other borrowings decreased $18,143,000 to $88,078,000 at June 30, 2012, compared to $106,221,000 at June 30, 2011.

Total stockholders' equity increased $16,067,000 to $77,906,000 at June 30, 2012 compared to $61,839,000 at June 30, 2011, of which approximately $13,000,000 was an additional investment from the U.S. Department of the Treasury during 2011 under the Small Business Lending Fund program. Stockholders' equity available to common stockholders totaled $54,430,000, resulting in a book value per common share of $20.77 per share at June 30, 2012, based on 2,620,755 shares of common stock outstanding, an increase of $1.21, or 6.2% per share, from June 30, 2011. Tangible book value per common share increased $1.34, or 8.8%, to $16.54 at June 30, 2012 compared to $15.20 at June 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   Six Months Ended
                                     ------------------- -------------------
                                     6/30/2012 6/30/2011 6/30/2012 6/30/2011
                                     --------- --------- --------- ---------

Interest and Dividend Income         $   8,093 $   8,370 $  16,300 $  16,362
Interest Expense                         1,810     2,134     3,666     4,346
Net Interest and Dividend Income         6,283     6,236    12,634    12,016
Provision for Loan Losses                  738     2,015     1,476     2,630
Net Gain on Sale of Banking Centers          -     3,772         -     3,772
All Other Noninterest Income             1,987     2,339     4,455     4,386
Noninterest Expense                      6,574     6,438    12,898    12,664
Provision for Income Tax                    35     1,152       309     1,133
Net Income                                 923     2,742     2,406     3,747
Net Income Available to Common
 Stockholders                              763     2,581     2,103     3,425
Earnings Per Common Share, Basic          0.29      0.99      0.80      1.31
Dividends Declared per Common Share          -         -      0.15      0.12

                                          6/30/2012   3/31/2012   6/30/2011
                                         ----------  ----------  ----------

Total Assets                             $  842,105  $  821,167  $  783,331
Cash and Due from Banks and Interest-
 Bearing Deposits                            40,343      15,228      46,993
Securities Available-for-Sale, at Fair
 Value                                      240,713     251,147     205,683
Loans, Net                                  513,263     507,584     482,790
Total Deposits                              647,240     617,923     585,906
Federal Home Loan Bank Advances              67,458      78,627      85,601
Securities Sold Under Agreements to
 Repurchase                                  22,461      19,048      25,063
Junior Subordinated Debentures               20,620      20,620      20,620
Stockholders' Equity                         77,906      75,987      61,839
Net Interest Margin                            3.49%       3.52%       3.33%
Yield on Earning Assets                        4.44        4.48        4.46
Cost of Interest Bearing Liabilities           1.09        1.11        1.25
Efficiency Ratio                              77.04       76.53       77.84
Book Value Per Share of Common Shares
 Outstanding                                  20.77       20.04       19.56
Tangible Book Value Per Share of Common
 Shares Outstanding                           16.54       15.82       15.20
Tier 1 Core Capital to Average Assets         10.68%      10.45%       8.76%
Tier 1 Risk-Based Capital                     17.89       17.63       15.29
Total Risk-Based Capital                      19.18       18.95       17.12
Common Shares Outstanding                 2,620,755   2,620,755   2,620,755
Return on Average Assets                       0.59%       0.72%       0.92%
Return on Average Equity                       6.29        7.81       12.95
Nonperforming Loans as a % of Total
 Loans                                         2.09        3.27        3.77
Allowance for Loan Losses as a % of
 Nonperforming Loans                          70.33       64.85       52.47

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