NWYF Northway Financial Inc (QB)

Northway Financial, Inc. (the "Company") (OTCBB: NWYF) reported net income for the quarter ended December 31, 2012 of $1,859,000 compared to net income of $334,000 for the quarter ended December 31, 2011. For the year ended December 31, 2012, the Company reported net income of $6,494,000 compared to $5,111,000 for the same period in 2011.

On February 5, 2013, the Company's Board of Directors declared a semi-annual cash dividend of $0.32 per share, payable on February 22, 2013, to common stockholders of record on February 15, 2013. In declaring this dividend, the Board of Directors considered the positive trend in earnings. The total dividend of $0.50 per share for the twelve months ended December 31, 2012 results in a 22.4% payout ratio based on net income available to common stockholders for the same period; this is consistent with the payout ratio on the dividend declared in July. Based on a share price of $13.00 on January 28, 2013, this semi-annual dividend, when annualized, results in a dividend yield of approximately 4.9%. The Company's common stock is available through brokers and is traded on the OTC Bulletin Board under the stock symbol "NWYF."

CEO William J. Woodward said, "Another strong earnings quarter contributed to a third consecutive year of record earnings. We are pleased with our level of earnings, the improvement in asset quality, the significant increase in core income, and the significant growth in both our loans and deposits. We continue to focus on improving asset quality and have seen a 29% reduction in our level of nonperforming loans. Our commercial loan growth continues at an annualized growth rate in excess of 28%. This growth is significantly greater than the growth rate experienced by many of our peers. Our success in growing commercial loans is due in large part to our strategy to expand into Southern New Hampshire. Further, our annualized deposit growth rate of 9.4% compares favorably to other New Hampshire Banks. To support our southern expansion strategy, we will be opening branches in both Manchester and Portsmouth in 2013."

CEO Woodward stated, "I am pleased to announce that, as part of our long-term Management succession planning for the Finance and Accounting Division, Russell A. Cronin, Jr. has joined Northway Financial, Inc. and Northway Bank as Senior Vice President and Chief Financial Officer, effective 1/1/2013. Russ has over 27 years of financial experience in several financial organizations, most recently at State Street Bank and Trust in Boston. Senior Vice President Richard P. Orsillo, will continue in the capacity of Controller. In this capacity, he will continue to provide oversight of the accounting and financial reporting functions of the holding company and the bank, a responsibility that he has commendably fulfilled for several years. I am confident that these two experienced financial professionals will play a key role in helping to lead Northway through the next phase of its development and growth."

Financial Highlights

• The Company's returns on average assets and average equity for year ended December 31, 2012 were 0.77% and 8.25%, respectively, compared to 0.62% and 7.87% for the prior year.
• For the year ended December 31, 2012, the net interest margin was 3.46%, an increase of 11 basis points over the prior year. This improvement is driven by a 26 basis point decrease in the Company's cost of interest-bearing liabilities year over year, partially offset by a 15 basis point decrease in the tax equivalent yield on earning assets, driven primarily by the pervasive low interest rate environment.
• Net loans increased $73,819,000, or 15.1%, to $563,565,000 at December 31, 2012, compared to $489,746,000 at December 31, 2011. For the quarter ended December 31, 2012, commercial and industrial loans increased $22,628,000, which is an annualized growth rate of 28.1%. This growth is reflective of our efforts to increase small business lending throughout the state.
• Nonperforming loans as a percentage of total loans at December 31, 2012 were 2.13% compared to 3.44% as of December 31, 2011. 44 basis points of this improvement is a result of decreasing our level of nonperforming loans $4,987,000, or 29.0%, to $12,194,000 at December 31, 2012 from $17,181,000 at December 31, 2011. This lower level of nonperforming loans has led to lower provision for loan losses. The remaining 87 basis point improvement is the result of loan growth.
• Total deposits increased $57,331,000, or 9.4%, to $668,464,000 at December 31, 2012, compared to $611,133,000 at December 31, 2011.
• Total stockholders' equity increased $5,986,000, or 8.0%, to $80,878,000 at December 31, 2012, compared to $74,892,000 at December 31, 2011. Equity increased as a result of net income for the year ended December 31, 2012 of $6,494,000 as well as an increase in other comprehensive net income of $965,000, which was partially offset by dividend payments to common and preferred stockholders of $1,473,000.
• Regulatory capital ratios exceed minimum requirements. The Company's total risk-based capital ratio is 18.05% compared to a regulatory requirement of 10.0%; Tier 1 risk-based capital is 16.76% compared to a regulatory requirement of 6.0% and Tier 1 capital to average assets is 10.68% compared to a regulatory requirement of 5.0%.

Earnings Summary

As noted above, the Company recorded net income of $6,494,000 for the year ended December 31, 2012 compared to $5,111,000 for the same period in 2011. For the year ended December 31, 2012, $5,854,000, or $2.23 per common share, was available to common stockholders compared to $4,115,000, or $1.57 per common share, for the same period last year.

For the quarter ended December 31, 2012, the Company recorded net income of $1,859,000 compared to $334,000 for the same period in 2011. For the quarter ended December 31, 2012, $1,718,000, or $0.65 per common share, was available to common stockholders compared to $67,000, or $0.02 per common share, for the same period last year.

Net interest and dividend income for the quarter ended December 31, 2012, increased $623,000 to $6,688,000 compared to $6,065,000 for the same period last year. The provision for loan losses for the quarter ended December 31, 2012 decreased $1,097,000 to $318,000 compared to $1,415,000 for the same period in 2011. Net gains on sales of securities were $1,253,000 compared to $1,589,000 for the quarter ended December 31, 2011, a decrease of $336,000. Gains on sales of loans increased $584,000 at December 31, 2012 to $748,000 compared to $164,000 for the same period last year. All other noninterest income decreased $28,000 to $1,445,000 compared to $1,473,000 for the same period last year due primarily to a decrease in the net gain on the cash surrender value of life insurance partially offset by an increase in service charges and fees on deposit accounts. Total noninterest expense decreased $661,000 to $7,354,000 for the quarter ended December 31, 2012, compared to $8,015,000 for the same period last year. This decrease resulted primarily from the 2011 recognition of $1,604,000 in pre-payment penalties on two FHLB advances partially offset by an increase in salaries and employee benefits of $756,000 as a result of an increase in pension expense and higher staffing levels. Income tax expense for the quarter ended December 31, 2012, increased $1,076,000 from the same period last year.

Net interest and dividend income for the year ended December 31, 2012, increased $1,767,000 to $25,779,000 compared to $24,012,000 for the same period last year. The provision for loan losses for the year ended December 31, 2012 decreased $2,548,000 to $2,112,000 compared to $4,660,000 for the same period in 2011. Net gains on sales of securities were $3,789,000 compared to $3,482,000 for the year ended December 31, 2011, an increase of $307,000. Gains on sales of loans increased $1,446,000 to $2,250,000 for the year ended December 31, 2012 compared to $804,000 for the same period last year. During 2012, 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 $132,000 to $5,424,000 compared to $5,292,000 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 $177,000 to $26,891,000 for the year ended December 31, 2012, compared to $26,714,000 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 prepayment penalties on FHLB advances, lower FDIC insurance, OREO write-down, consulting fees and legal fees. Income tax expense for the year ended December 31, 2012, increased $868,000 from the same period last year.

Balance Sheet Summary

At December 31, 2012, the Company had total assets of $873,629,000 compared to $820,539,000 at December 31, 2011, an increase of $53,090,000, or 6.50%. Net loans at December 31, 2012, increased $73,819,000 to $563,565,000 compared to $489,746,000 at December 31, 2011. Securities available-for-sale decreased $45,570,000 to $206,703,000 at December 31, 2012, compared to $252,273,000 at December 31, 2011; this decrease was used to fund the significant loan growth achieved during 2013. Cash and due from banks and interest-bearing deposits increased $22,307,000 to $54,688,000 at December 31, 2012, compared to $32,381,000 at December 31, 2011.

Total deposits were $668,464,000 at December 31, 2012, compared to $611,133,000 at December 31, 2011, an increase of $57,331,000, or 9.40%. Securities sold under agreements to repurchase decreased $3,021,000 to $30,270,000 at December 31, 2012 compared to $33,291,000 at December 31, 2011. Other borrowings decreased $6,622,000 to $87,656,000 at December 31, 2012, compared to $94,278,000 at December 31, 2011.

Total stockholders' equity increased $5,986,000 to $80,878,000 at December 31, 2012 compared to $74,892,000 at December 31, 2011. Stockholders' equity available to common stockholders totaled $57,386,000, resulting in a book value per common share of $21.90 per share at December 31, 2012, based on 2,620,755 shares of common stock outstanding, an increase of $2.33, or 11.91% per share, from December 31, 2011. Tangible book value per common share increased $2.25, or 14.73%, to $17.52 at December 31, 2012 compared to $15.27 at December 31, 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           Year Ended
                            -----------------------  -----------------------
                             12/31/2012  12/31/2011   12/31/2012  12/31/2011
                            ----------- -----------  ----------- -----------

Interest and Dividend
 Income                     $     8,135 $     8,144  $    32,487 $    32,500
Interest Expense                  1,447       2,079        6,708       8,488
Net Interest and Dividend
 Income                           6,688       6,065       25,779      24,012
Provision for Loan Losses           318       1,415        2,112       4,660
Net Gain on Sale of Banking
 Centers                              -           -            -       3,772
All Other Noninterest
 Income                           3,446       3,226       11,463       9,578
Noninterest Expense               7,354       8,015       26,891      26,714
Provision for Income Tax            603        (473)       1,745         877
Net Income                        1,859         334        6,494       5,111
Net Income Available to
 Common Stockholders              1,718          67        5,854       4,115
Earnings per Common Share,
 Basic                             0.65        0.02         2.23        1.57
Dividends Declared per
 Common Share                         -           -         0.33        0.27


                                                 12/31/2012     12/31/2011
                                               -------------  -------------

Total Assets                                   $     873,629  $     820,539
Cash and Due from Banks and Interest-Bearing
 Deposits                                             54,688         32,381
Securities Available-for-Sale, at Fair Value         206,703        252,273
Loans, Net                                           563,565        489,746
Total Deposits                                       668,464        611,133
Federal Home Loan Bank Advances                       67,036         73,658
Securities Sold Under Agreements to Repurchase        30,270         33,291
Junior Subordinated Debentures                        20,620         20,620
Stockholders' Equity                                  80,878         74,892
Net Interest Margin                                     3.46%          3.35%
Yield on Earning Assets                                 4.30           4.45
Cost of Interest Bearing Liabilities                    0.98           1.24
Efficiency Ratio                                       75.81          78.46
Book Value Per Share of Common Shares
 Outstanding                                   $       21.90  $       19.57
Tangible Book Value Per Share of Common Shares
 Outstanding                                           17.52          15.27
Tier 1 Core Capital to Average Assets                  10.68%         10.25%
Tier 1 Risk-Based Capital                              16.76          17.57
Total Risk-Based Capital                               18.05          18.85
Common Shares Outstanding                          2,620,755      2,620,755
Return on Average Assets                                0.77%          0.62%
Return on Average Equity                                8.25           7.87
Nonperforming Loans as a % of Total Loans               2.13           3.44
Allowance for Loan Losses as a % of
 Nonperforming Loans                                   81.90          60.14

Contact: Russell A. Cronin, Jr. Senior Vice President and Chief Financial Officer 603-326-7398 3424 White Mountain Highway North Conway, New Hampshire 03860