Northway Financial, Inc. Announces Second Quarter Financial Results and Declares Semi-Annual Cash Dividend

NORTH CONWAY, NH -- (Marketwired) -- 07/31/15 -- Northway Financial, Inc. (the "Company") (OTCQB: NWYF), the parent company of Northway Bank, today reported net income for the six months ended June 30, 2015 of $3.5MM or $1.22 per basic common share, compared to $3.2MM or $1.13 per basic common share for the same period in 2014; an increase of $300 thousand or 8.1%.

President and Chief Executive Officer, William J. Woodward, stated, "We continue to make progress in improving earnings. We also are making strides in improving asset quality and I am happy to report that nonperforming loans were 1.16% of gross loans at the end of the quarter, which is the lowest in over 5 years and down significantly from 2.33% at this time last year. This improvement has allowed us to reduce our costs associated with problem loans to focus more fully on growing our business.

In addition to all the efforts made to increase the financial performance of the Company, we have been diligently working on hiring key experienced managers. I am pleased to announce that Scott Thimann joined the Company as Chief Banking Officer. Scott will be responsible for Retail Banking, Retail Lending, Marketing and Alternative Investments. Scott has spent his career in both community and large regional banks most recently as EVP of Blue Hills Bank in Boston, Massachusetts. We believe that Scott's experience will help us continue to strengthen our Retail Banking division."

On July 30, 2015, the Board of Directors declared a semi-annual cash dividend of $0.32 per share, payable on August 17, 2015, to common stockholders of record as of August 10, 2015. The payment of this dividend results in a 26% payout ratio based on net income available to common stockholders. Based on a share price of $21.10 on July 29, 2015, this semi-annual dividend, when annualized, results in a dividend yield of approximately 3.0%. The Company's common stock is available through brokers and is quoted on the OTCQB under the stock symbol "NWYF."

Financial Highlights

• The Company's net income increased $300 thousand or 8.1% for the six months ended June 30, 2015 compared to the same period last year.

• Returns on average assets and average equity for the six months ended June 30, 2015 were 0.76% and 7.63%, respectively, compared to 0.71% and 7.64% for the same period last year.

• Nonperforming loans as a percentage of total loans decreased to 1.16% at June 30, 2015 from 1.71% at December 31, 2014 and 2.33% at June 30, 2014.

• Regulatory capital ratios at June 30, 2015 significantly exceeded minimum regulatory requirements.

Earnings Summary

As noted above, the Company recorded net income of $3.5MM for the six months ended June 30, 2015 compared to $3.2MM for the same period in 2014. For the six months ended June 30, 2015, $3.3MM, or $1.22 per common share, was available to common stockholders compared to $3.1MM, or $1.13 per common share, for the same period last year.

Net interest and dividend income for the six months ended June 30, 2015 decreased $800 thousand to $13.6MM compared to $14.4 for the same period last year. Interest income decreased $600 thousand to $16.5 at June 30, 2015 compared to $17.1MM at June 30, 2014 due to a decrease in average loan balances of $44.4MM and a decrease in the yield on investments of 21 basis points. This was partially offset by an increase in the yield on loans of 5 basis points and an increase in average investment balances of $27.3MM. Interest expense increased $100 thousand to $2.9MM at June 30, 2015 compared to $2.8MM for the same period last year due primarily to an increase in average retail funding of $26.4MM, an increase in rates paid on retail funding of 7 basis points and an increase in rates on wholesale funding of 53 basis points partially offset by a decrease in average wholesale funding of $35.2MM.

The provision for loan losses for the six months ended June 30, 2015 decreased $960 thousand; no provision expense was recorded in the first six months of 2015 compared to zero for the same period in 2014. Nonperforming loans as a percentage of total loans decreased to 1.16% at June 30, 2015 compared to 1.71% at December 31, 2014 and 2.33% at June 30, 2014. The allowance for loan losses as a percentage of nonperforming loans increased to 126.5% at June 30, 2015 compared to 85.2% at December 31, 2014 and 76.1% at June 30, 2014.

Net gains on sales of securities for the six months ended June 30, 2015 were $1.3MM, unchanged from the same period in 2014. Gains on sales of loans decreased $280 thousand to $60 thousand for the six months ended June 30, 2015 as the level of new loan production has been reduced as the Company evaluates its residential mortgage business strategy in light of the regulatory changes reshaping the industry. All other noninterest income decreased $700 thousand to $2.6MM compared to $3.2MM for the same period last year due primarily to the recording of a gain on sale land adjacent to our Ashland branch during 2014 of approximately $460 thousand, a decrease in the market value in the cash surrender value of a life insurance policy of $80 thousand and a decrease of $100 thousand in fees collected for insufficient funds associated with demand deposit accounts. Total noninterest expense decreased $1.2MM to $12.8MM for the six months ended June 30, 2015, compared to $14MM for the same period last year. Approximately 50% of the decrease is attributable to lower salary and benefits as the Company is reviewing job functions for potential consolidation when vacancies arise. The remaining reductions for the first six months of 2015 were in the areas of marketing, legal, and debit card expenses. Income tax expense increased $300 thousand to $1.3MM for the six months ended June 30, 2015, compared to $1MM for the same period last year; the effective tax rates were 27.3% and 24.1%, June 30, 2015 and June 30, 2014, respectively.

Balance Sheet Summary

At June 30, 2015, the Company had total assets of $938MM compared to $925MM at December 31, 2014 and $946MM at June 30, 2014. The asset composition has seen a modest shift from loans to cash and investments as net loans decreased $18MM since December 31, 2014 and $47MM since June 30, 2014. Conversely, cash and investments, net, have increased $29MM and $65MM since December 31, 2014 and June 30, 2014, respectively.

Total deposits were $746MM at June 30, 2015 compared to $727MM at December 31, 2014 and $722MM at June 30, 2014, an increase of $19MM, or 2.6%, and $24MM, or 3.4%, respectively. The increase in deposits was primarily attributed to growth in core demand accounts and municipal deposits. Demand account balances increased $10MM and $7MM while municipal deposits increased $11.5MM and $13.2M, December 31, 2014 and June 30, 2014, respectively. Securities sold under agreements to repurchase with the Company's customers, also known as Customer Sweep Accounts, totaled $35MM at June 30, 2015, an increase of $36 thousand from December 31, 2014 and $1.9MM from June 30, 2014. Other borrowings decreased $6MM and $17MM, respectively, to $58.5MM at June 30, 2015, compared to $65.4MM at December 31, 2014 and $75.5MM at June 30, 2014. The decrease in other borrowings is attributable to long term FHLB advances that matured and were not replaced.

Total stockholders' equity was $91MM at June 30, 2015, unchanged from December 31, 2014 and an increase of $3MM from June 30, 2014. Total equity was negatively impacted by a decrease in the fair market value of the securities portfolio caused by an increase in market interest rates. The change in value is recorded in the capital account under Other Comprehensive Income. For the period of December 31, 2014 to June 30, 2015 the market value of the securities portfolio declined $3.5MM. Stockholders' equity available to common stockholders totaled $67.4MM resulting in a book value per common share of $24.48 per share at June 30, 2015, based on 2,751,650 shares of common stock outstanding, the same as December 31, 2014 and an increase of $0.95 per share from June 30, 2014. Tangible book value per common share increased $0.01 and $1.49 to $20.81 at June 30, 2015, compared to $20.80 and $19.32 at December 31, 2014 and June 30, 2104, respectively.

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  
                                 --------------------- ---------------------
                                  6/30/2015  6/30/2014  6/30/2015  6/30/2014
                                 ---------- ---------- ---------- ----------
                                                                            
Interest and Dividend Income     $    8,188 $    8,655 $   16,514 $   17,141
Interest Expense                      1,470      1,457      2,921      2,795
                                 ---------- ---------- ---------- ----------
Net Interest and Dividend Income      6,718      7,198     13,593     14,346
Provision for Loan Losses                 -        555          -        960
All Other Noninterest Income          1,278      2,069      2,633      3,564
Noninterest Expense                   6,377      6,959     12,752     13,984
                                 ---------- ---------- ---------- ----------
Net Income Before Securities                                                
 Gains                                1,619      1,753      3,474      2,966
Securities Gains, Net                   558        865      1,332      1,293
                                 ---------- ---------- ---------- ----------
Net Income Before Taxes               2,177      2,618      4,806      4,259
Provision for Income Tax                577        693      1,313      1,027
                                 ---------- ---------- ---------- ----------
Net Income                       $    1,600 $    1,925 $    3,493 $    3,232
                                 ========== ========== ========== ==========
Net Income Available to Common                                              
 Stockholders                    $    1,533 $    1,858 $    3,359 $    3,098
                                 ========== ========== ========== ==========
Earnings per Common Share, Basic $     0.56 $     0.68 $     1.22 $     1.13
                                                                            
                                                                            

                                          6/30/2015  12/31/2014   6/30/2014 
                                         ----------  ----------  ---------- 
                                                                            
Balance  Sheet                                                              
Total Assets                             $  938,268  $  925,713  $  946,471 
Cash and Due from Banks and Interest-                                       
 Bearing Deposits                            52,482      66,693      24,926 
Securities Available-for-Sale, at Fair                                      
 Value                                      265,248     221,647     227,588 
                                            576,447                         
Loans, Net                                              594,787     623,673 
Total Deposits                              745,828     726,630     721,624 
Federal Home Loan Bank Advances              37,870      44,814      54,896 
Securities Sold Under Agreements to                                         
 Repurchase                                  34,886      34,850      33,018 
Junior Subordinated Debentures               20,620      20,620      20,620 
Stockholders' Equity                         90,934      90,918      88,275 
Profitability  and Efficiency                                               
Net Interest Margin                            3.33%       3.42%       3.54%
Yield on Earning Assets                        4.00        4.08        4.18 
Cost of Interest Bearing Liabilities           0.81        0.79        0.77 
Book Value Per Share of Common Shares                                       
 Outstanding                             $    24.48  $    24.48  $    23.53 
Tangible Book Value Per Share of Common                                     
 Shares Outstanding                           20.81       20.80       19.32 
Capital  and Credit                                                         
Tier 1 Core Capital to Average Assets         11.82%      10.83%      10.88%
Common Equity Risk-Based Capital              10.63         n/a         n/a 
Tier 1 Risk-Based Capital                     17.82       17.94       15.68 
Total Risk-Based Capital                      19.07       19.22       17.01 
Common Shares Outstanding                 2,751,650   2,751,650   2,751,650 
Weighted Average Number of Common Shares,                                   
 Basic                                    2,751,650   2,751,650   2,751,650 
Return on Average Assets                       0.76%       0.84%       0.71%
Return on Average Equity                       7.63        8.96        7.64 
Nonperforming Loans as a% of Total Loans       1.16        1.71        2.33 
Allowance for Loan Losses as a% of                                          
 Nonperforming Loans                         126.45       85.16       76.11 

   Contact: Gary LaurashChief Financial Officer603-326-7377

Source: Northway Financial, Inc.

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