<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended September 30, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________________ to _________________
Commission File Number 000-23129
NORTHWAY FINANCIAL, INC
(Exact name of registrant as specified in its charter)
New Hampshire 04-3368579
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 Main Street
Berlin, New Hampshire 03570
Address of principal executive offices (Zip Code)
(603) 752-1171
(Registrant's telephone number, including area code)
No Change
(Former name, former address and former fiscal year, if changed since last year)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past ninety (90) days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date. At October 31, 1997, there
were 1,731,969 shares of common stock outstanding, par value $1.00 per share.
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INDEX
NORTHWAY FINANCIAL, INC.
PART I. FINANCIAL INFORMATION PAGE
Item 1
Financial Statements (Unaudited)
Consolidated Balance Sheets at September 30, 1997 and
December 31, 1996 .............................................. 3
Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1997 and 1996 ....................... 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 .............................. 5
Notes to Consolidated Financial Statements ..................... 6
Item 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................... 10
PART II OTHER INFORMATION
Item 1
Legal Proceedings .............................................. 15
Item 2
Changes in Securities .......................................... 15
Item 3
Default Upon Senior Securities ................................. 15
Item 4
Submission of Matters to a Vote of Security Holders ............ 15
Item 5
Other Information .............................................. 15
Item 6
Exhibits and Reports of Form 8-K ............................... 15
Signatures ................................................................ 16
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NORTHWAY FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
SEPT. 30, DEC. 31,
(Dollars in thousands, except per share data) 1997 1996
- --------------------------------------------------------------------------------
Assets:
Cash and due from banks .............................. $ 11,329 $ 14,257
Federal funds sold ................................... 10,150 3,025
Loans held-for-resale ................................ 294 58
Interest bearing deposits ............................ 94 279
Investment securities available-for-sale ............. 62,480 88,628
Investment securities held-to-maturity ............... 16,671 12,199
FRB stock ............................................ 80 80
FHLB stock ........................................... 1,958 1,822
Loans ................................................ 264,969 241,102
Unearned income .................................... (569) (719)
Allowance for possible loan losses ................. (4,014) (3,941)
--------- ---------
Loans, net ......................................... 260,386 236,442
--------- ---------
Real estate acquired by foreclosure
or substantively repossessed ....................... 377 202
Accrued interest receivable .......................... 2,138 2,611
Deferred income taxes ................................ 1,639 2,048
Premises and equipment, net .......................... 8,834 8,765
Deposit purchase premium ............................. 1,236 1,462
Other assets ......................................... 2,855 703
--------- ---------
Total assets ..................................... $ 380,521 $ 372,581
========= =========
Liabilities and stockholders' equity:
Liabilities:
Interest bearing deposits ............................ $ 281,030 $ 286,055
Non-interest bearing deposits ........................ 37,006 36,028
Repurchase agreements ................................ 7,346 4,620
Mortgagors' escrow accounts .......................... 573 232
Federal Home Loan Bank Advances ...................... 12,390 8,703
Federal funds purchased .............................. 50 --
Other liabilities .................................... 5,179 3,280
--------- ---------
Total liabilities ................................ 343,574 338,918
--------- ---------
Stockholders' equity:
Preferred stock, $1 par value;
1,000,000 shares authorized: outstanding-none ........ -- --
Common stock, $1 par value; 9,000,000 shares
authorized: 1,731,969 shares issued and outstanding . 1,732 1,732
Additional paid in capital ........................... 2,101 2,101
Retained earnings .................................... 33,429 30,663
Unrealized loss on investment securities available-
for-sale, net ....................................... (315) (833)
--------- ---------
36,947 33,663
========= =========
Total liabilities and stockholders' equity ........... $ 380,521 $ 372,581
========= =========
The accompanying notes are an integral part of these financial statements.
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<TABLE>
NORTHWAY FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
(Dollars in thousands, except per share data) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans ........................................... $ 6,057 $ 5,281 $ 17,217 $ 15,594
Investment securities available-for-sale ........ 923 1,381 3,344 3,990
Investment securities held-to-maturity .......... 250 271 738 843
Federal funds sold .............................. 195 77 328 276
Interest bearing deposits ....................... 2 25 6 114
---------- ---------- ---------- ----------
Total interest and dividend income ........... 7,427 7,035 21,633 20,817
---------- ---------- ---------- ----------
Interest expense:
Deposits ....................................... 2,733 2,840 8,106 8,562
Borrowed funds ................................. 321 238 902 659
---------- ---------- ---------- ----------
Total interest expense ....................... 3,054 3,078 9,008 9,221
---------- ---------- ---------- ----------
Net interest and dividend income ............. 4,373 3,957 12,625 11,596
Provision for possible loan losses ................ 140 134 395 386
---------- ---------- ---------- ----------
Net interest and dividend income after
provision for possible loan losses ......... 4,233 3,823 12,230 11,210
---------- ---------- ---------- ----------
Noninterest income:
Service charges on deposit accounts and fees ... 202 203 628 623
Securities gains, net .......................... 21 69 350 170
Other .......................................... 126 126 400 359
---------- ---------- ---------- ----------
Total noninterest income ..................... 349 398 1,378 1,152
---------- ---------- ---------- ----------
Noninterest expense:
Salaries and employee benefits ................. 1,389 1,364 4,162 3,965
Office occupancy and equipment ................. 427 437 1,279 1,304
Amortization of deposit purchase premium ....... 75 86 226 251
Merger related expenses ........................ 308 3 822 23
Other .......................................... 772 848 2,359 2,421
---------- ---------- ---------- ----------
Total noninterest expense .................... 2,971 2,738 8,848 7,964
---------- ---------- ---------- ----------
Income before income tax expense ............. 1,611 1,483 4,760 4,398
Income tax expense ................................ 578 495 1,589 1,485
---------- ---------- ---------- ----------
Net income ................................... $ 1,033 $ 988 $ 3,171 $ 2,913
========== ========== ========== ==========
Per share data:
Net income ........................................ $ 0.60 $ 0.57 $ 1.83 $ 1.67
Cash dividends declared ........................... $ 0.00 $ 0.00 $ 0.23 $ 0.19
Weighted average number of common shares .......... 1,731,969 1,731,969 1,731,969 1,731,969
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
NORTHWAY FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Nine Months Ended
September 30,
1997 1996
-------------------------
(Dollars in Thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................................... $ 3,171 $ 2,913
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for:
Possible loan losses ......................................... 395 386
Depreciation and amortization ................................ 743 719
Deferred income taxes ........................................ 83 (167
Write down of real estate acquired by foreclosure ............ 5 44
Gains on sales of investment securities available-for-sale, net (349) (170)
Loss on sale of premises and equipment, net ................... 50 8
Accretion of (discount) and amortization of premium
on investment and mortgage-backed securities, net ............. 187 344
Decrease in unearned income, net ............................... (150) (28)
Gains on sales of real estate acquired by foreclosure
or substantively repossessed ................................. (36) (19)
Decrease in accrued income receivable .......................... 473 23
Increase in other assets ....................................... (2,152) (201)
Increase in other liabilities .................................. 1,899 353
-------- --------
Net cash provided by operating activities .................... 4,319 4,205
-------- --------
Cash flows from investing activities:
Net decrease in interest bearing deposits .......................... 196 1,178
Proceeds from sales of investment securities available-for-sale .... 19,188 1,276
Proceeds from maturities of investment securities held-to-maturity . 1,793 3,346
Proceeds from maturities of investment securities available-for-sale 15,323 8,653
Purchase of investment securities available-for-sale ............... (9,898) (22,563)
Purchase of investment securities held-to-maturity ................. (6,456) (6,810)
Principal payments received on mortgage-backed securities .......... 2,596 3,271
Net increase in loans .............................................. (24,548) (16,546)
Net (increase) decrease in loans held for resale ................... (236) 144
Proceeds from sales of real estate acquired by
foreclosure or substantively repossessed ......................... 214 470
Proceeds from sale of premises and equipment ....................... 290 --
Additions to premises and equipment ................................ (925) (866)
-------- --------
Net cash used in financing activities ........................ (2,463) (28,447)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits ................................ (4,047) 6,154
Cash received from acquisition of branch ........................... -- 6,354
Increase in mortgagors' escrow accounts ............................ 341 181
Net increase in borrowed funds ..................................... 6,463 2,877
Cash dividends ..................................................... (405) (223)
-------- --------
Net cash used in financing activities ........................ 2,352 15,343
-------- --------
Net increase (decrease) in cash and cash equivalents ................. 4,208 (8,899)
Cash and cash equivalents at beginning of period ............. 17,282 23,687
-------- --------
Cash and cash equivalents at end of period ................... $ 21,490 $ 14,788
======== ========
Cash paid during the year for:
Interest ........................................................... $ 9,058 $ 9,167
======== ========
Income taxes ....................................................... $ 1,078 $ 1,574
======== ========
Supplemental disclosures of non-cash activities:
Loans transferred to real estate acquired by
foreclosure or substantively repossessed ......................... $ 510 $ 275
======== ========
Loans charged off, net of recoveries ............................... $ 246 $ 467
======== ========
Financed sales of real estate acquired by foreclosure .............. $ 193 $ 63
======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
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NORTHWAY FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997
1. Basis of Presentation.
The unaudited consolidated financial statements of Northway
Financial, Inc. and its two wholly owned bank subsidiaries ("the Corporation")
included herein have been prepared by the Corporation in accordance with the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted in accordance with such rules and regulations. The
Corporation, however, believes that the disclosures are adequate to make the
information presented not misleading. All prior period amounts in the Form 10Q
have been restated to reflect the reorganization of the Corporation on September
30, 1997 into a multi-bank holding company. Refer to Note 4 for further
discussion of the holding company reorganization and merger transactions. The
amounts shown reflect, in the opinion of management, all adjustments necessary
for a fair presentation of the financial statements for the periods reported.
The results of operations for the three and nine months ended
September 30, 1997 and 1996 are not necessarily indicative of the results of
operations for the full year or any interim period.
2. Allowance for Possible Loan Losses
Analysis of the allowance for possible loan losses for the nine
months ended September 30, 1997 and 1996 is as follows:
1997 1996
---- ----
(Dollars in thousands)
Balance beginning of period $3,941 $3,866
Chargeoffs 505 500
Recoveries 183 110
------ ------
Net chargeoffs 322 390
Provision for possible loan losses 395 386
------ ------
Balance at end of period $4,014 $3,862
====== ======
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NORTHWAY FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997
3. Commitments and Contingencies
At September 30, 1997, the Corporation had the following off-balance
sheet financial instruments whose contract amounts represent credit risk:
Contract or Notional Amount
---------------------------
(Dollars in thousands)
Commitments to extend credit $26,795
Standby letters of credit and
financial guarantees written $ 480
Commercial letters of credit $ -0-
Foreign exchange contracts $ -0-
4. Formation of Northway Financial, Inc.
Northway Financial, Inc. ("Northway") is a New Hampshire Corporation
organized on March 7, 1997 for the purpose of becoming the holding company of
The Berlin City Bank ("BCB") pursuant to a reorganization transaction (the "BCB
Reorganization") by and among Northway, BCB and a subsidiary of BCB, and
thereafter, effecting the merger (the "Merger") between Northway and Pemi
Bancorp, Inc. ("PEMI"), pursuant to which Northway became the holding company
for PEMI and its wholly owned subsidiary, Pemigewasset National Bank ("PNB").
The BCB Reorganization and the Merger were consummated on September 30, 1997.
The Merger was treated as "pooling of interests" for accounting purposes. Other
than matters relating to corporate organization and capitalization, and other
matters incidental to completion of the BCB Reorganization and Merger, Northway
has not engaged in any business activity. As of September 30, 1997, Northway's
business is to own all of the common stock of BCB and PNB.
BCB is a trust company chartered under the laws of the State of New
Hampshire. BCB has seven banking offices in New Hampshire through which it
provides a range of bank-related services.
PNB is a national banking association organized under the laws of the
United States. PNB has five branches located in New Hampshire through which it
provides a range of bank-related services.
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<PAGE>
NORTHWAY FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997
The Merger was effected in accordance with the terms and conditions
of the Agreement and Plan of Merger, dated as of March 14, 1997, by and among
BCB, Northway, PEMI, and PNB (the "Merger Agreement"). Under the terms of the
Merger Agreement (i) Northway organized a New Hampshire trust company, Berlin
Interim Trust Company ("BITC"), (ii) BCB merged with and into BITC while
retaining the name "The Berlin City Bank" and, as a result of which, became a
wholly owned subsidiary of Northway, and (iii) following the BCB Reorganization,
PEMI merged with and into Northway, with Northway being the surviving
corporation ("the Merger"). As a result of the foregoing transactions, Northway
is the bank holding company for BCB and PNB and each of BCB and PNB are wholly
owned subsidiaries of Northway.
In connection with the BCB Reorganization and the Merger,
respectively, (i) each outstanding share of BCB common stock was converted into
16 shares of Northway common stock, and (ii) each outstanding share of PEMI
common stock was converted into 1.0419 shares of Northway common stock.
5. Supplemental Disclosure of Separate Results
The financial statements reflect the combined results of The Berlin
City Bank and Pemi Bancorp, Inc. Supplemental disclosure of the separate results
of the two banks for periods prior to the merger are as follows:
Berlin City Pemi Northway
Bank Bancorp Financial
----------- ------- ---------
(In thousands except per share data)
July 1, 1997 to September 30, 1997
Net interest income $2,770 $1,603 $4,373
Net income 756 277 1,033
Net income per share $ 0.44 $ 0.16 $ 0.60
July 1, 1996 to September 30, 1996
Net interest income $2,438 $1,519 $3,957
Net income 648 340 988
Net income per share $ 0.37 $ 0.20 $ 0.57
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NORTHWAY FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997
Berlin City Pemi Northway
Bank Bancorp Financial
----------- ------- ---------
(In thousands except per share data)
January 1, 1997 to September 30, 1997
Net interest income $8,010 $4,615 $12,625
Net income 2,388 783 3,171
Net income per share $ 1.38 $ 0.45 $ 1.83
January 1, 1996 to September 30, 1996
Net interest income $7,110 $4,486 $11,596
Net income 1,946 967 2,913
Net income per share $ 1.12 $ 0.55 $ 1.67
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Introduction
The following discussion and related consolidated financial
statements include Northway Financial, Inc. (the "Corporation") and its
wholly-owned subsidiaries, The Berlin City Bank and Pemigewasset National Bank.
Certain statements in this Form 10-Q, in the Corporation's press
releases, and in oral statements made by or with the approval of an authorized
executive officer of the Corporation, constitute "forward-looking statements" as
that term is defined under the Private Securities Litigation Reform Act of 1995
(the "Act") and within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934 promulgated thereunder.
The words "believe," "expect," "anticipate," "intend," "estimate," "project" and
other expressions which are predictions of or indicate future events and trends
and which do not relate to historical matters identify forward-looking
statements. Reliance should not be placed on forward-looking statements because
they involve known and unknown risks, uncertainties and other factors, which may
cause the actual results, performance or achievements of the Corporation to
differ materially from anticipated future results, performance or achievements
expressed or implied by such forward- looking statements. The Corporation
undertakes no obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise.
The following important factors, among others, may have affected the
Corporation and its subsidiaries in the past and could in the future affect the
actual results of operations of the Corporation, and could cause the actual
results of operations for subsequent periods to differ materially from those set
forth in, contemplated by, or underlying any forward-looking statement made
herein: (i) the effect of changes in laws and regulations, including federal and
state banking laws and regulations, with which the Corporation must comply,
including the effect of the cost of such compliance; (ii) the effect of changes
in accounting policies and practices, as may be adopted by the regulatory
agencies as well as by the Financial Accounting Standards Board, or of changes
in the Corporation's organization, compensation and benefit plans; (iii) the
effect on the competitive position of the Corporation's subsidiaries within
their respective market areas resulting from increased consolidation within the
banking industry and increased competition from larger regional and out-of-state
banking organizations, as well as from nonbank providers of various financial
services; (iv) the effect of unforeseen changes in interest rates, loan default
and charge-off rates; (v) changes in deposit levels necessitating increased
borrowing of fund loans and investments; (vi) the effect of changes in the
business cycle and downturns in the New Hampshire New England, and national
economies; (vii) the factors detailed in the section titled "Risk Factors" in
the Corporation's Proxy Statement/Prospectus, dated Aug. 12, 1997; and (viii)
changes in the assumptions used in making such forward-looking statements.
Though the Corporation has attempted to list comprehensively these important
factors, the Corporation wishes to caution investors that other factors may in
the future prove to be important in affecting the Corporation's results of
operations. New factors emerge from time to time and it is not possible for
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<PAGE>
management to predict all of such factors, nor can it assess the impact of each
such factor on the business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from forward looking
statements.
Financial Condition
Through the first nine months of 1997, the Corporation's total net
income was $3.2 million, or $1.83 per share, compared to $2.9 million, or $1.67
per share, for the same period in 1996.
The Corporation's total assets were $381 million compared to $373
million at December 31, 1996, an $8 million, or 2%, increase. Net loans
increased $24 million during this period while investment securities decreased
$21 million principally due to the Corporation's sale of securities to fund loan
growth. Cash and cash equivalents increased $4 million to $21 million. Total
deposits decreased $4 million, which was offset by increases in repurchase
agreement and other borrowings of $6 million.
The Corporation maintains an allowance for possible loan losses to
absorb future chargeoffs of loans in the existing portfolio. The allowance is
increased when a loan loss provision is recorded in the income statement. When a
loan, or portion thereof, is considered uncollectible, it is charged against
this allowance. Recoveries on amounts previously charged off are added to the
allowance when collected. On September 30, 1997 the allowance for possible loan
losses was $4.0 million, or 1.51% of total loans, as compared to $3.9 million,
or 1.63% of total loans for September 30, 1996. The adequacy of the allowance
for possible loan losses was based on an evaluation by each bank's management
and Board of Directors of current and anticipated economic conditions, changes
in the diversification, size and risk within the loan portfolio, and other
factors.
Nonperforming loans totalled $1.8 million as of September 30, 1997,
compared to $3.0 million at December 31, 1996. The ratio of nonperforming loans
to total loans was 0.69% as of September 30, 1997 compared to 1.23% at December
31, 1996 and the ratio of nonperforming assets to total assets was 0.58% as of
September 30, 1997 compared to 0.87% at December 31, 1996.
Results of Operations
The Corporation reported net income of $1.0 million, or $0.60 per
share, for the three months ended September 30, 1997 as compared with $988,000,
or $0.57 per share, for the same period in 1996. The increase reflects
improvement in net interest income of $416,000 resulting from the shifting of
funds from investment securities to loans. In addition, a lower cost of funds
resulted in lower interest expense for the Corporation.
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Noninterest income decreased $49,000 as a result of a decrease in net
securities gains from $69,000 in the third quarter of 1996 to $21,000 in the
third quarter of 1997. Noninterest expense increased $233,000 for the quarter
ended September 30, 1997 compared to the same period last year due primarily to
increases in merger related expenses of $305,000. Decreases in advertising,
professional fees, FDIC insurance, insurance and amortization of intangibles
partially offset this increase.
The Corporation generated net income of $3.2 million, or $1.83 per
share, for the nine month period ended September 30, 1997 compared to net income
of $2.9 million, or $1.67 per share, for the same period in 1996. Net interest
income for the nine months ended September 30, 1997 was $12.6 million, an
increase of $1.0 million over the same period in 1996. This improvement is
primarily due to the shift of funds from investment securities into loans as
well as a decrease in the Corporation's cost of funds.
The provision for possible loan losses increased slightly to $395,000
for the nine months ended September 30, 1997 from the $386,000 reported for the
comparable period in 1996. Noninterest income for the nine months ended
September 30, 1997 increased $226,000 to $1.4 million as a result of increased
securities gains of $180,000 as well as improvement in other noninterest income
of $41,000.
Total noninterest expense was $8.8 million for the nine months ended
September 30, 1997 compared to $8.0 million for the same period last year. The
increase of $884,000 was primarily due to increased merger related expenses of
$799,000. In addition, increases in salaries and benefits of $197,000 were
reported due to new branch openings as well as increased loan staff to handle
the increase in the loan portfolio.
Liquidity
Banking institutions measure liquidity as the ability to meet
unexpected deposit withdrawals of a short-term nature and to meet increased loan
demand. It is management's objective to ensure a continuous ability to meet cash
needs as they arise.
Given the uncertain nature of customer demands as well as the
Corporation's desire to take advantage of earnings enhancement opportunities,
the Corporation must have available adequate sources of on and off balance sheet
funds that can be acquired in time of need. Accordingly, in addition to the
liquidity provided by balance sheet cash flows, liquidity is supplemented with
alternative sources such as Fed Funds and Lines of Credit, Federal Home Loan
Bank Advances, wholesale and retail repurchase agreements and access to the
capital markets.
The Corporation's securities portfolio is classified primarily as
available-for-sale, which provides the flexibility to sell certain securities
based upon changes in economic or market conditions, interest rate risk and the
Corporation's financial position and liquidity.
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As of September 30, 1997 the Corporation's liquidity ratio was 19.9%
compared to 24.0% at December 31, 1996. In addition, the Corporation's bank
subsidiaries have the ability to borrow funds from the Federal Home Loan Bank,
thereby greatly enhancing its liquidity positions. Management believes each bank
subsidiary's liquidity is adequate.
Interest Rate Risk
Interest rate risk is defined as the exposure of the Corporation's
net income or financial position to adverse movements in interest rates. The
Corporation manages its interest rate risk within policies and limits
established by the Asset and Liability Management Committee (ALCO) and approved
by the Board of Directors (Board). ALCO issues strategic directives to specify
the extent to which Board-approved rate risk limits are utilized, taking into
account the results of the risk modeling process as well as other internal and
external factors.
In setting desirable levels of interest rate risk, ALCO considers the
impact on earnings and capital of the current outlook on interest rates,
potential changes in the outlook on interest rates and regional economies,
liquidity, business strategies, and other factors.
ALCO uses three key measurements to monitor interest rate risk: (i)
the interest rate sensitivity "gap" analysis; (ii) a "rate shock" to measure
earning's volatility due to an immediate increase or decrease in market rates of
interest; and (iii) simulation of net interest income under alternative balance
sheet and interest rate scenarios.
-13-
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<TABLE>
Interest rate gap analysis
Cumulatively Repriced Within
----------------------------------------------------------------------------------
Dollars in thousand, 3 Months 4 to 12 12 to 24 2 to 5 After 5
by repricing date or Less Months Months Years Years Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Interest sensitive assets:
Federal Funds Sold 10,150 0 0 0 0 10,150
Investment available for sale 6,689 12,276 15,441 17,331 10,837 62,574
Investment held to maturity 743 9,079 1,913 3,548 1,388 16,671
FHLB Stock/FRB Stock 0 0 0 0
2,038 2,038
Loans (fixed and
adjustable rate) 92,297 79,571 30,244 36,805 18,763 257,680
------- -------- ------ ------ -------- -------
Total interest sensitive
assets 109,879 100,926 47,598 57,684 33,026 349,113
======= ======== ====== ====== ======== =======
Interest sensitive liabilities:
Certificates of deposit 33,758 90,868 24,248 4,136 0 153,010
Other deposits 21,616 19,589 0 15,362 109,032 165,599
Borrowed funds 5,798 10,534 3,377 0 77 19,786
------- -------- ------ ------ -------- -------
Total interest sensitive
liabilities 61,172 120,991 27,625 19,498 109,109 338,395
======= ======== ====== ====== ======== =======
Net interest rate
sensitivity gap 48,707 (20,065) 19,973 38,186 (76,083) 10,718
Cumulative net interest
rate sensitivity gap 48,707 28,642 48,615 86,801 10,718 21,437
Cumulative net interest rate
sensitivity gap as a percentage
of total assets 12.80% 7.53% 12.78% 22.81% 2.82%
Cumulative interest sensitivity
gap as a percentage of total
interest-earning assets 13.95% 8.20% 13.93% 24.86% 3.07%
Cumulative net interest earning
assets as a percentage of
cumulative interest bearing
liabilities 179.62% 115.72% 123.17% 137.86% 103.17%
</TABLE>
Capital
The Corporation's Tier 1 and Total Risk Based Capital was 16.57% and
17.82%, respectively, at September 30, 1997. The Corporation's leverage ratio at
September 30, 1997 was 9.49%.
As of September 30, 1997, the capital ratios of the Corporation and
all of it's banking subsidiaries exceeded the minimum capital ratio requirements
of the "well capitalized" category under the Federal Deposit Insurance
Corporation Improvement Act of 1991 (FDICIA).
-14-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
Pursuant to a Unanimous Written Consent the Stockholders in Lieu of a
Special Meeting effective September 23, 1997, The Berlin City Bank, acting in
its capacity as the sole stockholder of the Corporation ratified and approved
the BCB Reorganization and the Merger and the transactions contemplated thereby,
as described in the Proxy Statement/Prospectus dated August 12, 1997.
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number
(27) Financial Data Schedule
(b) The Corporation did not file any Reports on Form 8-K during the
quarter ended September 30, 1997.
-15-
<PAGE>
SIGNATURES
Pursuant to requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHWAY FINANCIAL, INC.
November 13, 1997 BY: /s/ William J. Woodward
----------------------------
William J. Woodward
President & CEO
November 13, 1997 BY: /s/ David J. O'Connor
----------------------------
David J. O'Connor
Exec. Vice President & CFO
-16-
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<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT AND FROM THE MANAGEMENT DISCUSSION AND ANALYSIS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
MANAGEMENT DISCUSSION.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
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