-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VD02Jz381EnRdD+PT4qsq1fJkcQRm9X+vjzWrhJTH6PJqUDCLc1ckbKR9dyc03DJ 96dNKvKcv4GHCH8ZgxWzIw== 0000950156-01-500475.txt : 20020410 0000950156-01-500475.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950156-01-500475 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWAY FINANCIAL INC CENTRAL INDEX KEY: 0001041753 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 043368379 STATE OF INCORPORATION: NH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23129-33 FILM NUMBER: 1780613 BUSINESS ADDRESS: STREET 1: 9 MAIN ST CITY: BERLIN STATE: NH ZIP: 03750 BUSINESS PHONE: 6037521171 MAIL ADDRESS: STREET 1: 9 MAIN ST CITY: BERLIN STATE: NH ZIP: 03750 10-Q 1 d57194.txt NORTHWAY FIN. FORM 10-Q 09/30/2001 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, 2001 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 30, 2001, there were 1,511,628 shares of common stock outstanding, par value $1.00 per share. INDEX NORTHWAY FINANCIAL, INC. PART I. FINANCIAL INFORMATION PAGE Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2001 and 2000 (Unaudited)........ 3 Condensed Consolidated Balance Sheets at September 30, 2001 (Unaudited) and December 31, 2000.................................... 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2000 (Unaudited)........................ 5 Notes to Condensed Consolidated Financial Statements (Unaudited)..... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................ 9 Item 3. Quantitative and Qualitative Disclosures about Market Risk........... 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings.................................................... 13 Item 2. Changes in Securities................................................ 13 Item 3. Defaults Upon Senior Securities...................................... 13 Item 4. Submission of Matters to a Vote of Security Holders.................. 13 Item 5. Other Information.................................................... 13 Item 6. Exhibits and Reports on Form 8-K..................................... 13 Signatures................................................................. 14 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements. NORTHWAY FINANCIAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Nine Months Ended September 30, Ended September 30, (Dollars in thousands, except per share data) 2001 2000 2001 2000 - --------------------------------------------------------------------------------------------------------------------- Interest and dividend income: Loans $7,854 $8,531 $24,114 $24,651 Interest on debt securities Taxable 454 721 1,607 2,225 Tax exempt 122 63 354 188 Dividends 79 128 273 332 Federal funds sold 208 265 322 273 Interest bearing deposits 1 5 3 10 ------------------------------------------ Total interest and dividend income 8,718 9,713 26,673 27,679 ------------------------------------------ Interest expense: Deposits 2,655 3,032 8,979 8,025 Borrowed funds 784 1,268 2,252 3,835 ------------------------------------------ Total interest expense 3,439 4,300 11,231 11,860 ------------------------------------------ Net interest and dividend income 5,279 5,413 15,442 15,819 Provision for loan losses 225 255 675 755 ------------------------------------------ Net interest and dividend income after provision for loan losses 5,054 5,158 14,767 15,064 ------------------------------------------ Noninterest income: Service charges on deposit accounts and fees 270 266 870 746 Securities gains, net 33 138 128 414 Other 497 314 1,180 776 ------------------------------------------ Total noninterest income 800 718 2,178 1,936 ------------------------------------------ Noninterest expense: Salaries and employee benefits 2,299 2,353 6,677 6,724 Office occupancy and equipment 675 677 2,120 1,998 Amortization of deposit purchase premium 128 134 478 339 Other 1,183 1,143 3,312 3,381 ------------------------------------------ Total noninterest expense 4,285 4,307 12,587 12,442 ------------------------------------------ Income before income tax expense 1,569 1,569 4,358 4,558 Income tax expense 470 537 1,321 1,510 ------------------------------------------ Net income $1,099 $1,032 $ 3,037 $ 3,048 ========================================== Comprehensive net income $ 957 $1,360 $ 2,971 $ 3,103 ========================================== Per share data: Earnings per common share $ 0.72 $ 0.65 $ 1.99 $ 1.91 Cash dividends declared $ 0.17 $ 0.15 $ 0.51 $ 0.45 Weighted average number of common shares 1,513,264 1,586,134 1,524,952 1,597,457 The accompanying notes are an integral part of these condensed consolidated financial statements.
NORTHWAY FINANCIAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS Sept. 30, Dec. 31, (Dollars in thousands) 2001 2000 - ------------------------------------------------------------------------------- (Unaudited) Assets Cash and due from banks and interest bearing deposits $ 14,581 $ 15,401 Federal funds sold 23,450 -- Investment securities available-for-sale 49,003 55,712 Investment securities held-to-maturity -- 2,752 Loans held for sale 1,280 229 Loans 395,390 393,258 Allowance for loan losses (4,576) (4,354) ------------------------ Loans, net 390,814 388,904 ----------------------- Real estate acquired by foreclosure 32 25 Accrued interest receivable 2,513 2,842 Deferred income tax asset, net 1,944 1,901 Premises and equipment, net 11,396 11,000 Deposit assumption premium 4,620 5,098 Other assets 2,104 1,280 ----------------------- Total assets $501,737 $485,144 ======================= Liabilities and Stockholders' Equity Liabilities: Interest bearing deposits $336,792 $335,027 Non-interest bearing deposits 60,479 56,745 Repurchase agreements 10,914 9,390 Short-term Federal Home Loan Bank advances 3,028 2,950 Long-term Federal Home Loan Bank advances 45,000 35,528 Other liabilities 2,909 3,942 ----------------------- Total liabilities 459,122 443,582 ----------------------- Stockholders' equity: Preferred stock, $1 par value; 1,000,000 shares authorized; none issued -- -- Common stock, $1 par value; 9,000,000 shares authorized; 1,731,969 shares issued and 1,511,628 outstanding September 30, 2001 and 1,559,369 outstanding December 31, 2000 1,732 1,732 Additional paid-in-capital 2,101 2,101 Retained earnings 45,376 43,110 Treasury stock, at cost (220,341 and 172,600 shares, respectively) (5,855) (4,708) Accumulated other comprehensive (loss) income, net of tax (739) (673) ----------------------- Total stockholders' equity 42,615 41,562 ----------------------- Total liabilities and stockholders' equity $501,737 $485,144 ======================= The accompanying notes are an integral part of these condensed consolidated financial statements. NORTHWAY FINANCIAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Nine Months Ended September 30, (Dollars in thousands) 2001 2000 - ------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 3,037 $ 3,048 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 675 755 Depreciation and amortization 1,286 1,077 Deferred income taxes -- (149) Write-down of real estate acquired by foreclosure 3 -- Gains on sales of investment securities available-for-sale, net (128) (414) Amortization of premium & accretion of discounts on securities, net 30 34 Increase (decrease) in unearned income, net 2 (185) (Gain) loss on sales of other real estate owned and other personal property, net (19) 1 Net increase in loans held for sale (785) (3,000) Net change in other assets and other liabilities (1,347) (284) ------------------ Net cash provided by operating activities 2,754 883 ------------------ Cash flows from investing activities: Proceeds from sales of investment securities available-for-sale 4,211 2,013 Proceeds from maturities of investment securities held-to-maturity -- 2,444 Proceeds from maturities of investment securities available-for-sale 33,608 4,141 Purchase of investment securities available-for-sale (28,594) (5,309) Purchase of investment securities held-to-maturity -- (1,155) Net increase in loans (3,287) (25,965) Proceeds from sales of and payments received on other real estate owned 37 137 Proceeds from sales of and payments received on other personal property 450 346 Additions to premises and equipment (1,204) (1,263) ------------------ Net cash provided (used) by investing activities 5,221 (24,611) ------------------ Cash flows from financing activities: Deposits assumed in branch transaction, net of assumption premium -- 23,381 Net increase in deposits 5,499 22,608 Advances from Federal Home Loan Bank 14,000 19,000 Repayment of Federal Home Loan Bank advances (1,500) (39,000) Net (decrease) increase in short-term Federal Home Loan Bank advances (2,950) 11,050 Net increase in securities sold under agreements to repurchase 1,524 4,019 Purchases of treasury stock (1,147) (704) Cash dividends paid (771) (719) ------------------ Net cash provided by financing activities 14,655 39,635 ------------------ Net increase in cash and cash equivalents 22,630 15,907 Cash and cash equivalents at beginning of period 15,401 16,087 ------------------ Cash and cash equivalents at end of period $38,031 $31,994 ================== Continued.... The accompanying notes are an integral part of these condensed consolidated financial statements.
NORTHWAY FINANCIAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-CONTINUED (Unaudited) For the Nine Months Ended September 30, (Dollars in thousands) 2001 2000 - ------------------------------------------------------------------------------- Cash paid during the period for: Interest $12,670 $11,424 ======= ======= Income taxes $ 1,024 $ 1,064 ======= ======= Supplemental disclosures of non-cash activities: Loans transferred to real estate owned $ 33 $ 48 ======= ======= Loans transferred to other personal property $ 402 $ 500 ======= ======= Loans transferred to held-for-sale $ 722 $ -- ======= ======= Available-for-sale securities transferred to other assets $ 225 $ -- ======= ======= Carrying amount of held-to-maturity securities transferred to available-for-sale $ 2,738 $ -- ======= ======= Long-term Federal Home Loan Bank advances transferred to short-term Federal Home Loan Bank advances $ 4,528 $ -- ======= ======= The accompanying notes are an integral part of these condensed consolidated financial statements. NORTHWAY FINANCIAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2001 (Unaudited) 1. Basis of Presentation. The unaudited condensed consolidated financial statements of Northway Financial, Inc. and its two wholly owned bank subsidiaries (collectively "the Company") included herein have been prepared by the Company 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 Company, however, believes that the disclosures are adequate to make the information presented not misleading. 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 month periods ended September 30, 2001 and 2000 are not necessarily indicative of the results of operations to be expected for the full year or any other interim periods. The interim financial statements are meant to be read in conjunction with the Company's audited financial statements presented in its Annual Report on Form 10-K for the fiscal year ended December 31, 2000. In preparing financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the reported period. Actual results could differ from these estimates. Material estimates that are particularly susceptible to change relate to the determination of the allowance for loan losses. The year end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. 2 Impact of New Accounting Standards. In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, effective for fiscal years beginning after June 15, 2000. This Statement establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other contracts, and requires that an entity recognize all derivatives as assets or liabilities in the balance sheet and measure them at fair value. If certain conditions are met, an entity may elect to designate a derivative as follows: (1) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (2) a hedge of the exposure to variable cash flows of a forecasted transaction, or (3) a hedge of the foreign currency exposure of an unrecognized firm commitment, an available-for-sale security, a foreign currency denominated forecasted transaction, or a net investment in a foreign operation. The Statement generally provides for matching the timing of the recognition of the gain or loss on derivatives designated as hedging instruments with the recognition of the changes in the fair value of the item being hedged. Depending on the type of hedge, such recognition will be either net income or other comprehensive income. For a derivative not designated as a hedging instrument, changes in fair value will be recognized in net income in the period of change. Management adopted this pronouncement on January 1, 2001. Statement No. 133 allows for a one-time change in the classification of securities in the investment portfolio. In conjunction with the adoption of Statement No. 133, the Company transferred all securities held-to-maturity to the available-for-sale category at their market value of $2,731,000 as of January 1, 2001. In connection with the transfer, the Company recorded in comprehensive income an unrealized holding loss of approximately $13,000, net of tax effect. Under Statement No. 133, this transfer will not call into question the Company's intent to hold other debt securities to maturity in the future. The adoption of this Statement has had no other material impact on the consolidated financial statements. The FASB has issued Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This Statement replaces Statement No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and rescinds Statement No. 127, Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125. Statement No. 140 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. This Statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. This Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001; however, the disclosure provisions are effective for fiscal years ending after December 15, 2000. The adoption of this Statement has had no material impact on the consolidated financial statements. The FASB has issued Statement No. 141, Business Combinations. This Statement improves the consistency of the accounting and reporting of business combinations by requiring that all business combinations be accounted for under a single method - the purchase method. Use of the pooling-of-interests method is no longer permitted. Statement No. 141 requires that the purchase method be used for business combinations initiated after June 30, 2001. The adoption of this Statement has had no material impact on the consolidated financial statements. The FASB has issued Statement No. 142, Goodwill and Other Intangible Assets. Statement 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment. The amortization of goodwill ceases upon adoption of the statement, which for most companies, will be January 1, 2002. Management believes that adopting this Statement will have no significant impact of on the consolidated financial statements. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation Introduction The following discussion and analysis and related consolidated financial statements include Northway Financial, Inc. and its wholly-owned subsidiaries, The Berlin City Bank and Pemigewasset National Bank (collectively the "Company"). Certain statements in this Form 10-Q are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include, but are not limited to, projections of revenue, income or loss, plans for future operations and acquisitions, and plans related to products or services of the Company and its subsidiaries. Such forward-looking statements are subject to known and unknown risks, uncertainties and contingencies, many of which are beyond the control of the Company. To the extent any such risks, uncertainties and contingencies are realized, the Company's actual results, performance or achievements could differ materially from anticipated results, performance or achievements. Factors that might affect such forward-looking statements include, among other things, overall economic and business conditions, economic and business conditions in the Company's market areas, interest rate fluctuations, the demand for the Company's products and services, competitive factors in the industries in which the Company competes, changes in government regulations, and the timing, impact and other uncertainties of future acquisitions. In addition to the factors described above, the following are some additional factors that could cause our financial performance to differ from any forward-looking statement contained herein; a) the current economic downturn nation-wide and regionally, as well as a deterioration of local business conditions, including termination of operations of a major employer in the primary market area of the Berlin City Bank, b) the change in interest rates over the past year and expected changes in interest rates during the remainder of the year 2001; c) a change in product mix attributable to changing interest rates, customer preferences or competition; d) a significant portion of the Company's loan customers are in the hospitality business and therefore could be affected by weather conditions and/or high gasoline prices; and e) the effectiveness of advertising, marketing and promotional programs. 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 or unknown risks, uncertainties or other factors, which may cause the actual results, performance or achievements of the Company to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Although the Company has attempted to list comprehensively the factors which might affect forward-looking statements, the Company wishes to caution investors that other factors may in the future prove to be important in affecting the Company's results of operations. New factors emerge from time to time and it is not possible for management to anticipate all of such factors, nor can it assess the impact of each such factor, or combination of factors, which may cause actual results to differ materially from forward-looking statements. Financial Condition The Company's total assets at September 30, 2001 were $501.7 million compared to $485.1 million at December 31, 2000, a $16.6 million increase. Net loans, including loans held for sale, increased $3.0 million to $392.1 million and investment securities decreased $9.5 million to $49.0 million. Cash and cash equivalents increased $22.6 million to $38.0 million as a result of a decrease in investment securities and an increase in deposit and debt balances. Deposits increased $5.5 million, Federal Home Loan Bank advances increased $9.6 million and repurchase agreements increased $1.5 million. Total stockholders' equity increased $1.0 million from $41.6 million at December 31, 2000 to $42.6 million at September 30, 2001. The increase in stockholders' equity was a result of net income of $3.0 million partially offset by an increased accumulated comprehensive loss of $0.1 million, dividends of $0.8 million and treasury stock purchases totaling $1.1 million. The Company maintains an allowance for loan losses to absorb future charge-offs of loans in the existing portfolio. The allowance is increased when a loan loss provision is recorded as an expense. When a loan, or portion thereof, is considered uncollectible, it is charged against this allowance. Recoveries of amounts previously charged off are added to the allowance when collected. At September 30, 2001 the allowance for loan losses was $4.6 million, or 1.16% of total loans, compared to $4.4 million, or 1.11% of total loans at December 31, 2000. The allowance for loan losses is 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. An analysis of the allowance for loan losses for the three month and nine month periods ended September 30, 2001 and 2000 is as follows: Three Months Nine Months Ended September 30, Ended September 30, (Dollars in thousands) 2001 2000 2001 2000 - ----------------------------------------------------------------------------- Balance at beginning of period $4,486 $4,220 $4,354 $4,887 ------------------------------------------ Charge-offs (175) (199) (554) (1,559) Recoveries 40 22 101 215 ------------------------------------------ Net Charge-offs (135) (177) (453) (1,344) Provision for loan losses 225 255 675 755 ------------------------------------------ Balance at end of period $4,576 $4,298 $4,576 $4,298 ------------------------------------------ Nonperforming loans totaled $1.1 million as of September 30, 2001, compared to $1.0 million at December 31, 2000. The ratio of nonperforming loans to total loans was 0.27% as of September 30, 2001 compared to 0.24% at December 31, 2000 and the ratio of nonperforming assets to total assets was 0.23% as of September 30, 2001 compared to 0.22% at December 31, 2000. Results of Operations The Company reported net income of $1.10 million, or $0.72 per common share, for the three months ended September 30, 2001, compared to $1.03 million, or $0.65 per common share, for the three months ended September 30, 2000. The increase in net income for the quarter is primarily attributable to higher noninterest income and lower tax expense. Net interest and dividend income for the three months ended September 30, 2001 decreased $0.13 million to $5.28 million compared to $5.41 million for the third quarter of the prior year. Net income for the nine months ended September 30, 2001 was $3.04 million, or $1.99 per common share, compared to $3.05 million, or $1.91 per share, for the nine months ended September 30, 2000. The decrease in net income is primarily a result of decreases in net interest and dividend income and an increase in operating expenses partially offset by increased noninterest income and lower taxes. For the nine months ended September 30, 2000 net interest and dividend income decreased $0.38 million to $15.44 million compared to $15.82 million for the same period of the prior year. The increase in net income per share is a result of a reduction of shares of common stock outstanding in connection with the Company's share repurchase program. Noninterest income increased $0.08 million to $0.80 million in the third quarter of 2001 compared to $0.72 million in the third quarter of 2000. For the nine months ended September 30, 2001 noninterest income increased $0.24 million to $2.18 million compared to $1.94 million for the same period of the prior year. In each case, the increase was primarily due to increased deposit service charges and other income which offset a decrease in securities gains. Noninterest expense decreased $0.02 million to $4.29 million for the quarter ended September 30, 2001 compared to the $4.31 million recorded during the same period last year. For the nine months ended September 30, 2001 noninterest expense totaled $12.59 million, an increase of $0.15 million over $12.44 million recorded for the same period of the prior year. The results for the third quarter of 2000 included expenses associated with the West Ossipee branch acquisition which did not recur in 2001 while the increase on a year-to-date basis was principally attributable to the acquisition of an additional branch during the third quarter of the prior year. Income Tax Expense The Company recognized income tax expense of $1.32 million and $1.51 million for the nine months ended September 30, 2001 and 2000, respectively. The effective tax rates were 30.3% and 33.1% for those respective periods. The decrease in the effective tax rate is due to the favorable effect of the Company's State of New Hampshire tax credits related to economic development grants and a higher proportion of tax exempt investments. Liquidity Liquidity risk management refers to the Company's and its subsidiaries' ability to raise funds in order to meet existing and anticipated financial obligations. These obligations to make payment include withdrawal of deposits on demand or at their contractual maturity, the repayment of borrowings as they mature, funding new and existing loan commitments as well as new business opportunities. Liquidity may be provided through amortization, maturity or sale of assets such as loans and securities available-for-sale, liability sources such as increased deposits, utilization of the FHLB credit facility, purchased or other borrowed funds, and access to the capital markets. Liquidity targets are subject to change based on economic and market conditions and are controlled and monitored by the Company's Asset/Liability Committee. At the subsidiary bank level, liquidity is managed by measuring the net amount of marketable assets after deducting pledged assets, plus lines of credit, primarily with the FHLB, which are available to fund liquidity requirements. Management then measures the adequacy of that aggregate amount relative to the aggregate amount of liabilities deemed to be sensitive or volatile. These include core deposits in excess of $100,000, term deposits with short maturities, and credit commitments outstanding. Additionally, the parent holding company requires cash for various operating needs including dividends to shareholders, the stock repurchase program, capital injections to the subsidiary banks, and the payment of general corporate expenses. The primary sources of liquidity for the parent holding company are dividends from the subsidiary banks. Management believes that the Company's current level of liquidity and funds availability from outside sources are sufficient to meet the Company's needs. However, the Company has been successful in its efforts to increase its lending capabilities and may need to identify additional sources of liquidity as the loan portfolio expands. Branch Acquisition On June 11, 2001, the Berlin City Bank (BCB) signed a purchase and sale agreement with the Bank of New Hampshire (BNH) which resulted in the acquisition of the BNH branch in Littleton, New Hampshire on October 26, 2001. Deposit levels at that branch totaled approximately $28.7 million at acquisition. In addition, BCB purchased certain loans associated with the branch totaling approximately $2.6 million. Capital The Company's Tier 1 and Total Risk Based Capital ratios were 10.06% and 11.25%, respectively, at September 30, 2001. The Company's Tier 1 leverage ratio at September 30, 2001 was 7.68%. As of September 30, 2001, the capital ratios of the Company and all its subsidiary banks exceeded the minimum capital ratio requirements of the "well capitalized" category under the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA). As a result of the above mentioned branch acquisition Total Risk Based Capital at BCB is anticipated to fall below the "well capitalized" level for a period of time. Item 3. Quantitative and Qualitative Disclosures About Market Risk Since December 31, 2000, there have been no material changes in the Company's quantitative and qualitative disclosures about market risk. A more full description of the quantitative and qualitative disclosures about market risk was provided by the Company on pages 8 through 18 of the Company's 2000 Annual Report to Stockholders filed as Exhibit 13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. 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 - None Item 5. Other Information - None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - None (b) The Company did not file any Reports on Form 8-K during the quarter ended September 30, 2001 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 9, 2001 BY: \S\ William J. Woodward ------------------------------- William J. Woodward President & CEO (Principal Executive Officer) November 9, 2001 BY: \S\ George L. Fredette ------------------------------- George L. Fredette Senior Vice President & CFO (Principal Financial and Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----