Savi Financial Corporation Earns $1.1 Million in Third Quarter 2022; Highlighted by Strong Loan Growth and Net Interest Margin Expansion

Rhea-AI Summary

Savi Financial Corporation (OTC Pink: SVVB) reported a net income of $1.10 million in Q3 2022, equating to $0.25 per diluted share, a rise from $572,000 in Q2 2022. Year-to-date income is $2.63 million, down from $3.32 million in the same period last year. Loan growth was robust, with total loans increasing 20% year-over-year. The company transitioned to the CECL standard, reserving $2.3 million for credit losses, but this did not affect Q3 earnings. Orca Bank is set to open in Q1 2023, enhancing local service.

Positive

• Net income increased to $1.10 million in Q3 2022, compared to $572,000 in Q2 2022.
• Total loans rose by 20% year-over-year to $408.4 million.
• Net interest margin improved to 4.37%, up from 3.90% in Q2 2022.
• Nonperforming loans decreased to 0.32% as a percentage of total loans.

Negative

• Year-to-date net income of $2.63 million is down from $3.32 million in 2021.
• Nonperforming assets remain a concern despite improvements.
• Increasing deposit costs anticipated due to market competition.

MOUNT VERNON, Wash., Oct. 28, 2022 (GLOBE NEWSWIRE) -- Savi Financial Corporation, Inc. (OTC Pink: SVVB), the bank holding company for SaviBank, today reported net income for the third quarter of 2022 was $1.10 million, or $0.25 per diluted share, compared to $572,000, or $0.13 per diluted share in the preceding quarter, and $1.09 million, or $0.25 per diluted share, in the third quarter of 2021. Strong loan growth and net interest margin expansion contributed to profitability for the quarter. In the first nine months of 2022, net income was $2.63 million, or $0.60 per diluted share, compared to $3.32 million, or $0.76 per diluted share, in the first nine months of 2021.

“Our third quarter results included another strong quarter of loan growth, and solid net interest income generation, which contributed to net interest margin expansion,” said Michal D. Cann, Chairman and President of Savi Financial Corporation. “During the third quarter of 2022, we began accounting for credit losses under CECL. As a result of adopting this standard, we reserved a total of $2.3 million through retained earnings, which resulted in a $1.8 million tax-effective allocation from our capital position to the CECL transaction. This had no impact on our earnings for the third quarter of 2022. While this impacted capital ratios in the short term, we anticipate capital levels returning to more normalized levels during the first quarter of 2023, following the sale of SaviBank’s Bellingham branch to the new subsidiary, Orca Bank.”

“Our new community bank in Bellingham, WA., named Orca Bank, is on schedule to open during the first quarter of 2023,” Cann continued. “The formation of Orca Bank came from a local group of community-minded businesspeople from Whatcom County, with the help of Savi Financial Corporation, the parent company of SaviBank. This stand-alone community bank will focus on serving the communities in Whatcom County, the largest county in which Savi Financial Corporation operates. This transaction will enable us to better serve the banking needs of Whatcom County, with a local Board of Directors and management making local decisions.”

“Loan production continues to be strong, with total loans increasing 3% during the quarter and 20% compared to a year ago,” said Andrew Hunter, President and CEO of SaviBank. “While we remain cautious, as rising interest rates and recession concerns could slow down future growth, our loan pipeline remains solid.”

“Our net interest margin improved 47 basis points during the quarter, compared to the second quarter of 2022, largely due to interest rate increases and the shifting of lower yielding assets into higher yielding loans,” said Rob Woods, Chief Financial Officer of SaviBank. “We potentially have additional net interest margin improvement over the next quarter, as some of our variable loans adjust rates quarterly.” SaviBank’s NIM was 4.37% in the third quarter of 2022, compared to 3.90% in the preceding quarter, and 4.02% in the third quarter a year ago. The NIM remains higher than the peer average of 3.42% posted by the 154 banks that comprised the Dow Jones U.S. Microcap Bank Index at June 30, 2022.

“We were able to keep deposit balances steady during the quarter, even while allowing higher cost CDs to run off. Deposit costs have also remained manageable, although we expect to see increasing costs for deposits in future quarters due to competition in our markets,” said Woods. The cost of funds for the third quarter remained steady at 15 basis points, compared to 16 basis points in the prior quarter.

Third Quarter 2022 Highlights:

• Net income was $1.10 million in the third quarter of 2022, compared to $1.09 million in the third quarter of 2021, and $572,000 in the second quarter of 2022.
• Earnings per share were $0.25 in both the third quarter of 2022 and the third quarter of 2021. Earnings per share were $0.13 in the preceding quarter.
• Net interest income increased 17% to $4.98 million in the third quarter of 2022, compared to $4.27 million in the third quarter a year ago, and $4.26 million in the second quarter of 2022.
• Total revenue, consisting of net interest income and non-interest income, increased 8% to $6.73 million in the third quarter of 2022, compared to $6.22 million in the third quarter a year ago and increased 11% compared to $6.10 million in the preceding quarter.
• Non-interest expense increased 15% to $5.39 million in the third quarter compared to $4.69 million in the third quarter a year ago and increased 2% compared to $5.27 million in the preceding quarter.
• Average third quarter 2022 total loans increased 19% to $403.1 million, compared to $338.0 million in the third quarter a year ago, and increased 5% from $382.5 million in the second quarter of 2022. Total loans at September 30, 2022, increased 20% to $408.4 million, from $339.5 million a year ago and increased 3% compared to $396.7 million at June 30, 2022.
• SBA and USDA loan production for the twelve months ended September 30, 2022, totaled 19 loans for $24.8 million, compared to production of 19 loans for $25.2 million in the year-ago period.
• Average third quarter 2022 total deposits grew 11% to $456.6 million, from $411.3 million in the third quarter a year ago, and increased 1% from $451.4 million in the second quarter of 2022. Total deposits grew 9% to $458.6 million, at September 30, 2022, from $419.1 million a year ago, and increased 1% from $454.6 million at June 30, 2022.
• The Company transitioned to CECL during the third quarter of 2022 and reserved $2.3 million through retained earnings, and as a result, recorded no provision for loan losses in the third quarter of 2022. This compared to a $150,000 provision for loan losses in the third quarter of 2021, and a $79,000 provision in the second quarter of 2022.
• Allowance for loan losses, as a percentage of total loans, was 1.34% at September 30, 2022, compared to 1.17% at September 30, 2021, and 1.08% at June 30, 2022.
• Nonperforming loans, as a percentage of total loans, was 0.32% at September 30, 2022, compared to 0.50% at September 30, 2021, and 0.42% at June 30, 2022.  
• Nonperforming assets, as a percentage of total assets, was 0.38% at September 30, 2022, compared to 0.56% a year ago and 0.45% three months earlier.
• Net charge-offs were $190,000 in the third quarter of 2022, compared to net recoveries of $18,000 in the third quarter of 2021, and net charge-offs of $35,000 in the second quarter of 2022.  
• SaviBank capital levels remained above the threshold for well-capitalized institutions with a tier-1 leverage ratio of 7.74% at September 30, 2022.  

“Another highlight of the quarter was transitioning our loan production office in Friday Harbor to a full-service branch, bringing our total branch network to 10 branches,” said Cann. “Over the past few years, we have been actively growing Savi Financial Corporation and expanding our presence in and around the Northwest Washington communities we serve. We will continue to search for opportunities to expand our franchise, for the benefit of our customers, shareholders and communities.”

Recent Events

On May 26, 2022, the Company announced plans to form a new state-chartered commercial bank headquartered in Bellingham, Washington. The transaction involves the formation of Orca Bank by applying for a de novo bank charter, with Savi Financial acquiring Orca Bank as a wholly owned subsidiary. Orca Bank is scheduled to open during the first quarter of 2023. For more details on the application visit the FDIC website at www.FDIC.gov.

On March 7, 2022, the Company completed the issuance of $17 million in 10-year fixed-to-floating rate subordinated notes due in 2032 in a private placement transaction to certain institutional accredited investors and qualified buyers. The notes will initially bear interest at 4.25% per annum through March 31, 2027, at which point interest will accrue at a floating rate payable quarterly.

About Northwest Washington

SaviBank currently operates six branches in Skagit County, two branches in Island County, one branch in Whatcom County, and one branch in San Juan County. The Skagit, Whatcom, Island and San Juan counties region stretches north from the greater Seattle/Everett/Bellevue metropolis to the Canadian border.

The housing market in Skagit, Island, Whatcom and San Juan counties remains healthy. According to the Northwest Multiple Listing Service, the average home in Skagit County sold for $552,000, up 10.5% in September 2022, compared to a year ago, and there was a 2.05 month supply of homes on the market. For Island County, the average house sold for $543,000, up 9.7% from a year ago and supply totaled 2.18 months. For Whatcom County, the average home sold for $545,000, up 2.2% from a year ago and supply totaled 2.18 months. For San Juan County, the average home sold for $774,000, down 8.6% from a year ago and supply totaled 4.88 months.

Skagit’s population is projected to grow 5.74% from 2022 through 2027, and median household income is projected to increase by 11.63% during the same time frame. Whatcom County’s population is projected to grow 6.20% from 2022 through 2027, and median household income is projected to increase by 17.13%. Island County’s population is projected to grow 11.53% from 2022 through 2027, and median household income is projected to increase by 13.08%. San Juan County’s population is projected to grow 5.53% from 2022 through 2027, and median household income is projected to increase by 9.39%.

Sources:
https://www.nwmls.com/wp-content/uploads/2022/10/Recaps_September2022-1.pdf

https://www.capitaliq.spglobal.com/

About Savi Financial Corporation Inc. and SaviBank –

Savi Financial Corporation is the bank holding company which owns SaviBank. The Bank began operations April 11, 2005, and has 10 branch locations in Anacortes, Burlington, Bellingham, Concrete, Mount Vernon (2), Oak Harbor, Freeland, Sedro-Woolley, and Friday Harbor, Washington. The Bank provides loan and deposit services to customers who are predominantly small and middle-market businesses and individuals in and around Skagit, Island, Whatcom and San Juan counties. As a locally-owned community bank, we believe that when everyone becomes Savi about their finances, our entire community benefits. For additional information about SaviBank, visit; www.SaviBank.com.

Forward Looking Statement

This release may contain “forward-looking statements” that are subject to risks and uncertainties. Readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. All statements, other than statements of historical fact, regarding our financial position, business strategy and management’s plans and objectives for future operations are forward-looking statements. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” and “intend” and words or phrases of similar meaning, as they relate to SaviBank or management, are intended to help identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although we believe that management’s expectations as reflected in forward-looking statements are reasonable, we cannot assure readers that those expectations will prove to be correct. Forward-looking statements are subject to various risks and uncertainties that may cause our actual results to differ materially and adversely from our expectations as indicated in the forward-looking statements. These risks and uncertainties include our ability to maintain or expand our market share or net interest margins, and to implement our marketing and growth strategies. Further, actual results may be affected by our ability to compete on price and other factors with other financial institutions; customer acceptance of new products and services; the regulatory environment in which we operate; and general trends in the local, regional and national banking industry and economy, as those factors relate to our cost of funds and return on assets. In addition, there are risks inherent in the banking industry relating to collectability of loans and changes in interest rates. Many of these risks, as well as other risks may have a material adverse impact on our operations and business.

Contact:
Michal D. Cann
Chairman & President
Savi Financial Corporation
(360) 707-2272

SELECTED FINANCIAL DATA
(In thousands of dollars, except for ratios and per share amounts)
Unaudited
	Three Months Ended																		Nine Months Ended
	September 30, 2022				September 30, 2021				Var %			June 30, 2022				Var %			September 30, 2022				September 30, 2021				Var %
SUMMARY OF OPERATIONS
Interest income	$	5,374			$	4,634			16	%		$	4,648			16	%		$	14,327			$	13,892			3	%
Interest expense		(394	)			(365	)		8				(389	)		1				(1,090	)			(1,266	)		(14	)
Net interest income		4,980				4,269			17				4,259			17				13,237				12,626			5
Provision for loan losses		—				(150	)		(100	)			(79	)		(100	)			(79	)			(328	)		(76	)
NII after loss provision		4,980				4,119			21				4,180			19				13,158				12,298			7
Non-interest income		1,746				1,951			(11	)			1,809			(3	)			5,623				4,087			38
Non-interest expense		(5,391	)			(4,693	)		15				(5,275	)		2				(15,539	)			(12,189	)		27
Income before tax		1,335				1,377			(3	)			714			87				3,242				4,196			(23	)
Federal income tax expense		240				291			(18	)			142			69				611				881			(31	)
Net income	$	1,095			$	1,086			1	%		$	572			91	%		$	2,631			$	3,315			(21	)%
PER COMMON SHARE DATA
Number of shares outstanding (000s)		3,441				3,439			0	%			3,440			0.03	%			3,441				3,439			0.06	%
Earnings per share, diluted	$	0.25			$	0.25			(0	)		$	0.13			90			$	0.60			$	0.76			(22	)
Market value		10.00				9.91			1				10.00			-				10.00				9.91			1
Book value		10.28				10.94			(6	)			10.76			(4	)			10.28				10.94			(6	)
Market value to book value		97.26	%			90.62	%		7				92.92	%		5				97.26	%			90.62	%		7
BALANCE SHEET DATA
Assets	$	520,783			$	476,313			9	%		$	518,034			1	%		$	520,783			$	476,313			9	%
Investments securities		54,533				33,163			64				54,730			(0	)			54,533				33,163			64
Total loans		408,417				339,500			20				396,748			3				408,417				339,500			20
Total deposits		458,555				419,066			9				454,621			1				458,555				419,066			9
Borrowings		24,500				17,500			40				24,500			-				24,500				17,500			40
Shareholders’ equity		35,379				37,609			(6	)			37,020			(4	)			35,379				37,609			(6	)
AVERAGE BALANCE SHEET DATA
Average assets	$	519,409			$	472,675			10	%		$	514,806			1	%		$	500,174			$	442,846			13	%
Average total loans		403,112				338,024			19				382,522			5				380,208				348,130			9
Average total deposits		456,588				411,292			11				451,436			1				445,649				383,996			16
Average shareholders' equity		36,200				37,078			(2	)			37,191			(3	)			36,509				35,921			2
ASSET QUALITY RATIOS
Net (charge-offs) recoveries	$	(190	)		$	18			N/M			$	(35	)		N/M			$	(224	)		$	(41	)		N/M
Net (charge-offs) recoveries to average loans		(0.19	)%			0.02	%		N/M				(0.04	)%		N/M				(0.08	)%			(0.02	)%		N/M
Non-performing loans as a % of loans		0.32				0.50			(36	)			0.42			(24	)			0.42				0.50			(17	)
Non-performing assets as a % of assets		0.38				0.56			(33	)			0.45			(17	)			0.51				0.56			(8	)
Allowance for loan losses as a % of total loans		1.34				1.17			14				1.08			24				0.98				1.17			(17	)
Allowance for loan losses as a % of non-performing loans		419.22				234.73			79				257.02			63				419.22				234.73			79
FINANCIAL RATIOS\STATISTICS
Return on average equity		12.10	%			11.72	%		3	%			6.15	%		97	%			9.61	%			12.30	%		(22	)%
Return on average assets		0.84				0.92			(8	)			0.44			90				0.70				1.00			(30	)
Net interest margin		4.37				4.02			9				3.90			12				3.98				4.05			(2	)
Efficiency ratio		75.36				73.56			2				81.59			(8	)			78.41				71.06			10
Average number of employees (FTE)		145				122			19				138			5				139				115			21
CAPITAL RATIOS
Tier 1 leverage ratio -- Bank		7.74				8.00			(3	)%			8.00			(3	)%			7.74				8.00			(3	)%
Common equity tier 1 ratio -- Bank		8.65				9.88			(12	)%			9.06			(5	)%			8.65				9.88			(12	)%
Tier 1 risk-based capital ratio -- Bank		8.65				9.88			(12	)%			9.06			(5	)%			8.65				9.88			(12	)%
Total risk-based capital ratio --Bank		9.91				10.97			(10	)%			10.08			(2	)%			9.91				10.97			(10	)%

FAQ

What was Savi Financial Corporation's net income in Q3 2022?

Savi Financial Corporation reported a net income of $1.10 million in Q3 2022.

How much did total loans increase for Savi Financial Corporation?

Total loans increased by 20% year-over-year to $408.4 million.

What is the expected opening date for Orca Bank?

Orca Bank is scheduled to open in the first quarter of 2023.

What is Savi Financial Corporation's net interest margin for Q3 2022?

The net interest margin for Q3 2022 improved to 4.37%.

How has Savi Financial Corporation's year-to-date net income changed?

Year-to-date net income is $2.63 million, down from $3.32 million in the previous year.