Market Overview

SaviBank Second Quarter 2018 Profits Increase 28% to $519,000; Loans Grow 15% and Deposits Increase 25% Year-Over-Year

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BURLINGTON, Wash., July 31, 2018 (GLOBE NEWSWIRE) -- Savi Financial Corporation, Inc. (OTC:SVVB), the bank holding company for SaviBank, today reported second quarter 2018 earnings grew 28% to $519,000, or $0.024 per diluted share, compared to $404,000, or $0.020 per diluted share in the second quarter of 2017.  In the first quarter of 2018, Savi earned $661,000, or $0.033 per diluted share, reflecting strong Small Business Administration (SBA) loan sales.  Profitability was fueled by 15% loan growth and 25% deposit growth year-over-year, excellent asset quality and strong net interest margin.  All results are unaudited.

In the first six months of 2018, earnings grew 50% to $1.18 million, or $0.055 per diluted share, compared to $785,000, or $0.039 per diluted share, in the first six months of 2017.

"The markets we serve in Northwest Washington continue to demonstrate robust economic growth.  This growth, along with the consolidation we are seeing in the banking industry, continues to present opportunities for Savi Financial," said Michal D. Cann, Chairman and CEO.  "In addition, our region offers relatively affordable housing, and housing appears to be stabilizing in our area and throughout Washington state. Inventories are beginning to expand slowly, and home prices are moderating, compared to the overheated conditions we have seen in the past few years."  

"Our SBA lending team earned the SBA's Seattle District Outstanding Community Lender award for 2018," said Andrew Hunter, President.  SBA and USDA loan production for the SBA's fiscal 2018 year-to-date (October 1, 2017 through June 30, 2018) totaled 24 loans for $10.04 million, on track to outpace fiscal 2017 full-year production of 24 loans for $11.92 million.  Savi also recently expanded its lending team with the addition of Rod Cann as Chief Lending Officer, and Frank Jeretzky was promoted to Senior Business Development Officer.    

In the second quarter of 2018, non-interest income was $474,000, compared to $537,000 in the second quarter of 2017 and $633,000 in the first quarter of 2018.  Non-interest income increased 22% in the first half of 2018 to $1.11 million compared to $909,000 in the first half of 2017.

"Rising interest rates and falling income tax rates contributed to profitability in the second quarter and first half of 2018.  We are seeing the benefit of repricing 26% of the loan portfolio that carries an adjustable rate." said Rob Woods, Chief Financial Officer.  "The changes in the tax law also improved bottom-line results with our marginal tax rate dropping to 21%, for both the quarter and the first half of 2018." 

Net interest margin remains well above average, at 4.43% in the second quarter of 2018, compared to 4.30% in the first quarter and 4.41% in the second quarter a year ago.  The net interest margin is significantly better than the peer average of 3.76% posted by the 452 micro-cap banks in the SNL Financials Microcap Bank Index as of March 31, 2018.  

Total revenue, consisting of net interest income and non-interest income, increased 10% to $2.81 million in the second quarter of 2018, compared to $2.55 million in the second quarter a year ago, and declined slightly from $2.83 million in the first quarter of 2018, reflecting the strong and variable market for SBA loans.

Second Quarter 2018 Highlights (at, or for the period June 30, 2018)

  • Earnings per diluted share improved to $0.024 in the second quarter, up from $0.020 in the second quarter of 2017, and down from $0.033 in the first quarter of 2018.

  • Net interest income increased 16% to $2.33 million in the second quarter of 2018, compared to $2.01 million a year ago, and was up 6% from $2.20 million in the first quarter of 2018.
  • Average second quarter total loans increased 14%, to $188.9 million, compared to $166.0 million a year ago, and grew 3% from $182.6 million in the first quarter of 2018.  End of quarter total loans increased 15% to $197.9 million, compared to $171.5 million a year ago, and grew 7% from $185.8 million at March 31, 2018.
  • Average second quarter total deposits grew 30% to $188.3 million from $144.6 million in the second quarter a year ago and increased 5% from $179.9 million in the first quarter of 2018.  End of period deposits grew 25% to $188.4 million from $150.4 million a year ago and grew 1% from $186.2 million at the end of the first quarter of 2018.

  • Asset quality remained exceptionally strong with nonperforming loans at 0.14% of total loans at June 30, 2018, and 0.01% at March 31, 2018.  Nonperforming assets were 0.32% at the end of the second quarter, up from 0.24% a year ago.  The increase in NPAs reflects the downgrades of 3 loans totaling $255,000 in the second quarter of 2018.

  • Net charge-offs were $8,000 in the second quarter of 2018, compared to net recoveries of $129,000 in the second quarter a year ago.

  • Allowance for loan losses, as a percentage of total loans, was 1.00% at June 30, 2018, compared to 1.16%, at June 30, 2017.

  • With the new capital raised during the second half of 2017, SaviBank capital levels remained above the threshold for well-capitalized institutions. The total risk-based capital ratio was 13.76% and the tier-1 leverage ratio was 12.01%. 

"We continue to invest in our franchise and expand into high-growth markets in Western Washington to gain market share," said Cann.  "In August, we will break ground on the new Oak Harbor branch, which will continue operating in temporary facilities until the new branch is completed.  Oak Harbor is becoming a core deposit market for Savi, and we are delighted to be expanding our presence in this dynamic market."

About Northwest Washington

SaviBank operates two branches and one loan production office in Skagit County, two branches in Island County, and one branch in Whatcom County.

According to USNews.com, Washington state ranked 6th overall and came in 3rd for the best economy in the nation.  Washington also ranked 2nd in the nation for healthcare, 6th for education and 4th for infrastructure. 

The Skagit, Whatcom and Island counties region stretches north from the greater Seattle/Everett/Bellevue metropolis to the Canadian border.  Northwest Washington continues to be one of the most vibrant regions in the country, with a solid employment base, moderate climate and a strong housing market.  

The housing market in Skagit and Whatcom Counties remains healthy. "Inventory is up, and demand has dropped," reported Robert Wasser, an officer with the board of directors at Northwest Multiple Listing Service. "That combination is a pretty simple economic recipe for a softening market.  Figures for June show a 5.2% improvement in the number of active listings system-wide, coupled with drops in the volume of pending sales (down 8.4%) and closed sales (down .07%) compared with a year ago. Despite the shift of some indicators favoring buyers, prices area-wide continued to rise, increasing more than 10% from twelve months ago."

Skagit County's economy is dominated by manufacturing, which accounts for 33.4% of GDP with food, machinery and oil and petroleum products the leading contributors.  Skagit's population is projected to grow 5.12% from 2018 through 2023, and median household income is projected to increase by 9.81% during the same time frame.  

Whatcom County is home to Western Washington University and is the nation's largest producer of raspberries.  Whatcom County's population is projected to grow 5.86% from 2018 through 2023, and median household income is projected to increase by 9.19%. 

Island County is home to Naval Air Station Whidbey Island, which supports 8,414 military personnel, with an additional 18,511 family members, 10,000 retirees, 500+ reservists, and 2,100 civilian employees, 37 Canadian Forces and their families and 85 Foreign Nationals and their families. Whidbey Island's population is 83,159, with approximately 23,000 in Oak Harbor.  Island County's population is projected to grow 5.21% from 2018 through 2023 and median household income is projected to increase by 4.60%. 

Sources:

https://www.usnews.com/news/best-states/rankings
https://www.bestplaces.net/docs/studies/secure.aspx
http://www.bellinghamherald.com/news/local/article188262154.html
https://www.whatcombusinessalliance.com/industry/seven-industry-leaders-forecast-2018/
https://fortress.wa.gov/esd/employmentdata/reports-publications/regional-reports/county-
profiles/skagit-county-profile
;
https://www.snl.com
http://www.militaryinstallations.dod.mil/MOS/f?p=132:CONTENT:::NO::P4_INST_ID,P4_INST_TYPE:5080
          ,INSTALLATION

About Savi Financial Corporation Inc. and SaviBank –

Savi Financial Corporation is the small bank holding company of SaviBank.  The Bank began operations April 11, 2005, and has five branch locations in Burlington, Bellingham, Mount Vernon, Oak Harbor, and Freeland, Washington, and a loan production office in Anacortes, 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, and Whatcom counties.  As a locally-owned community bank, we believe that when everyone becomes Savi about their finances, our entire community benefits.  Call us or stop by one of our branches and we'll show you how to bank Savi.  For additional information about SaviBank visit http://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.

                                       
  SELECTED FINANCIAL DATA                                    
  (In thousands of dollars, except for ratios and per share amounts)                                  
  Unaudited Three Months Ended       Six Months Ended
    June 30, 2018   June 30, 2017   Var %     March 31, 2018   Var %       June 30, 2018   June 30, 2017   Var %
  SUMMARY OF OPERATIONS                                    
  Interest income $ 2,732     $ 2,287     19 %       $ 2,579     6 %       $ 5,311     $ 4,422     20 %
  Interest expense   (399 )     (278 )   44         (378 )   6           (777 )     (539 )   44  
  Net interest income   2,333       2,009     16         2,201     6           4,534       3,883     17  
  Provision for loan losses   (39 )     -     N/M             N/M           (39 )     (23 )   70  
  NII after loss provision   2,294       2,009     14         2,201     4           4,495       3,860     16  
  Non-interest income   474       537     (12 )       633     (25 )         1,107       909     22  
  Non-interest expense   (2,114 )     (1,928 )   10         (1,995 )   6           (4,109 )     (3,592 )   14  
  Income before tax   654       618     6         839     (22 )         1,493       1,177     27  
  Federal income tax expense   135       214     (37 )       178     (24 )         313       392     (20 )
  Net income $ 519     $ 404     28 %       $ 661     (21 )%       $ 1,180     $ 785     50 %
                                       
  PER COMMON SHARE DATA                                    
  Number of shares outstanding (000s)   17,113       17,088     0 %         17,113     %         17,113       17,088     0.15 %
  Earnings per share, basic $ 0.03     $ 0.02     28       $ 0.04     (21 )       $ 0.07     $ 0.05     50  
  Earnings per share, diluted $ 0.02     $ 0.02     19       $ 0.03     (28 )       $ 0.05     $ 0.04     39  
  Market value   2.40       1.70     41         2.01     19           2.40       1.70     41  
  Book value   1.75       1.73     1         1.72     2           1.75       1.73     1  
  Market value to book value   136.95 %     98.18 %   39         116.69 %   17           136.95 %     98.18 %   39  
                                       
  BALANCE SHEET DATA                                    
  Assets $ 234,364     $ 211,175     11 %       $ 221,648     6 %       $ 234,364     $ 211,175     11 %
  Investments securities   9,132       10,320     (12 )       9,569     (5 )         9,132       10,320     (12 )
  Total loans   197,916       171,530     15         185,757     7           197,916       171,530     15  
  Total deposits   188,350       150,433     25         186,219     1           188,350       150,433     25  
  Borrowings   15,000       30,300     (50 )       5,000     200           15,000       30,300     (50 )
  Shareholders' equity   29,990       29,587     1         29,478     2           29,990       29,587     1  
                                       
  AVERAGE BALANCE SHEET DATA                                    
  Average assets $ 226,280     $ 198,321     14 %       $ 218,450     4 %       $ 222,387     $ 192,166     16 %
  Average total loans   188,904       165,954     14         182,614     3           185,776       160,883     15  
  Average total deposits   188,268       144,559     30         179,863     5           184,089       139,524     32  
  Average shareholders' equity   29,734       27,529     8         28,848     3           29,414       24,098     22  
                                       
  ASSET QUALITY RATIOS                                    
  Net (charge-offs) recoveries $ (8 )   $ 129     N/M     $ 2     N/M       $ (6 )   $ 444     N/M
  Net (charge-offs) recoveries to average loans   (0.02 )%     0.31 %   N/M       0.00 %   N/M         (0.01 )%     0.55     N/M
  Non-performing loans as a % of loans   0.14       0.02     602         0.01     1,305           0.14       0.02     602  
  Non-performing assets as a % of assets   0.32       0.24     33         0.22     45           0.32       0.24     33  
  Allowance for loan losses as a % of total loans   1.00       1.16     (14 )       1.05     (5 )         1.00       1.16     (14 )
  Allowance for loan losses as a % of non-performing loans   711.87       4,856.10     (85 )       8,473.91     (92 )         711.87       4,856.10     (85 )
                                       
  FINANCIAL RATIOS\STATISTICS                                    
  Return on average equity   6.98 %     5.87 %   19 %       9.17 %   (24 )%         8.02 %     6.52 %   23 %
  Return on average assets   0.92       0.81     13         1.21     (24 )         1.06       0.82     30  
  Net interest margin   4.43       4.41     0         4.30     3           4.40       4.41     (0 )
  Efficiency ratio   74.31       75.99     (2 )       74.40     (0 )         71.49       75.29     (5 )
  Average number of employees (FTE)   69       55     25         66     5           69       55     25  
                                       
  CAPITAL RATIOS                                    
                                       
  Tier 1 leverage ratio -- Bank   12.01       12.97     (7 )%       12.12     (1 )%         12.01       12.97     (7 )%
  Common equity tier 1 ratio -- Bank   12.77       14.06     (9 )       13.41     (5 )         12.77       14.06     (9 )
  Tier 1 risk-based capital ratio -- Bank   12.77       14.06     (9 )       13.41     (5 )         12.77       14.06     (9 )
  Total risk-based capital ratio -- Bank   13.76       15.21     (10 )       14.44     (5 )         13.76       15.21     (10 )
                                       

 CONTACT:  Michal D. Cann, Chairman & CEO
                     (360) 707-2272

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