Solera National Bancorp Announces Third Quarter 2018 Financial Results

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Increasing Profitability, Expanding Net Interest Margin

LAKEWOOD, Colo., Oct. 22, 2018 (GLOBE NEWSWIRE) — Solera National Bancorp, Inc. (OTC:SLRK) (“Company”), the holding company for Solera National Bank (“Bank”), a business-focused bank primarily serving the Denver metropolitan area, today reported financial results for the third quarter and nine months ended September 30, 2018. 

Highlights for the quarter and nine-months ended September 30, 2018 include:

  • Net income increased 89% for the nine-months ended 2018 compared to the same period last year
  • Efficiency ratio improved to 53.5% for the nine-months ended September 30, 2018 versus 67.2% for the nine-months ended September 30, 2017
  • Gross loans rose $36.9 million or 29% for the nine-months ended September 30, 2018 totaling $164.1 million
  • Noninterest-bearing deposits continued their steady climb, growing 199% for the nine-months ended September 30, 2018 and reaching $71.9 million
  • Net interest margin expanded 56 basis points from the same period last year and 23 basis points from the linked-quarter to 3.67%
  • Successful completion of capital raise added $9.7 million or 35% more capital compared to December 31, 2017
  • Asset quality remained strong with a modest level of criticized assets and nonperforming assets of only 0.02% of total assets
  • Return on average assets improved 34 basis points over the linked-quarter to 1.18% for the third quarter 2018
  • Return on average equity improved 30% over the linked-quarter to 7.58% for the third quarter 2018

For the three-months ended September 30, 2018, the Company reported net income of $649,000, or $0.16 per share, compared to net income of $443,000 for $0.13 per share, for the three-months ended June 30, 2018, and net income of $296,000, or $0.11 per share, for the three-months ended September 30, 2017.  The third quarter results included $131,000, or $0.03 per share, in provision expense compared to $282,000, or $0.08 per share, for the linked-quarter and $0 for the three-months ended September 30, 2017.

For the nine-months ended September 30, 2018, the Company reported net income of $1.49 million, or $0.44 per share, compared to $788,000, or $0.29 per share for the nine-months ended September 30, 2017.  The 2018 results included $481,000, or $0.14 per share, in provision expense compared to $0 for the nine-months ended September 30, 2017.  Martin P. May, President and CEO, commented: “Gross loans have increased nearly dollar for dollar with the growth in total deposits this year, all while the Company has improved its efficiency ratio to 53%.  This combination has fueled the Company’s increase in earnings.  Additionally, the Company raised $9.7 million in common equity during the 2018 rights offering providing a foundation to support the current rate of growth into the future.” 

Operational Highlights

Net interest income after provision for loan and lease losses was $1.74 million for the quarter ended September 30, 2018 compared to $1.42 million for the quarter ended June 30, 2018 and $1.24 million for the quarter ended September 30, 2017.  Net interest income after provision for loan and lease losses of $4.54 million increased $1.05 million, or 30% for the nine-months ended September 30, 2018 compared to the same period last year, despite the additional $481,000 in provision expense during the nine-months ended September 30, 2018.

Loan growth, combined with increasing interest rates, led to an increase of $1.76 million, or 47%, in interest and fees on loans for the first nine months of 2018 compared to the same period in 2017.  This contributed to the 41 basis point expansion in net interest margin from 3.08% for the nine-months ended September 30, 2017 to 3.49% for the same period in 2018.  Also aiding the improvement in the Bank’s net interest margin was the 16 basis point improvement in cost of funds quarter-over-quarter from 1.10% for the three-months ended June 30, 2018 to 0.94% for the three-months ended September 30, 2018.  This has been achieved despite increases in market interest rates, as the Bank has shifted the liability mix away from more expensive time deposits and other borrowings to noninterest-bearing deposits.  Mr. May commented:  “Quarter-over-quarter total interest expense declined $65,000 or 13% primarily due to the steady growth in noninterest-bearing deposits.  Growing core deposits, especially noninterest-bearing commercial deposits, has been a major focus of ours for the last three years and the results couldn’t have come at a better time given the changing interest rate environment.  This improved funding and low overhead has allowed us to effectively compete for good lending opportunities with strong borrowers.”

Total noninterest income has remained steady quarter-to-quarter in 2018 between $62,000 and $67,000 a quarter.  However, for the nine-months ended September 30, 2018, noninterest income increased 14% to $192,000 compared to $168,000 for the same period in 2017. 

Noninterest expenses have remained well managed even with the rapid growth the Company has experienced in 2018.  As a percentage of average assets, noninterest expenses have improved from 2.01% for the nine-months ended September 30, 2017 to 1.95% for the same period in 2018. Noninterest expenses as a percentage of average assets have remained steady in 2018 at approximately 1.74% in both the second and third quarters.  Total noninterest expense increased 5% in third quarter 2018 to $958,000 from $913,000 for the linked-quarter.  The primary driver of this increase was data processing costs due to a surge in the number of customers served by the Bank. Year-over-year, noninterest expense has increased $329,000, or 13%, to $2.79 million for the nine-months ended September 30, 2018 compared to $2.46 million for the nine-months ended September 30, 2017.  The increase from the prior year is principally due to higher employee compensation and benefits along with the previously mentioned escalated data processing expenses – all necessary to support the Bank’s growth.

Strong revenues coupled with controlled noninterest expenses allowed the Company’s third quarter 2018 efficiency ratio (noninterest expense divided by the sum of net interest income and non-interest income) to set yet another record, dropping below 50% compared to 65% for the third quarter 2017.   The efficiency ratio for the nine-months ended September 30, 2018 was also an impressive improvement over the same period of 2017 at 53.5% versus 67.2%.

Income tax expense increased 10% year-over-year to $452,000 for the nine-months ended September 30, 2018 compared to $412,000 for the same period of 2017, despite the 62% increase in net income before taxes.  This is due to the decline in the corporate income tax rate from 34% in 2017 to 21% in 2018, as a result of the Tax Cuts and Jobs Act. 

Balance Sheet Review and Asset Quality Strength

Total assets of $216.03 million at September 30, 2018 declined from $224.59 million at June 30, 2018 but increased from $167.63 million at September 30, 2017.  The decrease compared to the linked quarter was due to lower interest-bearing deposits with banks and less federal funds sold – a direct result of decreases in interest-bearing demand deposits.  Mr. May noted: “We expect to see continued swings in deposit balances given the nature of the business for some larger clients we’ve recently attained.  Although total deposits declined 5% during the third quarter, noninterest-bearing deposits grew 30%, increasing balances by $16.6 million to end the third quarter at $71.93 million. Growing noninterest-bearing deposits is a major focus for us and I’m pleased with the results our team has achieved this year.”  Year-over-year noninterest-bearing demand deposits have grown $47.86 million or 199% and total deposits increased 28% or $38.56 million.  As of September 30, 2018, time deposits represent 29% of the Bank’s total deposits compared to 43% of total deposits as of September 30, 2017. 

Net loans, after allowance for loan and lease losses, were $161.41 million at September 30, 2018 compared to $159.13 million at June 30, 2018 and $114.67 million at September 30, 2017.  For the nine-months ended September 30, 2018, the $36.28 million expansion in net loans consisted primarily of commercial loan originations totaling $40.20 million, a net increase in student loans of $7.94 million, partly offset by payoffs, pay downs and an increase in the allowance for loan losses totaling $11.86 million.   

The allowance for loan and lease losses increased during the third quarter 2018 by $131,000 to $2.19 million, or 1.33% of gross loans.  The increase was driven by the growth in commercial loans outstanding along with an increase in substandard loans.  This compared to $2.06 million, or 1.27% of gross loans, at June 30, 2018 and $1.59 million, or 1.36% of gross loans at September 30, 2017.  The decline in the allowance for loan and lease losses as a percentage of gross loans since September 2017 is primarily due to growth in the student loan portfolio, which contains minimal risk of loss given a U.S. government guarantee of approximately 97.5%. 

Total investment securities available-for-sale remained stable at $31.43 million at September 30, 2018, essentially unchanged from $31.77 million at June 30, 2018 and $33.40 million at September 30, 2017.  Investment securities held-to-maturity of $4.9 million remain unchanged from prior periods.

The Company continues to experience sound asset quality metrics.  Total criticized assets of $7.30 million at September 30, 2018 remain essentially unchanged from $7.36 million at June 30, 2018 but increased $2.56 million over the $4.74 million at September 30, 2017.  Despite the increase, criticized assets to total assets remain low at 3.38% of total assets as of September 30, 2018. 

The Company had no past due commercial or residential mortgage loans as of September 30, 2018. Additionally, $5.27 million of the student loan participation pool were 30 days+ past due at September 30, 2018.  This was an unfavorable variance from the $4.25 million at June 30, 2018, but consistent with the $5.16 million 30 days+ past due at March 31, 2018.  Of the $5.27 million past due, $3.33 million were 90 days+ past due as of September 30, 2018.  The student loans are backed by an approximately 97.5% guarantee of the U.S. Treasury under the Higher Education Act of 1965.  This guarantee includes all principal and interest so net credit losses in this portfolio are expected to be minimal.  Additionally, the Bank purchased the pool at a discount resulting in the Bank’s maximum exposure to credit losses slightly less than 1%.     

Capital Strength

The Company’s capital ratios continue to be well in excess of the highest required regulatory benchmark levels.  As of September 30, 2018, the Bank’s Tier 1 leverage ratio was 15.9%, Tier 1 risk-based capital was 21.1%, and total risk-based capital was 22.3%.

Tangible book value per share, including accumulated other comprehensive income, was $8.47 at September 30, 2018 compared to $8.32 at June 30, 2018, and $8.79 at September 30, 2017.  The decline over prior year is primarily due to an increase in the number of shares outstanding by 1,332,307, representing the additional shares sold during the first half of 2018 in the Company’s rights offering.  Total stockholders’ equity was $34.53 million at September 30, 2018 compared to $33.93 million at June 30, 2018 and $24.14 million at September 30, 2017.  The increase in stockholders’ equity is also due to the rights offering which closed on May 31, 2018 and contributed $9.66 million in common equity.  Total stockholders’ equity at September 30, 2018 included an accumulated other comprehensive loss of $772,000 compared to a loss of $713,000 at June 30, 2018 and $175,000 at September 30, 2017.  The fair value of the Bank’s available-for-sale investment portfolio has declined from a year ago due to an increase in interest rates. 

The Company’s accumulated deficit has dropped $1.53 million in the nine-months ended September 30, 2018 to a total accumulated deficit of $1.52 million.  Additionally, during the third quarter 2018, the Company utilized the remainder of its net operating loss carryforwards – less than two years from releasing the valuation allowance on this deferred tax asset.

About Solera National Bancorp, Inc.

Solera National Bancorp, Inc. was incorporated in 2006 to organize and serve as the holding company for Solera National Bank, which opened for business in September 2007.  Solera National Bank is a community bank serving emerging businesses primarily in the Front Range of Colorado.  At the core of Solera National Bank is welcoming, inclusive and respectful customer service, a focus on supporting a growing and diverse Colorado economy, and a passion to serve our community through service, education and volunteerism. For more information, please visit http://www.SoleraBank.com.

This press release contains statements that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  The statements contained in this release, which are not historical facts and that relate to future plans or projected results of Solera National Bancorp, Inc. and its wholly-owned subsidiary, Solera National Bank, are forward-looking statements.  These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. We undertake no obligation to update or revise any forward-looking statement.  Readers of this release are cautioned not to put undue reliance on forward-looking statements.             

Contact:

Martin P. May, President & CEO (303) 937-6422 

                                 -or-

Melissa K. Larkin, EVP & CFO (303) 937-6423

FINANCIAL TABLES FOLLOW

SOLERA NATIONAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
($000s)   9/30/2018   6/30/2018   3/31/2018   12/31/2017   9/30/2017
ASSETS                    
Cash and due from banks   $   3,376     $   1,489     $   2,435     $   1,017     $   1,383  
Federal funds sold      3,950        5,250        580        40        2,105  
Interest-bearing deposits with banks      501        11,195        494        493        261  
Investment securities, available-for-sale      31,427        31,765        31,708        31,954        33,396  
Investment securities, held-to-maturity      4,907        4,905        4,904        4,902        4,901  
FHLB and Federal Reserve Bank stocks, at cost      1,244        1,440        1,342        1,244        1,073  
Gross loans      164,090        161,680        148,839        127,174        116,498  
Net deferred (fees)/expenses      (492 )      (493 )      (471 )      (292 )      (241 )
Allowance for loan and lease losses      (2,186 )      (2,060 )      (1,800 )      (1,746 )      (1,586 )
Net loans      161,412        159,127        146,568        125,136        114,671  
Premises and equipment, net      1,682        1,723        1,744        1,765        1,781  
Accrued interest receivable      1,070        1,047        1,090        837        855  
Bank-owned life insurance      4,694        4,667        4,640        4,612        4,583  
Other assets      1,768        1,983        2,530        1,895        2,625  
TOTAL ASSETS   $   216,031     $   224,591     $   198,035     $   173,895     $   167,634  
                     
LIABILITIES AND STOCKHOLDERS’ EQUITY
Noninterest-bearing demand deposits   $   71,926     $   55,284     $   42,684     $   24,068     $   20,538  
Interest-bearing demand deposits      11,230        29,331        6,108        8,049        7,684  
Savings and money market deposits      41,661        39,600        46,278        45,649        48,938  
Time deposits      51,253        61,035        61,449        59,745        57,615  
Total deposits      176,070        185,250        156,519        137,511        134,775  
                     
Accrued interest payable      160        181        140        130        158  
Short-term FHLB borrowings      —        —        9,239        7,121        964  
Long-term FHLB borrowings      5,000        5,000        5,000        5,000        7,400  
Accounts payable and other liabilities      272        235        161        304        199  
TOTAL LIABILITIES      181,502        190,666        171,059        150,066        143,496  
                     
Common stock      41        41        31        27        27  
Additional paid-in capital      36,935        36,921        30,285        27,253        27,197  
Accumulated deficit      (1,519 )      (2,168 )      (2,611 )      (3,052 )      (2,755 )
Accumulated other comprehensive loss      (772 )      (713 )      (573 )      (243 )      (175 )
Treasury stock, at cost      (156 )      (156 )      (156 )      (156 )      (156 )
TOTAL STOCKHOLDERS’ EQUITY      34,529        33,925        26,976        23,829        24,138  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $   216,031     $   224,591     $   198,035     $   173,895     $   167,634  
                     

 

SOLERA NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
    Three Months Ended  
($000s, except per share data)   9/30/2018   6/30/2018   3/31/2018   12/31/2017   9/30/2017  
Interest and dividend income                      
Interest and fees on loans   $   2,006     $   1,904     $   1,586     $   1,473     $   1,331    
Investment securities      257        266        256        250        255    
Dividends on bank stocks      19        20        17        15        14    
Other      20        8        6        5        5    
Total interest income      2,302        2,198        1,865        1,743        1,605    
Interest expense                      
Deposits      402        419        383        355        341    
FHLB borrowings      26        74        39        35        28    
Total interest expense      428        493        422        390        369    
Net interest income      1,874        1,705        1,443        1,353        1,236    
Provision for loan and lease losses      131        282        68        —        —    
Net interest income after
provision for loan and lease losses
     1,743        1,423        1,375        1,353        1,236    
Noninterest income                      
Customer service and other fees      33        35        29        26        24    
Other income      30        32        33        32        31    
Total noninterest income      63        67        62        58        55    
Noninterest expense                      
Employee compensation and benefits      569        560        551        513        480    
Occupancy      56        50        48        49        52    
Professional fees      19        19        53        42        55    
Other general and administrative      314        284        266        296        252    
Total noninterest expense      958        913        918        900        839    
Net Income Before Taxes    $   848     $   577     $   519     $   511     $   452    
Income Tax Expense      (199 )      (134 )      (119 )      (790 )      (156 )  
Net Income (Loss)   $   649     $   443     $   400     $   (279 )   $   296    
                       
Income (Loss) Per Share   $   0.16      $   0.13      $   0.15      $   (0.10 )   $   0.11     
Tangible Book Value Per Share   $   8.47      $   8.32      $   8.52      $   8.67      $   8.79     
Net Interest Margin     3.67 %     3.44 %     3.36 %     3.33 %     3.11 %  
Efficiency Ratio     49.46 %     50.58 %     59.89 %     63.78 %     64.99 %  
Return on Average Assets     1.18 %     0.84 %     0.86 %     (0.65 )%     0.71 %  
Return on Average Equity     7.58 %     5.82 %     6.30 %     (4.65 )%     4.94 %  
                       
Asset Quality:                      
Non-performing loans to gross loans     0.02 %     %     %     %     %  
Non-performing assets to total assets     0.02 %     %     %     %     %  
Allowance for loan losses to gross loans     1.33 %     1.27 %     1.21 %     1.37 %     1.36 %  
                       
Criticized loans/assets:                      
Special mention   $   1,608     $   4,346     $   2,709     $   1,232     $   486    
Substandard: Accruing      5,068        2,423        2,442        2,924        3,660    
Substandard: Nonaccrual      36        —        —        —        —    
Doubtful      —        —        —        —        —    
  Total criticized loans   $   6,712     $   6,769     $   5,151     $   4,156     $   4,146    
Other real estate owned      —        —        —        —        —    
Investment securities      586        588        589        590        591    
Total criticized assets   $   7,298     $   7,357     $   5,740     $   4,746     $   4,737    
Criticized assets to total assets     3.38 %     3.28 %     2.90 %     2.73 %     2.83 %  
                       
Selected Financial Ratios: (Solera National Bank Only)
Tier 1 leverage ratio     15.9 %     16.1 %     14.8 %     13.6 %     13.9 %  
Tier 1 risk-based capital ratio     21.1 %     20.8 %     18.1 %     17.4 %     18.0 %  
Total risk-based capital ratio     22.3 %     22.0 %     19.4 %     18.7 %     19.3 %