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Solera National Bancorp Announces 2018 Fourth Quarter and Year-End Financial Results

All key metrics move in a positive direction for 2018

LAKEWOOD, Colo., Jan. 24, 2019 (GLOBE NEWSWIRE) -- Solera National Bancorp, Inc. (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 fourth quarter and twelve-months ended December 31, 2018. 

Highlights for the quarter and twelve-months ended December 31, 2018 include:

  • Net income increased 339%, or $1.7 million, to $2.2 million for the year ended 2018 compared to the year ended 2017.
  • Earnings per share increased 235% to $0.63 per share for the twelve months ended 2018 from $0.19 per share earned in 2017.
  • Efficiency ratio improved to 51.9% for the twelve-months ended 2018 versus 66.3% for the twelve-months ended 2017.
  • Gross loans rose $43.2 million, or 34%, for the twelve-months ended 2018 finishing the year at $170.4 million.
  • Noninterest-bearing deposits continued their steady climb, escalating 250% during the twelve-months ended 2018 to $84.3 million.
  • Net interest margin expanded 43 basis points during 2018 averaging 3.57% for the twelve-months ended 2018 and improved to 3.79% for the fourth quarter 2018.
  • Total capital increased 49% or $12.0 million during 2018 due to a successful capital raise, which added $9.7 million, and retained earnings.
  • Asset quality remained strong with nonperforming assets of only 0.02% of total assets and criticized assets of 3.3% of total assets.
  • Return on average assets improved to 1.36% for the fourth quarter 2018 and 1.04% for the twelve-months ended December 31, 2018.
  • Return on average equity improved 12% over the linked-quarter to 8.47% for the fourth quarter 2018 and was 6.82% for the twelve-months ended December 31, 2018.

For the three-months ended December 31, 2018, the Company reported net income of $741,000, or $0.18 per share, up from $649,000, or $0.16 per share, for the linked-quarter.  The fourth quarter 2018 results included $99,000, or $0.02 per share, in provision expense compared to $131,000, or $0.03 per share for the linked-quarter.

For the twelve-months ended December 31, 2018, the Company reported net income of $2.23 million, or $0.63 per share, compared to $509,000, or $0.19 per share, for the twelve-months ended December 31, 2017.  The 2018 results included $580,000, or $0.16 per share, in provision expense compared to $0 for the twelve-months ended December 31, 2017.  However, 2017’s results included a one-time income tax expense of approximately $610,000, or $0.22 per share, as the Company’s deferred tax assets were re-valued to reflect the reduction in the federal corporate income tax rate from 35% to 21%.  Net income before taxes increased 71% in 2018 from $1.71 million for the 12 months ended 2017 to $2.92 million for the twelve-months ended 2018. Martin P. May, President and CEO, commented: “We continue to focus our efforts on becoming more operationally efficient, growing core deposits, and expanding our loan portfolio. Our 2018 performance is the result of the hard work and excellent client service provided by our great team of bankers, and focusing on business niches where Solera can make a difference.”

Operational Highlights

Net interest income after provision for loan and lease losses was $1.91 million for the quarter ended December 31, 2018 compared to $1.74 million for the linked-quarter and $1.35 million for the quarter ended December 31, 2017.  Net interest income after provision for loan and lease losses of $6.45 million increased $1.60 million, or 33%, for the twelve-months ended December 31, 2018 compared to the same period last year, despite the additional $580,000 in provision expense during the twelve-months ended December 31, 2018.

Loan growth, combined with increasing interest rates, led to an increase of $2.41 million, or 46%, in interest and fees on loans for the year ended 2018 compared to the year ended 2017.  This contributed to the 43 basis point expansion in net interest margin from 3.14% for the twelve-months ended December 31, 2017 to 3.57% for the same period in 2018. 

Also aiding the improvement in the Bank’s net interest margin was the four basis point improvement in cost of funds from 1.04% for the year ended 2017 to 1.00% for the year-ended 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 business deposits.  The improvement in cost of funds has been a work in progress throughout 2018 and the results are more pronounced in the fourth quarter of 2018, where, despite four increases in the Federal Reserve Target Rate, the Bank’s cost of funds has declined by 16 basis from 1.05% for the fourth quarter 2017 to 0.89% for the fourth quarter 2018. 

Total noninterest income has remained steady quarter-to-quarter in 2018 between $62,000 and $67,000 a quarter.  However, for the twelve-months ended December 31, 2018, noninterest income increased 13% to $256,000 compared to $226,000 for the same period in 2017.  The majority of the increase relates to increased deposit fees given the growth in the Bank’s customer base.

Noninterest expenses increased 12% to $3.78 million for the twelve-months ended 2018 compared to the same period in 2017 given the rapid growth of the Company. The increase from the prior year is principally due to higher employee compensation and benefits as the Company added five employees during the year to support the Bank’s growth.  However, as a percentage of average assets, noninterest expenses remain well managed declining from 2.03% for the twelve-months ended 2017 to 1.76% for the same period in 2018.

Strong revenues coupled with controlled noninterest expenses allowed the Company’s fourth quarter 2018 efficiency ratio (noninterest expense divided by the sum of net interest income and non-interest income) to remain below 50% for the second quarter in a row.  The efficiency ratio for the twelve-months ended December 31, 2018 was an impressive improvement over 2017 at 51.9% versus 66.3%.

Income tax expense dropped $511,000 for the twelve-months ended December 31, 2018 to $691,000 compared to $1.20 million for 2017, despite the 71% 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 and the impact of that rate change on the value of the Company’s deferred tax assets as of December 31, 2017. 

Balance Sheet Review and Asset Quality Strength

Total assets of $220.68 million at December 31, 2018 increased from $216.03 million at September 30, 2018 and $173.90 million at December 31, 2017 driven by the growth in gross loans, which climbed $43.23 million or 34% during 2018.

Net loans, after allowance for loan and lease losses, were $167.66 million at December 31, 2018 compared to $161.41 million at September 30, 2018 and $125.14 million at December 31, 2017.  The change in the loan portfolio for 2018 was not only about growth, but also about diversification.  We grew the commercial and industrial segment of the loan portfolio 140%, or $13 million, to over $22 million outstanding at the end of the year.  The remainder of the growth in loans was attributable to commercial real estate loans and government guaranteed student loans. For the twelve-months ended December 31, 2018, the $42.52 million expansion in net loans consisted of originations totaling $51.48 million, a net increase in student loans of $7.31 million, partly offset by payoffs, pay downs and an increase in the allowance for loan losses totaling $16.27 million.   

The allowance for loan and lease losses remained at 1.33% of gross loans requiring a provision expense of $99,000 during the fourth quarter due to new originations.  This compared to $1.75 million, or 1.37% of gross loans at December 31, 2017.  The decline in the allowance for loan and lease losses as a percentage of gross loans since December 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 declined $949,000 to $31.01 million at December 31, 2018 from $31.95 million at December 31, 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 $7.26 million at December 31, 2018 remain essentially unchanged from $7.30 million at September 30, 2018 but increased $2.51 million over the $4.75 million at December 31, 2017.  Despite the increase, criticized assets to total assets remain low at 3.29% of total assets as of December 31, 2018. 

The Company had no past due commercial or residential mortgage loans as of December 31, 2018. However, $3.85 million of the student loan participation pool were 30 days+ past due at December 31, 2018.  Of the $3.85 million past due, $2.93 million were 90 days+ past due as of December 31, 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%.     

The Company saw noteworthy growth in noninterest-bearing deposits during 2018, which increased 250%, or $60.22 million to $84.29 million at December 31, 2018.  As of December 31, 2018, noninterest-bearing deposits account for 47% of the Company’s total deposits.  This growth allowed the Company to reduce expensive time deposits, which declined $15.48 million during 2018 to $44.27 million as of December 31, 2018.  Total deposits at December 31, 2018 were $180.68 million, a 31%, or $43.17 million, increase over the $137.51 million at December 31, 2017 and a $4.61 million increase over the linked quarter.  Mr. May stated, “Last year, one of our goals was to be a high-performing bank when it comes to percentage of noninterest-bearing deposits to total deposits.  I’m elated to report to our shareholders that we’ve met that goal and will now push to be the leader in this measure in 2019!”

Capital Strength

The Company’s capital ratios continue to be well in excess of the highest required regulatory benchmark levels.  As of December 31, 2018, the Bank’s Tier 1 leverage ratio was 15.8%, Tier 1 risk-based capital was 20.6%, and total risk-based capital was 21.8%.

Tangible book value per share, including accumulated other comprehensive income, was $8.71 at December 31, 2018 compared to $8.47 at September 30, 2018, and $8.67 at December 31, 2017.  The tempered improvement 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 $35.48 million at December 31, 2018 compared to $23.83 million at December 31, 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 December 31, 2018 included an accumulated other comprehensive loss of $577,000 compared to a loss of $243,000 at December 31, 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 $2.27 million in the twelve-months ended December 31, 2018 to a total accumulated deficit of $778,000.  Additionally, during 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 the needs of emerging businesses and real estate investors.   At the core of Solera National Bank is welcoming, attentive and respectful customer service, a focus on supporting a growing and diverse 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.

Contacts:  Martin P. May, President & CEO (303) 937-6422
  Melissa K. Larkin, EVP & CFO (303) 937-6423

FINANCIAL TABLES FOLLOW

SOLERA NATIONAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
($000s)   12/31/18   9/30/18   6/30/18   3/31/18   12/31/17
ASSETS                    
Cash and due from banks   $ 3,519     $ 3,105     $ 1,430     $ 2,413     $ 998  
Federal funds sold     2,310       3,950       5,250       580       40  
Interest-bearing deposits with banks     559       772       11,254       516       512  
Investment securities, available-for-sale     31,005       31,427       31,765       31,708       31,954  
Investment securities, held-to-maturity     4,908       4,907       4,905       4,904       4,902  
FHLB and Federal Reserve Bank stocks, at cost     1,202       1,244       1,440       1,342       1,244  
Gross loans     170,399       164,090       161,680       148,839       127,174  
Net deferred (fees)/expenses     (465 )     (492 )     (493 )     (471 )     (292 )
Allowance for loan and lease losses     (2,274 )     (2,186 )     (2,060 )     (1,800 )     (1,746 )
Net loans     167,660       161,412       159,127       146,568       125,136  
Premises and equipment, net     1,646       1,682       1,723       1,744       1,765  
Accrued interest receivable     1,095       1,070       1,047       1,090       837  
Bank-owned life insurance     4,721       4,694       4,667       4,640       4,612  
Other assets     2,058       1,768       1,983       2,530       1,895  
TOTAL ASSETS   $ 220,683     $ 216,031     $ 224,591     $ 198,035     $ 173,895  
                     
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing demand deposits   $ 84,287     $ 71,926     $ 55,284     $ 42,684     $ 24,068  
Interest-bearing demand deposits     10,561       11,230       29,331       6,108       8,049  
Savings and money market deposits     41,565       41,661       39,600       46,278       45,649  
Time deposits     44,269       51,253       61,035       61,449       59,745  
Total deposits     180,682       176,070       185,250       156,519       137,511  
                     
Accrued interest payable     132       160       181       140       130  
Short-term FHLB borrowings                       9,239       7,121  
Long-term FHLB borrowings     4,000       5,000       5,000       5,000       5,000  
Accounts payable and other liabilities     386       272       235       161       304  
TOTAL LIABILITIES     185,200       181,502       190,666       171,059       150,066  
                     
Common stock     41       41       41       31       27  
Additional paid-in capital     36,953       36,935       36,921       30,285       27,253  
Accumulated deficit     (778 )     (1,519 )     (2,168 )     (2,611 )     (3,052 )
Accumulated other comprehensive loss     (577 )     (772 )     (713 )     (573 )     (243 )
Treasury stock, at cost     (156 )     (156 )     (156 )     (156 )     (156 )
TOTAL STOCKHOLDERS' EQUITY     35,483       34,529       33,925       26,976       23,829  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 220,683     $ 216,031     $ 224,591     $ 198,035     $ 173,895  
                     



SOLERA NATIONAL BANCORP, INC.  
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)  
    Three Months Ended   Twelve Months Ended  
($000s, except per share data)   12/31/18   9/30/18   6/30/18   3/31/18   12/31/17   12/31/18   12/31/17  
Interest and dividend income                              
Interest and fees on loans   $ 2,121     $ 2,006     $ 1,904     $ 1,586     $ 1,473     $ 7,617     $ 5,211    
Investment securities     258       257       266       256       250       1,037       1,010    
Dividends on bank stocks     18       19       20       17       15       74       51    
Other     28       20       8       6       5       62       20    
Total interest income     2,425       2,302       2,198       1,865       1,743       8,790       6,292    
Interest expense                              
Deposits     401       402       419       383       355       1,605       1,358    
FHLB borrowings     20       26       74       39       35       159       89    
Total interest expense     421       428       493       422       390       1,764       1,447    
Net interest income     2,004       1,874       1,705       1,443       1,353       7,026       4,845    
Provision for loan and lease losses     99       131       282       68             580          
Net interest income after provision for loan and lease losses     1,905       1,743       1,423       1,375       1,353       6,446       4,845    
Noninterest income                              
Customer service and other fees     36       33       35       29       26       133       99    
Other income     28       30       32       33       32       123       127    
Total noninterest income     64       63       67       62       58       256       226    
Noninterest expense                              
Employee compensation and benefits     584       569       560       551       513       2,264       1,926    
Occupancy     73       56       50       48       49       227       192    
Professional fees     41       19       19       53       42       132       162    
Other general and administrative     291       314       284       266       296       1,155       1,080    
Total noninterest expense     989       958       913       918       900       3,778       3,360    
Net Income Before Taxes   $ 980     $ 848     $ 577     $ 519     $ 511     $ 2,924     $ 1,711    
Income Tax Expense     (239 )     (199 )     (134 )     (119 )     (790 )     (691 )     (1,202 )  
Net Income (Loss)   $ 741     $ 649     $ 443     $ 400     $ (279 )   $ 2,233     $ 509    
                               
Income (Loss) Per Share   $ 0.18     $ 0.16     $ 0.13     $ 0.15     $ (0.10 )   $ 0.63     $ 0.19    
Tangible Book Value Per Share   $ 8.71     $ 8.47     $ 8.32     $ 8.52     $ 8.67     $ 8.71     $ 8.67    
Net Interest Margin     3.79 %     3.67 %     3.44 %     3.36 %     3.33 %     3.57 %     3.14 %  
Cost of Funds     0.89 %     0.95 %     1.10 %     1.10 %     1.05 %     1.00 %     1.04 %  
Efficiency Ratio     47.82 %     49.46 %     50.58 %     59.89 %     63.78 %     51.88 %     66.26 %  
Return on Average Assets     1.36 %     1.18 %     0.84 %     0.86 %     (0.65 )%     1.04 %     0.31 %  
Return on Average Equity     8.47 %     7.58 %     5.82 %     6.30 %     (4.65 )%     6.82 %     2.14 %  
                               
Asset Quality:                              
Non-performing loans to gross loans     0.02 %     0.02 %     %     %     %          
Non-performing assets to total assets     0.02 %     0.02 %     %     %     %          
Allowance for loan losses to gross loans     1.33 %     1.33 %     1.27 %     1.21 %     1.37 %          
                               
Criticized loans/assets:                              
Special mention   $ 1,603     $ 1,608     $ 4,346     $ 2,709     $ 1,232            
Substandard: Accruing     5,035       5,068       2,423       2,442       2,924            
Substandard: Nonaccrual     34       36                              
Doubtful                                        
Total criticized loans   $ 6,672     $ 6,712     $ 6,769     $ 5,151     $ 4,156            
Other real estate owned                                        
Investment securities     585       586       588       589       590            
Total criticized assets   $ 7,257     $ 7,298     $ 7,357     $ 5,740     $ 4,746            
Criticized assets to total assets     3.29 %     3.38 %     3.28 %     2.90 %     2.73 %          
                               
Selected Financial Ratios: (Solera National Bank Only)        
Tier 1 leverage ratio     15.8 %     15.9 %     16.1 %     14.8 %     13.6 %          
Tier 1 risk-based capital ratio     20.6 %     21.1 %     20.8 %     18.1 %     17.4 %          
Total risk-based capital ratio     21.8 %     22.3 %     22.0 %     19.4 %     18.7 %