Press Release

Solera National Bancorp Announces First Quarter 2020 Financial Results

Total assets reach $300 million milestone

Company Release - 5/7/2020 9:00 AM ET

LAKEWOOD, Colo., May 07, 2020 (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 three months ended March 31, 2020. 

Highlights for the quarter ended March 31, 2020 include:

  • Net interest income for the first quarter 2020 was $2.69 million compared to $2.52 million for the linked quarter and $2.13 million for the first quarter of 2019.

  • Tangible book value per share surpassed the double-digit mark, at $10.06 per share as of March 31, 2020 compared with $9.01 per share as of March 31, 2019.

  • Cost of funds have fallen by 40bps year-over-year to 0.48% for the first quarter 2020 compared to 0.88% for the first quarter 2019.

  • Net interest margin increased 4 basis points over the linked quarter to 3.86% for the three months ended March 31, 2020 compared to 3.82% for fourth quarter 2019. 

  • Total assets grew $70.61 million or 31% year-over-year, reaching $300.25 million as of March 31, 2020.

  • Noninterest-bearing deposits rose another 10% during the quarter to $169.73 million, a $15.6 million increase quarter-over-quarter. 

  • Asset quality remained strong with modest level of criticized assets and nonperforming assets of 0.33% of total assets as of March 31, 2020.

For the three months ended March 31, 2020, the Company reported net income of $723,000, or $0.17 per share, compared to net income of $872,000, or $0.21 per share, for the three months ended December 31, 2019, and net income of $837,000, or $0.21 per share, for the three months ended March 31, 2019.

Martin P. May, President and CEO, commented: “The first quarter of 2020 was solid for Solera National Bank.  Before consideration of provision expense, the Company’s results were lock-step with the recording-setting results from fourth quarter 2019.  Provision-adjusted net income was $1.23 million in first quarter 2020, only a slight decrease compared to provision-adjusted net income of $1.25 million in fourth quarter 2019.”  May continued, “We felt it was prudent and necessary to recognize the new-found risks in our loan portfolio given the staggering economic impact of the COVID-19 shut-down.  Many, many businesses are struggling and, although it is impossible to know yet the full extent that will be felt by Solera National Bank, we would be remiss to assume the risks in our loan portfolio are unchanged from fourth quarter 2019. As such, we increased our allowance for loan losses from 1.29% of total loans at December 31, 2019 to 1.55% of total loans at March 31, 2020.  The increase in provision expense led to the decrease in earnings per share for the quarter.” 

May also noted, “Additionally, we felt it prudent, under the social distancing protocols, to delay our annual shareholders meeting, which was originally planned for late May.  We look forward to updating shareholders on the Company’s strategic initiatives in August 2020.”  Details about the meeting will be mailed to all shareholders of record in advance.

The Bank has worked tirelessly over the last month to get emergency relief money into the hands of customers and other small businesses in need.  May reflected, “I’m proud to report that Solera has approved over 600 small businesses for paycheck protection loans that total over $86 million and 95% of those loans have been funded as of today.  Our team has worked nights and weekends to get this much-needed money into our communities and I’m continually reminded of the amazing team we have at Solera as we’ve pulled together to offer the small business community access to this program.”

Operational Highlights

Net interest income after provision for loan and lease losses was $2.19 million for the quarter ended March 31, 2020 compared to $2.14 million and $2.06 million in the quarters ended December 31, 2019 and March 31, 2019, respectively.  The Company recorded provision for loan and lease losses of $506,000 in first quarter 2020 compared to $378,000 and $71,000 in the quarters ended December 31, 2019 and March 31, 2019, respectively.  The increase in the provision for loan and lease losses during fourth quarter 2019 was driven by portfolio growth, whereas the increase in first quarter 2020 was due to the enormous uncertainty in the market due to COVID-19.

The Company's net interest margin in first quarter 2020 was 3.86% compared to 3.82% in the linked-quarter and 3.88% in the first quarter 2019.  The slight increase in net interest margin compared to the prior quarter is primarily due to improved cost of funds.  The modest decrease in net interest margin compared to the prior year is attributed to an overall decline in market interest rates across all earning assets.    

Total noninterest income declined to $210,000 for first quarter 2020 from $268,000 in fourth quarter 2019 and increased from $69,000 in first quarter 2019.  The Company recorded gains on the sale of available-for-sale securities of $15,000 in first quarter 2020, compared to $113,000 in fourth quarter 2019 and no gains were recorded in first quarter 2019.  Customer service fees increased from $43,000 for the three months ended March 31, 2019 to $80,000 for the three months ended March 31, 2020 due to the increased number of customers serviced by the Bank and expanded product offerings.  Additionally, other income increased from $26,000 in first quarter 2019 to $115,000 in first quarter 2020 due to rental income earned on the Bank’s office building purchased during fourth quarter 2019.

Total noninterest expense of $1.46 million in first quarter 2020, increased from $1.35 million in the linked-quarter and $1.03 million in the first quarter of 2019.  Compared to prior year, employee compensation and benefits increased $236,000 due to additional staffing to support franchise growth, and other general and administrative expenses increased $115,000 as a result of higher data processing expenses due to the surge in customer accounts.  However, as a percentage of average assets, noninterest expenses have remained well managed throughout the Bank’s rapid growth at 2.01% for first quarter 2020 compared to 1.93% for fourth quarter 2019 and 1.83% for first quarter 2019.

Robust revenues coupled with controlled noninterest expenses allowed the Company’s first quarter 2020 efficiency ratio (noninterest expense divided by the sum of net interest income and noninterest income) to remain solid.  The efficiency ratio for the three months ended March 31, 2020 was 50.6%, unchanged from the prior quarter, although inferior to the very impressive 46.9% achieved in first quarter 2019.   

The Company’s income tax expense has remained steady at approximately 24%, which is a combined rate of 21% for Federal and approximately 3% for State.  The Company recorded income tax expense of $213,000 for first quarter 2020 compared to $184,000 for fourth quarter 2019 and $261,000 for first quarter 2019. 

Balance Sheet Review and Asset Quality Strength

Total assets of $300.26 million at March 31, 2020 increased from $282.11 million at December 31, 2019 and $229.65 million at March 31, 2019.  Gross loans decreased $3.76 million, or 2%, from the linked-quarter to $211.70 million at March 31, 2020, and increased $35.32 million, or 20%, from first quarter 2019.   

Net loans, after the allowance for loan and lease losses, were $207.82 million at March 31, 2020 compared to $212.02 million at December 31, 2019 and $173.51 million at March 31, 2019.  Net loans decreased $4.21 million quarter-over-quarter primarily due to the $9.34 million in payoffs coupled with an increase in the allowance for loan losses and a reduced-pace of new originations.  Year-over-year, net loans increased $34.30 million or 20%.

The allowance for loan and lease losses at March 31, 2020 was $3.27 million, or 1.55% of gross loans, compared to $2.77 million, or 1.29% at December 31, 2019, and $2.34 million, or 1.32% of gross loans at March 31, 2019.  The 26 basis point increase in the allowance for loan and lease losses quarter-over-quarter was due to market uncertainty due to COVID-19. Total criticized assets of $8.64 million at March 31, 2020 declined compared to the linked-quarter, down $2.73 million from $11.37 million at December 31, 2019. Criticized assets to total assets remain low at 2.88% of total assets as of March 31, 2020. 

Total investment securities available-for-sale were $58.32 million at March 31, 2020 compared to $29.09 million at December 31, 2019 and $34.08 million at March 31, 2019.  The $29.23 million increase during first quarter 2020 was primarily the purchase of tax-exempt municipal bonds which had favorable pricing during this time as a result of prevailing market conditions.  Investment securities held-to-maturity of $6.41 million at March 31, 2020 remain unchanged from December 31, 2019 and March 31, 2019.

Commercial and residential loans past due have remained inconsequential for all periods presented, with the only notable past dues coming from the student loan participation pool.  $2.54 million of the $15.97 million student loan participation pool were 30 days+ past due at March 31, 2020.  Of the $2.54 million past due, $1.88 million were 90 days+ past due as of March 31, 2020.  The student loans are backed by an approximate 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%.     

Total deposits at March 31, 2020 were $253.20 million compared to $236.97 million at December 31, 2019 and $186.80 million at March 31, 2019.  Noninterest-bearing demand deposits of $169.73 million, which represent 67.0% of total deposits, at March 31, 2020 increased $15.62 million, or 10%, versus the linked-quarter, and increased $74.53 million from $95.19 million at March 31, 2019.  This growth allowed the Company to reduce expensive time deposits, which declined $7.57 million from first quarter 2019 to $32.61 million as of March 31, 2020.  Chief Financial Officer Melissa Larkin stated, “Growing core deposits is one of our foremost financial goals. We have achieved success in this area because we have focused on delivering the products our clients need with up-to-date technology and superior customer service.”

Capital Strength

The Bank’s capital ratios continue to be well in excess of the highest required regulatory benchmark levels.  As of March 31, 2020, the Bank elected to adopt the community bank leverage ratio (CBLR) as allowed by federal banking agencies for qualified institutions.  The CBLR provides for a simple measure of capital adequacy and is calculated by taking Tier 1 capital divided by average total assets for the quarter.  Solera calculates the CBLR using Bank-only financial statements.  As of March 31, 2020 the Bank’s CBLR was 13.4%, well above the required 9% minimum to qualify for using this simplified method.  The Bank’s CBLR was 14.2% at December 31, 2019.  The decline quarter-over-quarter was due to asset growth. 

Tangible book value per share, including accumulated other comprehensive income, was $10.06 at March 31, 2020, compared to $9.77 at December 31, 2019 and $9.01 at March 31, 2019.  Total stockholders' equity was $41.70 million at March 31, 2020 compared to $40.53 million at December 31, 2019 and $36.69 million at March 31, 2019.  Total stockholders' equity at March 31, 2020 included an accumulated other comprehensive gain of $560,000 compared to a gain of $118,000 at December 31, 2019 and a loss of $224,000 at March 31, 2019.  The fair value of the Bank's available-for-sale investment portfolio has improved from a year ago due to a decline in longer-term interest rates. 

The Company’s retained earnings continued their steady climb, reaching $3.51 million at March 31, 2020, up from $59,000 as of March 31, 2019. 

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) 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019 
ASSETS           
Cash and due from banks $  1,708  $  1,403  $  1,860  $  1,761  $  1,113  
Federal funds sold   7,500    300    27,400    5,265    1,100  
Interest-bearing deposits with banks   774    16,033    14,599    14,041    2,936  
Investment securities, available-for-sale   58,319    29,094    27,485    26,979    34,084  
Investment securities, held-to-maturity   6,413    6,411    6,409    6,408    6,406  
FHLB and Federal Reserve Bank stocks, at cost   1,250    1,247    1,246    1,239    1,261  
Gross loans   211,703    215,459    192,752    181,461    176,388  
Net deferred (fees)/expenses   (615)   (665)   (618)   (543)   (539) 
Allowance for loan and lease losses   (3,272)   (2,770)   (2,395)   (2,337)   (2,335) 
Net loans   207,816    212,024    189,739    178,581    173,514  
Premises and equipment, net   8,330    8,316    1,622    1,627    1,638  
Accrued interest receivable   1,522    1,076    1,026    1,091    1,204  
Bank-owned life insurance   4,857    4,830    4,803    4,775    4,748  
Other assets   1,769    1,379    1,630    1,573    1,648  
TOTAL ASSETS $  300,258  $  282,113  $  277,819  $  243,340  $  229,652  
            
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing demand deposits $  169,726  $  154,105  $  147,731  $  114,444  $  95,193  
Interest-bearing demand deposits   15,713    7,955    5,728    5,307    5,591  
Savings and money market deposits   35,150    39,624    43,111    42,246    45,832  
Time deposits   32,607    35,285    37,526    38,638    40,181  
Total deposits   253,196    236,969    234,096    200,635    186,797  
            
Accrued interest payable   112    120    127    124    126  
Short-term FHLB borrowings   —    —    —    —    1,500  
Long-term FHLB borrowings   4,000    4,000    4,000    4,000    4,000  
Accounts payable and other liabilities   1,255    494    383    483    538  
TOTAL LIABILITIES   258,563    241,583    238,606    205,242    192,961  
            
Common stock   41    41    41    41    41  
Additional paid-in capital   37,587    37,587    37,194    37,194    36,971  
Retained earnings   3,507    2,784    1,912    960    59  
Accumulated other comprehensive gain / (loss)   560    118    222    59    (224) 
Treasury stock, at cost   —    —    (156)   (156)   (156) 
TOTAL STOCKHOLDERS' EQUITY   41,695    40,530    39,213    38,098    36,691  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $  300,258  $  282,113  $  277,819  $  243,340  $  229,652  
            


SOLERA NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
  Three Months Ended
($000s, except per share data) 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019 
Interest and dividend income           
Interest and fees on loans $2,597  $2,486  $2,357  $2,291  $2,208  
Investment securities  289   226   238   289   278  
Dividends on bank stocks  17   17   16   17   17  
Other  98   118   149   41   49  
Total interest income  3,001   2,847   2,760   2,638   2,552  
Interest expense           
Deposits  290   313   365   363   403  
FHLB borrowings  17   17   17   19   18  
Total interest expense  307   330   382   382   421  
Net interest income  2,694   2,517   2,378   2,256   2,131  
Provision for loan and lease losses  506   378   79   12   71  
Net interest income after
provision for loan and lease losses
  2,188   2,139   2,299   2,244   2,060  
Noninterest income           
Customer service and other fees  80   81   66   71   43  
Other income  115   74   28   27   26  
Gain on sale of securities  15   113   11   154     
Total noninterest income  210   268   105   252   69  
Noninterest expense           
Employee compensation and benefits  889   831   704   915   653  
Occupancy  101   80   47   52   44  
Professional fees  65   63   61   13   42  
Other general and administrative  407   377   340   333   292  
Total noninterest expense  1,462   1,351   1,152   1,313   1,031  
Net Income Before Taxes  $936  $1,056  $1,252  $1,183  $1,098  
Income Tax Expense  213   184   300   282   261  
Net Income  $723  $872  $952  $901  $837  
            
Income Per Share $0.17  $0.21  $0.23  $0.22  $0.21  
Tangible Book Value Per Share $10.06  $9.77  $9.64  $9.36  $9.01  
WA Shares outstanding  4,143,620   4,123,620   4,063,620   4,063,620   4,063,620  
Net Interest Margin  3.86%  3.82%  3.81%  3.96%  3.88% 
Cost of Funds  0.48%  0.56%  0.70%  0.77%  0.88% 
Efficiency Ratio  50.61%  50.56%  46.60%  55.78%  46.86% 
Return on Average Assets  0.99%  1.25%  1.46%  1.52%  1.49% 
Return on Average Equity  7.03%  8.75%  9.85%  9.64%  9.28% 
Community bank leverage ratio (CBLR)  13.4%  14.2%  14.8%  15.6%  15.6% 
Asset Quality:           
Non-performing loans to gross loans  0.47%  0.01%  0.01%  0.23%  0.02% 
Non-performing assets to total assets  0.33%  0.00%  0.00%  0.17%  0.01% 
Allowance for loan losses to gross loans  1.55%  1.29%  1.24%  1.29%  1.32% 
            
Criticized loans/assets:           
Special mention $4,640  $7,613  $5,423  $1,465  $1,470  
Substandard: Accruing  2,421   3,170   3,926   5,687   5,749  
Substandard: Nonaccrual  1,002   11   10   425   28  
Doubtful                
  Total criticized loans $8,063  $10,794  $9,359  $7,577  $7,247  
Other real estate owned                
Investment securities  579   580   581   583   584  
Total criticized assets $8,642  $11,374  $9,940  $8,160  $7,831  
Criticized assets to total assets  2.88%  4.03%  3.58%  3.35%  3.41% 
            

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Source: Solera National Bank