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Solera National Bancorp Announces 3Q, Nine Months of 2016 Financial Results

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LAKEWOOD, Colo., Oct. 27, 2016 (GLOBE NEWSWIRE) -- Solera National Bancorp, Inc. (OTC: SLRK), the holding company for Solera National Bank, a business-focused bank primarily serving the Denver metropolitan area, today reported financial results for the third quarter and nine months of 2016. 

Highlights for the quarter ended September 30, 2016 include:

  • Eight consecutive profitable quarters
  • Net income of $266,000, or $0.10 per share
  • Return on Average Assets and Return on Average Equity of 0.73% and 4.96%, respectively
  • Net loan growth of $7.51 million, or 8.3% versus linked-quarter
  • Phil Randell joins the board of directors

For the three months ended September 30, 2016, the Company reported net income of $266,000, or $0.10 per share, compared to net income of $322,000, or $0.12 per share, for the three months ended June 30, 2016, and $649,000, or $0.24 per share, for the three months ended September 30, 2015.  For the nine months ended September 30, 2016, Solera reported net income of $1.04 million, or $0.38 per share, compared with net income of $1.46 million, or $0.54 per share, for the nine months ended September 30, 2015.  Third quarter 2016 results include approximately $100,000 in legal expenses incurred in defending a lawsuit brought by the Company's former CEO.   In third quarter 2015, the Company's noninterest income included a one-time bank owned life insurance benefit of $293,000. 

Martin P. May, President and CEO, commented: "The Company is performing well, delivering our eighth consecutive quarterly profit.  We continued to grow our loan portfolio both organically and through the purchase of an additional participation interest in a pool of rehabilitated federal student loans.  Additionally, we added talented business development officers to the team this quarter.  Kreighton Reed and Susan Rawley will focus on growing our core deposits and generating new business lending opportunities.  Finally, we are excited to have Phil Randell join our board of directors as we benefit from his 37 years of commercial banking experience in the Denver market."

Operational Highlights

Net interest income after provision for loan and lease losses was $1.07 million for the quarter ended September 30, 2016, compared to $957,000 and $1.12 million in the quarters ended June 30, 2016 and September 30, 2015, respectively.  Net interest income after provision for loan and lease losses for the nine months of 2016 was $3.07 million, compared to $3.21 million in the nine months of 2015.  The Company recorded no provision for loan and lease losses in 2016 compared to a $50,000 credit to the provision for loan and lease losses in the third quarter 2015.

The Company's net interest margin in third quarter 2016 was 2.96% compared to 2.87% in the linked-quarter and 3.19% in the third quarter 2015.  The Company's net interest margin for the nine months of 2016 was 2.98% compared to 3.15% in the nine month of 2015.  The decline in net interest income and net interest margin for the nine months of 2016 compared to the nine months of 2015 is largely attributed to a 13 basis point increase in the cost of funds due to a shift from less expensive savings and money market accounts to more expensive, longer-term time deposits. 

Total noninterest income in third quarter 2016 was $96,000 compared to $126,000 in second quarter 2016 and $407,000 in third quarter 2015.  The decrease versus the linked-quarter is due to lower gains on the sale of available-for-sale securities.  In third quarter 2015, the Company's noninterest income included a one-time bank owned life insurance benefit of $293,000.  Noninterest income was $464,000 for the nine months ended September 30, 2016 compared to $670,000 for the nine months ended September 30, 2015.

The Company continues to diligently manage expenses.  However, third quarter 2016 was adversely impacted by legal expenses of approximately $100,000 incurred to defend a lawsuit brought by John Carmichael, a former CEO of the Company seeking a severance payment after his for-cause termination.  Total noninterest expense of $897,000 in third quarter 2016 compared unfavorably with $761,000 in the linked-quarter and $874,000 in the third quarter of 2015.  For the nine months of 2016, noninterest expense was $2.49 million compared to $2.42 million for the nine months of 2015 principally due to higher legal expenses. 

The Company continued to record no income tax expense due to the utilization of available net operating loss carryforwards.

Loss Contingency

In August 2015, Mr. Carmichael filed a breach of contract lawsuit against Solera National Bank and Solera National Bancorp, Inc.  The case proceeded to trial in September 2016 and resulted in a jury verdict awarding Mr. Carmichael a severance payment of 1.99 times his annual salary totaling $427,850.  A dispute remains as to whether Mr. Carmichael is also entitled to the value of 10,000 shares of Solera National Bancorp, Inc. common stock as of his termination date.  Additionally, a calculation for pre-judgment interest has not been determined.  Final judgment has not yet been entered in this litigation.

It is the Bank's understanding that regulatory approval is required to ensure that a golden parachute payment to Mr. Carmichael would not violate federal law.  The Company did not record a charge to earnings this quarter for this loss contingency as we are unable to calculate a reasonable estimate of potential loss and there is a reasonable probability that the Company will not receive regulatory approval to pay the judgment given recent case law.  We anticipate receiving a determination from regulators before year-end. 

Balance Sheet Review and Asset Quality Strength

Total assets of $149.28 million at September 30, 2016 increased from $142.84 million at June 30, 2016 and $139.45 million at September 30, 2015.  The increase versus the linked-quarter was due to strong growth in gross loans. 

Net loans, after allowance for loan and lease losses, were $98.48 million at September 30, 2016 compared to $90.97 million at June 30, 2016 and $82.15 million at September 30, 2015.  Organic net loan growth was $2.70 million during the third quarter of 2016 from loan originations of $5.57 million offset by payoffs and pay downs totaling $2.87 million.  This growth was supplemented by the purchase of an incremental $5 million participation interest in a pool of rehabilitated student loans.  The outstanding balance of rehabilitated student loan pools total $14.73 million at September 30, 2016 and continues to be an attractive alternative to purchasing bonds.

The allowance for loan and lease losses at September 30, 2016 was $1.58 million, or 1.58% of gross loans, compared to $1.58 million, or 1.70% of gross loans at June 30, 2016, and $1.61 million, or 1.92% of gross loans at September 30, 2015.  The decline in the allowance for loan and lease losses as a percentage of gross loans is primarily due to the $14.73 million participation interest in a pool of rehabilitated student loans that comes with minimal risk of loss given the U.S. government guarantee. 

Total investment securities available-for-sale were $36.32 million at September 30, 2016 compared to $36.16 million at June 30, 2016 and $42.73 million at September 30, 2015.  Investment securities held-to-maturity of $4.5 million remained unchanged at September 30, 2016 compared to June 30, 2016 and increased $750,000 compared to September 30, 2015.

Total deposits at September 30, 2016 were $122.13 million compared to $117.02 million at June 30, 2016 and $113.19 million at September 30, 2015.  Time deposits increased $11.79 million versus the prior year due to the Company's efforts to attract longer-term deposits through both retail and wholesale channels.

The Company continues to experience sound asset quality metrics outperforming its peer group.  At September 30, 2016, the Company had no non-performing loans, non-performing assets or other real estate owned.  Total criticized assets increased modestly to $6.52 million at September 30, 2016 from $6.19 million at June 30, 2016 and $5.63 million at September 30, 2015.

The Company had no past due commercial loans as of September 30, 2016.  However, $4.29 million of the student loan participation pool were 30 days+ past due at September 30, 2016 of which $3.46 million were 90 days+ past due.  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 this pool at a discount making the Bank's maximum exposure to credit losses slightly less than 1%.     

Capital Strength

The Company's earnings continue to generate capital, and its capital ratios are well in excess of the highest required regulatory benchmark levels.  As of September 30, 2016, the Bank's Tier 1 leverage ratio was 13.2%, Tier 1 risk-based capital was 19.1%, and total risk-based capital was 20.4%.

Tangible book value per share, including accumulated other comprehensive income, was $7.80 at September 30, 2016, compared to $7.75 at June 30, 2016 and $7.17 at September 30, 2015.  Total stockholders' equity was $21.49 million at September 30, 2016 compared to $21.37 million at June 30, 2016 and $19.84 million at September 30, 2015.  Total stockholders' equity at September 30, 2016 included an accumulated other comprehensive gain of $89,000 compared to a loss of $175,000 at September 30, 2015 as a result of an increase in the fair value of the Bank's available-for-sale investment portfolio due to a decrease in longer-term interest rates.

May concluded: "The Company has now generated consistent core earnings over the past two years.  The Bank has excess capital to leverage, our asset quality remains solid, and we operate in a vibrant market.  We are making the necessary investments in our business development team and technology platforms, including the planned roll out of mobile deposit capture.  This will make banking with Solera more convenient for all of our clients.  We are well positioned to continue building shareholder value."

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. ("Company") and its wholly-owned subsidiary, Solera National Bank ("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.

FINANCIAL TABLES FOLLOW

  
  
SOLERA NATIONAL BANCORP, INC. 
CONSOLIDATED BALANCE SHEETS 
(unaudited) 
($000s) 9/30/2016 6/30/2016 3/31/2016 12/31/2015 9/30/2015 
ASSETS           
Cash and due from banks $825  $678  $521  $749  $644  
Federal funds sold     1,755   3,130   1,740   365  
Interest-bearing deposits with banks  261   261   751   750   750  
Investment securities, available-for-sale  36,324   36,159   43,752   48,374   42,733  
Investment securities, held-to-maturity  4,500   4,500   4,500   4,500   3,750  
FHLB and Federal Reserve Bank stocks, at cost  1,027   853   860   874   941  
Gross loans  100,336   92,749   80,029   82,124   83,768  
Net deferred (fees)/expenses  (270)  (201)  (54)  (15)  (6) 
Allowance for loan and lease losses  (1,584)  (1,577)  (1,557)  (1,518)  (1,609) 
Net loans  98,482   90,971   78,418   80,591   82,153  
Loans held for sale           1,039     
Premises and equipment, net  1,861   1,884   1,902   1,918   1,955  
Accrued interest receivable  768   616   531   570   542  
Bank-owned life insurance  4,464   4,433   4,401   4,369   4,565  
Other assets  765   731   1,793   599   1,047  
TOTAL ASSETS $149,277  $142,841  $140,559  $146,073  $139,445  
            
LIABILITIES AND STOCKHOLDERS' EQUITY       
Noninterest-bearing demand deposits  5,189   4,156   4,069   3,954   4,362  
Interest-bearing demand deposits  6,997   7,913   7,644   8,405   6,524  
Savings and money market deposits  38,558   36,798   38,151   42,320   42,706  
Time deposits  71,382   68,156   64,435   66,160   59,594  
Total deposits  122,126   117,023   114,299   120,839   113,186  
            
Accrued interest payable  144   127   112   88   102  
Short-term FHLB borrowings  1,125            450  
Long-term FHLB borrowings  4,000   4,000   5,000   5,000   5,500  
Accounts payable and other liabilities  390   317   333   309   370  
TOTAL LIABILITIES  127,785   121,467   119,744   126,236   119,608  
            
Common stock  27   27   27   27   27  
Additional paid-in capital  27,160   27,149   27,143   27,137   27,130  
Accumulated deficit  (5,628)  (5,894)  (6,216)  (6,670)  (6,989) 
Accumulated other comprehensive gain (loss)  89   248   17   (501)  (175) 
Treasury stock, at cost  (156)  (156)  (156)  (156)  (156) 
TOTAL STOCKHOLDERS' EQUITY  21,492   21,374   20,815   19,837   19,837  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $149,277  $142,841  $140,559  $146,073  $139,445  
            

 

 
SOLERA NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
  Three Months Ended Nine Months Ended
($000s, except per share data) 9/30/2016 6/30/2016 3/31/2016 12/31/2015 9/30/2015 9/30/2016 9/30/2015
Interest and dividend income              
Interest and fees on loans $1,144  $1,011  $1,054  $1,060  $1,106  $3,209  $3,177 
Investment securities  242   249   292   278   231   783   766 
Dividends on bank stocks  12   11   10   11   12   33   35 
Other  2   4   4   8   3   10   7 
Total interest income  1,400   1,275   1,360   1,357   1,352   4,035   3,985 
Interest expense              
Deposits  315   298   294   284   263   907   755 
FHLB borrowings  18   20   20   21   23   58   75 
Total interest expense  333   318   314   305   286   965   830 
Net interest income  1,067   957   1,046   1,052   1,066   3,070   3,155 
Provision for loan and lease losses              (50)     (50)
Net interest income after provision for loan and lease losses  1,067   957   1,046   1,052   1,116   3,070   3,205 
Noninterest income              
Customer service and other fees  28   24   24   25   28   76   85 
Other income  32   32   42   44   334   106   405 
Gain on loans sold        125         125    
Gain on sale of available-for-sale securities  36   70   51   6   45   157   180 
Total noninterest income  96   126   242   75   407   464   670 
Noninterest expense              
Employee compensation and benefits  410   376   406   410   422   1,192   1,171 
Occupancy  59   56   65   52   82   180   151 
Professional fees  129   31   71   39   49   231   166 
Other general and administrative  299   298   292   307   321   889   928 
Total noninterest expense  897   761   834   808   874   2,492   2,416 
Net income  $266  $322  $454  $319  $649  $1,042  $1,459 
               
Income per share $0.10  $0.12  $0.17  $0.12  $0.24  $0.38  $0.54 
Tangible book value per share $7.80  $7.75  $7.54  $7.18  $7.17  $7.80  $7.80 
Net interest margin  2.96%  2.87%  3.09%  3.10%  3.19%  2.98%  3.15%
Efficiency Ratio  79.59%  75.12%  67.42%  72.08%  59.13%  73.79%  65.39%
Return on Average Assets  0.73%  0.91%  1.27%  0.89%  1.86%  0.96%  1.38%
Return on Average Equity  4.96%  6.11%  8.93%  6.43%  13.34%  6.55%  10.03%
               
Asset Quality:              
Non-performing loans to gross loans  %  %  %  0.16%  0.30%    
Non-performing assets to total assets  %  %  %  0.09%  0.18%    
Allowance for loan losses to gross loans  1.58%  1.70%  1.95%  1.85%  1.92%    
               
Criticized loans/assets:              
Special mention $1,984  $1,967  $3,137  $1,242  $638     
Substandard: Accruing  3,935   3,627   2,975   2,400   3,589     
Substandard: Nonaccrual           131   139     
Doubtful              116     
  Total criticized loans $5,919  $5,594  $6,112  $3,773  $4,482     
Other real estate owned                   
Investment securities  596   597   1,136   1,140   1,144     
Total criticized assets $6,515  $6,191  $7,248  $4,913  $5,626     
Criticized assets to total assets  4.36%  4.33%  5.16%  3.36%  4.03%    
               
Selected Financial Ratios: (Solera National Bank Only)   
Tier 1 leverage ratio  13.2%  13.8%  13.5%  13.2%  13.1%    
Tier 1 risk-based capital ratio  19.1%  18.6%  19.4%  18.8%  17.3%    
Total risk-based capital ratio  20.4%  19.8%  20.7%  20.0%  18.5%    
               
Contact: Martin P. May, President & CEO (303) 937-6422 -or- Melissa K. Larkin, EVP & CFO (303) 937-6423

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