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Solera National Bancorp Announces Reversal of Deferred Tax Asset Valuation Allowance and Fourth Quarter, Full Year 2016 Financial Results

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LAKEWOOD, Colo., Jan. 25, 2017 (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 three and twelve months ended December 31, 2016. 

Highlights for the quarter ended December 31, 2016 include:

  • Ninth consecutive profitable quarter
  • Net loan growth of $4.9 million, or 5.0% versus linked-quarter
  • Strong asset quality; no nonperforming assets and modest level of criticized assets
  • Full reversal of Deferred Tax Asset Valuation Allowance
  • Loss Contingency recorded for breach of contract lawsuit brought by former CEO
  • Return on Average Assets and Return on Average Equity of 5.46% and 37.43%, respectively

For the three months ended December 31, 2016, the Company reported net income of $2.09 million, or $0.77 per share, compared to net income of $266,000, or $0.10 per share, for the three months ended September 30, 2016, and $319,000, or $0.12 per share, for the three months ended December 31, 2015.  The Company's net income for the year ended December 31, 2016 was $3.13 million, or $1.15 per share, compared to a net income of $1.78 million, or $0.65 per share, for the twelve months ended December 31, 2015.

The fourth quarter 2016 results included a full reversal of the Company's deferred tax asset valuation allowance resulting in a one-time tax benefit of $2.21 million, or $0.81 per share.  The Company has concluded that as of December 31, 2016, it is more likely than not that it will generate sufficient taxable income within the applicable carry-forward periods to realize its net deferred tax assets.  Several factors, including Solera's ninth consecutive quarter of core profitability and a forecast of future profitability under various potential scenarios, combined to facilitate the full recovery of the deferred tax asset valuation allowance.

Partially offsetting this one-time income tax benefit was a loss contingency of $514,000, or $0.19 per share, as a result of a recent jury verdict awarding a severance payment and related interest to our former CEO.  The Company is in the process of obtaining regulatory guidance whether the judgment can legally be paid but has concluded that, at this time, the accounting guidance requires recognition of this potential liability.  Excluding the impact of the release of the deferred tax asset valuation allowance and the loss contingency during the quarter, net income was $390,000, or $0.14 per share (non-GAAP).

Martin P. May, President and CEO, commented: "The Company is performing well, delivering our ninth consecutive quarterly profit.  We continued to grow our loan and deposit portfolios organically and our capital ratios significantly exceed all regulatory guidelines for a well-capitalized bank."

Operational Highlights
Net interest income after provision for loan and lease losses was $1.11 million for the quarter ended December 31, 2016 compared to $1.07 million and $1.05 million in the quarters ended September 30, 2016 and December 31, 2015, respectively.  For the twelve months of 2016, net interest income after provision for loan and lease losses was $4.18 million compared to $4.26 million for the twelve 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 2015.

The Company's net interest margin in fourth quarter 2016 was 3.04% compared to 2.96% in the linked-quarter and 3.10% in the fourth quarter 2015.  The Company's net interest margin for the twelve months of 2016 was 2.99% compared to 3.13% for the twelve months of 2015.  The decline in net interest margin for the twelve months of 2016 compared to the twelve months of 2015 is largely attributed to a 10 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 fourth quarter 2016 was $58,000 compared to $96,000 in third quarter 2016 and $75,000 in fourth quarter 2015.  The decrease versus the linked-quarter is due to no gain on the sale of available-for-sale securities in fourth quarter 2016 versus $36,000 in the linked-quarter.  Noninterest income was $522,000 for the twelve months ended December 31, 2016 compared to $745,000 for the twelve months ended December 31, 2015.  This decline was due to a one-time bank owned life insurance benefit of $293,000 along with a higher gain on the sale of available-for-sale securities in 2015, partially offset by a gain on loans sold of $125,000 in 2016.

The Company continues to prudently manage expenses.  However, fourth quarter 2016 was adversely impacted by the loss contingency of $514,000 recorded for the jury verdict awarding a severance payment and related interest to our former CEO.  As a result, total noninterest expense of $1.29 million in fourth quarter 2016 compared unfavorably with $897,000 in the linked-quarter and $808,000 in the fourth quarter of 2015.  For the twelve months of 2016, noninterest expense increased to $3.78 million compared to $3.22 million for the twelve months of 2015 principally due to the loss contingency and related legal expenses incurred to defend the lawsuit. Excluding the costs associated with the lawsuit and loss contingency, noninterest expense would have been $3.13 million, a $95,000, or 2.9%, decline from the prior year.

As a result of reversing the full deferred tax asset valuation allowance and recording an income tax benefit of $2.21 million this quarter, the Company expects to record income tax expense in future quarters assuming the Company continues to generate pre-tax earnings.

Balance Sheet Review and Asset Quality Strength

Total assets of $156.09 million at December 31, 2016 increased from $149.28 million at September 30, 2016 and $146.07 million at December 31, 2015.  The increase versus the linked-quarter was due to solid growth in gross loans along with the release of the deferred tax asset valuation allowance. 

Net loans, after allowance for loan and lease losses, were $103.38 million at December 31, 2016 compared to $98.48 million at September 30, 2016 and $80.59 million at December 31, 2015.  Net loan growth was $4.91 million during the fourth quarter of 2016 from loan originations of $6.72 million offset by payoffs and pay downs totaling $1.81 million.  Net loans increased $22.79 million for the twelve months ended 2016 from loan originations of $28.18 million, coupled with a $15.0 million purchased participation interest in a pool of rehabilitated student loans.  These were partially offset by loan payoffs and pay downs totaling $20.39 million. 

The allowance for loan and lease losses at December 31, 2016 was $1.60 million, or 1.52% of gross loans, compared to $1.58 million, or 1.58% of gross loans at September 30, 2016, and $1.52 million, or 1.85% of gross loans at December 31, 2015.  The decline in the allowance for loan and lease losses as a percentage of gross loans versus the prior year is primarily due to the participation interest in a pool of rehabilitated student loans which come with minimal risk of loss given a U.S. government guarantee. 

Total investment securities available-for-sale were $36.13 million at December 31, 2016 compared to $36.32 million at September 30, 2016 and $48.37 million at December 31, 2015.  Investment securities held-to-maturity of $4.5 million remained unchanged at December 31, 2016 compared to September 30, 2016 and December 31, 2015.

Total deposits at December 31, 2016 were $126.33 million compared to $122.13 million at September 30, 2016 and $120.84 million at December 31, 2015.  Noninterest-bearing demand deposits and time deposits increased $1.99 million and $3.28 million versus the prior year, respectively.

The Company continues to experience sound asset quality metrics substantially outperforming its peer group.  At December 31, 2016, the Company had no non-performing loans, non-performing assets or other real estate owned.  Total criticized assets of $6.12 million at December 31, 2016, or 3.92% of total assets, increased modestly from $4.91 million, or 3.36% of total assets at December 31, 2015.

The Company had no past due commercial loans as of December 31, 2016.  However, $5.54 million of the student loan participation pool were 30 days+ past due at December 31, 2016, of which $3.60 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 December 31, 2016, the Bank's Tier 1 leverage ratio was 14.0%, Tier 1 risk-based capital was 18.7%, and total risk-based capital was 20.0%.

Tangible book value per share, including accumulated other comprehensive income, was $8.39 at December 31, 2016, compared to $7.80 at September 30, 2016 and $7.18 at December 31, 2015.  Total stockholders' equity was $23.07 million at December 31, 2016 compared to $21.49 million at September 30, 2016 and $19.84 million at December 31, 2015.  Total stockholders' equity at December 31, 2016 included an accumulated other comprehensive loss of $426,000 compared to a gain of $89,000 at September 30, 2016 as a result of a decrease in the fair value of the Bank's available-for-sale investment portfolio due to an increase in longer-term interest rates. 

May concluded: "The Company has now generated two successive years of core earnings.  The Bank maintains strong capital and liquidity levels, our asset quality remains solid, and we are competing aggressively in a healthy and vibrant metropolitan area.  During 2016, we made investments in both our business development team and technology platforms, and will build upon that in 2017 with the launch of consumer mobile deposit capture.  The Company is well positioned to continue building shareholder value over the coming year and beyond."

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) 12/31/2016 9/30/2016 6/30/2016 3/31/2016 12/31/2015
ASSETS          
Cash and due from banks $719  $825  $678  $521  $749 
Federal funds sold  80      1,755   3,130   1,740 
Interest-bearing deposits with banks  261   261   261   751   750 
Investment securities, available-for-sale  36,133   36,324   36,159   43,752   48,374 
Investment securities, held-to-maturity  4,500   4,500   4,500   4,500   4,500 
FHLB and Federal Reserve Bank stocks, at cost  879   1,027   853   860   874 
Gross loans  105,243   100,336   92,749   80,029   82,124 
Net deferred (fees)/expenses  (260)  (270)  (201)  (54)  (15)
Allowance for loan and lease losses  (1,599)  (1,584)  (1,577)  (1,557)  (1,518)
Net loans  103,384   98,482   90,971   78,418   80,591 
Loans held for sale              1,039 
Premises and equipment, net  1,831   1,861   1,884   1,902   1,918 
Accrued interest receivable  798   768   616   531   570 
Bank-owned life insurance  4,495   4,464   4,433   4,401   4,369 
Other assets  3,011   765   731   1,793   599 
TOTAL ASSETS $156,091  $149,277  $142,841  $140,559  $146,073 
           
LIABILITIES AND STOCKHOLDERS' EQUITY      
Noninterest-bearing demand deposits  5,941   5,189   4,156   4,069   3,954 
Interest-bearing demand deposits  8,374   6,997   7,913   7,644   8,405 
Savings and money market deposits  42,569   38,558   36,798   38,151   42,320 
Time deposits  69,441   71,382   68,156   64,435   66,160 
Total deposits  126,325   122,126   117,023   114,299   120,839 
           
Accrued interest payable  103   144   127   112   88 
Short-term FHLB borrowings  2,415   1,125          
Long-term FHLB borrowings  3,400   4,000   4,000   5,000   5,000 
Accounts payable and other liabilities  776   390   317   333   309 
TOTAL LIABILITIES  133,019   127,785   121,467   119,744   126,236 
           
Common stock  27   27   27   27   27 
Additional paid-in capital  27,170   27,160   27,149   27,143   27,137 
Accumulated deficit  (3,543)  (5,628)  (5,894)  (6,216)  (6,670)
Accumulated other comprehensive gain (loss)  (426)  89   248   17   (501)
Treasury stock, at cost  (156)  (156)  (156)  (156)  (156)
TOTAL STOCKHOLDERS' EQUITY  23,072   21,492   21,374   20,815   19,837 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $156,091  $149,277  $142,841  $140,559  $146,073 
           

 

SOLERA NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
  Three Months Ended Twelve Months Ended
($000s, except per share data) 12/31/2016 9/30/2016 6/30/2016 3/31/2016 12/31/2015 12/31/2016 12/31/2015
Interest and dividend income              
Interest and fees on loans $1,175  $1,144  $1,011  $1,054  $1,060  $4,384  $4,237 
Investment securities  254   242   249   292   278   1,037   1,044 
Dividends on bank stocks  12   12   11   10   11   45   46 
Other  1   2   4   4   8   11   15 
Total interest income  1,442   1,400   1,275   1,360   1,357   5,477   5,342 
Interest expense              
Deposits  320   315   298   294   284   1,227   1,039 
FHLB borrowings  15   18   20   20   21   73   96 
Total interest expense  335   333   318   314   305   1,300   1,135 
Net interest income  1,107   1,067   957   1,046   1,052   4,177   4,207 
Provision for loan and lease losses                    (50)
Net interest income after
provision for loan and lease losses
  1,107   1,067   957   1,046   1,052   4,177   4,257 
Noninterest income              
Customer service and other fees  26   28   24   24   25   102   110 
Other income  32   32   32   42   44   138   449 
Gain on loans sold           125      125    
Gain on sale of available-for-sale securities     36   70   51   6   157   186 
Total noninterest income  58   96   126   242   75   522   745 
Noninterest expense              
Employee compensation and benefits  425   410   376   406   410   1,617   1,581 
Occupancy  53   59   56   65   52   233   203 
Professional fees  49   129   31   71   39   280   205 
Other general and administrative  762   299   298   292   307   1,651   1,235 
Total noninterest expense  1,289   897   761   834   808   3,781   3,224 
Net (Loss)/Income Before Taxes  $(124) $266  $322  $454  $319  $918  $1,778 
Income Tax Benefit $2,209  $-  $-  $-  $-  $2,209  $- 
Net Income  $2,085  $266  $322  $454  $319  $3,127  $1,778 
               
Income Per Share $0.77  $0.10  $0.12  $0.17  $0.12  $1.15  $0.65 
Tangible Book Value Per Share $8.39  $7.80  $7.75  $7.54  $7.18  $8.39  $7.18 
Net Interest Margin  3.04%  2.96%  2.87%  3.09%  3.10%  2.99%  3.13%
Efficiency Ratio  110.64%  79.59%  75.12%  67.42%  72.08%  83.25%  66.94%
Return on Average Assets  5.46%  0.73%  0.91%  1.27%  0.89%  2.12%  1.25%
Return on Average Equity  37.43%  4.96%  6.11%  8.93%  6.43%  14.42%  9.12%
               
Asset Quality:              
Non-performing loans to gross loans  %  %  %  %  0.16%    
Non-performing assets to total assets  %  %  %  %  0.09%    
Allowance for loan losses to gross loans  1.52%  1.58%  1.70%  1.95%  1.85%    
               
Criticized loans/assets:              
Special mention $1,164  $1,984  $1,967  $3,137  $1,242     
Substandard: Accruing  4,364   3,935   3,627   2,975   2,400     
Substandard: Nonaccrual              131     
Doubtful                   
  Total criticized loans $5,528  $5,919  $5,594  $6,112  $3,773     
Other real estate owned                   
Investment securities  595   596   597   1,136   1,140     
Total criticized assets $6,123  $6,515  $6,191  $7,248  $4,913     
Criticized assets to total assets  3.92%  4.36%  4.33%  5.16%  3.36%    
               
Selected Financial Ratios: (Solera National Bank Only)   
Tier 1 leverage ratio  14.0%  13.2%  13.8%  13.5%  13.2%    
Tier 1 risk-based capital ratio  18.7%  19.1%  18.6%  19.4%  18.8%    
Total risk-based capital ratio  20.0%  20.4%  19.8%  20.7%  20.0%    
               


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

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