Reduced cost of funds creates margin expansion

LAKEWOOD, Colo., July 22, 2019 (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 second quarter and first half of 2019. 

Highlights for the quarter and six-months ended June 30, 2019 include:

• Net income increased 106% for the six-months ended June 30, 2019 compared to the same period last year
  
  
• Cost of funds dropped to 82 basis points for the six-months ended June 30, 2019 compared to 110 basis points for the same period last year
  
  
• Second quarter 2019 cost of funds fell to 77 basis points, an 11 basis point improvement over the linked-quarter
  
  
• Net interest margin of 3.96% for second quarter 2019 improved from 3.88% for the linked-quarter and 3.42% for the same period last year
  
  
• Gross loans rose $11.1 million since December 31, 2018 ending the second quarter at $181.5 million
  
  
• Noninterest-bearing deposits climbed 36%, or $30.2 million, for the six months ended June 30, 2019, ending the quarter at $114.4 million
  
  
• Asset quality remained strong with modest level of criticized assets and nonperforming assets of 0.17% of total assets as of June 30, 2019
  
  
• Return on average assets improved markedly at 1.53% for the six-months ended June 30, 2019 compared to 0.88% for the six-months ended June 30, 2018
  
  
• Return on average equity was 9.60% for the six-months ended June 30, 2019 compared to 6.19% for the six-months ended June 30, 2018

For the six-months ended June 30, 2019, the Company reported net income of $1.7 million, or $0.43 per share, compared to $843,000, or $0.27 per share, for the six-months ended June 30, 2018.  Martin P. May, President and CEO, commented: “The combined effect of an additional $32 million in average loan balances and $56 million in average non-interest bearing deposits – which is the difference between the first six months of 2018 and the first six months of 2019 – equates to bottom line results; a doubling of net income.  We have spent the last several years working to shift our balance sheet in order to improve our financial results and decrease interest rate risk. We are pleased with the progress we have made.  Now, we continue to seek new opportunities to expand our business.” 

Operational Highlights

Net interest income after provision for loan and lease losses was $2.24 million for the quarter ended June 30, 2019 compared to $2.06 million for the quarter ended March 31, 2019 and $1.42 million for the quarter ended June 30, 2018.  Net interest income after provision for loan and lease losses of $4.30 million increased $1.51 million, or 54%, for the six-months ended June 30, 2019 compared to the same period last year.  This improvement was aided by a decline in provision expense for the six-months ended June 30, 2019 which was $83,000 compared to $350,000 for the same period last year.  

Loan growth, combined with increasing interest rates, lead to an increase of $1.01 million, or 29%, in interest and fees on loans for the first six months of 2019 compared to the same period in 2018.  Interest expense decreased $112,000 for the first six months of 2019 compared to the same period in 2018 despite the $15.4 million increase in total deposits during this time.  Mr. May commented:  “The progress we’ve made in reducing our cost of funds is perhaps our most important accomplishment.  Over the last twelve months, the percentage of noninterest-bearing deposits to total deposits has improved to 57% from 30% as of June 30, 2018.  Similarly, time deposits have fallen from 33% of total deposits this time last year to only 19% of total deposits as of June 30, 2019.  Improving net interest margin given the headwinds of the flat yield curve is an achievement we are proud to announce to our shareholders.”

Net interest margin rose an additional eight basis points from first quarter 2019 (3.88%) to second quarter 2019 (3.96%).  Year-over-year net interest margin has improved 52 basis points rising from 3.40% for the six-months ended June 30, 2018 to 3.92% for the same period in 2019.

Total noninterest income in second quarter 2019 was $252,000 compared to $69,000 and $67,000 in first quarter 2019 and second quarter 2018, respectively.  The second quarter 2019 results were bolstered by gains on the sale of investment securities, which totaled $154,000.  For the six-months ended June 30, 2019, noninterest income was $321,000 compared to $129,000 for the same period in 2018.

Total noninterest expense in second quarter 2019 of $1.31 million was up $282,000 from $1.03 million for first quarter 2019.  The increase was almost entirely related to a nonrecurring increase in employee compensation and benefits of $208,000 related to a change of control clause that caused some employee stock options to become fully vested during the quarter.  Excluding this item, employee compensation and benefits increased $54,000, or 8%, during second quarter 2019 compared to the linked-quarter.  This increase was primarily due to additional employees to support franchise growth.  Total noninterest expense for the six-months ended June 30, 2019 was $2.34 million, an increase of $513,000 or 28%, from $1.83 million for the six-months ended June 30, 2018.  The increase includes the $208,000 nonrecurring employee compensation expenses mentioned above, along with increases in data processing expenses due to a substantial increase in customers.

The Company’s second quarter 2019 efficiency ratio (noninterest expense divided by the sum of net interest income and non-interest income) increased to 55.78% compared to 50.58% for the second quarter of 2018. After adjusting for the nonrecurring employee stock option expenses, the efficiency ratio for second quarter 2019 was essentially unchanged at 46.94% compared to 46.86% for the linked quarter.  The efficiency ratio for the six-months ended June 30, 2019 was 51.47% compared to 54.87% for the six-months ended June 30, 2018.

Income tax expense increased significantly year-over-year at $543,000 for the six-months ended June 30, 2019 compared to $253,000 for the same period of 2018 given the improvement in pre-tax income.

Balance Sheet Review and Asset Quality Strength

Total assets of $243.34 million at June 30, 2019 increased from $229.65 million at March 31, 2019 and $224.59 million at June 30, 2018.  The increase compared to the linked quarter was due to the growth in gross loans along with higher interest-bearing deposits with banks, partially offset by a reduction in investment securities available-for-sale.

Net loans, after allowance for loan and lease losses, were $178.58 million at June 30, 2019 compared to $173.51 million at March 31, 2019 and $159.13 million at June 30, 2018.  Net loan growth of $5.07 million during the second quarter of 2019 was driven by commercial loan originations of $12.41 million partly offset by payoffs, pay downs and an increase in the allowance for loan losses totaling $7.34 million.  For the six-months ended June 30, 2019, the $10.92 million expansion in net loans consisted primarily of commercial loan originations totaling $27.38 million, a net decrease in student loans of $1.36 million, partly offset by payoffs, pay downs and an increase in the allowance for loan losses totaling $15.10 million.   

The allowance for loan and lease losses was essentially unchanged for the second quarter 2019, at $2.34 million, or 1.29% of gross loans.  This compared to an allowance for loan and lease losses of $2.34 million, or 1.32% of gross loans, at March 31, 2019 and $2.06 million, or 1.27% of gross loans at June 30, 2018.  

Total investment securities available-for-sale declined to $26.98 million at June 30, 2019 compared to $34.08 million at March 31, 2019 and $31.77 million at June 30, 2018.  Investment securities held-to-maturity of $6.41 million remain unchanged from March 31 2019 and were up $1.5 million from June 30, 2018.  The Company realized a net gain of $154,000 on the sale of $7.93 million in corporate and municipal bonds.

Total deposits at June 30, 2019 were $200.64 million, a $13.84 million, or 7%, increase from $186.80 million at March 31, 2019 and a $15.39 million, or 8%, increase over the $185.25 million at June 30, 2018.  The Company continued to make significant progress growing its core deposit franchise.  Noninterest-bearing demand deposits of $114.44 million at June 30, 2019 rose $19.25 million, or 20%, versus the linked-quarter and climbed $59.16 million, or 107%, since June 30, 2018. 

The Company continues to experience sound asset quality metrics.  At both June 30 and March 31, 2019, the Company had minimal non-performing assets and no other real estate owned.  Total criticized assets of $8.16 million increased $803,000 over the $7.36 million at June 30, 2018 but remain low at 3.4% of total assets. 

The Company had no past due commercial or residential mortgage loans as of June 30, 2019. Additionally, $3.36 million of the student loan participation pool were 30 days+ past due at June 30, 2019.  This was up slightly from $3.18 million 30 days+ past due at March 31, 2019.  Of the $3.36 million past due, $1.81 million were 90 days+ past due as of June 30, 2019.  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 June 30, 2019, the Bank’s Tier 1 leverage ratio was 15.6%, Tier 1 risk-based capital was 20.2%, and total risk-based capital was 21.4%.

Tangible book value per share, including accumulated other comprehensive income, was $9.36 at June 30, 2019 compared to $9.01 at March 31, 2019, and $8.32 at June 30, 2018.   Total stockholders' equity was $38.10 million at June 30, 2019 compared to $36.69 million at March 31, 2019 and $33.93 million at June 30, 2018.   The fair value of the Bank's available-for-sale investment portfolio has improved from a year ago due to a decline in interest rates. As of June 30, 2019, the available-for-sale investment portfolio had a net gain of $59,000 compared to a net loss of $224,000 at March 31, 2019 and a net loss of $713,000 at June 30, 2018.

Annual Meeting and Board Changes

Mr. May commented:  “We’d like to take this opportunity to thank Mr. Robert J. Fenton and Mr. Rene Morin for their service and commitment to the Boards of Directors of Solera National Bancorp, Inc. and Solera National Bank.  Both Mr. Fenton and Mr. Morin have served on the Company’s Boards since 2014 and have been instrumental in the decisions made to transform this organization.” 

Mr. Fenton and Mr. Morin chose not to stand for reelection as directors of the Company upon expiration of their terms at the Company’s upcoming July 23, 2019 Annual Meeting of Shareholders.  Their decisions to not stand for reelection are not due to any disagreement with the Company on any matter relating to the Company’s operations, policies, or practices.  Mr. Fenton has been a key stakeholder of Solera since its formation in 2006 and stated he will “be available to offer advice and looks forward to watching the Company continue to execute its strategic plan and increase shareholder value.”

Mr. Morin, an original investor in Solera National Bancorp, Inc., commented, “I am leaving the bank in good hands with great employees and board members.”

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 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.

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)		6/30/2019				3/31/2019				12/31/2018				9/30/2018				6/30/2018
ASSETS
Cash and due from banks		$	1,761			$	1,113			$	1,676			$	1,939			$	730
Federal funds sold			5,265				1,100				2,310				3,950				5,250
Interest-bearing deposits with banks			14,041				2,936				2,402				1,938				11,954
Investment securities, available-for-sale			26,979				34,084				31,005				31,427				31,765
Investment securities, held-to-maturity			6,408				6,406				4,908				4,907				4,905
FHLB and Federal Reserve Bank stocks, at cost			1,239				1,261				1,202				1,244				1,440
Gross loans			181,461				176,388				170,399				164,090				161,680
Net deferred (fees)/expenses			(543	)			(539	)			(465	)			(492	)			(493	)
Allowance for loan and lease losses			(2,337	)			(2,335	)			(2,274	)			(2,186	)			(2,060	)
Net loans			178,581				173,514				167,660				161,412				159,127
Premises and equipment, net			1,627				1,638				1,646				1,682				1,723
Accrued interest receivable			1,091				1,204				1,095				1,070				1,047
Bank-owned life insurance			4,775				4,748				4,721				4,694				4,667
Other assets			1,573				1,648				2,058				1,768				1,983
TOTAL ASSETS		$	243,340			$	229,652			$	220,683			$	216,031			$	224,591
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing demand deposits		$	114,444			$	95,193			$	84,287			$	71,926			$	55,284
Interest-bearing demand deposits			5,307				5,591				10,561				11,230				29,331
Savings and money market deposits			42,246				45,832				41,565				41,661				39,600
Time deposits			38,638				40,181				44,269				51,253				61,035
Total deposits			200,635				186,797				180,682				176,070				185,250
Accrued interest payable			124				126				132				160				181
Short-term FHLB borrowings			—				1,500				—				—				—
Long-term FHLB borrowings			4,000				4,000				4,000				5,000				5,000
Accounts payable and other liabilities			483				538				386				272				235
TOTAL LIABILITIES			205,242				192,961				185,200				181,502				190,666
Common stock			41				41				41				41				41
Additional paid-in capital			37,194				36,971				36,953				36,935				36,921
Retained earnings/(accumulated deficit)			960				59				(778	)			(1,519	)			(2,168	)
Accumulated other comprehensive gain / (loss)			59				(224	)			(577	)			(772	)			(713	)
Treasury stock, at cost			(156	)			(156	)			(156	)			(156	)			(156	)
TOTAL STOCKHOLDERS' EQUITY			38,098				36,691				35,483				34,529				33,925
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	243,340			$	229,652			$	220,683			$	216,031			$	224,591

 

SOLERA NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
		Three Months Ended																				Six Months Ended
($000s, except per share data)		6/30/2019				3/31/2019				12/31/2018				9/30/2018				6/30/2018				6/30/2019				6/30/2018
Interest and dividend income
Interest and fees on loans		$	2,291			$	2,208			$	2,121			$	2,006			$	1,904			$	4,499			$	3,490
Investment securities			289				278				258				257				266				567				522
Dividends on bank stocks			17				17				18				19				20				34				37
Other			41				49				28				20				8				90				14
Total interest income			2,638				2,552				2,425				2,302				2,198				5,190				4,063
Interest expense
Deposits			363				403				401				402				419				766				802
FHLB borrowings			19				18				20				26				74				37				113
Total interest expense			382				421				421				428				493				803				915
Net interest income			2,256				2,131				2,004				1,874				1,705				4,387				3,148
Provision for loan and lease losses			12				71				99				131				282				83				350
Net interest income after provision for loan and lease losses			2,244				2,060				1,905				1,743				1,423				4,304				2,798
Noninterest income
Customer service and other fees			71				43				36				33				35				114				64
Other income			27				26				28				30				32				53				65
Gain on sale of securities			154				—				—				—				—				154				—
Total noninterest income			252				69				64				63				67				321				129
Noninterest expense
Employee compensation and benefits			915				653				584				569				560				1,568				1,111
Occupancy			52				44				73				56				50				96				98
Professional fees			13				42				41				19				19				55				72
Other general and administrative			333				292				291				314				284				625				550
Total noninterest expense			1,313				1,031				989				958				913				2,344				1,831
Net Income Before Taxes		$	1,183			$	1,098			$	980			$	848			$	577			$	2,281			$	1,096
Income Tax Expense			282				261				239				199				134				543				253
Net Income		$	901			$	837			$	741			$	649			$	443			$	1,738			$	843
Income Per Share		$	0.22			$	0.21			$	0.18			$	0.16			$	0.13			$	0.43			$	0.27
Tangible Book Value Per Share		$	9.36			$	9.01			$	8.71			$	8.47			$	8.32			$	9.36			$	8.32
Net Interest Margin			3.96	%			3.88	%			3.74	%			3.60	%			3.42	%			3.92	%			3.40	%
Cost of Funds			0.77	%			0.88	%			0.89	%			0.95	%			1.10	%			0.82	%			1.10	%
Efficiency Ratio			55.78	%			46.86	%			47.82	%			49.46	%			50.58	%			51.47	%			54.87	%
Return on Average Assets			1.52	%			1.49	%			1.36	%			1.18	%			0.84	%			1.53	%			0.88	%
Return on Average Equity			9.64	%			9.28	%			8.47	%			7.58	%			5.82	%			9.60	%			6.19	%
Asset Quality:
Non-performing loans to gross loans			0.23	%			0.02	%			0.02	%			0.02	%			—	%
Non-performing assets to total assets			0.17	%			0.01	%			0.02	%			0.02	%			—	%
Allowance for loan losses to gross loans			1.29	%			1.32	%			1.33	%			1.33	%			1.27	%
Criticized loans/assets:
Special mention		$	1,465			$	1,470			$	1,603			$	1,608			$	4,346
Substandard: Accruing			5,687				5,749				5,035				5,068				2,423
Substandard: Nonaccrual			425				28				34				36				—
Doubtful			—				—				—				—				—
Total criticized loans		$	7,577			$	7,247			$	6,672			$	6,712			$	6,769
Other real estate owned			—				—				—				—				—
Investment securities			583				584				585				586				588
Total criticized assets		$	8,160			$	7,831			$	7,257			$	7,298			$	7,357
Criticized assets to total assets			3.35	%			3.41	%			3.29	%			3.38	%			3.28	%
Selected Financial Ratios: (Solera National Bank Only)
Tier 1 leverage ratio			15.6	%			15.6	%			15.8	%			15.9	%			16.1	%
Tier 1 risk-based capital ratio			20.2	%			19.5	%			20.6	%			21.1	%			20.8	%
Total risk-based capital ratio			21.4	%			20.7	%			21.8	%			22.3	%			22.0	%