Increasing Profitability, Expanding Net Interest Margin
LAKEWOOD, Colo., Oct. 22, 2018 (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 third quarter and nine months ended September 30, 2018.
Highlights for the quarter and nine-months ended September 30, 2018 include:
- Net income increased 89% for the nine-months ended 2018 compared to the same period last year
- Efficiency ratio improved to 53.5% for the nine-months ended September 30, 2018 versus 67.2% for the nine-months ended September 30, 2017
- Gross loans rose $36.9 million or 29% for the nine-months ended September 30, 2018 totaling $164.1 million
- Noninterest-bearing deposits continued their steady climb, growing 199% for the nine-months ended September 30, 2018 and reaching $71.9 million
- Net interest margin expanded 56 basis points from the same period last year and 23 basis points from the linked-quarter to 3.67%
- Successful completion of capital raise added $9.7 million or 35% more capital compared to December 31, 2017
- Asset quality remained strong with a modest level of criticized assets and nonperforming assets of only 0.02% of total assets
- Return on average assets improved 34 basis points over the linked-quarter to 1.18% for the third quarter 2018
- Return on average equity improved 30% over the linked-quarter to 7.58% for the third quarter 2018
For the three-months ended September 30, 2018, the Company reported net income of $649,000, or $0.16 per share, compared to net income of $443,000 for $0.13 per share, for the three-months ended June 30, 2018, and net income of $296,000, or $0.11 per share, for the three-months ended September 30, 2017. The third quarter results included $131,000, or $0.03 per share, in provision expense compared to $282,000, or $0.08 per share, for the linked-quarter and $0 for the three-months ended September 30, 2017.
For the nine-months ended September 30, 2018, the Company reported net income of $1.49 million, or $0.44 per share, compared to $788,000, or $0.29 per share for the nine-months ended September 30, 2017. The 2018 results included $481,000, or $0.14 per share, in provision expense compared to $0 for the nine-months ended September 30, 2017. Martin P. May, President and CEO, commented: “Gross loans have increased nearly dollar for dollar with the growth in total deposits this year, all while the Company has improved its efficiency ratio to 53%. This combination has fueled the Company’s increase in earnings. Additionally, the Company raised $9.7 million in common equity during the 2018 rights offering providing a foundation to support the current rate of growth into the future.”
Operational Highlights
Net interest income after provision for loan and lease losses was $1.74 million for the quarter ended September 30, 2018 compared to $1.42 million for the quarter ended June 30, 2018 and $1.24 million for the quarter ended September 30, 2017. Net interest income after provision for loan and lease losses of $4.54 million increased $1.05 million, or 30% for the nine-months ended September 30, 2018 compared to the same period last year, despite the additional $481,000 in provision expense during the nine-months ended September 30, 2018.
Loan growth, combined with increasing interest rates, led to an increase of $1.76 million, or 47%, in interest and fees on loans for the first nine months of 2018 compared to the same period in 2017. This contributed to the 41 basis point expansion in net interest margin from 3.08% for the nine-months ended September 30, 2017 to 3.49% for the same period in 2018. Also aiding the improvement in the Bank’s net interest margin was the 16 basis point improvement in cost of funds quarter-over-quarter from 1.10% for the three-months ended June 30, 2018 to 0.94% for the three-months ended September 30, 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 deposits. Mr. May commented: “Quarter-over-quarter total interest expense declined $65,000 or 13% primarily due to the steady growth in noninterest-bearing deposits. Growing core deposits, especially noninterest-bearing commercial deposits, has been a major focus of ours for the last three years and the results couldn’t have come at a better time given the changing interest rate environment. This improved funding and low overhead has allowed us to effectively compete for good lending opportunities with strong borrowers.”
Total noninterest income has remained steady quarter-to-quarter in 2018 between $62,000 and $67,000 a quarter. However, for the nine-months ended September 30, 2018, noninterest income increased 14% to $192,000 compared to $168,000 for the same period in 2017.
Noninterest expenses have remained well managed even with the rapid growth the Company has experienced in 2018. As a percentage of average assets, noninterest expenses have improved from 2.01% for the nine-months ended September 30, 2017 to 1.95% for the same period in 2018. Noninterest expenses as a percentage of average assets have remained steady in 2018 at approximately 1.74% in both the second and third quarters. Total noninterest expense increased 5% in third quarter 2018 to $958,000 from $913,000 for the linked-quarter. The primary driver of this increase was data processing costs due to a surge in the number of customers served by the Bank. Year-over-year, noninterest expense has increased $329,000, or 13%, to $2.79 million for the nine-months ended September 30, 2018 compared to $2.46 million for the nine-months ended September 30, 2017. The increase from the prior year is principally due to higher employee compensation and benefits along with the previously mentioned escalated data processing expenses – all necessary to support the Bank’s growth.
Strong revenues coupled with controlled noninterest expenses allowed the Company’s third quarter 2018 efficiency ratio (noninterest expense divided by the sum of net interest income and non-interest income) to set yet another record, dropping below 50% compared to 65% for the third quarter 2017. The efficiency ratio for the nine-months ended September 30, 2018 was also an impressive improvement over the same period of 2017 at 53.5% versus 67.2%.
Income tax expense increased 10% year-over-year to $452,000 for the nine-months ended September 30, 2018 compared to $412,000 for the same period of 2017, despite the 62% 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.
Balance Sheet Review and Asset Quality Strength
Total assets of $216.03 million at September 30, 2018 declined from $224.59 million at June 30, 2018 but increased from $167.63 million at September 30, 2017. The decrease compared to the linked quarter was due to lower interest-bearing deposits with banks and less federal funds sold – a direct result of decreases in interest-bearing demand deposits. Mr. May noted: “We expect to see continued swings in deposit balances given the nature of the business for some larger clients we’ve recently attained. Although total deposits declined 5% during the third quarter, noninterest-bearing deposits grew 30%, increasing balances by $16.6 million to end the third quarter at $71.93 million. Growing noninterest-bearing deposits is a major focus for us and I’m pleased with the results our team has achieved this year.” Year-over-year noninterest-bearing demand deposits have grown $47.86 million or 199% and total deposits increased 28% or $38.56 million. As of September 30, 2018, time deposits represent 29% of the Bank’s total deposits compared to 43% of total deposits as of September 30, 2017.
Net loans, after allowance for loan and lease losses, were $161.41 million at September 30, 2018 compared to $159.13 million at June 30, 2018 and $114.67 million at September 30, 2017. For the nine-months ended September 30, 2018, the $36.28 million expansion in net loans consisted primarily of commercial loan originations totaling $40.20 million, a net increase in student loans of $7.94 million, partly offset by payoffs, pay downs and an increase in the allowance for loan losses totaling $11.86 million.
The allowance for loan and lease losses increased during the third quarter 2018 by $131,000 to $2.19 million, or 1.33% of gross loans. The increase was driven by the growth in commercial loans outstanding along with an increase in substandard loans. This compared to $2.06 million, or 1.27% of gross loans, at June 30, 2018 and $1.59 million, or 1.36% of gross loans at September 30, 2017. The decline in the allowance for loan and lease losses as a percentage of gross loans since September 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 remained stable at $31.43 million at September 30, 2018, essentially unchanged from $31.77 million at June 30, 2018 and $33.40 million at September 30, 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 $7.30 million at September 30, 2018 remain essentially unchanged from $7.36 million at June 30, 2018 but increased $2.56 million over the $4.74 million at September 30, 2017. Despite the increase, criticized assets to total assets remain low at 3.38% of total assets as of September 30, 2018.
The Company had no past due commercial or residential mortgage loans as of September 30, 2018. Additionally, $5.27 million of the student loan participation pool were 30 days+ past due at September 30, 2018. This was an unfavorable variance from the $4.25 million at June 30, 2018, but consistent with the $5.16 million 30 days+ past due at March 31, 2018. Of the $5.27 million past due, $3.33 million were 90 days+ past due as of September 30, 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%.
Capital Strength
The Company’s capital ratios continue to be well in excess of the highest required regulatory benchmark levels. As of September 30, 2018, the Bank’s Tier 1 leverage ratio was 15.9%, Tier 1 risk-based capital was 21.1%, and total risk-based capital was 22.3%.
Tangible book value per share, including accumulated other comprehensive income, was $8.47 at September 30, 2018 compared to $8.32 at June 30, 2018, and $8.79 at September 30, 2017. The decline 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 $34.53 million at September 30, 2018 compared to $33.93 million at June 30, 2018 and $24.14 million at September 30, 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 September 30, 2018 included an accumulated other comprehensive loss of $772,000 compared to a loss of $713,000 at June 30, 2018 and $175,000 at September 30, 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 $1.53 million in the nine-months ended September 30, 2018 to a total accumulated deficit of $1.52 million. Additionally, during the third quarter 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 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. 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) | 9/30/2018 | 6/30/2018 | 3/31/2018 | 12/31/2017 | 9/30/2017 | |||||||||||||||
| ASSETS | ||||||||||||||||||||
| Cash and due from banks | $ | 3,376 | $ | 1,489 | $ | 2,435 | $ | 1,017 | $ | 1,383 | ||||||||||
| Federal funds sold | 3,950 | 5,250 | 580 | 40 | 2,105 | |||||||||||||||
| Interest-bearing deposits with banks | 501 | 11,195 | 494 | 493 | 261 | |||||||||||||||
| Investment securities, available-for-sale | 31,427 | 31,765 | 31,708 | 31,954 | 33,396 | |||||||||||||||
| Investment securities, held-to-maturity | 4,907 | 4,905 | 4,904 | 4,902 | 4,901 | |||||||||||||||
| FHLB and Federal Reserve Bank stocks, at cost | 1,244 | 1,440 | 1,342 | 1,244 | 1,073 | |||||||||||||||
| Gross loans | 164,090 | 161,680 | 148,839 | 127,174 | 116,498 | |||||||||||||||
| Net deferred (fees)/expenses | (492 | ) | (493 | ) | (471 | ) | (292 | ) | (241 | ) | ||||||||||
| Allowance for loan and lease losses | (2,186 | ) | (2,060 | ) | (1,800 | ) | (1,746 | ) | (1,586 | ) | ||||||||||
| Net loans | 161,412 | 159,127 | 146,568 | 125,136 | 114,671 | |||||||||||||||
| Premises and equipment, net | 1,682 | 1,723 | 1,744 | 1,765 | 1,781 | |||||||||||||||
| Accrued interest receivable | 1,070 | 1,047 | 1,090 | 837 | 855 | |||||||||||||||
| Bank-owned life insurance | 4,694 | 4,667 | 4,640 | 4,612 | 4,583 | |||||||||||||||
| Other assets | 1,768 | 1,983 | 2,530 | 1,895 | 2,625 | |||||||||||||||
| TOTAL ASSETS | $ | 216,031 | $ | 224,591 | $ | 198,035 | $ | 173,895 | $ | 167,634 | ||||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||||||
| Noninterest-bearing demand deposits | $ | 71,926 | $ | 55,284 | $ | 42,684 | $ | 24,068 | $ | 20,538 | ||||||||||
| Interest-bearing demand deposits | 11,230 | 29,331 | 6,108 | 8,049 | 7,684 | |||||||||||||||
| Savings and money market deposits | 41,661 | 39,600 | 46,278 | 45,649 | 48,938 | |||||||||||||||
| Time deposits | 51,253 | 61,035 | 61,449 | 59,745 | 57,615 | |||||||||||||||
| Total deposits | 176,070 | 185,250 | 156,519 | 137,511 | 134,775 | |||||||||||||||
| Accrued interest payable | 160 | 181 | 140 | 130 | 158 | |||||||||||||||
| Short-term FHLB borrowings | — | — | 9,239 | 7,121 | 964 | |||||||||||||||
| Long-term FHLB borrowings | 5,000 | 5,000 | 5,000 | 5,000 | 7,400 | |||||||||||||||
| Accounts payable and other liabilities | 272 | 235 | 161 | 304 | 199 | |||||||||||||||
| TOTAL LIABILITIES | 181,502 | 190,666 | 171,059 | 150,066 | 143,496 | |||||||||||||||
| Common stock | 41 | 41 | 31 | 27 | 27 | |||||||||||||||
| Additional paid-in capital | 36,935 | 36,921 | 30,285 | 27,253 | 27,197 | |||||||||||||||
| Accumulated deficit | (1,519 | ) | (2,168 | ) | (2,611 | ) | (3,052 | ) | (2,755 | ) | ||||||||||
| Accumulated other comprehensive loss | (772 | ) | (713 | ) | (573 | ) | (243 | ) | (175 | ) | ||||||||||
| Treasury stock, at cost | (156 | ) | (156 | ) | (156 | ) | (156 | ) | (156 | ) | ||||||||||
| TOTAL STOCKHOLDERS' EQUITY | 34,529 | 33,925 | 26,976 | 23,829 | 24,138 | |||||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 216,031 | $ | 224,591 | $ | 198,035 | $ | 173,895 | $ | 167,634 | ||||||||||
| SOLERA NATIONAL BANCORP, INC. | |||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) | |||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||
| ($000s, except per share data) | 9/30/2018 | 6/30/2018 | 3/31/2018 | 12/31/2017 | 9/30/2017 | ||||||||||||||||
| Interest and dividend income | |||||||||||||||||||||
| Interest and fees on loans | $ | 2,006 | $ | 1,904 | $ | 1,586 | $ | 1,473 | $ | 1,331 | |||||||||||
| Investment securities | 257 | 266 | 256 | 250 | 255 | ||||||||||||||||
| Dividends on bank stocks | 19 | 20 | 17 | 15 | 14 | ||||||||||||||||
| Other | 20 | 8 | 6 | 5 | 5 | ||||||||||||||||
| Total interest income | 2,302 | 2,198 | 1,865 | 1,743 | 1,605 | ||||||||||||||||
| Interest expense | |||||||||||||||||||||
| Deposits | 402 | 419 | 383 | 355 | 341 | ||||||||||||||||
| FHLB borrowings | 26 | 74 | 39 | 35 | 28 | ||||||||||||||||
| Total interest expense | 428 | 493 | 422 | 390 | 369 | ||||||||||||||||
| Net interest income | 1,874 | 1,705 | 1,443 | 1,353 | 1,236 | ||||||||||||||||
| Provision for loan and lease losses | 131 | 282 | 68 | — | — | ||||||||||||||||
| Net interest income after provision for loan and lease losses | 1,743 | 1,423 | 1,375 | 1,353 | 1,236 | ||||||||||||||||
| Noninterest income | |||||||||||||||||||||
| Customer service and other fees | 33 | 35 | 29 | 26 | 24 | ||||||||||||||||
| Other income | 30 | 32 | 33 | 32 | 31 | ||||||||||||||||
| Total noninterest income | 63 | 67 | 62 | 58 | 55 | ||||||||||||||||
| Noninterest expense | |||||||||||||||||||||
| Employee compensation and benefits | 569 | 560 | 551 | 513 | 480 | ||||||||||||||||
| Occupancy | 56 | 50 | 48 | 49 | 52 | ||||||||||||||||
| Professional fees | 19 | 19 | 53 | 42 | 55 | ||||||||||||||||
| Other general and administrative | 314 | 284 | 266 | 296 | 252 | ||||||||||||||||
| Total noninterest expense | 958 | 913 | 918 | 900 | 839 | ||||||||||||||||
| Net Income Before Taxes | $ | 848 | $ | 577 | $ | 519 | $ | 511 | $ | 452 | |||||||||||
| Income Tax Expense | (199 | ) | (134 | ) | (119 | ) | (790 | ) | (156 | ) | |||||||||||
| Net Income (Loss) | $ | 649 | $ | 443 | $ | 400 | $ | (279 | ) | $ | 296 | ||||||||||
| Income (Loss) Per Share | $ | 0.16 | $ | 0.13 | $ | 0.15 | $ | (0.10 | ) | $ | 0.11 | ||||||||||
| Tangible Book Value Per Share | $ | 8.47 | $ | 8.32 | $ | 8.52 | $ | 8.67 | $ | 8.79 | |||||||||||
| Net Interest Margin | 3.67 | % | 3.44 | % | 3.36 | % | 3.33 | % | 3.11 | % | |||||||||||
| Efficiency Ratio | 49.46 | % | 50.58 | % | 59.89 | % | 63.78 | % | 64.99 | % | |||||||||||
| Return on Average Assets | 1.18 | % | 0.84 | % | 0.86 | % | (0.65 | )% | 0.71 | % | |||||||||||
| Return on Average Equity | 7.58 | % | 5.82 | % | 6.30 | % | (4.65 | )% | 4.94 | % | |||||||||||
| Asset Quality: | |||||||||||||||||||||
| Non-performing loans to gross loans | 0.02 | % | — | % | — | % | — | % | — | % | |||||||||||
| Non-performing assets to total assets | 0.02 | % | — | % | — | % | — | % | — | % | |||||||||||
| Allowance for loan losses to gross loans | 1.33 | % | 1.27 | % | 1.21 | % | 1.37 | % | 1.36 | % | |||||||||||
| Criticized loans/assets: | |||||||||||||||||||||
| Special mention | $ | 1,608 | $ | 4,346 | $ | 2,709 | $ | 1,232 | $ | 486 | |||||||||||
| Substandard: Accruing | 5,068 | 2,423 | 2,442 | 2,924 | 3,660 | ||||||||||||||||
| Substandard: Nonaccrual | 36 | — | — | — | — | ||||||||||||||||
| Doubtful | — | — | — | — | — | ||||||||||||||||
| Total criticized loans | $ | 6,712 | $ | 6,769 | $ | 5,151 | $ | 4,156 | $ | 4,146 | |||||||||||
| Other real estate owned | — | — | — | — | — | ||||||||||||||||
| Investment securities | 586 | 588 | 589 | 590 | 591 | ||||||||||||||||
| Total criticized assets | $ | 7,298 | $ | 7,357 | $ | 5,740 | $ | 4,746 | $ | 4,737 | |||||||||||
| Criticized assets to total assets | 3.38 | % | 3.28 | % | 2.90 | % | 2.73 | % | 2.83 | % | |||||||||||
| Selected Financial Ratios: (Solera National Bank Only) | |||||||||||||||||||||
| Tier 1 leverage ratio | 15.9 | % | 16.1 | % | 14.8 | % | 13.6 | % | 13.9 | % | |||||||||||
| Tier 1 risk-based capital ratio | 21.1 | % | 20.8 | % | 18.1 | % | 17.4 | % | 18.0 | % | |||||||||||
| Total risk-based capital ratio | 22.3 | % | 22.0 | % | 19.4 | % | 18.7 | % | 19.3 | % | |||||||||||