Solera National Bancorp Announces Second Quarter 2017 Financial Results

LAKEWOOD, Colo., July 26, 2017 -- 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 2017.

Highlights for the quarter ended June 30, 2017 include:

Eleventh consecutive profitable quarter
Gross loan growth of $6.63 million, or 6.3%, versus linked-quarter
Noninterest-bearing deposit growth of $3.45 million, or 39.6%, versus linked-quarter
Efficiency ratio of 64.5% improved from 72.6% in the prior quarter and 75.1% for the same period in 2016
Tangible book value per share of $8.66 increased 11.7% from prior year
A 5-Star rating assigned by BauerFinancial, Inc., the nation’s leading bank rating firm

For the three months ended June 30, 2017, the Company reported net income of $292,000, or $0.11 per share, compared to net income of $200,000, or $0.07 per share, for the three months ended March 31, 2017, and $322,000, or $0.12 per share, for the three months ended June 30, 2016.

For the six months ended June 30, 2017, Solera reported net income of $492,000, or $0.18 per share, compared with net income of $776,000, or $0.28 per share, for the six months ended June 30, 2016. The first six months of 2016 included a gain on loans sold and a gain on sale of available securities of $125,000 and $121,000, respectively, compared to no activity in the first six months of 2017. Additionally, first half 2017 results include income tax expense of $256,000 compared to no income tax in the first half of 2016.

Martin P. May, President and CEO, commented: “We are pleased with the second quarter results in which we delivered our eleventh consecutive quarterly profit. Our focus on acquiring core deposit relationships has led to robust growth in non-interest bearing deposits while the investment in our business development team has led to strong growth in high-quality commercial loans. Importantly, we are gratified that BauerFinancial has recognized the bank’s financial strength by assigning their highest rating.”

“Further, we are delighted that shareholders elected Melissa K. Larkin to serve on the board of directors at our recent annual meeting. Melissa has been with the Company since 2007 and has served as our Chief Financial Officer since 2014. Her extensive industry experience and financial acumen will help the board fulfil its vision of having Solera National Bank become one of the premier, independent community banks in Colorado.”

Operational Highlights

Net interest income after provision for loan and lease losses was $1.15 million for the quarter ended June 30, 2017 compared to $1.10 million and $957,000 in the quarters ended March 31, 2017 and June 30, 2016, respectively. Net interest income after provision for loan and lease losses for the six months of 2017 was $2.26 million, compared to $2.00 million in the six months of 2016. The Company recorded no provision for loan and lease losses in the first half of 2017 or first half of 2016.

The Company's net interest margin in second quarter 2017 was 3.06% compared to 3.04% in the linked-quarter and 2.87% in the second quarter 2016. For the six months ended June 30, 2017 net interest margin of 3.05% increased seven basis points from 2.98% for the first six months ended June 30, 2016. The increase in net interest margin for both the second quarter and first six months of 2017 versus the prior year is due primarily to a shift in earning assets to higher yielding commercial loans from lower yielding investment securities. Cost of funds are essentially unchanged year over year.

Total noninterest income in second quarter 2017 was $58,000 compared to $55,000 in first quarter 2017 and $126,000 in second quarter 2016. The decrease versus second quarter 2016 was due to gains on sale of available-for-sale securities recorded in second quarter of 2016 of $70,000. There were no realized net securities gains generated in the second quarter of 2017.

The Company continues to prudently manage expenses. Total noninterest expense of $780,000 in the second quarter of 2017 compared favorably with $841,000 in the linked-quarter and represented a slight increase from $761,000 in the second quarter of 2016.

In the second quarter of 2017, the Company recorded income tax expense of $138,000 compared to income tax expense of $118,000 in the first quarter 2017 and no income tax in the second quarter of 2016. In the fourth quarter of 2016, the Company recorded a full reversal of the deferred tax asset valuation allowance after concluding that it was more likely than not that it will generate sufficient taxable income within the applicable carry-forward periods to realize its net deferred tax assets.

Balance Sheet Review and Asset Quality Strength

Total assets of $163.99 million at June 30, 2017 increased from $157.09 million at March 31, 2017 and $142.84 million at June 30, 2016. The increase versus the linked quarter and June 30, 2016 was primarily due to solid growth in gross loans.

Net loans, after allowance for loan and lease losses, were $110.16 million at June 30, 2017 compared to $103.51 million at March 31, 2017 and $90.97 million at June 30, 2016. Net loan growth in the second quarter of 2017 was driven by loan originations of $9.81 million partly offset by payoffs and pay downs totaling $3.18 million. Net loans increased $19.19 million, or 21%, during the twelve months ended June 30, 2017 from organic net loan growth of $17.18 million coupled with a $2.01 million net increase in a purchased participation interest in a pool of rehabilitated student loans.

The allowance for loan and lease losses at June 30, 2017 of $1.59 million was essentially unchanged compared to March 31, 2017 and June 30, 2016. The allowance for loan and lease losses as a percentage of gross loans of 1.42% at June 30, 2017 declined from 1.70% at June 30, 2016 due to a reduction in criticized assets along with growth in a pool of rehabilitated student loans which come with minimal risk of loss given a U.S. government guarantee. No loan loss provisioning has been required over the past ten quarters as credit quality metrics remain outstanding relative to banking industry norms.

Total investment securities available-for-sale were $35.22 million at June 30, 2017 compared to $34.65 million at March 31, 2017 and $36.16 million at June 30, 2016. Investment securities held-to-maturity of $4.90 million at June 30, 2017 increased by $400,000 compared to June 30, 2016.

Total deposits at June 30, 2017 were $132.45 million compared to $128.04 million at March 31, 2017 and $117.02 million at June 30, 2016. The Company’s focus on noninterest-bearing deposits continued to yield positive results. Noninterest-bearing demand deposits increased $3.45 million versus the linked-quarter, or 39.6%, to $12.13 million at June 30, 2017, and almost tripled from $4.16 million at June 30, 2016.

The Company continues to experience sound asset quality. At June 30, 2017, the Company had no non-performing loans, non-performing assets or other real estate owned. Total criticized assets of $5.90 million at June 30, 2017, or 3.60% of total assets, declined from $6.12 million, or 3.90% of total assets, at March 31, 2017 and $6.19 million, or 4.33% of total assets, at June 30, 2016.

The Company had no past due commercial loans and $438,000 of past due residential mortgage loans as of June 30, 2017. However, $3.73 million of the student loan participation pool were 30 days+ past due at June 30, 2017, of which $2.31 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 resulting in the Bank’s maximum exposure to credit losses slightly less than 1%.

Capital Strength

The Company’s capital ratios continue to remain well in excess of the highest required regulatory benchmark levels. As of June 30, 2017, the Bank’s Tier 1 leverage ratio was 14.2%, Tier 1 risk-based capital was 18.5%, and total risk-based capital was 19.7%.

Tangible book value per share, including accumulated other comprehensive income, was $8.66 at June 30, 2017, compared to $8.52 at March 31, 2017 and $7.75 at June 30, 2016. Total stockholders' equity was $23.78 million at June 30, 2017 compared to $23.40 million at March 31, 2017 and $21.37 million at June 30, 2016. Total stockholders' equity at June 30, 2017 included an accumulated other comprehensive loss of $233,000 compared to a loss of $308,000 at March 31, 2017 and a gain of $248,000 at June 30, 2016. 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.

May concluded: "The Company has strong capital and liquidity levels, solid asset quality metrics, and is operating in a vibrant and healthy economic environment. We expect to leverage a portion of our excess capital in the third quarter of 2017 through an additional $8.0 million investment in a pool of rehabilitated student loans. Additionally, the Company continues to take steps to raise additional capital through a proposed rights offering to current shareholders. The incremental capital will enable us to explore additional growth opportunities including acquiring other banks or businesses, establishing strategic partnerships, and investing in business development teams or new markets."

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.

FINANCIAL TABLES FOLLOW


SOLERA NATIONAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
($000s)	6/30/2017			3/31/2017			12/31/2016			9/30/2016			6/30/2016
ASSETS
Cash and due from banks	$	1,097		$	2,126		$	719		$	825		$	678
Federal funds sold		210			185			80			—			1,755
Interest-bearing deposits with banks		1,261			261			261			261			261
Investment securities, available-for-sale		35,222			34,645			36,133			36,324			36,159
Investment securities, held-to-maturity		4,900			4,899			4,500			4,500			4,500
FHLB and Federal Reserve Bank stocks, at cost		987			861			879			1,027			853
Gross loans		111,990			105,363			105,243			100,336			92,749
Net deferred (fees)/expenses		(246	)		(249	)		(260	)		(270	)		(201	)
Allowance for loan and lease losses		(1,588	)		(1,601	)		(1,599	)		(1,584	)		(1,577	)
Net loans		110,156			103,513			103,384			98,482			90,971
Premises and equipment, net		1,783			1,803			1,831			1,861			1,884
Accrued interest receivable		794			816			798			768			616
Bank-owned life insurance		4,554			4,525			4,495			4,464			4,433
Other assets		3,025			3,460			3,011			765			731
TOTAL ASSETS	$	163,989		$	157,094		$	156,091		$	149,277		$	142,841

LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing demand deposits		12,134			8,689			5,941			5,189			4,156
Interest-bearing demand deposits		7,855			8,016			8,374			6,997			7,913
Savings and money market deposits		49,434			43,473			42,569			38,558			36,798
Time deposits		63,031			67,865			69,441			71,382			68,156
Total deposits		132,454			128,043			126,325			122,126			117,023

Accrued interest payable		151			131			103			144			127
Short-term FHLB borrowings		4,029			1,466			2,415			1,125			—
Long-term FHLB borrowings		3,400			3,400			3,400			4,000			4,000
Accounts payable and other liabilities		178			654			776			390			317
TOTAL LIABILITIES		140,212			133,694			133,019			127,785			121,467

Common stock		27			27			27			27			27
Additional paid-in capital		27,190			27,180			27,170			27,160			27,149
Accumulated deficit		(3,051	)		(3,343	)		(3,543	)		(5,628	)		(5,894	)
Accumulated other comprehensive gain (loss)		(233	)		(308	)		(426	)		89			248
Treasury stock, at cost		(156	)		(156	)		(156	)		(156	)		(156	)
TOTAL STOCKHOLDERS' EQUITY		23,777			23,400			23,072			21,492			21,374
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	163,989		$	157,094		$	156,091		$	149,277		$	142,841


SOLERA NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
	Three Months Ended															Six Months Ended
($000s, except per share data)	6/30/2017			3/31/2017			12/31/2016			9/30/2016			6/30/2016			6/30/2017			6/30/2016
Interest and dividend income
Interest and fees on loans	$	1,239		$	1,168		$	1,175		$	1,144		$	1,011		$	2,407		$	2,065
Investment securities		249			256			254			242			249			505			541
Dividends on bank stocks		11			11			12			12			11			22			21
Other		7			3			1			2			4			10			8
Total interest income		1,506			1,438			1,442			1,400			1,275			2,944			2,635
Interest expense
Deposits		340			322			320			315			298			662			592
FHLB borrowings		14			12			15			18			20			26			40
Total interest expense		354			334			335			333			318			688			632
Net interest income		1,152			1,104			1,107			1,067			957			2,256			2,003
Provision for loan and lease losses		—			—			—			—			—			—			—
Net interest income after provision for loan and lease losses		1,152			1,104			1,107			1,067			957			2,256			2,003
Noninterest income
Customer service and other fees		26			23			26			28			24			49			48
Other income		32			32			32			32			32			64			74
Gain on loans sold		—			—			—			—			—			—			125
Gain on sale of available-for-sale securities		—			—			—			36			70			—			121
Total noninterest income		58			55			58			96			126			113			368
Noninterest expense
Employee compensation and benefits		447			486			425			410			376			933			782
Occupancy		42			49			53			59			56			91			121
Professional fees		26			39			49			129			31			65			102
Other general and administrative		265			267			762			299			298			532			590
Total noninterest expense		780			841			1,289			897			761			1,621			1,595
Net Income/(Loss) Before Taxes	$	430		$	318		$	(124	)	$	266		$	322		$	748		$	776
Income Tax (Expense)/Benefit	$	(138	)	$	(118	)	$	2,209		$	-		$	-		$	(256	)	$	-
Net Income	$	292		$	200		$	2,085		$	266		$	322		$	492		$	776

Income Per Share	$	0.11		$	0.07		$	0.77		$	0.10		$	0.12		$	0.18		$	0.28
Tangible Book Value Per Share	$	8.66		$	8.52		$	8.39		$	7.80		$	7.75		$	8.66		$	7.75
Net Interest Margin		3.06	%		3.04	%		3.04	%		2.96	%		2.87	%		3.05	%		2.98	%
Efficiency Ratio		64.46	%		72.56	%		110.64	%		79.59	%		75.12	%		68.43	%		70.89	%
Return on Average Assets		0.73	%		0.51	%		5.46	%		0.73	%		0.91	%		0.63	%		1.09	%
Return on Average Equity		4.95	%		3.44	%		37.43	%		4.96	%		6.11	%		4.19	%		7.58	%

Asset Quality:
Non-performing loans to gross loans		—	%		—	%		—	%		—	%		—	%
Non-performing assets to total assets		—	%		—	%		—	%		—	%		—	%
Allowance for loan losses to gross loans		1.42	%		1.52	%		1.52	%		1.58	%		1.70	%

Criticized loans/assets:
Special mention	$	1,176		$	1,210		$	1,164		$	1,984		$	1,967
Substandard: Accruing		4,128			4,320			4,364			3,935			3,627
Substandard: Nonaccrual		—			—			—			—			—
Doubtful		—			—			—			—			—
Total criticized loans	$	5,304		$	5,530		$	5,528		$	5,919		$	5,594
Other real estate owned		—			—			—			—			—
Investment securities		593			594			595			596			597
Total criticized assets	$	5,897		$	6,124		$	6,123		$	6,515		$	6,191
Criticized assets to total assets		3.60	%		3.90	%		3.92	%		4.36	%		4.33	%

Selected Financial Ratios: (Solera National Bank Only)
Tier 1 leverage ratio		14.2	%		13.7	%		14.0	%		13.2	%		13.8	%
Tier 1 risk-based capital ratio		18.5	%		18.7	%		18.7	%		19.1	%		18.5	%
Total risk-based capital ratio		19.7	%		19.9	%		20.0	%		20.4	%		19.8	%

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

Solera National Bancorp Announces Second Quarter 2017 Financial Results

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