Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
SLRK > SEC Filings for SLRK > Form 10-Q on 8-Nov-2013All Recent SEC Filings

Show all filings for SOLERA NATIONAL BANCORP, INC.

Form 10-Q for SOLERA NATIONAL BANCORP, INC.


8-Nov-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis presents the Company's consolidated financial condition as of September 30, 2013 and results of operations for the three and nine months ended September 30, 2013 and 2012. The discussion should be read in conjunction with the financial statements and the notes related thereto which appear elsewhere in this Quarterly Report on Form 10-Q.

Executive Overview

We are a Delaware corporation that was incorporated to organize and serve as the holding company for Solera National Bank, which opened for business in 2007. Solera National Bank is a full-service commercial bank headquartered in Lakewood, Colorado primarily serving the Colorado Front Range. Our main banking office is located at 319 S. Sheridan Blvd., Lakewood, Colorado 80226. Our telephone number is (303) 209-8600.

Earnings are derived primarily from noninterest income earned from gains on the sale of residential mortgage loans and net interest income, which is interest income less interest expense, offset by noninterest expense and provision for loan and lease losses. As the majority of assets are interest-earning and liabilities are interest-bearing, changes in interest rates impact net interest margin. Margin refers to net interest income divided by average interest-earning assets, and is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities. We manage interest-earning assets and interest-bearing liabilities to reduce the impact of interest rate changes on operating results.

We offer a broad range of commercial and consumer banking services to small and medium-sized businesses, licensed professionals and individuals who are particularly responsive to the personalized service that Solera National Bank provides to its customers. We believe that local ownership and control allows the Bank to serve customers efficiently and effectively. Solera National Bank competes on the basis of providing a unique and personalized banking experience combined with a broad range of services, customized and tailored to fit the individual needs of its clients. While the Bank seeks to serve the entire market, it focuses on serving the local Hispanic and other minority populations which it believes are currently underserved. Since opening the bank in September of 2007, management has successfully executed its strategy of delivering prudent and controlled growth to efficiently leverage the Company's capital and expense base with the goal of achieving sustained profitability.

In December 2012, the Company launched a residential mortgage division with five loan production offices in Colorado including Boulder, two locations in Colorado Springs, the Denver Tech Center and Durango. With the addition of approximately 60 mortgage professionals, the Bank now offers residential mortgage loans, the vast majority of which are sold on the secondary market. In the aftermath of the recent economic recession and the changing regulatory environment, we concluded that a combination of disruption in the residential mortgage lending market, the stringent underwriting standards which followed, and the historically low interest rate environment, presented a significant opportunity to expand our residential mortgage lending capabilities. As of December 31, 2012, the Bank had 63 full-time equivalent employees. That number reached 90 employees during the third quarter 2013.

Since we operate in Colorado, our operating results are significantly influenced by economic conditions in Colorado, particularly the health of the real estate market. Additionally, we are subject to competition from other financial institutions and are impacted by fiscal and regulatory policies of the federal government as well as regulatory oversight by the Office of the Comptroller of the Currency, (the "OCC").

Comparative Results of Operations for the Three Months Ended September 30, 2013 and 2012

The following discussion focuses on the Company's financial condition and results of operations for the three months ended September 30, 2013 compared to the three months ended September 30, 2012.

Net loss for the quarter ended September 30, 2013 was $638,000, or $(0.25) per share, compared to net income of $74,000, or $0.03 per share, for the third quarter of 2012. The $712,000 decrease was primarily the result of a $2.2 million increase in noninterest expense partially offset by a $1.4 million increase in noninterest income. The third quarter 2013 was impacted by approximately $400,000 of nonrecurring expenses in connection with the retirement of our former President and CEO as well as the charge-off of uncollectable receivables associated with one of our two OREO properties. There was a $141,000 improvement in net interest income after the provision for loan and lease losses, primarily due to increased interest income on loans due to a


growing portfolio and an increase in loans held for sale generated from the mortgage division, in conjunction with reduced cost of funds. These and other changes are described in more detail in the ensuing discussion.

The following table presents, for the periods indicated, average assets, liabilities and stockholders' equity, as well as the components of net interest income and the resultant annualized yields / costs expressed in percentages.

                                       Three Months Ended                             Three Months Ended
 ($ in thousands)                       September 30, 2013                             September 30, 2012
                             Average                                        Average
                             Balance        Interest      Yield / Cost      Balance        Interest      Yield / Cost
Assets:
Interest-earning assets:
Gross loans, net of
unearned fees (1) (2)      $   68,850     $      949           5.47 %     $   60,255     $      862           5.69 %
Loans held for sale            11,320            112           3.92                -              -              -
Investment securities (3)      79,738            432           2.15           87,012            505           2.31
FHLB and FRB stocks             2,362             17           2.94            1,170             11           3.70
Federal funds sold              1,091              1           0.23              565              1           0.21
Interest-bearing deposits
with banks                        257              2           2.94              357              2           2.19
Total interest-earning
assets                        163,618     $    1,513           3.67 %        149,359     $    1,381           3.68 %
Noninterest-earning assets      7,042                                          6,417
Total assets               $  170,660                                     $  155,776
Liabilities and Stockholders' Equity:
Interest-bearing
liabilities:
Money market and savings
deposits                   $   51,797     $       61           0.46 %     $   56,805     $       83           0.58 %
Interest-bearing checking
accounts                        9,985             18           0.71            8,662             18           0.83
Time deposits                  61,015            192           1.25           57,822            184           1.26
Other borrowings                  102              -           0.41              481              1           1.27
FHLB advances                  23,182             40           0.69            8,561             34           1.56
Total interest-bearing
liabilities                   146,081     $      311           0.84 %        132,331     $      320           0.96 %
Noninterest-bearing
checking accounts               5,319                                          3,129
Noninterest-bearing
liabilities                       790                                            422
Stockholders' equity           18,470                                         19,894
Total liabilities and
stockholders' equity       $  170,660                                     $  155,776
Net interest income                       $    1,202                                     $    1,061
Net interest spread                             2.82 %                                         2.72 %
Net interest margin                             2.92 %                                         2.83 %

(1) The loan average balances and rates include nonaccrual loans.
(2) Net loan expenses of $4,000 and $3,000 for the three months ended September 30, 2013 and 2012, respectively, are included in the yield computation.
(3) Yields on investment securities have not been adjusted to a tax-equivalent basis since the Company does not own any tax-free securities.


The following table presents the dollar amount of changes in interest income and interest expense for the major categories of interest-earning assets and interest-bearing liabilities. The information details the changes attributable to a change in volume (i.e. change in average balance multiplied by the prior-period average rate) and changes attributable to a change in rate (i.e. change in average rate multiplied by the prior-period average balance). There is a component that is attributable to both a change in volume and a change in rate. This component has been allocated proportionately to the rate and volume columns.

($ in thousands)                                                Three Months Ended September 30, 2013
                                                          Compared to Three Months Ended September 30, 2012
                                                       Net Change                Rate                 Volume
Interest income:
Gross loans, net of unearned fees                   $          87         $           (33 )       $         120
Loans held for sale                                           112                       -                   112
Investment securities                                         (73 )                   (33 )                 (40 )
FHLB and FRB stocks                                             6                      (2 )                   8
Federal funds sold                                              -                       -                     -
Interest-bearing deposits with banks                            -                       -                     -
Total interest income                               $         132         $           (68 )       $         200
Interest expense:
Money market and savings deposits                   $         (22 )       $           (15 )       $          (7 )
Interest-bearing checking accounts                              -                      (3 )                   3
Time deposits                                                   8                      (2 )                  10
Other borrowings                                               (1 )                    (1 )                   -
FHLB advances                                                   6                    (111 )                 117
Total interest expense                              $          (9 )       $          (132 )       $         123
Net interest income                                 $         141         $            64         $          77

Net Interest Income and Net Interest Margin

Net interest income is the difference between interest income, principally from loan and investment security portfolios, and interest expense, principally on customer deposits and borrowings. Net interest income is a significant component of earnings. Changes in net interest income result from changes in volume, spread and margin. Volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities. Spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. Margin refers to net interest income divided by average interest-earning assets, and is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities.

For the three months ended September 30, 2013, the Company's net interest income increased $141,000, or 13%, compared to the three months ended September 30, 2012 and net interest margin increased 9 basis points from 2.83% to 2.92%. Most notable was the $112,000 increase in interest income from loans held for sale due to the new residential mortgage division and the $87,000 increase in interest income on loans primarily due to the $8.6 million increase in average loan balance during the third quarter 2013 compared to the third quarter 2012. These increases were partially offset by an unfavorable decrease in interest income on investment securities, which decreased $73,000, partially due to a decrease in yield (down 16 basis points) and partially due to a decrease in average balances (down $7.3 million). The average yield on loans decreased 22 basis points from the third quarter a year ago as the Bank continues to be impacted by low interest rates and strong competition for well-qualified borrowers that demand competitive rates.

Although we have experienced decreases in yields on our interest-earning assets, we have also been able to reduce rates on our interest-bearing liabilities which enabled us to increase our net interest spread 10 basis points from 2.72% to 2.82%. Net interest spread is the yield earned on interest-earning assets less the cost of interest-bearing liabilities. Overall, the cost of interest-bearing liabilities decreased 12 basis points from the comparable period in the prior year. Contributing most significantly to this decline was the $22,000 decrease in interest expense related to money market and savings deposits as a result of lowering deposit rates across all balance tiers. The volume of FHLB advances increased significantly during the third quarter of 2013 compared to the same quarter in the prior year primarily to support the Company's increase in loans held for sale. The increases in FHLB advances were from borrowings on an overnight basis at interest rates significantly less than the portfolio average. This resulted in an 87 basis point decrease in the overall cost of FHLB advances.


Provision for Loan and Lease Losses

We determine a provision for loan and lease losses that we consider sufficient to maintain an allowance to absorb probable losses inherent in our portfolio as of the balance sheet date. For additional information concerning this determination, see the section of this discussion and analysis captioned Financial Condition, Allowance for Loan and Lease Losses.

During the third quarters of 2013 and 2012, we did not recognize any provision for loan and lease losses reflecting improved asset quality. See additional discussion below under Financial Condition, Loan Portfolio.

Noninterest Income

Noninterest income for the quarter ended September 30, 2013 was $1.7 million, an increase of $1.4 million from $329,000 for the third quarter 2012. The most notable increase in noninterest income for the quarter was due to $1.6 million of gains on residential mortgage loans sold to secondary market investors. The Company sold securities for gains of $49,000 during the third quarter 2013 compared to $289,000 during the third quarter 2012.

The following table summarizes the Bank's residential mortgage loan activity during the third quarter of 2013. It should be noted the Bank's mortgage division was formed during the fourth quarter of 2012 so no material activity occurred before the first quarter of 2013.

($ in thousands)                               For the Quarter Ended
                                                 September 30, 2013
Gain on Loans Sold                          $                  1,563
% Gain on Loans Sold                                            2.24 %
Residential Mortgage Loans Originated       $                 62,265
Residential Mortgage Loans Sold             $                 69,699
Purpose of Loan: (1)
Purchase                                                        81.2 %
Refinance                                                       18.8 %


(1) indicates the percentage of loans originated during the period

Although we anticipate the slowdown in refinance activity experienced during the third quarter 2013 to continue, due to the rise in longer-term interest rates, the housing market in Colorado is vibrant. As such, purchase volumes are expected to be in-line with previous quarters.

Noninterest Expense

Our total noninterest expense for the quarter ended September 30, 2013 was $3.5 million, which was $2.2 million, or 168%, higher than the $1.3 million for the quarter ended September 30, 2012. The reasons for this increase are discussed in more detail below.

Employee Compensation and Benefits
Employee compensation and benefit expense increased $1.8 million from third quarter 2012 due to an additional 64 employees, (from an average of 26 full-time equivalent employees during the third quarter of 2012 to an average of 90 for the third quarter of 2013). In addition, we incurred approximately $220,000 of nonrecurring expenses associated with the departure of our former Chief Executive Officer including additional costs associated with the accelerated vesting of his stock options. The third quarter 2013 was also impacted by an additional $70,000 of expense associated with the accelerated vesting of restricted stock granted to officers of the Company's residential mortgage division.

Occupancy
Occupancy expense increased $137,000 due to the addition of five locations associated with the residential mortgage division. During the third quarter of 2013, the Bank entered into a new office building lease agreement which is expected to commence during the first quarter of 2014. This space will replace our corporate offices and from this


location we will operate a full-service branch, conduct commercial and residential mortgage lending activities, as well as house Bank operations and corporate functions. Occupancy expense is expected to increase in 2014 given the expansion of Bank premises.

Professional Fees
Professional fees increased $34,000, or 28%, primarily due to the timing of
outsourced internal audits which occurred primarily during the third quarter
2013 compared to the first quarter of 2012.

Other General and Administrative Expenses:
($ in thousands)                                 Three Months Ended
                                                    September 30,             Increase/
Other general and administrative expenses:          2013             2012     (Decrease)
Data processing                            $       148              $  83    $       65
Other loan expenses                                 82                 11            71
Marketing and promotions                            54                 46             8
Directors' fees                                     35                 27             8
Regulatory and reporting fees                       32                 30             2
Telephone/communication                             29                 12            17
FDIC assessment                                     24                 33            (9 )
Travel and entertainment                            23                 12            11
OREO expense                                        20                 11             9
Printing, stationery and supplies                   17                  8             9
Core deposit intangible amortization                17                  -            17
Insurance                                           14                 12             2
Dues and memberships                                13                 10             3
Postage and shipping                                 9                  3             6
Training, education and conferences                  9                  2             7
ATM and debit card fees                              8                  4             4
Franchise taxes                                      4                  3             1
Operating losses / legal settlements               139                127            12
Miscellaneous other                                  3                  4            (1 )
Total                                      $       680              $ 438    $      242

The most significant changes in other general and administrative expenses included increases of:
A) $71,000 in other loan expense related to costs incurred to underwrite residential mortgage loans;

B) $65,000 in data processing due primarily to the licensing and operating costs of the software applications used for the residential mortgage division;

C) $17,000 in telephone and communication expense and $9,000 in printing, stationery and supplies both related to our five new residential mortgage locations;

D) $17,000 associated with the amortization of our core deposit intangible related to the acquisition of deposit accounts in June 2013;

E) $11,000 in travel and entertainment correlated to an increase in loan demand for both the community bank division and the residential mortgage division;

F) $9,000 of OREO expenses which are expected to continue to impact our operating results in the near term as we incur costs such as taxes, insurance, repairs and maintenance, among others, on two properties;

G) $8,000 in marketing and promotion expenses primarily due to advertising costs associated with our residential mortgage division;

H) $8,000 in directors' fees due to an increase in the number of committee meetings held during the third quarter 2013 primarily in conjunction with the hiring of our new CEO;

I) $7,000 in training, education and conferences primarily associated with increased costs for personnel training which correlates with our increase in employees.


Operating losses and legal settlements in the third quarter of 2013 relates to the charge-off of accounts receivable associated with one of our OREO properties. The $127,000 in the third quarter of 2012 relates to the settlement of a legal action.

These increases were partially offset by a decrease of $9,000 in FDIC fees due to lower assessment rates. All other general and administrative costs remained relatively stable.

Income Taxes

No federal or state tax expense was recorded for the three months ended September 30, 2013 and 2012, based upon net operating loss carry-forwards that can be used to offset approximately $3.7 million and $3.3 million, respectively, of taxable income for federal tax purposes. Since it is uncertain when the Company will achieve sustained profitability, the deferred tax benefit accumulated to date has a full valuation allowance so that the net deferred tax benefit at September 30, 2013 and December 31, 2012 was $0.

Comparative Results of Operations for the Nine Months Ended September 30, 2013 and 2012

The following discussion focuses on the Company's financial condition and results of operations for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012.

Net loss for the nine months ended September 30, 2013 was $18,000, or $(0.01) per share, compared to net income of $168,000, or $0.07 per share, for the nine months ended September 30, 2012. The $186,000 decrease was primarily the result of a $5.8 million dollar increase in noninterest expenses partially offset by a $5.3 million increase in noninterest income due in part to the approximately $450,000 of nonrecurring expenses incurred during 2013 in connection with the retirement of our former President and CEO, the charge-off of uncollectable receivables associated with one of our two OREO properties and costs incurred to integrate the deposits from our second-quarter deposit acquisition. There was a $320,000 improvement in net interest income after the provision for loan and lease losses, primarily due to increased interest income on loans due to a growing portfolio and an increase in loans held for sale generated from the residential mortgage division, in conjunction with reduced cost of funds. These and other changes are described in more detail in the ensuing discussion.

The following table presents, for the periods indicated, average assets, liabilities and stockholders' equity, as well as the components of net interest income and the resultant annualized yields / costs expressed in percentages.


                                        Nine Months Ended                              Nine Months Ended
 ($ in thousands)                       September 30, 2013                             September 30, 2012
                             Average                                        Average
                             Balance        Interest      Yield / Cost      Balance        Interest      Yield / Cost
Assets:
Interest-earning assets:
Gross loans, net of
unearned fees (1) (2)      $   66,135     $    2,607           5.27 %     $   57,047     $    2,437           5.71 %
Loans held for sale            12,312            327           3.55                -              -              -
Investment securities (3)      78,421          1,289           2.20           85,416          1,548           2.42
FHLB and FRB stocks             2,000             51           3.41            1,155             29           3.34
Federal funds sold                530              1           0.23              640              2           0.22
Interest-bearing deposits
with banks                        257              5           2.94              375              6           2.09
Total interest-earning
assets                        159,655     $    4,280           3.58 %        144,633     $    4,022           3.71 %
Noninterest-earning assets      8,266                                          5,755
Total assets               $  167,921                                     $  150,388
Liabilities and Stockholders' Equity:
Interest-bearing
liabilities:
Money market and savings
deposits                   $   52,849     $      182           0.46 %     $   57,444     $      278           0.65 %
Interest-bearing checking
accounts                        8,811             48           0.73            8,845             55           0.84
Time deposits                  59,265            555           1.25           52,619            531           1.35
Other borrowings                  124              -           0.50              532              4           1.13
FHLB advances                  21,813            119           0.73            7,865             98           1.66
Total interest-bearing
liabilities                   142,862     $      904           0.85 %        127,305     $      966           1.01 %
Noninterest-bearing
checking accounts               4,923                                          3,162
Noninterest-bearing
liabilities                       682                                            413
Stockholders' equity           19,454                                         19,508
Total liabilities and
stockholders' equity       $  167,921                                     $  150,388
Net interest income                       $    3,376                                     $    3,056
Net interest spread                             2.74 %                                         2.70 %
Net interest margin                             2.83 %                                         2.82 %

. . .

  Add SLRK to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for SLRK - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.