Solera National Bancorp, Lakewood, CO (SLRK)

A Case of Almost out of the Woods


Solera National has sure traveled a bumpy road since its de novo formation in 2007. Solera's shares have lost ground en route, too, dropping over half their value since the bank's initial capital raise at $10 per share.

Thankfully, new leaders in the driver's seat appear to be steering this one-branch bank along a more auspicious path, suggesting SLRK's current trading price of 71.5% of book value is wonderfully cheap. If I am correct, book value will soon exceed $7 and investors will pick up at least 60% as Solera makes the rest of its way out of the woods.

Disclosure: As of this posting, I own shares of SLRK and may subsequently either dispose of them or purchase more.

Prospective Buyers
Although much larger than Solera, each of these regional players has a minor presence in Jefferson County, CO compared to Solera's #6 place in this neck of the woods.
BOK Financial, Tulsa, OK (BOKF)
CoBiz Financial, Denver, CO (COBZ)
Zions Bancorp, Salt Lake City, UT (ZION)
Financial Snapshot
as of 03/31/2015

Total assets:
$144M
Tangible book value per share:
$6.86
NPAs to assets:
0.1%
Price to book:
71.5%
Market cap:
$13.2M
Dividend yield:
0%
Trailing 12-month return on assets:
0.27%
Trailing 12-month return on equity:
2.25%
TARP:
$0

The Crew
Michael D. Quagliano, Chairman
Robert Jay Fenton, President and CEO
Melissa Larkin, Senior VP, Secretary and CFO
The Skinny
As a shareholder, I'm excited to be on the Solera wagon right now, because:
  • The scoundrels are gone. After a bitter 2014 proxy fight exposed how their inflated salaries and poor performance were keeping Solera stuck in the woods, all of Solera's then incumbent directors resigned.
  • Solera's new leaders are motivated to get out of the woods, too. Unlike the prior CEO, who didn't buy a single share of SLRK, Solera's new CEO Robert Fenton owns a respectable 75,000 shares. Chairman Quagliano owns 23% of all shares outstanding — 623,970 shares I'm sure he's hoping will bear fruit.
  • Profits will naturally drive book value. No longer weighed down by excessive salaries and spending, the Solera National wagon is already picking up speed. SLRK's last quarter annualizes to 68 cents per share in earnings. 
  • Banks as clean as Solera are selling at a premium. Were Solera National to obtain the 10% deposit premium being paid today for comparable banks, Solera's shareholders would net $10.25 per share, a breezy 113% above today's price.  
Sources

7 comments :

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  2. Thanks for reading the blog Yuanxi. I'm glad you like Solera.

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  3. I talked to the new CEO today at the headquarter. He says he would be surprised if the bank can get an offer at similar p/tbv to others since the previous mgmts have done such a poor job in building a solid deposit base. I think overall he is conservative in loan underwriting as he believes the risks of construction loans are insufficiently compensated by the ~100 bps spread and he is trying to hedge the interest risk of the securities portfolio bought by previous managements.

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    1. Thanks for commenting Yuanxi! I agree that the deposits are not as valuable as others due to the high amount of brokered CDs, but I also feel there are enough low-cost core deposits that another bank would find it valuable. I like that they are not chasing higher-risk deals. The loan portfolio should hold up well in the next recession.

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