**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION****Washington,D.C. 20549**

 

**FORM 10-QSB**

**(Mark one)**

x                      **QUARTERLYREPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended September 30, 2007**

 

o                         **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934**

 

**Commission file number 333-133004**

 

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**SOLERA NATIONAL BANCORP, INC.**

(Exactname of registrant as specified in its charter)

 

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| **Delaware**                      | **02-0774841**                    |
|-----------------------------------|-----------------------------------|
| (State or other jurisdiction      | (IRS Employer Identification No.) |
| of incorporation or organization) |                              |

 

**319 S. Sheridan Blvd.**

**Lakewood, CO 80226**

**303-209-8600**

(Addressand telephone number of principal executive offices and principal place ofbusiness)

 

Check whether the issuer(1) filed all reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.    Yes x  Noo

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).    Yes o  Nox

 

State the number ofshares outstanding of each of the issuers classes of common equity, as of thelast practicable date:  As ofNovember 13, 2007, 2,262,837 shares of the registrant’s common stock,$0.01 par value, were issued and outstanding.

 

Transitional SmallBusiness Disclosure Format (check one)    Yes o  Nox

 

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**FORM 10-QSB**

**SOLERA NATIONAL BANCORP, INC.**

 

**INDEX**
|     |   | INTRODUCTORY NOTE                                                                                                                                                                                        | 3      |
|----------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|     |   |                                                                                                                                                                                                     |   |
| PART I.  |   | FINANCIAL INFORMATION                                                                                                                                                                                    | 5      |
|     |   |                                                                                                                                                                                                     |   |
|     |   | Item 1. Financial Statements (Unaudited)                                                                                                                                                                 | 5      |
|     |   |                                                                                                                                                                                                     |   |
|     |   | Balance Sheets as of September 30,  2007 and December 31, 2006                                                                                                                                           | 5      |
|     |   |                                                                                                                                                                                                     |   |
|     |   | Statements of Operations  for the Three Months Ended September 30, 2007 and 2006, Nine Months Ended  September 30, 2007 and 2006 and Period from January 3, 2005 (Inception)  through September 30, 2007 | 6      |
|     |   |                                                                                                                                                                                                     |   |
|     |   | Statements of Changes in  Stockholders’ Deficit for Nine Months Ended September 30, 2007, and Period  from January 3, 2005 (Inception) through September 30, 2007                                   | 7      |
|     |   |                                                                                                                                                                                                     |   |
|     |   | Statements of Cash Flows for the Nine  Months Ended September 30, 2007 and 2006, and Period from Inception through  September 30, 2007                                                                   | 8      |
|     |   |                                                                                                                                                                                                     |   |
|     |   | Condensed Notes to Financial Statements                                                                                                                                                                  | 9      |
|     |   |                                                                                                                                                                                                     |   |
|     |   | Item 2. Management’s Discussion and  Analysis of Financial Condition or Plan of Operations                                                                                                          | 17     |
|     |   |                                                                                                                                                                                                     |   |
|     |   | Item 3. Controls and Procedures                                                                                                                                                                          | 23     |
|     |   |                                                                                                                                                                                                     |   |
| PART II. |   | OTHER INFORMATION                                                                                                                                                                                        | 24     |
|     |   |                                                                                                                                                                                                     |   |
|     |   | Item 1. Legal Proceedings                                                                                                                                                                                | 24     |
|     |   |                                                                                                                                                                                                     |   |
|     |   | Item 2. Unregistered Sales of  Equity Securities and Use of Proceeds                                                                                                                                     | 24     |
|     |   |                                                                                                                                                                                                     |   |
|     |   | Item 3. Defaults Upon Senior  Securities                                                                                                                                                                 | 24     |
|     |   |                                                                                                                                                                                                     |   |
|     |   | Item 4. Submission of Matters to a  Vote of Security Holders                                                                                                                                             | 24     |
|     |   |                                                                                                                                                                                                     |   |
|     |   | Item 5. Other Information                                                                                                                                                                                | 24     |
|     |   |                                                                                                                                                                                                     |   |
|     |   | Item 6. Exhibit List                                                                                                                                                                                     | 24     |
|     |   |                                                                                                                                                                                                     |   |
|     |   | Signatures                                                                                                                                                                                               | 26     |
|     |   |                                                                                                                                                                                                     |   |
|     |   | Exhibits                                                                                                                                                                                                 | 27     |

 

2

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**INTRODUCTORYNOTE**

 

This Quarterly Report onForm 10-QSB contains “forward-looking statements” within the meaning of thePrivate Securities Litigation Reform Act of 1995 about Solera National Bancorp(the “Company”) and our subsidiary, Solera National Bank (the “Bank”) that aresubject to risks and uncertainties.  Forward-looking statements includeinformation concerning future financial performance, business strategy,projected plans and objectives.  Statements preceded by, followed by orthat otherwise include the words “anticipates,” “believes,” “estimates,” “expects,”“intends,” “plans,” “may increase,” “may fluctuate” and similar expressions offuture or conditional verbs such as “will,” “should,” “would,” and “could” aregenerally forward-looking in nature and not historical facts.  Actualresults may differ materially from those projected, implied, anticipated orexpected in the forward-looking statements. Readers of this quarterly report should not rely solely on theforward-looking statements and should consider all uncertainties and risksthroughout this report. The statements are representative only as of the datethey are made, and Solera National Bancorp, Inc. (sometimes referred to hereinas on a consolidated basis as the Company, we, us, or similar phrasing)undertakes no obligation to update any forward-looking statement.

 

These forward-lookingstatements, implicitly and explicitly, include the assumptions underlying thestatements and other information with respect to the Company’s beliefs, plans,objectives, goals, expectations, anticipations, estimates, financial condition,results of operations, future performance and business, including management’sexpectations and estimates with respect to revenues, expenses, return on equity,return on assets, efficiency ratio, asset quality and other financial data andcapital and performance ratios.

 

Although the Companybelieves that the expectations reflected in the forward-looking statements arereasonable, these statements involve risks and uncertainties that are subjectto change based on various important factors, some of which are beyond thecontrol of the Company. The following factors, among others, could cause theCompany’s results or financial performance to differ materially from its goals,plans, objectives, intentions, expectations and other forward-lookingstatements:

 

•                  theCompany has a very limited operating history upon which to base an estimate ofits future financial performance;

 

•                  theCompany expects to incur losses during its initial years of operations;

 

•                  SoleraNational Bank’s failure to implement its business strategies may adverselyaffect the Company’s financial performance;

 

•                  thedepartures of key personnel or directors may impair Solera National Bank’s operations;

 

•                  SoleraNational Bank will face intense competition from a variety of competitors;

 

•                  SoleraNational Bank’s legal lending limits may impair its ability to attractborrowers;

 

•                  aneconomic downturn, especially one affecting Solera National Bank’s primaryservice areas, may have an adverse effect on its financial performance;

 

•                  theCompany could be negatively affected by changes in interest rates;

 

•                  theCompany does not intend to pay dividends in the foreseeable future;

 

•                  theCompany is subject to extensive regulatory oversight, which could restrain ourgrowth and profitability;

 

•                  theCompany may not be able to raise additional capital on terms favorable to it;

 

•                  theliquidity of the Company common stock will be affected by its limited tradingmarket;

 

•                  monetarypolicy and other economic factors could adversely affect the Company’sprofitability;

 

3

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•                  theCompany’s certificate of incorporation and bylaws, and the employmentagreements of our Executive Officers, contain provisions that could make atakeover more difficult;

 

•                  managementof Solera National Bank may be unable to adequately measure and limit creditrisk associated with Solera National Bank’s loan portfolio, which would affectthe Company’s profitability;

 

•                  governmentregulation may have an adverse effect on the Company’s profitability andgrowth;

 

•                  theeffects of competition from other commercial banks, thrifts, mortgage bankingfirms, consumer finance companies, credit unions, securities brokerage firms,insurance companies, money market and other mutual funds, and other financialinstitutions operating in our market area and elsewhere, including institutionsoperating regionally, nationally, and internationally, together with suchcompetitors offering banking products and services by mail, telephone,computer, and the Internet; and

 

•                  management’sability to manage these and other risks.

 

For a discussion ofthese and other risks and uncertainties that could cause actual results todiffer from those contained in the forward-looking statements, see “RiskFactors” in the Company’s registration statement on Form SB-2 (File 333-138042)filed by the Company under the Securities Act of 1933, as such registrationstatement became effective on March 7, 2007, as well as supplements andamendments thereto, including the Company’s registration statement on Form SB-2(File 333-145861) filed on September 4, 2007 and declared effective onSeptember 11, 2007, and the Company’s other filings with the SEC, all of whichare available on the SEC’s website at www.sec.gov.  All forward lookingstatements are qualified in their entirety by this cautionary statement, andthe Company undertakes no obligation to revise or update this Quarterly Reporton Form 10-QSB to reflect events or circumstances after the date hereof.  New factors emerge from time to time, and itis not possible for us to predict which factors, if any, will arise.  In addition, the Company cannot assess theimpact of each factor on the Company’s business or the extent to which anyfactor, or combination of factors, may cause actual results to differmaterially from those contained in any forward-looking statements.

 

4

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**PART I— FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS**

 

**Solera National Bancorp, Inc.(A Development Stage Enterprise)**

 

**Balance SheetsSeptember 30, 2007 and December 31, 2006 (Unaudited)**

 
| ** **                                                                                           | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                           | ** ** | **2007**               | ** ** | **2006**              | ** ** |
| **ASSETS**                                                                                           |       |                   |       |                  |       |
|                                                                                                 |       |                   |       |                  |       |
| Cash and due from banks                                                                              |       | $                      | 457,653    |                  | $          | 6,978 |   |
| Federal funds sold                                                                                   |       | 17,600,000             |       | —                |       |
| Total cash and cash equivalents                                                                      |       | 18,057,653             |       | 6,978                 |       |
| Loans                                                                                                |       | 50,417                 |       | —                |       |
| Investment in Federal Reserve stock                                                                  |       | 525,000                |       | —                |       |
| Premises and equipment, net                                                                          |       | 942,345                |       | 93,331                |       |
| Interest receivable                                                                                  |       | 7,978                  |       | —                |       |
| Deferred offering costs                                                                              |       | 24,241                 |       | 156,125               |       |
| Other assets                                                                                         |       | 29,925                 |       | 20,528                |       |
| Prepaid expenses                                                                                     |       | 58,515                 |       | 50,195                |       |
| **Total assets**                                                                                     |       | $                      | 19,696,074 |                  | $          | 327,157 |   |
|                                                                                                 |       |                   |       |                  |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT)**                                              |       |                   |       |                  |       |
| Deposits                                                                                             |       |                   |       |                  |       |
| Non-interest bearing deposits                                                                        |       | $                      | 231,288    |                  | $          | — |   |
| Interest bearing deposits                                                                            |       | 123,475                |       | —                |       |
| Savings and money market deposits                                                                    |       | 20,432                 |       | —                |       |
| Time deposits                                                                                        |       | 31,490                 |       | —                |       |
| Total deposits                                                                                       |       | 406,685                |       | —                |       |
|                                                                                                 |       |                   |       |                  |       |
| Accrued interest payable                                                                             |       | 45                     |       | 6,061                 |       |
| Accounts payable                                                                                     |       | 171,333                |       | 9,374                 |       |
| Refunds to Organizers                                                                                |       | 30,000                 |       | 110,000               |       |
| Accrued expenses                                                                                     |       | 52,534                 |       | 215,209               |       |
| Note payable                                                                                         |       | —                 |       | 1,343,726             |       |
| Advances from Organizers                                                                             |       | —                 |       | 730,001               |       |
| Capital lease liability                                                                              |       | 203,001                |       | —                |       |
| Liability for abandoned lease                                                                        |       | 162,869                |       | —                |       |
| Deferred rent expense                                                                                |       | 15,876                 |       | 4,603                 |       |
|                                                                                                 |       |                   |       |                  |       |
| **Total liabilities**                                                                                |       | $                      | 1,042,343  |                  | $          | 2,418,974 |   |
| ** **                                                                                           | ** ** | ** **             | ** ** | ** **            | ** ** |
| COMMITMENTS AND CONTINGENCIES (see Note 16)                                                          |       |                   |       |                  |       |
|                                                                                                 |       |                   |       |                  |       |
| STOCKHOLDERS’ EQUITY/(DEFICIT)                                                                  |       |                   |       |                  |       |
| Common stock, $0.01 par value; 5,000,000 shares authorized; 2,262,837  shares issued and outstanding |       | $                      | 22,628     |                  | $          | — |   |
| Additional paid-in capital, net of offering costs of $953,960                                        |       | 22,409,682             |       | —                |       |
| Deficit accumulated during the development stage                                                     |       | (3,778,579             | )          | (2,091,817            | )          |
| **Total stockholders’ equity/(deficit)**                                                        |       | $                      | 18,653,731 |                  | $          | (2,091,817 | ) |
| ** **                                                                                           | ** ** | ** **             | ** ** | ** **            | ** ** |
| **Total liabilities and stockholders’  equity/(deficit)**                                       |       | $                      | 19,696,074 |                  | $          | 327,157 |   |

 

See Notes to FinancialStatements.

 

5

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**Statements of OperationsFor the Three and Nine Months Ended September 30, 2007 and 2006 and**

**the Period from January 3, 2005 (Inception) through September30, 2007 (Unaudited)**

 

 
| ** **                                         | ** **   | **For the Three Months Ended September 30,** | ** ** | **For the Nine Months Ended September 30,** | ** ** | **Cumulative  Amounts from** | ** **         |
|----------------------------------------------------|--------------|----------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|-----------------------------------|--------------------|
| ** **                                         | ** **   | **2007**                                                                   | ** ** | **2006**                                                                  | ** ** | **2007**                          | ** **         | **2006** | ** ** | **Inception** | ** ** |
| Interest Income:                                   |         |                                                                       |       |                                                                      |       |                              |               |   |   |   |   |
| Interest and  fees on loans                        |    | $                                                                          | 416        |                                                            | $          | —                            |     | $ | 416 |     | $ | — |     | $ | 416 |   |
| Interest on  federal funds sold                    |         | 52,998                                                                     |       | —                                                                    |       | 52,998                            |               | — |   | 52,998 |   |
| Interest on  escrow account                        |         | 148,995                                                                    |       | —                                                                    |       | 148,995                           |               | — |   | 148,995 |   |
| Other interest  income                             |         | —                                                                     |       | 4                                                                         |       | 1,328                             |               | 172 |   | 3,147 |   |
| Dividends on  Federal Reserve stock                |         | 1,812                                                                      |       | —                                                                    |       | 1,812                             |               | — |   | 1,812 |   |
|                                               |         | 204,221                                                                    |       | 4                                                                         |       | 205,549                           |               | 172 |   | 207,368 |   |
| Interest Expense:                                  |         |                                                                       |       |                                                                      |       |                              |               |   |   |   |   |
| Deposits                                           |         | $                                                                          | 53         |                                                                      | $          | —                            |               | $ | 53 |   | $ | — |   | $ | 53 |   |
| Note payable                                       |         | 39,409                                                                     |       | 21,758                                                                    |       | 113,977                           |               | 32,822 |   | 169,724 |   |
| Other borrowings                                   |         | 375                                                                        |       | —                                                                    |       | 503                               |               | — |   | 503 |   |
| Total interest  expense                            |         | 39,837                                                                     |       | 21,758                                                                    |       | 114,533                           |               | 32,822 |   | 170,280 |   |
| Net interest income                                |         | 164,384                                                                    |       | (21,754                                                                   | )          | 91,016                            |               | (32,650 | ) | 37,088 |   |
|                                               |         |                                                                       |       |                                                                      |       |                              |               |   |   |   |   |
| Provision for  loan loss                           |         | —                                                                     |       | —                                                                    |       | —                            |               | — |   | — |   |
| Net interest  income after provision for loan loss |         | 164,384                                                                    |       | (21,754                                                                   | )          | 91,016                            |               | (32,650 | ) | 37,088 |   |
|                                               |         |                                                                       |       |                                                                      |       |                              |               |   |   |   |   |
| Non-interest  income                               |         | 346                                                                        |       | —                                                                    |       | 346                               |               | — |   | 346 |   |
|                                               |         |                                                                       |       |                                                                      |       |                              |               |   |   |   |   |
| Non-interest  expenses:                            |         |                                                                       |       |                                                                      |       |                              |               |   |   |   |   |
| Salaries and  employee benefits                    |         | 176,675                                                                    |       | —                                                                    |       | 176,675                           |               | — |   | 176,675 |   |
| Occupancy                                          |         | 296,705                                                                    |       | 22,982                                                                    |       | 404,271                           |               | 59,568 |   | 541,573 |   |
| Professional  fees                                 |         | 55,994                                                                     |       | 18,545                                                                    |       | 124,291                           |               | 153,377 |   | 463,713 |   |
| Consulting fees                                    |         | 7,806                                                                      |       | 68,750                                                                    |       | 50,506                            |               | 246,250 |   | 655,806 |   |
| Management fees                                    |         | 136,957                                                                    |       | 129,464                                                                   |       | 543,269                           |               | 378,915 |   | 1,319,209 |   |
| General and  administrative                        |         | 241,367                                                                    |       | 57,751                                                                    |       | 479,112                           |               | 100,048 |   | 659,037 |   |
| Total non-interest  expenses                       |         | $                                                                          | 915,504    |                                                                      | $          | 297,492                           |               | $ | 1,778,124 |   | $ | 938,158 |   | $ | 3,816,013 |   |
| ** **                                         | ** **   | ** **                                                                 | ** ** | ** **                                                                | ** ** | ** **                        | ** **         | ** ** | ** ** | ** ** | ** ** |
| Income taxes                                       |         | —                                                                     |       | —                                                                    |       | —                            |               | — |   | — |   |
| ** **                                         | ** **   | ** **                                                                 | ** ** | ** **                                                                | ** ** | ** **                        | ** **         | ** ** | ** ** | ** ** | ** ** |
| Net loss                                           |         | $                                                                          | (750,774   | )                                                                         | $          | (319,246                          | )                  | $ | (1,686,762 | ) | $ | (970,808 | ) | $ | (3,778,579 | ) |
|                                               |         |                                                                       |       |                                                                      |       |                              |               |   |   |   |   |
| Basic earnings  per share                          |         | (0.33                                                                      | )          | NA                                                                        |       | (0.75                             | )                  | NA |   | NA |   |
|                                               |         |                                                                       |       |                                                                      |       |                              |               |   |   |   |   |
| Diluted earnings  per share                        |         | (0.33                                                                      | )          | NA                                                                        |       | (0.75                             | )                  | NA |   | NA |   |
|                                               |         |                                                                       |       |                                                                      |       |                              |               |   |   |   |   |
| Weighted-average  common shares                    |         |                                                                       |       |                                                                      |       |                              |               |   |   |   |   |
| Basic                                              |         | 2,262,837                                                                  |       | NA                                                                        |       | 2,262,837                         |               | NA |   | NA |   |
| Diluted                                            |         | 2,262,837                                                                  |       | NA                                                                        |       | 2,262,837                         |               | NA |   | NA |   |

 

See Notes to FinancialStatements.

 

6

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**Statements of Changesin Stockholders’ Equity/(Deficit)For Nine Months Ended September 30, 2007 and September 30, 2006 and**

**the Period from January 3, 2005 (Inception) through September30, 2007 (Unaudited)**

 
| ** **                                                                                                                                                                      | ** ** | ** ** | ** ** | **Additional** | ** ** | ** **      | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|----------------|------------|-----------------|------------|------------|------------|
| ** **                                                                                                                                                                      | ** ** | **Common** | ** ** | **Paid-in**    | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
| ** **                                                                                                                                                                      | ** ** | **Stock**  | ** ** | **Capital**    | ** ** | **Deficit**     | ** ** | **Total**  | ** ** |
| Balance, January 3, 2005 (Inception)                                                                                                                                            |       | $          | —     |           | $          | —          |       | $          | —     |   | $ | — |   |
| Comprehensive income:                                                                                                                                                           |       |       |       |           |       |            |       |       |       |
| Net loss                                                                                                                                                                        |       | —     |       | —         |       | (831,975        | )          | (831,975   | )          |
| Balance, December 31, 2005                                                                                                                                                      |       | $          | —     |           | $          | —          |       | $          | (831,975   | ) | $ | (831,975 | ) |
| Comprehensive income:                                                                                                                                                           |       |       |       |           |       |            |       |       |       |
| Net loss                                                                                                                                                                        |       | —     |       | —         |       | (1,259,842      | )          | (1,259,842 | )          |
| Balance, December 31, 2006                                                                                                                                                      |       | $          | —     |           | $          | —          |       | $          | (2,091,817 | ) | $ | (2,091,817 | ) |
| Sale of common stock, net of (a) cash paid for offering costs of  $208,562 and (b) the fair market value of stock warrants issued in  conjunction with the offering of $745,398 |       | 22,628     |       | 20,834,582     |       | —          |       | 20,857,210 |       |
| Conversion of organizer advances to common stock                                                                                                                                |       | —     |       | 817,200        |       | —          |       | 817,200    |       |
| Stock based compensation                                                                                                                                                        |       | —     |       | 12,502         |       | —          |       | 12,502     |       |
| Fair market value of stock warrants issued in conjunction with  offering (Note 9)                                                                                               |       | —     |       | 745,398        |       | —          |       | 745,398    |       |
| Comprehensive income:                                                                                                                                                           |       |       |       |           |       |            |       |       |       |
| Net loss                                                                                                                                                                        |       | —     |       | —         |       | (1,686,762      | )          | (1,686,762 | )          |
| Balance, September 30, 2007                                                                                                                                                     |       | $          | 22,628     |           | $          | 22,409,682      |       | $          | (3,778,579 | ) | $ | 18,653,731 |   |

 

See Notes to FinancialStatements.

 

7

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**Statements of Cash FlowsFor the Nine Months Ended September 30, 2007 and 2006, and Periodfrom January 3, 2005 (Inception) through September 30, 2007 (Unaudited)**

 
| ** **                                                                               | ** **   | ** **                                                                | ** **               | ** **            | ** **               | **Cumulative** | ** ** |
|------------------------------------------------------------------------------------------|--------------|---------------------------------------------------------------------------|--------------------------|-----------------------|--------------------------|----------------|------------|
| ** **                                                                               | ** **   | **For the Nine Months Ended September 30,** | ** **               | **Amounts from** | ** **               |
| ** **                                                                               | ** **   | **2007**                                                                  | ** **               | **2006**              | ** **               | **Inception**  | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                     |    |                                                                      |      |                  |      |           |       |
| Net (loss)                                                                               |         | $                                                                         | (1,686,762               | )                     | $                        | (970,808       | )          | $ | (3,778,579 | ) |
| Adjustments to reconcile net loss to net cash used in operating  activities:             |         |                                                                      |                     |                  |                     |           |       |
| Depreciation and amortization                                                            |         | 51,097                                                                    |                     | 1,276                 |                     | 54,768         |       |
| Loss on abandoned lease                                                                  |         | 169,674                                                                   |                     | —                |                     | 169,674        |       |
| Recognition of stock compensation on stock options                                       |         | 12,502                                                                    |                     | —                |                     | 12,502         |       |
| Changes in operating assets and liabilities:                                             |         |                                                                      |                     |                  |                     |           |       |
| Interest receivable                                                                      |         | (7,978                                                                    | )                        |                  |                     | (7,978         | )          |
| Prepaid expenses and other assets                                                        |         | (17,717                                                                   | )                        | (25,187               | )                        | (88,440        | )          |
| Deferred offering costs                                                                  |         | 131,884                                                                   |                     | (113,211              | )                        | (24,241        | )          |
| Accrued expenses and other liabilities                                                   |         | (7,521                                                                    | )                        | (64,129               | )                        | 217,062        |       |
| Accrued interest payable                                                                 |         | (6,016                                                                    | )                        | —                |                     | 45             |       |
| Deferred rent expense                                                                    |         | 11,273                                                                    |                     | 1,437                 |                     | 15,876         |       |
| **Net cash used in operating activities**                                                |         | $                                                                         | (1,349,564               | )                     | $                        | (1,170,622     | )          | $ | (3,429,311 | ) |
|                                                                                     |         |                                                                      |                     |                  |                     |           |       |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                     |         |                                                                      |                     |                  |                     |           |       |
| Issuance of loans                                                                        |         | $                                                                         | (50,417                  | )                     | $                        | —         |       | $ | (50,417 | ) |
| Purchases of premises and equipment                                                      |         | (697,110                                                                  | )                        | (60,990               | )                        | (794,112       | )          |
| Purchase of Federal Reserve stock                                                        |         | (525,000                                                                  | )                        | —                |                     | (525,000       | )          |
| **Net cash provided by investing activities**                                            |         | $                                                                         | (1,272,527               | )                     | $                        | (60,990        | )          | $ | (1,369,529 | ) |
|                                                                                     |         |                                                                      |                     |                  |                     |           |       |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                     |         |                                                                      |                     |                  |                     |           |       |
| Receipt of deposits                                                                      |         | $                                                                         | 406,685                  |                  | $                        | —         |       | $ | 406,685 |   |
| Advances from Organizers                                                                 |         | 450,000                                                                   |                     | 300,000               |                     | 1,290,001      |       |
| Repayment of Organizer advances                                                          |         | (442,801                                                                  | )                        | (140,000              | )                        | (442,801       | )          |
| Proceeds from note payable                                                               |         | 1,420,164                                                                 |                     | 1,085,955             |                     | 2,763,890      |       |
| Repayment of note payable                                                                |         | (2,763,890                                                                | )                        | —                |                     | (2,763,890     | )          |
| Proceeds from issuance of common stock, net of cash paid for offering  costs of $208,562 |         | 21,602,608                                                                |                     | —                |                     | 21,602,608     |       |
| **Net cash provided by financing activities**                                            |         | $                                                                         | 20,672,766               |                  | $                        | 1,245,955      |       | $ | 22,856,493 |   |
|                                                                                     |         |                                                                      |                     |                  |                     |           |       |
| **Net increase in cash and cash equivalents**                                            |         | $                                                                         | 18,050,675               |                  | $                        | 14,343         |       | $ | 18,057,653 |   |
|                                                                                     |         |                                                                      |                     |                  |                     |           |       |
| CASH AND CASH EQUIVALENTS                                                                |         |                                                                      |                     |                  |                     |           |       |
| Beginning of period                                                                      |         | 6,978                                                                     |                     | 4,168                 |                     | —         |       |
| End of period                                                                            |         | $                                                                         | 18,057,653               |                  | $                        | 18,511         |       | $ | 18,057,653 |   |
|                                                                                     |         |                                                                      |                     |                  |                     |           |       |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                         |         |                                                                      |                     |                  |                     |           |       |
| Cash paid for interest                                                    |         | $                                                                         | 120,549                  |                  | $                        | —         |       | $ | 120,549 |   |
| Assets acquired under capital leases                                                     |         | $                                                                         | 206,819                  |                  | $                        | —         |       | $ | 206,819 |   |
| Non-cash financing activities:                                                           |         |                                                                      |                     |                  |                     |           |       |
| Organizer advances converted to equity                                                   |         | $                                                                         | 817,200                  |                  | $                        | —         |       | $ | 817,200 |   |
| Non-cash offering costs for stock warrants                                               |         | $                                                                         | 745,398                  |                  | $                        | —         |       | $ | 745,398 |   |
|                                                                                          |              |                                                                           |                          |                       |                          |                |            |  |  |  |  |  |  |

 

See Notes to FinancialStatements.

 

8

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**SOLERA NATIONAL BANCORP, INC.**

 

**UNAUDITED CONDENSED NOTES TOFINANCIAL STATEMENTS**

 

**NOTE 1- SUMMARY OF ORGANIZATION**

 

The Company is aDelaware corporation that was incorporated in 2006 to organize and serve as theholding company for Solera National Bank, a national bank that opened forbusiness on September 10, 2007. Solera National Bank is a full-service commercial bank headquartered inLakewood, Colorado initially serving the Denver metropolitan area.  The Company is a development stage enterpriseas defined by the Financial Accounting Standards Board Statement (“FASB”) No.7, *Accounting and Reporting by Development StageEnterprises,* as it continues to devote substantially all its effortsto establishing a new business. Although the planned principal operationscommenced on September 10, 2007, there have been no significant revenue fromoperations as of September 30, 2007.

 

**NOTE 2 -BASIS OF PRESENTATION**

 

The accompanyingunaudited condensed financial statements contain all adjustments (consistingonly of normal recurring adjustments) which, in the opinion of management, arenecessary to present fairly the financial position of Solera National Bancorp,Inc. (the “Company”) as of September 30, 2007, and the results of itsoperations for the three months and nine months ended September 30, 2007and September 30 2006, respectively, and for the period from January 3,2005 (inception) to September 30, 2007.  Cash flows are presented forthe nine months ended September 30, 2007 and September 30, 2006,respectively, and for the period from January 3, 2005 (inception) toSeptember 30, 2007.  Certain reclassifications have been made to theconsolidated financial statements and related notes of prior periods to conformto the current presentation. These reclassifications had no impact onStockholders’ deficit or net loss for the periods. Additionally, certaininformation and footnote disclosures normally included in financial statementshave been condensed or omitted pursuant to rules and regulations of the U.S.Securities and Exchange Commission.  The Company believes that thedisclosures in the unaudited condensed financial statements are adequate tomake the information presented not misleading.  However, these unauditedcondensed financial statements should be read in conjunction with the financialstatements and footnotes thereto included in the registration statement on FormSB-2 (File No. 333-138042) and supplements thereto, filed by the Company underthe Securities Act of 1933, as such registration statement became effective onMarch 7, 2007, and all of the Company’s other filings with the SEC fromMarch 7, 2007 through the current date pursuant to the Securities ExchangeAct of 1934.

 

At September 30,2007, the Company is considered to be in the development stage because it hasdevoted substantially all of its efforts since formation to primarily preparingapplications with various bank regulatory authorities for permission toorganize a national bank and a bank holding company, and taking all otheractions necessary to organize and charter Solera National Bank.  TheCompany received approval as a bank in organization in the first quarter of2007, conducted an initial closing of its common stock offering and commencedbanking operations during the third quarter of 2007.  Successfulcompletion of the Company’s development program and, ultimately, the attainmentof profitable operations are dependent on future events, including thesuccessful execution of the Company’s business plan and achieving a level ofrevenue adequate to support the Company’s cost structure.

 

The Company is subjectto various risks and uncertainties frequently encountered by companies in theearly stages.  Such risks and uncertainties include, but are not limitedto, its limited operating history, competition, dependence on key personnel andmanagement of rapid growth.  To address these risks, the Company must, amongother things, develop and retain its customer base, implement and successfullyexecute its business and marketing strategy, continue to develop and upgradeits technology, provide superior customer service and attract, retain andmotivate qualified personnel.  There can be no guarantee that the Companywill be successful in addressing these or other such risks.

 

To date, the Company hasfunded its activities primarily through contributions from the Organizers (seeNote 4), proceeds from borrowings on a line of credit (see Note 13) and fundingfrom the proceeds of a common stock offering which closed on gross proceeds of$22,628,370.  The Company is continuingto offer for sale additional shares of its common stock at $10 per share up toa maximum of 2,880,000 shares (see Note 3). As of November 13, 2007, theCompany has received subscriptions for approximately 103,000 shares, or$1,030,000.  The proceeds from the saleof these

 

9

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shares will be utilizedprimarily as additional capital for Solera National Bank.  The Company’scash and cash equivalents at September 30, 2007 and December 31, 2006totaled $18.1 million and $6,978, respectively.  Management believes cashcurrently on hand will provide adequate funding through September 30,2008.  There can be no assurance that the Company will achieve or sustainprofitability or positive cash flow from its operations.

 

**Critical AccountingPolicies**

 

Income taxes:  Deferredtaxes are provided on a liability method whereby deferred tax assets arerecognized for deductible temporary differences and operating losscarryforwards, and deferred tax liabilities are recognized for taxabletemporary differences.  Temporarydifferences are the differences between the reported amounts of assets andliabilities and their tax bases. Deferred tax assets are reduced by valuation allowance when, in theopinion of management, it is more likely than not that some portion or all ofthe deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects ofchanges in tax laws and rates on the date of the enactment.

 

Stock-based compensation:  The Company accounts forstock-based compensation to employees as outlined in FASB Statement No. 123(R),*Share-Based Payment*.  Thecost of employee services received in exchange for an award of equityinstruments is based on the grant-date fair value of the award.

 

Provision for loan losses: The allowance for loan losses represents the Company’s recognition ofthe risks of extending credit and its evaluation of the loan portfolio. Theallowance for loan losses is maintained at a level considered adequate toprovide for probable loan losses based on management’s assessment of variousfactors affecting the loan portfolio, including a review of problem loans,business conditions, historical loss experience, evaluation of the quality ofthe underlying collateral, and holding and disposal costs. The allowance forloan losses is increased by provisions charged to expense and reduced by loanscharged off, net of recoveries.  Loanlosses are charged against the allowance for loan losses when managementbelieves the loan balance is uncollectible.

The Company hasestablished a formal process for determining an adequate allowance for loanlosses.  The allowance for loan lossescalculation process has two components. The first component represents the allowance for loan losses forimpaired loans computed in accordance with FASB Statement No. 114, *Accounting by Creditors for Impairment of a Loan*(SFAS 114 Component), as amended by FASB Statement No. 118, *Accounting by Creditors for Impairment of a Loan —Income Recognition and Disclosures an amendment of FASB Statement No. 114*.  To determine the SFAS 114 Component,collateral dependent impaired loans are evaluated using internal analyses aswell as third-party information, such as appraisals.  If an impaired loan is unsecured, it isevaluated using a discounted cash flow of the payments expected over the lifeof the loan using the loan’s effective interest rate and giving considerationto currently existing factors that would impact the amount or timing of thecash flows.  The second component is theallowance for loan losses calculated under FASB Statement No. 5, *Accounting for Contingencies* (SFAS 5Component), and represents the estimated probable losses inherent within theportfolio due to uncertainties in economic conditions, delays in obtaininginformation about a borrower’s financial condition, delinquent loans that havenot been determined to be impaired, trends in speculative construction realestate lending, results of internal and external loan reviews, and otherfactors.  This component of the allowancefor loan losses is calculated by assigning a certain risk weighting, within apredetermined range, to each identified risk factor.  The recorded allowance for loan losses is theaggregate of the SFAS 114 Component and SFAS 5 Component.

 

**NOTE 3 - COMMON STOCK OFFERING**

The Company closed theinitial offering for 2,262,837 shares of its common stock at an offering priceof $10 per share, or $22.6 million.  $208,562 of direct offering costswere incurred to raise the Company’s initial capital and have been offsetagainst the initial proceeds of the capital raise to yield a net opening capitalof $22.4 million.  In addition, theCompany issued one stock warrant for every five shares of common stockpurchased. The warrants entitle the holder thereof to purchase one share of theCompany’s common stock for $12.50 at any time prior to September 10, 2010.

The offering was notunderwritten.  Subject to compliance withapplicable federal and state securities laws, the offering was made on a bestefforts basis through the Company’s Organizers, executive officers anddirectors, who did not receive any commission or other compensation inconnection with these activities.

 

10

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The Company willcontinue to offer the remaining shares and warrants until December 31,2007, however, the Company may close the offering at any time prior to thatdate.

**NOTE 4 - ADVANCES FROM ORGANIZERS**

 

The Company’s Organizersadvanced funds for organizational and other pre-operating expenses.  Theseadvances were non-interest bearing. During the third quarter 2007, the Organizer advances were either repaidor were converted into common stock on the same terms as the initial offering.

 

Additionally, asconsideration to the Organizers upon Solera National Bank opening for businesson September 10, 2007, the Company issued to each Organizer one warrantfor every $10 that the Organizer had at risk during the pre-operating andorganizational phase.  Each warrant entitles its holder to purchase oneshare of the Company’s common stock for $10 at any time prior to September 10,2017.

 

**NOTE 5 - LOANS**

 

Loans consist of the following: 

| ** **                                                                                                                                                                                                                                                                       | ** ** | **September 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| Real estate — mortgage                                                                                                                                                                                                                                                      |       | $                       | 50,000     |                   | $          | — |   |
| Consumer and other                                                                                                                                                                                                                                                               |       | 138                     |       | —                 |       |
| Commercial and industrial                                                                                                                                                                                                                                                        |       | —                  |       | —                 |       |
| Real estate — construction                                                                                                                                                                                                                                                  |       | —                  |       | —                 |       |
| Gross loans                                                                                                                                                                                                                                                                      |       | 50,138                  |       | —                 |       |
| Less:            Allowance for loan losses                                                                                                                                                                                |       | —                  |       | —                 |       |
|                                         Deferred loan  fees and expenses, net |       | 279                     |       | —                 |       |
| Loans, net                                                                                                                                                                                                                                                                       |       | $                       | 50,417     |                   | $          | — |   |

 

In the ordinary course of business, the Company had no loansreceivable from directors, executive officers and principal shareholders(holders of more than five percent of the outstanding common shares) of theCompany at September 30, 2007.

 

**NOTE 6 - DEPOSITS**

 

Deposits are summarized as follows:

 

| ** **                                      | ** ** | **As of September 30, 2007** | ** ** | **As of December 31, 2006** | ** ** |
|-------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Non-interest bearing demand                     |       | $                            | 231,288    |                        | 57         | % | $ | — |   | — | % |
| Interest bearing demand                         |       | 123,475                      |       | 30                          |       | — |   | — |   |
| Money market accounts                           |       | 17,269                       |       | 4                           |       | — |   | — |   |
| Savings accounts                                |       | 3,163                        |       | 1                           |       | — |   | — |   |
| Certificates of deposits, less than $100,000    |       | 31,490                       |       | 8                           |       | — |   | — |   |
| Certificates of deposits, greater than $100,000 |       | —                       |       | —                      |       | — |   | — |   |
| Total deposits                                  |       | $                            | 406,685    |                        | 100        | % | $ | — |   | — | % |

 

**NOTE 7- PREMISES AND EQUIPMENT**

 

Premises and equipment at September 30, 2007 and December 31, 2006consist of the following:

 

| ** **                        | ** ** | **September 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|-----------------------------------|------------|------------------------|------------|-----------------------|------------|
| Leasehold improvements            |       | $                      | 567,114    |                  | $          | 66,369 |   |
| Furniture, fixtures and equipment |       | 430,000                |       | 32,528                |       |
| Total                             |       | $                      | 997,114    |                  | $          | 98,897 |   |
| Accumulated Depreciation          |       | (54,769                | )          | (5,566                | )          |
| Premises and equipment, net       |       | $                      | 942,345    |                  | $          | 93,331 |   |

 

11

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Depreciation and amortization expense for the three and nine months endedSeptember 30, 2007 was $19,557 and $51,097, respectively.  Depreciation and amortization expense for thethree and nine months ended September 30, 2006 was $749 and $1,276,respectively,

 

 The Company has operating leases for itsmain banking office, space in an office building and an ATM machine with futureminimum lease payments as of September 30, 2007, as follows:

 

| **Year  ended December 31,** | ** ** | ** ** | ** ** |
|------------------------------|------------|------------|------------|
| 2007                         |       | $          | 38,181     |   |
| 2008                         |       | 153,082    |       |
| 2009                         |       | 157,938    |       |
| 2010                         |       | 165,883    |       |
| 2011                         |       | 157,041    |       |
| Thereafter                   |       | 863,420    |       |
| Total                        |       | $          | 1,535,545  |   |

 

**NOTE 8 - STOCK BASED COMPENSATION**

 

The Company’s 2007Stock Incentive Plan (the “Plan”) was approved by the Company’s Board ofDirectors (the “Board”) in October 2007 with an effective date of September 10,2007.  Under the terms of the Plan,officers and key employees may be granted both nonqualified and incentive stockoptions and directors and other consultants, who are not also officers oremployees, may only be granted nonqualified stock options. The Board reserved20% of the total number of shares of common stock subscribed for in theoffering for issuance under the stock incentive plan.  Based on theinitial closing of the offering, approximately 452,500 options have beenreserved for issuance under the stock incentive plan.  The Company intendsto reserve 576,000 options if it attains the maximum offering amount. The Planprovides for options to purchase shares of common stock at a price not lessthan 100% of the fair market value of the stock on the date of grant.  Stock options expire no later than ten yearsfrom the date of the grant and generally vest over four years.  The Plan provides for accelerated vesting ifthere is a change of control, as defined in the Plan.  The Company recognized stock-basedcompensation cost of $12,502 during the third quarter 2007.  No tax benefit related to stock-based compensationwill be recognized until the Company is profitable.

 

The Company accountsfor its stock-based compensation under the provisions of SFAS 123R.  The fair value of each option grant wasestimated on the date of grant using the Black-Scholes-Merton option pricingmodel with the following assumptions presented below:

 

| Grant Date                      |   | September  10, 2007 |   |
|---------------------------------|--------|---------------------|--------|
| Total Number of Options Granted |   | 361,897             |   |
| Expected Volatility             |   | 14.46               | %      |
| Expected Term                   |   | 6.25  years         |   |
| Expected Dividend               |   | 0.00                | %      |
| Risk-Free Rate                  |   | 4.29                | %      |
| Grant Date Fair Value           |   |                | $2.75  |   |
|                                 |        |                     |        |  |

 

Since the Bank hasno historical stock activity, the expected volatility is based on thehistorical volatility of similar banks that have a longer trading history.  The expected term represents the estimatedaverage period of time that the options will remain outstanding.  Since the Bank does not have sufficienthistorical data on the exercise of stock options, the expected term is based onthe “simplified” method that measures the expected term as the average of thevesting period and the contractual term. The risk free rate of return reflectsthe grant date interest rate offered for zero coupon U.S. Treasury bonds withthe same expected term as the options.

 

No options wereexercised, vested or forfeited during the third quarter ended September 30,2007.  However, the Company recognizedexpense for 5,026 options, representing a pro-rata amount of the options thatwill vest at the end of year one.  As ofSeptember 30, 2007, there was $887,640 of total unrecognized compensation costrelated to the outstanding stock options that will be recognized over a weighted-averageperiod of 3.94 years.

 

12

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The following is asummary of the Company’s non-vested options at September 30, 2007:

 

| ** **                       | ** ** | **Shares** | ** ** | **Weighted-  Average  Grant Date  Fair Value** | ** ** |
|----------------------------------|------------|------------|------------|------------------------------------------------|------------|
| Non-vested at January 1, 2007    |       | —     |       | —                                         |       |
| Granted                          |       | 361,897    |       | $                                              | 2.75       |   |
| Vested                           |       | —     |       | —                                         |       |
| Forfeited                        |       | —     |       | —                                         |       |
| Non-vested at September 30, 2007 |       | 361,897    |       | $                                              | 2.75       |   |

 

**NOTE 9 - WARRANTS**

 

TheCompany funded organizational and pre-opening expenses of approximately $3.6million from direct cash advances made by its Organizers and from draws madeunder a $2.9 million line of credit with The Bankers Bank of Georgia.  Each Organizer and one non-organizer directorprovided a limited guarantee on amounts drawn under the line of credit.  Accordingly, in recognition of thesubstantial financial risks undertaken by the members of the organizing group,the Company granted an aggregate of 317,335 warrants to its Organizers and one non-organizerDirector.  Each of our Organizers whoprovided cash advances of $30,000 and a limited guarantee received warrants topurchase the lesser of 16,181 shares of the Company’s common stock or thenumber of shares actually subscribed for in the offering.  One Organizer, both individually and throughan affiliated entity, provided a cash advance of $480,000 and a limitedguarantee, and received warrants to purchase 40,000 shares of the Company’scommon stock.  Another Organizer, whoprovided a cash advance of $130,000 and a limited guarantee, received warrantsto purchase 25,000 shares of the Company’s common stock.  These warrants will be exercisable at a priceof $10.00 per share, the initial offering price, and may be exercised anytimeprior to September 10, 2017.

 

Eachof the Company’s initial shareholders was granted one warrant to purchase anadditional share, at an exercise price of $12.50 per share, for every fiveshares purchased during the Company’s initial public offering.  The shareholder warrants are fully vested andexercisable at any time prior to September 10, 2010.

 

| **Warrants Outstanding and Exercisable** |
|------------------------------------------|
| **Type**                                 | ** ** | **Exercise  Price** | ** ** | **Number** | ** ** | **Weighted Average  Remaining  Contractual  Life (in years)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| Organizer warrant                        |   | $ | 10.00 |   | 317,335 |   | 9.94 |   | $ | 10.00 |   |
| Shareholder warrant                      |   | $ | 12.50 |   | 452,567 |   | 2.94 |   | $ | 12.50 |   |

 

13

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The Company determinedthe fair value of the warrants granted following the provisions of SFAS123R.  The fair value of each warrantgrant was estimated on the date of grant using the Black-Scholes-Merton optionpricing model with the following assumptions presented below:

 

| ** **                       | ** ** | **Shareholder Warrants** | ** ** | **Organizer Warrants** | ** ** |
|----------------------------------|------------|--------------------------|------------|------------------------|------------|
| Grant Date                       |       | September  10, 2007      |       | September  10, 2007    |       |
| Total Number of Warrants Granted |       | 452,567                  |       | 317,335                |       |
| Expected Volatility              |       | 14.46                    | %          | 14.46                  | %          |
| Expected Term                    |       | 2.75  years              |       | 4.6  years             |       |
| Expected Dividend                |       | 0.00                     | %          | 0.00                   | %          |
| Risk-Free Rate                   |       | 4.15                     | %          | 4.29                   | %          |
| Grant Date Fair Value            |       |                     | $0.53      |                   |       | $2.19 |   |
|                                  |            |                          |            |                        |            |  |  |

 

Since the Bank hasno historical stock activity, the expected volatility is based on thehistorical volatility of similar banks that have a longer trading history.  The expected term represents the estimatedaverage period of time that the warrants will remain outstanding.  The risk free rate of return reflects thegrant date interest rate offered for zero coupon U.S. Treasury bonds with thesame expected term as the warrants.

 

The fair market value ofthe shareholder warrants totaled $119,930 and the fair market value of theorganizer warrants totaled $625,467 after considering estimated forfeitures of50% and 10%, respectively.  This cost wastreated as a component of equity and was included in total offering costs of$953,960.

 

**NOTE 10 - NONINTEREST EXPENSE**

 

The following table details the items comprising General and administrativeexpenses:

 
| ** **                          | ** ** | ** **                       | ** ** | ** **                       | ** ** | **Cumulative**   | ** ** |
|-------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|------------------|------------|
| ** **                          | ** ** | **3 months ended September 30,** | ** ** | **9 months ended September 30,** | ** ** | **Amounts From** | ** ** |
| ** **                          | ** ** | **2007**                         | ** ** | **2006**                         | ** ** | **2007**         | ** ** | **2006** | ** ** | ** Inception** | ** ** |
| Marketing and promotions            |       | $                                | 97,291     |                             | $          | 3,849            |       | $ | 166,075 |   | $ | 8,188 |   | $ | 177,486 |   |
| Printing, stationery & supplies |       | 68,998                           |       | 10,001                           |       | 115,873          |       | 23,748 |   | 144,631 |   |
| Temporary services                  |       | 20,100                           |       | 19,988                           |       | 81,234           |       | 27,298 |   | 133,171 |   |
| Travel and entertainment            |       | 6,810                            |       | 1,204                            |       | 31,680           |       | 5,669 |   | 39,149 |   |
| Telephone                           |       | 5,600                            |       | 699                              |       | 18,274           |       | 2,431 |   | 23,258 |   |
| Postage, shipping, and courier      |       | 8,568                            |       | 1,122                            |       | 14,787           |       | 2,340 |   | 18,500 |   |
| Training and education              |       | 9,695                            |       | —                           |       | 9,695            |       | — |   | 9,695 |   |
| Insurance                           |       | 5,354                            |       | 1,248                            |       | 8,864            |       | 3,619 |   | 14,332 |   |
| Data processing                     |       | 7,327                            |       | 936                              |       | 7,754            |       | 936 |   | 8,691 |   |
| Miscellaneous                       |       | 11,624                           |       | 18,704                           |       | 24,876           |       | 25,819 |   | 90,124 |   |
| Total                               |       | $                                | 241,367    |                             | $          | 57,751           |       | $ | 479,112 |   | $ | 100,048 |   | $ | 659,037 |   |
|                                     |            |                                  |            |                                  |            |                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**NOTE 11**-**INCOME TAXES**

 

The Company adopted theprovisions of Financial Standards Accounting Board (“FASB”) Interpretation No.48 Accounting for Uncertainty in Income Taxes (“FIN 48”), an interpretation ofFASB Statement No. 109 effective on January 1, 2007.  FIN 48 prescribes arecognition threshold and a measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return.  FIN 48 also provides guidance on the accounting forand disclosure of unrecognized tax benefits, interest and penalties. Adoption of FIN 48 did not have a material impact on the Corporation’sunaudited condensed financial statements.

 

The Company has provideda 100% valuation allowance for its net deferred tax asset due to uncertainty ofrealization during the carryforward period. 

 

14

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**NOTE 12 - RELATED-PARTY TRANSACTIONS**

 

Certain Organizers andproposed Officers of the Company and Bank were employed as consultants duringthe third quarter.  Under these consulting agreements, the Company hasincurred costs of approximately $137,000 and $129,000 for the three-monthperiods ended September 30, 2007 and September 30, 2006,respectively, and approximately $543,000 and $379,000 for the nine-monthperiods ended September 30, 2007 and September 30, 2006,respectively.  Additionally, the Company has incurred costs under theseconsulting agreements of approximately $1,319,000 for the periodJanuary 3, 2005 (inception) through September 30, 2007.  Theconsulting agreements were terminated for Officers on September 10, 2007, thedate employment agreements commenced.

 

The Company utilized atemporary staffing service for payroll administration of temporary staffengaged during the organization stage.  The temporary staffing company isowned by an Organizer.  The Company incurred approximately $20,100 and$20,000 for the three-month periods ended September 30, 2007 and September30, 2006, respectively, and approximately $81,200 and $27,300 for thenine-month periods ended September 30, 2007 and September 30, 2006,respectively.  Additionally the Company incurred approximately $120,600for the period January 3, 2005 (inception) through September 30,2007.

 

The Company utilized alaw firm for leases for the main banking office and corporate offices. One of the Organizers is a partner with the firm.  The Company incurred $0and approximately $400 for the three-month periods ended September 30, 2007 andSeptember 30, 2006, respectively, and $0 and approximately $9,200 for thenine-month periods ended September 30, 2007 and September 30, 2006,respectively.  The Company incurred approximately $9,200 for the periodJanuary 3, 2005 (inception) and September 30, 2007.

 

**NOTE 13****-****NOTE PAYABLE**

 

In September 2007, the Company used proceeds from the initial publicoffering to pay off the $2.9 million line of credit that was used to fundpre-opening expenses in excess of Organizer advances.  Interest expense of $39,409 and $21,758 wasrecognized during the three months ended September 30, 2007 and 2006,respectively, on the line of credit. Interest expense of $113,977 and $32,822 was recognized during the ninemonths ended September 30, 2007 and 2006, respectively.  And interest expense of $169,724 wasrecognized from inception to September 30, 2007 on the line of credit.

 

**NOTE 14****-****OTHER BORROWINGS**

 

The Company has capital leases for bank equipment, furniture and signagethat are being leased for 5 years with a bargain purchase option at the end ofthe lease term.  In accordance with SFASNo. 13, *Accounting for Leases,* the asset and thecapital lease liability have been recorded at the lesser of the fair marketvalue or the present value of the future minimum lease payments.

 

The following is an analysis of the leased property under capital lease:

 

| ** **                        | ** ** | **As of  September 30, 2007** | ** ** |
|-----------------------------------|------------|-------------------------------|------------|
| Furniture, fixtures and equipment |       | $                             | 206,819    |   |
| Accumulated depreciation          |       | (8,631                        | )          |
| Net book value                    |       | $                             | 198,188    |   |

 

The following is a schedule, by years, of the future minimum leasepayments under capital leases as of September 30, 2007:

 

| **Year ended December 31,** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------|------------|------------|------------|------------|
| 2007                        |       | $          | 12,877     |       |
| 2008                        |       | 51,510     |       |
| 2009                        |       | 51,510     |       |
| 2010                        |       | 51,510     |       |
| 2011                        |       | 51,510     |       |
| Thereafter                  |       | 34,310     |       |
| Total                       |       | $          | 253,227    |       |

 

15

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**NOTE 15****-****LOSS ON ABANDONMENT OF LEASE**

 

In January 2007, theCompany entered into a plan to abandon its corporate headquarters for costreduction purposes.  Management relocated its corporate offices to themain bank office on July 27, 2007.  The Company is currently seeking asub-lessee for the vacated premises.  The Company recorded an estimatedloss of $169,674 as a result of abandoning its corporate headquarters. The amount was calculated to be the difference between the present value offuture lease obligations and the present value of estimated sub-leaseincome.  In accordance with SFAS No. 146, *Accountingfor Costs Associated with Exit or Disposal Activities,* this losswill be adjusted in future periods for changes in the timing or amounts of theestimated future cash flows.

 

**NOTE 16****-****COMMITMENTS AND CONTINGENCIES**

 

At September 30, 2007, the Company had no outstanding loanorigination commitments and no unused commercial and retail lines of credit andone standby letter of credit for $9,000.

 

16

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**ITEM 2. MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION**

 

The following discussionand analysis presents the Company’s consolidated financial condition as ofSeptember 30, 2007 and results of operations for the three and nine monthsended September 30, 2007 and 2006, respectively.  The discussion should be read in conjunctionwith the financial statements and the notes related thereto which appearelsewhere in this Quarterly Report on Form 10-QSB.

 

**OVERVIEW**

 

Weare a Delaware corporation that was incorporated on January 12, 2006 toorganize and serve as the holding company for Solera National Bank, a nationalbank that opened for business on September 10, 2007.  Solera National Bank is a full-servicecommercial bank headquartered in Lakewood, Colorado serving the Denvermetropolitan area.  Our main bankingoffice is located at 319 S. Sheridan Blvd., Lakewood, Colorado 80226.  Our telephone number is (303) 209-8600.

 

**PLAN OF OPERATIONS**

 

Weoffer a broad range of commercial and consumer banking services to small andmedium-sized businesses, licensed professionals and individuals who we believewill be particularly responsive to the personalized service that SoleraNational Bank intends to provide to its customers.  We believe that local ownership and controlwill allow the Bank to serve customers more efficiently and effectively andwill aid in our growth and success. Solera National Bank intends to compete on the basis of providing aunique and personalized banking experience combined with a full range ofservices, customized and tailored to fit the individual needs of itsclients.  Solera National Bank intends toserve the entire market area and intends to target the local Hispanicpopulation due to the significant growth in this demographic and the inabilityof traditional banks to fully service the needs of the Hispanic populationbecause of cultural and language barriers.

 

Duringthe quarter, we received approval from the Federal Reserve Bank of Kansas Cityto operate as a bank holding company for Solera National Bank.  Additionally, we closed on our initial publicoffering and Solera National Bank received final regulatory approvals and beganoperations on September 10, 2007.

 

As of September 30, 2007, the Company had purchased or acquiredunder capital leases, property and equipment of approximately $425,000.  In addition, the Company has incurreda total of $567,000 for leasehold improvements made at its main banking office. We are currently in the process of recruiting additional employees andcurrently have 15 employees.

 

# ****Results of Operations forthe Three and Nine Months Ended September 30, 2007****

 

The following discussion focuses on theCompany’s financial condition and results of operations for the three monthsand nine months ended September 30, 2007. The Company’s principal operations for the three months and the ninemonths ended September 30, 2007 consisted of the operations of SoleraNational Bank, which opened for business September 10, 2007.

 

In connection with the Company’s closing ofits initial public offering, Solera National Bank opened for business onSeptember 10, 2007.  Accordingly,the following discussion is limited as the Company’s principal operations wereconducted for only 21 days of the third quarter 2007.  As such, a discussion of the comparison toprior financial results is not meaningful to an understanding of our currentbusiness and, therefore, has been omitted from this Report.  Similarly, results of operations for the ninemonths ended September 30, 2007 are virtually identical to prior periodsas the Company continued to incur losses from pre-opening expenses and othercosts of the offering, with the exception of the receipt of approximately $22.6million in cash.  As a result, adiscussion of the Company’s financial condition and results of operation for thenine months ended September 30, 2007 has also been omitted from this Report, asit would not be meaningful to an understanding of our current business.

 

17

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****Net Interest Income and Net InterestMargin****

 

Net interest income is the difference between interestincome, principally from loan, lease and investment securities portfolios, andinterest expense, principally on customer deposits and borrowings.  Net interest income will be our principalsource of earnings.  Changes in netinterest income result from changes in volume, spread and margin. Volume refersto the average dollar level of interest-earning assets and interest-bearingliabilities.  Spread refers to thedifference between the average yield on interest-earning assets and the averagecost of interest-bearing liabilities. Margin refers to net interest incomedivided by average interest-earning assets, and is influenced by the level andrelative mix of interest-earning assets and interest-bearing liabilities.

 

Net interestincome was $164,000 in the third quarter of 2007. Our annualized net interestmargin was 5.5% for the 3 months ended September 30, 2007.  Excluding the interest income on the escrowaccount and interest expense on the note payable, our annualized net interestmargin would have been 5.6%.

 

Total interest income was $204,000 for the third quarter of 2007.Average net loans were $24,000 and average investments, primarily overnightinvestments with the Federal Reserve, were $17.4 million.

 

Total interest expense was $40,000 in the third quarter of 2007.  This consisted primarily of interest expenseon the $2.9 million line-of-credit with the Bankers Bank of Georgia.  Interest expense of $53 was incurred duringthe 21 days the bank was opened during the third quarter on averageinterest-bearing deposits of $106,000 for the same period.

 

****Provision for Loan Losses****

 

We determine a provision for loan losses that weconsider sufficient to maintain an allowance to absorb probable losses inherentin our portfolio as of the balance sheet date. For additional informationconcerning this determination, see the section of this discussion and analysiscaptioned **“Allowancefor Loan Losses.”**

 

In the third quarter of 2007, our provision for loan and lease losseswas $0.  Because Solera National Bankrecently opened, there were no charge-offs or non-performing loans during thethird quarter of 2007.

 

****Noninterest Income****

 

The non-interest income for the quarter ended September 30, 2007was negligible.  In general, depositaccounts incur service charges one month in arrears.  Due to the low volume of accounts and thebrief amount of time any of the accounts had been opened, only $346 of servicecharges was collected.

 

****Noninterest Expense****

 

Our total noninterest expense was $916,000 in thethird quarter of 2007.  This expense isnot representative of future expense, as Solera National Bank was open for lessthan one-third of the quarter and the Company recorded a $170,000 loss onabandonment of lease as well as additional start-up expenses.  While it is anticipated that the overallvolume of noninterest expense will continue to increase as Solera National Bankgrows, management is committed to controlling costs and expects to moderatethese increases relative to revenue growth.

 

Occupancy expenses totaled $297,000 for the third quarter of 2007,attributable primarily to the recognition of $170,000 for the abandonment ofleased property.  See additionaldiscussion in Note 15.  The remainingoccupancy expense consists primarily of lease expense for the bank’s mainoffice.

 

Salaries and employee benefits totaled $177,000 for the third quarterof 2007.  The Company employed 15full-time equivalent employees as of September 30, 2007.

 

Management fees of $137,000 for the third quarter 2007 were fees paidto the Bank’s management team before the Bank opened and the managers becameemployees of the Bank.

 

Promotional expenses were $97,000 for the third quarter of 2007. Thisincluded expenses for marketing collateral, development of our advertisingcampaign and sponsorship of key community events to coincide with SoleraNational Bank’s opening.

 

 

18

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Professional fees of $56,000 for the third quarter of 2007 wereprimarily attributable to legal expenses related to the opening of SoleraNational Bank.

 

Consulting expense was $8,000 for the third quarter of 2007,attributable primarily to information technology consulting to establish thebank’s infrastructure.

 

Other expenses of $144,000 for the third quarter of 2007 included $69,000for printing, stationery and supplies, $20,000 for temporary labor, $10,000 fortraining and education, $9,000 for postage and shipping, $7,000 for travel andentertainment, $7,000 for data processing fees, $6,000 for telephone, $6,000for insurance and $10,000 for other miscellaneous expenses.

 

Pre-opening expenses for the nine-month period ended September 30,2007 were $1.3 million.

 

****Income Taxes****

 

No federal or state tax expense has been recorded for the quarter endedSeptember 30, 2007, based upon net operating losses.  Since it is uncertain that the Company willbecome profitable, the deferred tax benefit accumulated to date has a fullvaluation allowance so that the net deferred tax benefit at September 30, 2007is $0.

 

****Financial Condition****

 

Total assets as of September 30, 2007 were $19.7million, primarily the result of the net proceeds from the initial publicoffering, net of the repayment of the note payable.

 

As of September 30, 2007, shareholders’ equity was $18.6 million,as a result of the initial public offering, partially offset by theinception-to-date losses from start-up activities and current operations.

 

****Short-Term Investments andInterest-bearing Deposits in Other Financial Institutions****

 

At September 30, 2007, Solera National Bank had $17.6 million infederal funds sold.  Federal funds soldallow Solera National Bank to meet liquidity requirements and provide temporaryholdings until the funds can be otherwise deployed or invested.

 

****Investment Securities****

 

Our investment portfolio will primarily serve as a source of interestincome and, secondarily, as a source of liquidity and a management tool for ourinterest rate sensitivity.  We manage ourinvestment portfolio according to a written investment policy established byour Board of Directors.

 

At September 30, 2007, Solera National Bank’s securities consistedsolely of Federal Reserve Bank Stock, having an amortized cost of $525,000, anda weighted average yield of 6%.

 

****Loan Portfolio****

 

Our primary source of income is interest on loans. Thefollowing table presents the composition of our loan portfolio by category asof the dates indicated:

 

| ** **                                                                                                                                                                                                                                                                       | ** ** | **September 30, 2007** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                                                                                                                                                                                                       | ** ** | **Amount**             | ** ** | **% of Total** | ** ** |
| Real estate — mortgage                                                                                                                                                                                                                                                      |       | $                      | 50,000     |   | 100 | % |
| Consumer and other                                                                                                                                                                                                                                                               |       | 138                    |       | 0 |   |
| Commercial and industrial                                                                                                                                                                                                                                                        |       | —                 |       |   |   |
| Real estate — construction                                                                                                                                                                                                                                                  |       | —                 |       |   |   |
| Gross loans                                                                                                                                                                                                                                                                      |       | 50,138                 |       | 100 | % |
| Less:            Allowance for loan losses                                                                                                                                                                                |       | —                 |       |   |   |
|                                         Deferred loan  fees and expenses, net |       | 279                    |       |   |   |
| Loans, net                                                                                                                                                                                                                                                                       |       | $                      | 50,417     |   |   |   |

 

19

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As of September 30, 2007, net loans were $50,000.  Net loans as a percentage of total assets was0.3% as of September 30, 2007.

 

The commercial loan portfolio will be comprised primarily of lines ofcredit for working capital and term loans to finance equipment and otherbusiness assets.  The lines of credittypically are limited to a percentage of the value of the assets securing theline.  Lines of credit and term loanstypically are reviewed annually and can be supported by accounts receivable,inventory, equipment and other assets of the client’s businesses. AtSeptember 30, 2007, there were no commercial loans in the loan portfolio.

 

The consumer and other loan portfolio will consist of personal lines ofcredit, loans to acquire personal assets such as automobiles and boats andoverdraft protection balances for our deposit customers.  The lines of credit generally have terms ofone year and the term loans generally have terms of three to five years.  The lines of credit typically have floatingrates.  Due to our limited operatinghistory, at September 30, 2007, there was one consumer and other loan for$138.

 

The real estate loan portfolio will be comprised of construction loansand short-term mortgage loans. Construction loans consist primarily ofsingle-family residential properties, have a term of less than one year andhave floating rates and commitment fees.  Construction loans are typicallymade to builders that have an established record of successful projectcompletion and loan repayment. Short-term mortgage loans typically are secured by commercial propertiesoccupied by the borrower, have terms of three to seven years with both fixedand floating rates.  AtSeptember 30, 2007, the real estate loans totaled $50,000, 100% of ourtotal funded loans.

 

Loan concentrations are considered to exist when there are amountsloaned to a multiple number of borrowers engaged in similar activities thatwould cause them to be similarly impacted by economic or other conditions. AtSeptember 30, 2007, such an analysis would not be meaningful due to thesmall dollar amount of total loans. As new loans are generated and SoleraNational Bank continues to grow, the presence of concentrations in the loanportfolio will be monitored.

 

Management may renew loans at maturity when requested by a customerwhose financial strength appears to support such a renewal or when such arenewal appears to be in the best interest of Solera National Bank. SoleraNational Bank requires payment of accrued interest in such instances and mayadjust the rate of interest, require a principal reduction, or modify otherterms of the loan at the time of renewal.

 

Loan terms vary according to loan type. The followingtable shows the maturity distribution of loans as of September 30, 2007:

 
| **** ****                  | **** **** | ****As of September 30, 2007**** | ** **     |
|---------------------------------|----------------|---------------------------------------|----------------|
| **** ****                  | **** **** | ** **                            | **** **** | ****Over 1 Year************through 5 Years**** | ** ** | ****Over 5 Years**** | ** ** | ** ** | ** ** |
| **** ****                  | **** **** | ****One Year************or Less****   | **** **** | ****Fixed************Rate**** | **** **** | ****Floating or Adjustable Rate**** | **** **** | ****Fixed************Rate**** | **** **** | ****Floating or Adjustable Rate**** | **** **** | ****Total**** | **** **** |
| Real estate — construction |           | $                                     | —         |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
| Real estate — secured      |           | —                                |           | 50,000 |   | — |   | — |   | — |   | 50,000 |   |
| Commercial and industrial       |           | —                                |           | — |   | — |   | — |   | — |   | — |   |
| Consumer and other              |           | 138                                   |           | — |   | — |   | — |   | — |   | 138 |   |
| Total                           |           | $                                     | 138            |   | $ | 50,000 |   | $ | — |   | $ | — |   | $ | — |   | $ | 50,138 |   |

 

### ****Nonperforming Loans, Leases and Assets****

 

Nonperforming assets consist of loans and leases onnonaccrual status, loans 90 days or more past due and still accruing interest,loans that have been restructured resulting in a reduction or deferral ofinterest or principal, OREO, and other repossessed assets. As ofSeptember 30, 2007, there were no nonperforming assets.

 

A potential problem loan is defined as a loan where information aboutpossible credit problems of the borrower is known, causing management to haveserious doubts as to the ability of the borrower to comply with the presentloan payment terms and which may result in the inclusion of such loan in one ofthe nonperforming asset categories. An 

 

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internally classified loan list is maintained that helps managementassess the overall quality of the loan portfolio and the adequacy of theallowance for loan losses. Loans classified as “special mention” are those thatcontain a weakness that, if left unattended, could develop into a problemaffecting the ultimate collectibility of the loan. Loans classified as “substandard”are those loans with clear and defined weaknesses, such as highly leveragedpositions, unfavorable financial ratios, uncertain repayment resources or poorfinancial condition, which may jeopardize recoverability of the loan. Loansclassified as “doubtful” are those loans that have characteristics similar tosubstandard loans, but also have an increased risk that loss may occur or atleast a portion of the loan may require a charge-off if liquidated at present.Although loans classified as substandard do not duplicate loans classified asdoubtful, both substandard and doubtful loans may include some loans that arepast due at least 90 days, are on nonaccrual status or have been restructured.Loans classified as “loss” are those loans that are in the process of beingcharged-off. Solera National Bank had no loans classified in these categoriesat September 30, 2007.

 

****Allowance for Loan Losses****

 

Implicit in Solera National Bank’s lending activities is the fact thatloan losses will be experienced and that the risk of loss will vary with thetype of loan being made and the creditworthiness of the borrower over the termof the loan. To reflect the currently perceived risk of loss associated withthe loan portfolio, additions are made to the allowance for loan losses in theform of direct charges against income to ensure that the allowance is availableto absorb possible loan losses. The factors that influence the amount include,among others, the remaining collateral and/or financial condition of theborrowers, historical loan loss, changes in the size and composition of theloan portfolio, and general economic conditions.

 

The amount of the allowance equals the cumulative total of theprovisions made from time to time, reduced by loan charge-offs and increased byrecoveries of loans previously charged-off. Until management has adequate historical data upon which to base theestimate of the allowance for loan losses, information regarding the ability ofthe borrower to repay the loan, current economic conditions and other pertinentfactors will be considered.  The one loanrecorded as of September 30, 2007 was current on all payments andwell-collateralized.  Thus, the allowancewas $0, or 0% of outstanding principal as of September 30, 2007.

 

Credit and loan decisions are made by management and the Board ofDirectors in conformity with loan policies established by the board ofdirectors. Solera National Bank’s practice is to charge-off any loan or portionof a loan when the loan is determined by management to be uncollectible due tothe borrower’s failure to meet repayment terms, the borrower’s deteriorating ordeteriorated financial condition, the depreciation of the underlyingcollateral, the loan’s classification as a loss by regulatory examiners, orother reasons. During the third quarter of 2007, there were no charge-offs.

 

****Non-earning Assets****

 

Premises, leasehold improvements and equipment totaled $942,345 atSeptember 30, 2007. There are no definitive agreements regardingacquisition or disposition of owned or leased facilities and, for the near-termfuture, there are no significant changes anticipated in the total occupancyexpense.

 

 

****Off-Balance Sheet Arrangements****

 

Neither the Company nor Solera National Bank has any materialoff-balance sheet arrangements.

 

****Borrowings****

 

The Company expects to establish access to a FederalHome Loan Bank line-of-credit and an unsecured line-of-credit with Bankers Bankof the West.

 

****Loan Commitments****

 

At September 30, 2007, the Company had no outstanding loanorigination commitments and no unused commercial and retail lines of credit ofand one standby letter of credit for $9,000. Management believes Solera National Bank has sufficient funds availableto meet current origination and other lending commitments.

 

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****Capital Resources and CapitalAdequacy Requirements****

 

The risk-based capital regulations established and administered by thebanking regulatory agencies are applicable to Solera National Bank. Risk-basedcapital guidelines are designed to make regulatory capital requirements moresensitive to differences in risk profiles among banks, to account foroff-balance sheet exposure, and to minimize disincentives for holding liquidassets. Under the regulations, assets and off-balance sheet items are assignedto broad risk categories, each with appropriate weights. The resulting capitalratios represent capital as a percentage of total risk weighted assets andoff-balance sheet items. Under the prompt corrective action regulations, to beadequately capitalized a bank must maintain minimum ratios of total capital torisk-weighted assets of 8.00%, Tier 1 capital to risk-weighted assets of 4.00%,and Tier 1 capital to total assets of 4.00%. Failure to meet these capitalrequirements can initiate certain mandatory, and possibly additionaldiscretionary, actions by regulators that, if undertaken, could have a directmaterial effect on Solera National Bank’s financial statements.

 

As ofSeptember 30, 2007, Solera National Bank was categorized aswell-capitalized. A well-capitalized institution must maintain a minimum ratioof total capital to risk-weighted assets of at least 10.00%, a minimum ratio ofTier 1 capital to risk weighted assets of at least 6.00%, and a minimum ratioof Tier 1 capital to total assets of at least 5.00% and must not be subject toany written order, agreement, or directive requiring it to meet or maintain aspecific capital level.

 

The following table summarizes the ratios ofthe Bank and the regulatory minimum capital requirements at September 30, 2007:

 
| ** **                               | ** ** | **Actual** | ** ** | **For  Capital  Adequacy Purposes** | ** ** | **Well  Capitalized Under  Prompt Corrective  Action Provision** | ** ** |
|------------------------------------------|------------|------------|------------|-------------------------------------|------------|------------------------------------------------------------------|------------|
| **($ in thousands)**                | ** ** | **Amount** | ** ** | **%**                               | ** ** | **Amount**                                                       | ** ** | **%** | ** ** | **Amount** | ** ** | **%** | ** ** |
| Total Capital (to Risk Weighted Assets)  |       | $          | 17,354     |                                | 378.0      | %                                                           | $          | 367 |   | 8.0 | %  | $ | 459 |   | 10.0 | %  |
| Tier 1 Capital (to Risk Weighted Assets) |       | $          | 17,354     |                                | 378.0      | %                                                           | $          | 184 |   | 4.0 | %  | $ | 275 |   | 6.0 | %  |
| Tier 1 Capital (to Average Assets)       |       | $          | 17,354     |                                | 88.8       | %                                                           | $          | 184 |   | 4.0 | %  | $ | 230 |   | 5.0 | %  |

 

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#### ****LIQUIDITY****

 

The stock offering closed with 2,262,837 shares sold representing $22.6million in gross total proceeds raised. Of this sum $20.0 million was used topurchase a majority ownership of the Solera Bank. Pre-opening costs totaled$3.6 million and consisted primarily of management fees of approximately $1.3million, consulting fees of $672,000, professional fees of $597,000, interestexpense on the line-of-credit of $170,000, loss on abandonment of lease of$170,000 and other operating costs of $667,000. In addition, both capital and pre-opening costs were increased by$745,000 representing the fair market value of the stock warrants issued toorganizers and shareholders.  Also, theCompany funded certain costs and the purchase of certain capital assetstotaling $1.8 million that were reimbursed and purchased by Solera NationalBank in September.  At September 30,2007, the Company (excluding Solera National Bank) had approximately $1.5million in remaining cash proceeds. These funds can be used for Companyoperations, investment and for later infusion into Solera National Bank andother corporate activities. The primary source of liquidity for the Company willbe dividends paid by Solera National Bank. Solera National Bank is currently restricted from paying dividendswithout regulatory approval that will not be granted until the accumulateddeficit has been eliminated.

 

Solera National Bank’s liquidity is monitored by its staff, the AssetLiability Committee and the Board of Directors, who will review historicalfunding requirements, current liquidity position, sources and stability offunding, marketability of assets, options for attracting additional funds, andanticipated future funding needs, including the level of unfunded commitments.

 

Solera National Bank’s primary sources of funds will be retail andcommercial deposits, loan and securities repayments, other short-termborrowings, and other funds provided by operations. While scheduled loanrepayments and maturing investments are relatively predictable, deposit flowsand early loan prepayments are more influenced by interest rates, generaleconomic conditions, and competition. Solera National Bank will maintaininvestments in liquid assets based upon management’s assessment of (1) the needfor funds, (2) expected deposit flows, (3) yields available on short-termliquid assets, and (4) objectives of the asset/liability management program.

 

As loan demand increases, greater pressure will be exerted on SoleraNational Bank’s liquidity. However, it is management’s intention to maintain aconservative loan to deposit ratio in the range of 80 - 90% over time. Giventhis goal, Solera National Bank will not aggressively pursue lendingopportunities if sufficient funding sources (**e.g.**, deposits, Fed Funds, etc.) are notavailable, nor will Solera National Bank seek to attract transient volatile,non-local deposits with above market interest rates. As of September 30,2007, the loan to deposit ratio was 12%.

 

Solera National Bank had cash and cash equivalents of $18.0 million, or92% of total Bank assets, at September 30, 2007. Management feels thatwith the capital injection from the proceeds of the offering, Solera NationalBank should have more than adequate liquidity to meet anticipated futurefunding needs.

 

## **ITEM3. CONTROLS AND PROCEDURES**

 

Management isresponsible for maintaining effective disclosure controls and procedures. As of the end of the period covered by this report, we evaluated theeffectiveness and operation of our disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)).  Based on thatevaluation, both our President (principal executive officer) and Vice President,Secretary & Treasurer (principal financial officer) have concluded that ourdisclosure controls and procedures are effective to ensure that the informationrequired to be disclosed by us in reports that we file or submit under theExchange Act is recorded, processed, summarized and reported to our managementwithin the time periods specified in the Securities and Exchange Commission’srules and forms and that such information is accumulated and communicated tomanagement as appropriate to allow timely decisions regarding disclosure.

 

During the quarter, theCompany converted to a new general ledger application and does not expect anyimpacts to controls as a result of the conversion.  Other than asdiscussed herein, there have been no changes in internal controls overfinancial reporting during our last fiscal quarter that have materiallyaffected, or are reasonably likely to materially affect, our internal controlsover financial reporting.

 

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**PART II— OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS**

 

Not applicable.

 

**ITEM 2. UNREGISTERED SALESOF EQUITY SECURITIES AND USE OF PROCEEDS**

 

On September 11, 2007,the Securities and Exchange Commission declared effective the Company’sRegistration Statement on Form SB-2 (File No. 333-145861), which acted as apost-effective amendment to an earlier Registration Statement on Form SB-2declared effective on March 7, 2007 (File No. 333-138042), related to theinitial public offering of the Company’s common stock, $0.01 par value.  A total of 3,773,335 shares of common stockwere registered, of which 893,335 shares are issuable under registered commonstock warrants (warrants to purchase an aggregate of 576,000 shares of commonstock at an exercise price of $12.50 per share issuable to the initialshareholders of the Company in connection with the offering, and warrants topurchase an aggregate of 317,335 shares of common stock at an exercise price of$10.00 per share issuable to the organizers of the Company).  The Company completed its first closing ofits initial public offering having sold 2,262,837 shares at $10.00 per sharefor an aggregate $22.6 million.  TheCompany also issued 452,567 warrants to the initial shareholders and 317,335warrants to the organizers.

 

The Company incurredapproximately $954 thousand in offering expenses, none of which was paid todirectors, officers, ten percent or greater shareholders, any of theirassociates, or affiliates of the Company. None of those expenses were paid to underwriters or for underwritingdiscounts and commission or finders’ fees.

 

The following is areasonable estimate of the use of the offering proceeds through September 30,2007:

 

| Gross proceeds from sale of shares             |   | $           | 22,628,000 |   |
|------------------------------------------------|--------|-------------|------------|--------|
| Organizational and pre-opening expenses        |   | (3,600,000  | )          |
| Net investment in common stock of the Bank (1) |   | (17,600,000 | )          |
| Remaining proceeds                             |   | $           | 1,428,000  |   |

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(1)   The amount is net of pre-opening expensesreimbursed by the Bank

 

**ITEM 3. DEFAULTS UPONSENIOR SECURITIES**

 

Not applicable.

 

**ITEM 4. SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS**

 

Not applicable.

 

**ITEM 5. OTHER INFORMATION**

 

Not applicable.

 

**ITEM 6. EXHIBITS**

 
| 3.1  |   | Amendment  to Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to  our Registration Statement on Form SB-2 (No. 333-145861) filed on September  4, 2007).                                |
|------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1 |   | Solera  National Bancorp, Inc. 2007 Stock Incentive Plan (incorporated by reference  to Exhibit 10.3 to our Registration Statement on Form SB-2 (No. 333-138042)  filed on October 17, 2006).                  |
| 10.2 |   | Employment  Agreement by and between Solera National Bank and James Perez Foster  (incorporated by reference to Exhibit 10.4 to our Registration Statement on  Form SB-2 (333-138042) filed October 17, 2006). |
| 10.3 |   | Employment  Agreement by and between Solera National Bank and Robert Fenton (incorporated  by reference to Exhibit 10.5 to our Registration Statement on Form SB-2  (333-138042) filed October 17, 2006).      |

 

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| 10.4 |   | Employment  Agreement by and between Solera National Bank and Mark Martinez (incorporated  by reference to Exhibit 10.6 to our Registration Statement on Form SB-2  (333-138042) filed October 17, 2006). |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.5 |   | Employment  Agreement by and between Solera National Bank and Paul Ferguson (incorporated  by reference to Exhibit 10.7 to our Registration Statement on Form SB-2  (333-138042) filed October 17, 2006). |
| 31.1 |   | Certification  of Principal Executive Officer pursuant to Rule 15d-14(a) of the Securities  Exchange Act.*                                                                                                |
| 31.2 |   | Certification  of Principal Financial Officer pursuant to Rule 15d-14(a) of the Securities  Exchange Act.*                                                                                                |
| 32.1 |   | Certification  pursuant to Rule 15d-14(b) of the Securities Exchange Act and 18 U.S.C.  §1350.*                                                                                                      |

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* Filed herewith.

 

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***SOLERA NATIONAL BANCORP, INC.SIGNATURES***

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
| * *                 | *SOLERA NATIONAL BANCORP, INC.*                     |
|--------------------------|-----------------------------------------------------|
| *** ***             | *(Registrant)*                                      |
| *** ***             | *** ***                                        |
| Date:  November 13, 2007 | /s/  Paul M. Ferguson                               |
|                     | Paul  M. Ferguson                                   |
|                     | President                                           |
|                     | (Principal  Executive Officer)                      |
|                     |                                                |
|                     | /s/  Robert J. Fenton                               |
|                     | Robert  J. Fenton                                   |
|                     | Vice  President, Secretary & Treasurer          |
|                     | (Principal  accounting and chief financial officer) |

 

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**EXHIBITINDEX**
| **Exhibit** | ** ** | ** **                                                                                        | ** ** |
|-------------|------------|---------------------------------------------------------------------------------------------------|------------|
| **Number**  | ** ** | **Description of Exhibit**                                                                        | ** ** |
| ** **  | ** ** | ** **                                                                                        | ** ** |
| 31.1        |       | Certification pursuant to  Rule 15d-14(a) of the Securities Exchange Act                          |       |
|        |       |                                                                                              |       |
| 31.2        |       | Certification pursuant to  Rule 15d-14(a) of the Securities Exchange Act                          |       |
|        |       |                                                                                              |       |
| 32.1        |       | Certification pursuant to  Rule 15d-14(b) of the Securities Exchange Act and 18 U.S.C. §1350 |       |

 

27

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