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Silvergate Capital Corporation Announces Third Quarter 2021 Results

Silvergate Capital Corporation (“Silvergate” or “Company”) (NYSE:SI) and its wholly-owned subsidiary, Silvergate Bank (“Bank”), today announced financial results for the three and nine months ended September 30, 2021.

Third Quarter 2021 Highlights

  • Net income available to common shareholders for the quarter was $23.5 million, or $0.88 per diluted share, compared to net income of $20.9 million, or $0.80 per diluted share, for the second quarter of 2021, and net income of $7.1 million, or $0.37 per diluted share, for the third quarter of 2020
  • The Silvergate Exchange Network (“SEN”) handled $162.0 billion of U.S. dollar transfers in the third quarter of 2021, a decrease of 32% compared to $239.6 billion in the second quarter of 2021, and an increase of 342% compared to $36.7 billion in the third quarter of 2020
  • Total SEN Leverage commitments were $322.5 million at September 30, 2021, compared to $258.5 million at June 30, 2021, and $35.5 million at September 30, 2020
  • Digital currency customer related fee income for the quarter was $8.1 million, compared to $11.3 million for the second quarter of 2021, and $3.3 million for the third quarter of 2020
  • Digital currency customers grew to 1,305 at September 30, 2021, compared to 1,224 at June 30, 2021, and 928 at September 30, 2020
  • Average digital currency customer deposits grew to $11.2 billion during the third quarter of 2021, compared to $9.9 billion during the second quarter of 2021
  • Completed previously announced $200 million depository share offering, for net proceeds of $193.7 million after deducting underwriting discounts and offering expenses

Alan Lane, president and chief executive officer of Silvergate, commented, “Silvergate had another great quarter, underscored by record quarterly pre-tax income, continued platform growth, and an expanding balance sheet. In the third quarter we grew average digital currency deposits to $11.2 billion, the highest in our history, added new digital currency customers to the SEN, and further increased SEN Leverage commitments and balances. Our strong results and increasingly diverse earnings stream highlight the important roles that we play in serving our customers in the still nascent digital currency industry.”

 

 

As of or for the Three Months Ended

 

 

September 30,

2021

 

June 30,

2021

 

September 30,

2020

 

 

 

 

 

 

 

Financial Highlights

 

(Dollars in thousands, except per share data)

Net income available to common shareholders

 

$

23,492

 

 

$

20,935

 

 

$

7,060

 

Diluted earnings per common share

 

$

0.88

 

 

$

0.80

 

 

$

0.37

 

Return on average assets (ROAA)(1)

 

0.75

%

 

0.77

%

 

1.13

%

Return on average common equity (ROACE)(1)

 

10.45

%

 

10.40

%

 

10.14

%

Net interest margin(1)(2)

 

1.26

%

 

1.16

%

 

3.19

%

Cost of deposits(1)(3)

 

0.00

%

 

0.00

%

 

0.01

%

Cost of funds(1)(3)

 

0.01

%

 

0.01

%

 

0.07

%

Efficiency ratio(4)

 

43.20

%

 

50.69

%

 

61.74

%

Total assets

 

$

12,776,621

 

 

$

12,289,476

 

 

$

2,620,573

 

Total deposits

 

$

11,662,520

 

 

$

11,371,556

 

 

$

2,281,108

 

Book value per common share

 

$

33.10

 

 

$

32.84

 

 

$

15.18

 

Tier 1 leverage ratio

 

8.71

%

 

7.91

%

 

10.36

%

Total risk-based capital ratio

 

51.13

%

 

48.00

%

 

24.68

%

________________________

(1)

Data has been annualized.

(2)

Net interest margin is a ratio calculated as annualized net interest income, on a fully taxable equivalent basis for interest income on tax-exempt securities using the federal statutory tax rate of 21.0%, divided by average interest earning assets for the same period.

(3)

Cost of deposits and cost of funds for the second quarter of 2020 includes interest expense and accelerated premium amortization expense related to callable brokered certificates of deposit that were called during the second quarter of 2020.

(4)

Efficiency ratio is calculated by dividing noninterest expenses by net interest income plus noninterest income.

Digital Currency Initiative

At September 30, 2021, the Company’s digital currency customers increased to 1,305 from 1,224 at June 30, 2021, and from 928 at September 30, 2020. At September 30, 2021, prospective digital currency customer leads in various stages of the customer onboarding process and pipeline remained above 200. For the third quarter of 2021, $162.0 billion of U.S. dollar transfers occurred on the SEN, a 32% decrease from $239.6 billion transfers in the second quarter of 2021, and an increase of 342% compared to $36.7 billion in the third quarter of 2020. Based on digital currency industry transaction data provided by Coin Metrics, bitcoin and ether dollar trading volumes decreased by 43% during the third quarter of 2021 compared to the second quarter of 2021. The Company will no longer provide data related to the number of SEN transactions conducted quarterly but will continue to report quarterly SEN dollar volumes as industry data from Coin Metrics is more highly correlated to this metric.

Results of Operations, Quarter Ended September 30, 2021

Net Interest Income and Net Interest Margin Analysis (Taxable Equivalent Basis)

The Company’s securities portfolio includes tax-exempt municipal bonds with tax-exempt income from these securities calculated and presented below on a taxable equivalent basis. Net interest income, net interest spread and net interest margin are presented on a taxable equivalent basis to consistently reflect income from taxable securities and tax-exempt securities based on the federal statutory tax rate of 21.0%.

Net interest income on a taxable equivalent basis totaled $39.0 million for the third quarter of 2021, compared to $31.2 million for the second quarter of 2021, and $19.4 million for the third quarter of 2020.

Compared to the second quarter of 2021, net interest income increased $7.8 million, due to increased interest income, with the largest driver being higher balances of securities, while interest expense remained flat. Average total interest earning assets increased by $1.5 billion for the third quarter of 2021 compared to the second quarter of 2021, primarily due to increased digital currency related deposits that were invested in securities in the second and third quarter of 2021. The average yield on interest earning assets increased from 1.17% for the second quarter of 2021 to 1.27% for the third quarter of 2021, primarily due to a higher proportion of securities and a lower proportion of lower yielding interest earnings deposits in other banks. Average interest bearing liabilities decreased $20.6 million for the third quarter of 2021 compared to the second quarter of 2021, due to a decrease in interest bearing deposits. The average rate paid on total interest bearing liabilities increased from 1.02% for the second quarter of 2021 to 1.17% for the third quarter of 2021, driven by the decrease in lower cost interest bearing deposits, which resulted in a larger proportion of higher cost subordinated debentures as a percentage of total interest bearing liabilities.

Compared to the third quarter of 2020, net interest income increased $19.6 million, due to an increase of $19.5 million in interest income and a decrease of $0.1 million in interest expense. Average total interest earning assets increased by $9.8 billion for the third quarter of 2021 compared to the third quarter of 2020, due to an increase in noninterest bearing deposits, which resulted in higher levels of interest earning deposits in other banks and securities. In addition, average loans increased by 23.4% due to increases in mortgage warehouse loans, driven by elevated mortgage refinance activity and increased SEN Leverage lending, which was launched in the first quarter of 2020. The average yield on total interest earning assets decreased from 3.25% for the third quarter of 2020 to 1.27% for the third quarter of 2021, primarily due to interest earning deposits in other banks being a greater percentage of interest earning assets, and lower yields on recently purchased securities. Average interest bearing liabilities decreased $156.7 million for the third quarter of 2021 compared to the third quarter of 2020, due to reduced FHLB advances in 2021 and lower balances of interest bearing deposits. The average rate on total interest bearing liabilities increased from 0.60% for the third quarter of 2020 to 1.17% for the third quarter of 2021, primarily due to the decrease in lower cost FHLB advances and interest bearing deposits, which resulted in a larger proportion of higher cost subordinated debentures as a percentage of total interest bearing liabilities.

Net interest margin for the third quarter of 2021 was 1.26%, compared to 1.16% for the second quarter of 2021, and 3.19% for the third quarter of 2020. The increase in the net interest margin compared to the second quarter of 2021 was primarily driven by the increase in the proportion of securities compared to lower yielding interest earning deposits in other banks. The net interest margin decrease from the third quarter of 2020 was primarily due to a higher proportion of interest earning deposits as a percentage of total interest earning assets, as well as lower yields on securities due to a declining interest rate environment.

 

 

Three Months Ended

 

 

September 30, 2021

 

June 30, 2021

 

September 30, 2020

 

 

Average

Outstanding

Balance

 

Interest

Income/

Expense

 

Average

Yield/

Rate

 

Average

Outstanding

Balance

 

Interest

Income/

Expense

 

Average

Yield/

Rate

 

Average

Outstanding

Balance

 

Interest

Income/

Expense

 

Average

Yield/

Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest earning deposits in other banks

 

$

4,104,776

 

 

$

1,755

 

 

0.17

%

 

$

5,603,397

 

 

$

1,599

 

 

0.11

%

 

$

245,855

 

 

$

196

 

 

0.32

%

Taxable securities

 

5,449,202

 

 

14,000

 

 

1.02

%

 

2,937,659

 

 

8,324

 

 

1.14

%

 

679,277

 

 

3,746

 

 

2.19

%

Tax-exempt securities(1)

 

1,187,452

 

 

6,347

 

 

2.12

%

 

698,149

 

 

3,953

 

 

2.27

%

 

267,511

 

 

2,177

 

 

3.24

%

Loans(2)(3)

 

1,493,590

 

 

16,972

 

 

4.51

%

 

1,541,373

 

 

17,158

 

 

4.46

%

 

1,209,884

 

 

13,527

 

 

4.45

%

Other

 

31,028

 

 

195

 

 

2.49

%

 

29,394

 

 

466

 

 

6.36

%

 

15,112

 

 

116

 

 

3.05

%

Total interest earning assets

 

12,266,048

 

 

39,269

 

 

1.27

%

 

10,809,972

 

 

31,500

 

 

1.17

%

 

2,417,639

 

 

19,762

 

 

3.25

%

Noninterest earning assets

 

197,477

 

 

 

 

 

 

121,288

 

 

 

 

 

 

68,327

 

 

 

 

 

Total assets

 

$

12,463,525

 

 

 

 

 

 

$

10,931,260

 

 

 

 

 

 

$

2,485,966

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits

 

$

76,898

 

 

$

26

 

 

0.13

%

 

$

97,463

 

 

$

35

 

 

0.14

%

 

$

108,755

 

 

$

57

 

 

0.21

%

FHLB advances and other borrowings

 

1

 

 

 

 

0.00

%

 

44

 

 

 

 

 

 

124,886

 

 

65

 

 

0.21

%

Subordinated debentures

 

15,839

 

 

247

 

 

6.19

%

 

15,836

 

 

252

 

 

6.38

%

 

15,825

 

 

257

 

 

6.46

%

Total interest bearing liabilities

 

92,738

 

 

273

 

 

1.17

%

 

113,343

 

 

287

 

 

1.02

%

 

249,466

 

 

379

 

 

0.60

%

Noninterest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest bearing deposits

 

11,305,650

 

 

 

 

 

 

9,980,680

 

 

 

 

 

 

1,935,661

 

 

 

 

 

Other liabilities

 

50,657

 

 

 

 

 

 

29,586

 

 

 

 

 

 

23,860

 

 

 

 

 

Shareholders’ equity

 

1,014,480

 

 

 

 

 

 

807,651

 

 

 

 

 

 

276,979

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

12,463,525

 

 

 

 

 

 

$

10,931,260

 

 

 

 

 

 

$

2,485,966

 

 

 

 

 

Net interest spread(4)

 

 

 

 

 

0.10

%

 

 

 

 

 

0.15

%

 

 

 

 

 

2.65

%

Net interest income, taxable equivalent basis

 

 

 

$

38,996

 

 

 

 

 

 

$

31,213

 

 

 

 

 

 

$

19,383

 

 

 

Net interest margin(5)

 

 

 

 

 

1.26

%

 

 

 

 

 

1.16

%

 

 

 

 

 

3.19

%

Reconciliation to reported net interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments for taxable equivalent basis

 

 

 

(1,333)

 

 

 

 

 

 

(830)

 

 

 

 

 

 

(457)

 

 

 

Net interest income, as reported

 

 

 

$

37,663

 

 

 

 

 

 

$

30,383

 

 

 

 

 

 

$

18,926

 

 

 

________________________

(1)

Interest income on tax-exempt securities is presented on a taxable equivalent basis using the federal statutory tax rate of 21.0% for all periods presented.

(2)

Loans include nonaccrual loans and loans held-for-sale, net of deferred fees and before allowance for loan losses.

(3)

Interest income includes amortization of deferred loan fees, net of deferred loan costs.

(4)

Net interest spread is the difference between interest rates earned on interest earning assets and interest rates paid on interest bearing liabilities.

(5)

Net interest margin is a ratio calculated as annualized net interest income, on a taxable equivalent basis, divided by average interest earning assets for the same period.

Provision for Loan Losses

The Company did not record a provision for loan losses for the third quarter of 2021, the second quarter of 2021, or for the third quarter of 2020 as a result of management’s assessment of the level of the allowance for loan losses, and the amount and mix of the loan portfolio, among other factors.

Noninterest Income

Noninterest income for the third quarter of 2021 was $14.0 million, an increase of $2.0 million, or 16.3%, from the second quarter of 2021. The primary driver of this increase was a $5.2 million gain on sale of securities offset by a $3.1 million, or 27.7%, decrease in deposit related fees as a result of lower cash management fees from digital currency related customers.

Noninterest income for the third quarter of 2021 increased by $10.1 million, or 254.2%, compared to the third quarter of 2020. This increase was primarily due to a $5.2 million increase in gain on sale of securities and a $4.9 million, or 148.1%, increase in deposit related fees, partially offset by a $0.1 million, or 12.3% decrease in mortgage warehouse fee income.

 

 

Three Months Ended

 

 

September 30,

2021

 

June 30,

2021

 

September 30,

2020

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Noninterest income:

 

 

 

 

 

 

Mortgage warehouse fee income

 

$

665

 

 

$

753

 

 

$

758

 

Service fees related to off-balance sheet deposits

 

 

 

 

 

1

 

Deposit related fees

 

8,171

 

 

11,308

 

 

3,293

 

Gain on sale of securities, net

 

5,182

 

 

 

 

 

Loss on sale of loans, net

 

 

 

 

 

(96)

 

Other income

 

24

 

 

8

 

 

8

 

Total noninterest income

 

$

14,042

 

 

$

12,069

 

 

$

3,964

 

Noninterest Expense

Noninterest expense totaled $22.3 million for the third quarter of 2021, an increase of $0.8 million, or 3.8%, compared to the second quarter of 2021, and an increase of $8.2 million, or 58.1%, compared to the third quarter of 2020. The increase in noninterest expense compared to prior quarter was due to an increase in salaries and employee benefits and federal deposit insurance. The increase in noninterest expense from the third quarter of 2020 was primarily driven by increased federal deposit insurance expense resulting from the significant growth in digital currency deposits and by ongoing investments related to strategic growth initiatives.

 

 

Three Months Ended

 

 

September 30,

2021

 

June 30,

2021

 

September 30,

2020

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Noninterest expense:

 

 

 

 

 

 

Salaries and employee benefits

 

$

10,729

 

 

$

10,260

 

 

$

8,899

 

Occupancy and equipment

 

523

 

 

599

 

 

845

 

Communications and data processing

 

1,793

 

 

1,796

 

 

1,389

 

Professional services

 

2,471

 

 

2,594

 

 

1,207

 

Federal deposit insurance

 

4,297

 

 

3,844

 

 

209

 

Correspondent bank charges

 

572

 

 

812

 

 

403

 

Other loan expense

 

299

 

 

280

 

 

60

 

Other general and administrative

 

1,655

 

 

1,334

 

 

1,121

 

Total noninterest expense

 

$

22,339

 

 

$

21,519

 

 

$

14,133

 

Income Tax Expense (Benefit)

Income tax expense was $5.9 million for the third quarter of 2021, compared to a benefit of $2,000 for the second quarter of 2021, and an expense of $1.7 million for the third quarter of 2020. Our effective tax rate for the third quarter of 2021 was 20.0%, compared to zero for the second quarter of 2021, and 19.4% for the third quarter of 2020. The lower effective tax rate for the second quarter of 2021 was due to significant tax benefits recognized on the exercise of stock options.

Balance Sheet

Deposits

At September 30, 2021, deposits totaled $11.7 billion, an increase of $291.0 million, or 2.6%, from June 30, 2021, and an increase of $9.4 billion, or 411.3%, from September 30, 2020. Noninterest bearing deposits totaled $11.6 billion, representing approximately 99.3% of total deposits at September 30, 2021, an increase of $295.7 million from the prior quarter end, and a $9.4 billion increase compared to September 30, 2020. The increase in total deposits from the prior year quarter end was driven by an increase in deposits from digital currency exchanges, institutional investors in digital assets and other fintech related customers. The Bank’s 10 largest depositors accounted for $5.3 billion in deposits, or approximately 45.6% of total deposits at September 30, 2021, compared to $5.3 billion in deposits, or approximately 46.7% of total deposits at June 30, 2021, substantially all of which are from customers operating in the digital currency industry.

Our continued growth has been accompanied by significant fluctuations in the level of our deposits, in particular our deposits from customers operating in the digital currency industry, as our customers in this industry typically carry higher balances over the weekend to take advantage of the 24/7 availability of the SEN, and carry lower balances during the business week. The Bank’s average total digital currency customer deposits during the third quarter of 2021 amounted to $11.2 billion, the high and low daily total digital currency deposit levels during such time were $12.6 billion and $9.8 billion, respectively, compared to an average of $9.9 billion during the second quarter of 2021, and high and low daily deposit levels of $11.8 billion and $6.8 billion, respectively.

Demand for new deposit accounts is generated by the Company’s banking platform for innovators that includes the SEN, which is enabled through Silvergate’s proprietary API, and other cash management solutions. These tools enable Silvergate’s customers to grow their businesses and scale operations. The following table sets forth a breakdown of the Company’s digital currency customer base and the deposits held by such customers at the dates noted below:

 

 

September 30, 2021

 

June 30, 2021

 

September 30, 2020

 

 

Number of

Customers

 

Total

Deposits(1)

 

Number of

Customers

 

Total

Deposits(1)

 

Number of

Customers

 

Total

Deposits(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in millions)

Digital currency exchanges

 

94

 

 

$

6,759

 

 

93

 

 

$

5,395

 

 

69

 

 

$

729

 

Institutional investors

 

830

 

 

3,344

 

 

771

 

 

3,986

 

 

599

 

 

850

 

Other customers

 

381

 

 

1,365

 

 

360

 

 

1,734

 

 

260

 

 

515

 

Total

 

1,305

 

 

$

11,468

 

 

1,224

 

 

$

11,114

 

 

928

 

 

$

2,095

 

________________________

(1)

Total deposits may not foot due to rounding.

The weighted average cost of deposits for the third quarter of 2021 and for the second quarter of 2021 was 0.00%, compared to 0.01% for the third quarter of 2020.

 

 

Three Months Ended

 

 

September 30, 2021

 

June 30, 2021

 

September 30, 2020

 

 

Average

Balance

 

Average

Rate

 

Average

Balance

 

Average

Rate

 

Average

Balance

 

Average

Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Noninterest bearing demand accounts

 

$

11,305,650

 

 

 

 

$

9,980,680

 

 

 

 

$

1,935,661

 

 

 

Interest bearing accounts:

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand accounts

 

8,597

 

 

0.05

%

 

27,303

 

 

0.12

%

 

41,871

 

 

0.10

%

Money market and savings accounts

 

67,735

 

 

0.14

%

 

69,527

 

 

0.15

%

 

65,646

 

 

0.25

%

Certificates of deposit

 

566

 

 

0.70

%

 

633

 

 

0.63

%

 

1,238

 

 

1.29

%

Total interest bearing deposits

 

76,898

 

 

0.13

%

 

97,463

 

 

0.14

%

 

108,755

 

 

0.21

%

Total deposits

 

$

11,382,548

 

 

0.00

%

 

$

10,078,143

 

 

0.00

%

 

$

2,044,416

 

 

0.01

%

Loan Portfolio

Total loans, including net loans held-for-investment and loans held for sale, were $1.6 billion at September 30, 2021, an increase of $139.5 million, or 9.4%, from June 30, 2021, and an increase of $226.5 million, or 16.2%, from September 30, 2020.

 

 

September 30,

2021

 

June 30,

2021

 

September 30,

2020

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Real estate loans:

 

 

 

 

 

 

One-to-four family

 

$

119,817

 

 

$

144,247

 

 

$

209,040

 

Multi-family

 

54,636

 

 

67,704

 

 

72,714

 

Commercial

 

250,295

 

 

272,948

 

 

316,653

 

Construction

 

6,046

 

 

5,481

 

 

13,854

 

Commercial and industrial(1)

 

254,624

 

 

204,279

 

 

25,951

 

Reverse mortgage and other

 

1,385

 

 

1,364

 

 

6,881

 

Mortgage warehouse

 

128,975

 

 

49,897

 

 

94,684

 

Total gross loans held-for-investment

 

815,778

 

 

745,920

 

 

739,777

 

Deferred fees, net

 

883

 

 

1,151

 

 

2,843

 

Total loans held-for-investment

 

816,661

 

 

747,071

 

 

742,620

 

Allowance for loan losses

 

(6,916)

 

 

(6,916)

 

 

(6,763)

 

Loans held-for-investment, net

 

809,745

 

 

740,155

 

 

735,857

 

Loans held-for-sale(2)

 

818,447

 

 

748,577

 

 

665,842

 

Total loans

 

$

1,628,192

 

 

$

1,488,732

 

 

$

1,401,699

 

________________________

(1)

Commercial and industrial loans includes $254.5 million, $203.4 million and $22.4 million of SEN Leverage loans as of September 30, 2021, June 30, 2021 and September 30, 2020, respectively.

(2)

Loans held-for-sale are comprised entirely of mortgage warehouse loans for all periods presented.

Asset Quality and Allowance for Loan Losses

The allowance for loan losses was unchanged at $6.9 million at September 30, 2021, compared to June 30, 2021 and increased slightly from $6.8 million at September 30, 2020. The ratio of the allowance for loan losses to gross loans held-for-investment at September 30, 2021 was 0.85%, compared to 0.93% and 0.91% at June 30, 2021 and September 30, 2020, respectively.

Nonperforming assets totaled $5.8 million, or 0.05% of total assets, at September 30, 2021, a decrease of $1.7 million from $7.5 million, or 0.06% of total assets at June 30, 2021. Nonperforming assets increased $1.7 million, from $4.1 million, or 0.16%, of total assets, at September 30, 2020.

 

 

September 30,

2021

 

June 30,

2021

 

September 30,

2020

 

 

 

 

 

 

 

 

 

 

Asset Quality

 

(Dollars in thousands)

Nonperforming Assets:

 

 

 

 

 

 

 

 

 

Nonperforming loans

 

$

5,845

 

 

$

7,508

 

 

$

4,107

 

Troubled debt restructurings

 

$

1,867

 

 

$

1,437

 

 

$

1,572

 

Other real estate owned, net

 

 

 

 

 

$

27

 

Nonperforming assets

 

$

5,845

 

 

$

7,508

 

 

$

4,134

 

 

 

 

 

 

 

 

 

 

 

Asset Quality Ratios:

 

 

 

 

 

 

 

 

 

Nonperforming assets to total assets

 

0.05

%

 

0.06

%

 

0.16

%

Nonperforming loans to gross loans(1)

 

0.72

%

 

1.01

%

 

0.56

%

Nonperforming assets to gross loans and other real estate owned(1)

 

0.72

%

 

1.01

%

 

0.56

%

Net charge-offs (recoveries) to average total loans(1)

 

0.00

%

 

0.00

%

 

0.00

%

Allowance for loan losses to gross loans(1)

 

0.85

%

 

0.93

%

 

0.91

%

Allowance for loan losses to nonperforming loans

 

118.32

%

 

92.12

%

 

164.67

%

________________________

(1)

Loans exclude loans held-for-sale at each of the dates presented.

Coronavirus Disease 2019 (“COVID-19”) Update

As of September 30, 2021, the majority of COVID-19 related deferred loans have returned to paying, and only an immaterial amount of loans are still being deferred.

In April 2020, the Company implemented a short-term loan modification program for customers impacted financially by the COVID-19 pandemic to provide temporary relief to certain borrowers who meet the program’s qualifications. Due to the fluid nature of COVID-19, this program has been evolving in order to provide maximum relief to bank borrowers. As of September 30, 2021, the remaining loans in deferral due to COVID-19 are as follows:

 

 



Loan Balance

At Period End

 

Percentage of

Gross Loans

Held-for-Investment

 

 

 

 

 

 

 

(Dollars in thousands)

COVID-19 related modifications:

 

 

 

 

Real estate loans:

 

 

 

 

One-to-four family

 

$

226

 

 

0.0%

Securities

Securities available-for-sale increased $1.1 billion, or 17.1%, from $6.2 billion at June 30, 2021, and increased $6.3 billion, or 666.2%, from $944.2 million at September 30, 2020, to $7.2 billion at September 30, 2021. The Company purchased $1.6 billion of securities in the third quarter of 2021, including $530.9 million of agency residential mortgage-backed securities, $354.3 million of municipal bonds, $516.6 million of U.S. agency securities excluding mortgage-backed securities, $135.0 million of agency commercial mortgage-backed securities, and $21.0 million of private-label commercial mortgage-backed securities, bringing total year to date securities purchases to $6.9 billion as of September 30, 2021. During the third quarter of 2021, the Company sold $338.9 million of securities and recognized a gain of $5.2 million.

Capital Ratios

At September 30, 2021, the Company’s ratio of common equity to total assets was 6.88%, compared with 7.08% at June 30, 2021, and 10.83% at September 30, 2020. At September 30, 2021, the Company’s book value per common share was $33.10, compared to $32.84 at June 30, 2021, and $15.18 at September 30, 2020.

At September 30, 2021, the Company had a tier 1 leverage ratio of 8.71%, common equity tier 1 capital ratio of 40.98%, tier 1 risk-based capital ratio of 50.80% and total risk-based capital ratio of 51.13%.

At September 30, 2021, the Bank had a tier 1 leverage ratio of 8.24%, common equity tier 1 capital ratio of 48.04%, tier 1 risk-based capital ratio of 48.04% and total risk-based capital ratio of 48.37%. These capital ratios each exceeded the “well capitalized” standards defined by federal banking regulations of 5.00% for tier 1 leverage ratio, 6.5% for common equity tier 1 capital ratio, 8.00% for tier 1 risk-based capital ratio and 10.00% for total risk-based capital ratio.

Capital Ratios(1)

 

September 30,

2021

 

June 30,

2021

 

September 30,

2020

The Company

 

 

 

 

 

 

Tier 1 leverage ratio

 

8.71

%

 

7.91

%

 

10.36

%

Common equity tier 1 capital ratio

 

40.98

%

 

46.75

%

 

22.58

%

Tier 1 risk-based capital ratio

 

50.80

%

 

47.61

%

 

24.03

%

Total risk-based capital ratio

 

51.13

%

 

48.00

%

 

24.68

%

Common equity to total assets

 

6.88

%

 

7.08

%

 

10.83

%

The Bank

 

 

 

 

 

 

Tier 1 leverage ratio

 

8.24

%

 

7.88

%

 

9.84

%

Common equity tier 1 capital ratio

 

48.04

%

 

47.29

%

 

22.82

%

Tier 1 risk-based capital ratio

 

48.04

%

 

47.29

%

 

22.82

%

Total risk-based capital ratio

 

48.37

%

 

47.69

%

 

23.47

%

________________________

(1)

September 30, 2021 capital ratios are preliminary.

Equity Offerings

On August 4, 2021, the Company issued and sold 8,000,000 depositary shares (the “Depositary Shares”), each representing a 1/40th interest in a share of 5.375% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share (the “Series A Preferred Stock”), with a liquidation preference of $1,000 per share of Series A Preferred Stock, equivalent to $25 per Depositary Share. The aggregate gross proceeds of the offering were $200.0 million and net proceeds to the Company were approximately $193.7 million after deducting underwriting discounts and offering expenses. When, as and if declared by our board of directors, or a duly authorized committee, of the Company, dividends will be payable from the date of issuance, quarterly in arrears, beginning on November 15, 2021. The Company may redeem the Series A Preferred Stock at its option, subject to regulatory approval, on or after August 15, 2026.

Subsequent Event

On October 14, 2021, the Company’s Board of Directors declared the first quarterly dividend payment of $15.08 per share, equivalent to $0.377 per depositary share, on its Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, for the period covering August 4, 2021 through November 14, 2021, for a total dividend of $3.0 million. The depositary shares representing the Series A Preferred Stock are traded on the New York Stock Exchange under the symbol “SI.PRA.” The dividend will be payable on November 15, 2021 to shareholders of record of the preferred stock as of October 29, 2021.

Conference Call and Webcast

The Company will host a conference call on Tuesday, October 19, 2021 at 11:00 a.m. (Eastern Time) to present and discuss second quarter 2021 financial results. The conference call can be accessed live by dialing 1-844-378-6480 or for international callers, 1-412-317-1088, and requesting to be joined to the Silvergate Capital Corporation Third Quarter 2021 Earnings Conference Call. A replay will be available starting at 1:00 p.m. (Eastern Time) on October 19, 2021 and can be accessed by dialing 1-877-344-7529, or for international callers 1-412-317-0088. The passcode for the replay is 10160499. The replay will be available until 11:59 p.m. (Eastern Time) on November 2, 2021.

Interested investors and other parties may also listen to a simultaneous webcast of the conference call by logging onto the investor relations section of the Company's website at https://ir.silvergate.com. The online replay will remain available for a limited time beginning immediately following the call.

About Silvergate

Silvergate Capital Corporation (NYSE: SI) is the leading provider of innovative financial infrastructure solutions and services for the growing digital currency industry. The Company’s real-time payments platform, known as the Silvergate Exchange Network, is at the heart of its customer-centric suite of payments, lending and funding solutions serving an expanding class of digital currency companies and investors around the world. Silvergate is enabling the rapid growth of digital currency markets and reshaping global commerce for a digital currency future.

Forward Looking Statements

Statements in this earnings release may constitute forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “projection,” “forecast,” “goal,” “target,” “would,” “aim” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry and management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. The inclusion of these forward-looking statements should not be regarded as a representation by us or any other person that such expectations, estimates and projections will be achieved. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. For information about other important factors that could cause actual results to differ materially from those discussed in the forward-looking statements contained in this release, please refer to the Company's public reports filed with the U.S. Securities and Exchange Commission.

Further, given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline, making it difficult to grow assets and income; if the economy is unable to fully reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; our allowance for loan losses may increase if borrowers experience financial difficulties, which will adversely affect our net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; our cyber security risks are increased as the result of an increase in the number of employees working remotely; and FDIC premiums may increase if the agency experiences additional resolution costs.

Any forward-looking statement speaks only as of the date of this earnings release, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether because of new information, future developments or otherwise, except as required by law. New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence. In addition, we cannot assess the impact of each risk and uncertainty on our business or the extent to which any risk or uncertainty, or combination of risks and uncertainties, may cause actual results to differ materially from those contained in any forward-looking statements.

 

SILVERGATE CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In Thousands)

(Unaudited)

 

 

 

September 30,

2021

 

June 30,

2021

 

March 31,

2021

 

December 31,

2020

 

September 30,

2020

ASSETS

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

168,628

 

 

$

52,859

 

 

$

16,422

 

 

$

16,405

 

 

$

15,152

 

Interest earning deposits in other banks

 

3,615,860

 

 

4,415,458

 

 

4,315,100

 

 

2,945,682

 

 

182,330

 

Cash and cash equivalents

 

3,784,488

 

 

4,468,317

 

 

4,331,522

 

 

2,962,087

 

 

197,482

 

Trading securities, at fair value

 

 

 

26,998

 

 

1,990

 

 

 

 

 

Securities available-for-sale, at fair value

 

7,234,216

 

 

6,176,778

 

 

1,717,418

 

 

939,015

 

 

944,161

 

Loans held-for-sale, at lower of cost or fair value

 

818,447

 

 

748,577

 

 

897,227

 

 

865,961

 

 

665,842

 

Loans held-for-investment, net of allowance for loan losses

 

809,745

 

 

740,155

 

 

728,390

 

 

746,751

 

 

735,857

 

Federal home loan and federal reserve bank stock, at cost

 

34,010

 

 

29,460

 

 

14,851

 

 

14,851

 

 

14,839

 

Accrued interest receivable

 

32,154

 

 

24,505

 

 

9,432

 

 

8,698

 

 

7,385

 

Premises and equipment, net

 

1,483

 

 

1,604

 

 

1,758

 

 

2,072

 

 

3,122

 

Derivative assets

 

37,210

 

 

39,454

 

 

34,442

 

 

31,104

 

 

34,138

 

Other assets

 

24,868

 

 

33,628

 

 

20,122

 

 

15,696

 

 

17,747

 

Total assets

 

$

12,776,621

 

 

$

12,289,476

 

 

$

7,757,152

 

 

$

5,586,235

 

 

$

2,620,573

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

Noninterest bearing demand accounts

 

$

11,586,318

 

 

$

11,290,638

 

 

$

6,889,281

 

 

$

5,133,579

 

 

$

2,164,326

 

Interest bearing accounts

 

76,202

 

 

80,918

 

 

113,090

 

 

114,447

 

 

116,782

 

Total deposits

 

11,662,520

 

 

11,371,556

 

 

7,002,371

 

 

5,248,026

 

 

2,281,108

 

Federal home loan bank advances

 

 

 

 

 

 

 

 

 

10,000

 

Subordinated debentures, net

 

15,841

 

 

15,838

 

 

15,834

 

 

15,831

 

 

15,827

 

Accrued expenses and other liabilities

 

26,179

 

 

31,575

 

 

25,326

 

 

28,079

 

 

29,877

 

Total liabilities

 

11,704,540

 

 

11,418,969

 

 

7,043,531

 

 

5,291,936

 

 

2,336,812

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

2

 

 

 

 

 

 

 

 

 

Class A common stock

 

265

 

 

265

 

 

248

 

 

188

 

 

186

 

Class B non-voting common stock

 

 

 

 

 

 

 

1

 

 

1

 

Additional paid-in capital

 

891,611

 

 

697,070

 

 

551,798

 

 

129,726

 

 

132,647

 

Retained earnings

 

175,485

 

 

151,993

 

 

131,058

 

 

118,348

 

 

109,229

 

Accumulated other comprehensive income

 

4,718

 

 

21,179

 

 

30,517

 

 

46,036

 

 

41,698

 

Total shareholders’ equity

 

1,072,081

 

 

870,507

 

 

713,621

 

 

294,299

 

 

283,761

 

Total liabilities and shareholders’ equity

 

$

12,776,621

 

 

$

12,289,476

 

 

$

7,757,152

 

 

$

5,586,235

 

 

$

2,620,573

 

 

SILVERGATE CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Data)

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

2021

 

June 30,

2021

 

September 30,

2020

 

September 30,

2021

 

September 30,

2020

Interest income

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

16,972

 

 

$

17,158

 

 

$

13,527

 

 

$

50,727

 

 

$

38,358

 

Taxable securities

 

14,000

 

 

8,324

 

 

3,746

 

 

25,916

 

 

13,917

 

Tax-exempt securities

 

5,014

 

 

3,123

 

 

1,720

 

 

9,832

 

 

3,345

 

Other interest earning assets

 

1,755

 

 

1,599

 

 

196

 

 

4,633

 

 

1,325

 

Dividends and other

 

195

 

 

466

 

 

116

 

 

804

 

 

437

 

Total interest income

 

37,936

 

 

30,670

 

 

19,305

 

 

91,912

 

 

57,382

 

Interest expense

 

 

 

 

 

 

 

 

 

 

Deposits

 

26

 

 

35

 

 

57

 

 

107

 

 

5,760

 

Federal home loan bank advances

 

 

 

 

 

65

 

 

 

 

336

 

Subordinated debentures and other

 

247

 

 

252

 

 

257

 

 

744

 

 

830

 

Total interest expense

 

273

 

 

287

 

 

379

 

 

851

 

 

6,926

 

Net interest income before provision for loan losses

 

37,663

 

 

30,383

 

 

18,926

 

 

91,061

 

 

50,456

 

Provision for loan losses

 

 

 

 

 

 

 

 

 

589

 

Net interest income after provision for loan losses

 

37,663

 

 

30,383

 

 

18,926

 

 

91,061

 

 

49,867

 

Noninterest income

 

 

 

 

 

 

 

 

 

 

Mortgage warehouse fee income

 

665

 

 

753

 

 

758

 

 

2,372

 

 

1,590

 

Service fees related to off-balance sheet deposits

 

 

 

 

 

1

 

 

 

 

78

 

Deposit related fees

 

8,171

 

 

11,308

 

 

3,293

 

 

26,603

 

 

7,497

 

Gain on sale of securities, net

 

5,182

 

 

 

 

 

 

5,182

 

 

3,753

 

(Loss) gain on sale of loans, net

 

 

 

 

 

(96)

 

 

 

 

354

 

Gain on extinguishment of debt

 

 

 

 

 

 

 

 

 

925

 

Other income

 

24

 

 

8

 

 

8

 

 

44

 

 

132

 

Total noninterest income

 

14,042

 

 

12,069

 

 

3,964

 

 

34,201

 

 

14,329

 

Noninterest expense

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

10,729

 

 

10,260

 

 

8,899

 

 

31,979

 

 

26,856

 

Occupancy and equipment

 

523

 

 

599

 

 

845

 

 

1,736

 

 

2,646

 

Communications and data processing

 

1,793

 

 

1,796

 

 

1,389

 

 

5,210

 

 

3,963

 

Professional services

 

2,471

 

 

2,594

 

 

1,207

 

 

6,782

 

 

3,297

 

Federal deposit insurance

 

4,297

 

 

3,844

 

 

209

 

 

10,437

 

 

514

 

Correspondent bank charges

 

572

 

 

812

 

 

403

 

 

1,881

 

 

1,123

 

Other loan expense

 

299

 

 

280

 

 

60

 

 

753

 

 

281

 

Other general and administrative

 

1,655

 

 

1,334

 

 

1,121

 

 

4,686

 

 

3,300

 

Total noninterest expense

 

22,339

 

 

21,519

 

 

14,133

 

 

63,464

 

 

41,980

 

Income before income taxes

 

29,366

 

 

20,933

 

 

8,757

 

 

61,798

 

 

22,216

 

Income tax expense (benefit)

 

5,874

 

 

(2)

 

 

1,697

 

 

4,661

 

 

5,297

 

Net income

 

23,492

 

 

20,935

 

 

7,060

 

 

57,137

 

 

16,919

 

Dividends on preferred stock

 

 

 

 

 

 

 

 

 

 

Net income available to common shareholders

 

$

23,492

 

 

$

20,935

 

 

$

7,060

 

 

$

57,137

 

 

$

16,919

 

Basic earnings per common share

 

$

0.89

 

 

$

0.81

 

 

$

0.38

 

 

$

2.29

 

 

$

0.91

 

Diluted earnings per common share

 

$

0.88

 

 

$

0.80

 

 

$

0.37

 

 

$

2.26

 

 

$

0.88

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

Basic

 

26,525

 

 

25,707

 

 

18,682

 

 

24,927

 

 

18,674

 

Diluted

 

26,766

 

 

26,102

 

 

19,134

 

 

25,308

 

 

19,119

 

 

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