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Silvergate Capital Corporation Announces First Quarter 2021 Results

04/20/2021

LA JOLLA, Calif.--(BUSINESS WIRE)-- Silvergate Capital Corporation (“Silvergate” or “Company”) (NYSE:SI) and its wholly-owned subsidiary, Silvergate Bank (“Bank”), today announced financial results for the three months ended March 31, 2021.

First Quarter 2021 Highlights

  • Net income for the quarter was $12.7 million, or $0.55 per diluted share, compared to net income of $9.1 million, or $0.47 per diluted share, for the fourth quarter of 2020, and net income of $4.4 million, or $0.23 per diluted share, for the first quarter of 2020
  • The Silvergate Exchange Network (“SEN”) handled 166,772 transactions in the first quarter of 2021, an increase of 84%, compared to 90,763 transactions in the fourth quarter of 2020, and an increase of 431% compared to 31,405 transactions in the first quarter of 2020
  • The SEN handled $166.5 billion of U.S. dollar transfers in the first quarter of 2021, an increase of 181% compared to $59.2 billion in the fourth quarter of 2020, and an increase of 858% compared to $17.4 billion in the first quarter of 2020
  • Digital currency customer related fee income for the quarter was $7.1 million, compared to $3.8 million for the fourth quarter of 2020, and $1.7 million for the first quarter of 2020
  • Digital currency customers grew to 1,104 at March 31, 2021, compared to 969 at December 31, 2020, and 850 at March 31, 2020
  • Digital currency customer deposits grew by $1.8 billion to $6.8 billion as of March 31, 2021, compared to $5.0 billion as of December 31, 2020
  • Completed two equity offerings, which resulted in the issuance of a total of 5,860,858 shares of Class A common stock for aggregate gross proceeds of $441.1 million and net proceeds of $423.5 million after deducting underwriting discounts and offering expenses

Alan Lane, president and chief executive officer of Silvergate, commented, “We kicked off 2021 on a very strong note, as highlighted by Q1 growth across all of our Silvergate Exchange Network (SEN) key performance metrics, including continued customer growth, a significant increase in transactions and over $7 million in transaction revenue. As the SEN continues to expand, we have the opportunity to build upon the network effect to offer additional products and services to our customers. One example of this is SEN Leverage, our differentiated funding offering, which increased approved credit lines to $196.5 million in Q1 from $82.5 million in the prior quarter, as customers utilized this product. In March we announced that Coinbase Custody and Fidelity Digital Assets will be custodians for the SEN Leverage product, providing investors with more choice and greater access to capital.”

“In addition, during Q1, the average deposit balance was $6.6 billion, up from $2.8 billion in Q4 and $1.9 billion in Q1 2020,” continued Mr. Lane. “Early in the year, we issued $287.5 million in equity and later put a $300 million ATM program in place to ensure we remain well capitalized to meet regulatory capital requirements as deposit growth accelerates.”

 

 

As of or for the Three Months Ended

 

 

March 31,
2021

 

December 31,
2020

 

March 31,
2020

 

 

 

 

 

 

 

Financial Highlights

 

(Dollars in thousands, except per share data)

Net income

 

$

12,710

 

 

$

9,119

 

 

$

4,393

 

Diluted earnings per share

 

$

0.55

 

 

$

0.47

 

 

$

0.23

 

Return on average assets (ROAA)(1)

 

0.71

%

 

1.14

%

 

0.79

%

Return on average equity (ROAE)(1)

 

9.76

%

 

12.60

%

 

7.14

%

Net interest margin(1)(2)

 

1.33

%

 

2.85

%

 

2.86

%

Cost of deposits(1)(3)

 

0.00

%

 

0.01

%

 

0.87

%

Cost of funds(1)(3)

 

0.02

%

 

0.04

%

 

0.94

%

Efficiency ratio(4)

 

63.03

%

 

65.87

%

 

67.98

%

Total assets

 

$

7,757,152

 

 

$

5,586,235

 

 

$

2,310,708

 

Total deposits

 

$

7,002,371

 

 

$

5,248,026

 

 

$

2,002,957

 

Book value per share

 

$

28.75

 

 

$

15.63

 

 

$

13.11

 

Tier 1 leverage ratio

 

9.68

%

 

8.29

%

 

10.98

%

Total risk-based capital ratio

 

54.91

%

 

23.49

%

 

26.05

%

________________________

(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 first quarter of 2020 includes interest expense and accelerated premium amortization expense related to callable brokered certificates of deposit that were called during the first and second quarters of 2020.

(4)

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

Digital Currency Initiative

At March 31, 2021, the Company’s digital currency customers increased to 1,104 from 969 at December 31, 2020, and from 850 at March 31, 2020. At March 31, 2021, prospective digital currency customer leads in various stages of the customer onboarding process and pipeline remained above 200. There was a record 166,772 transactions on the SEN for the first quarter of 2021, an increase of 84%, compared to 90,763 transactions for the fourth quarter of 2020. In addition, for the first quarter of 2021, $166.5 billion of U.S. dollar transfers occurred on the SEN, another quarterly record and a 181% increase from the fourth quarter of 2020.

 

 

Three Months Ended

 

 

March 31,
2021

 

December 31,
2020

 

March 31,
2020

 

 

 

 

 

 

 

 

 

(Dollars in millions)

# SEN Transactions

 

166,772

 

 

90,763

 

 

31,405

 

$ Volume of SEN Transfers

 

$

166,506

 

 

$

59,227

 

 

$

17,372

 

Results of Operations, Quarter Ended March 31, 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 $23.5 million for the first quarter of 2021, compared to $22.4 million for the fourth quarter of 2020, and $15.5 million for the first quarter of 2020.

Compared to the fourth quarter of 2020, net interest income increased $1.1 million entirely due to an increase in interest income driven primarily by higher balances of interest earning deposits in other banks, while interest expense remained flat. Average total interest earning assets increased by $4.0 billion for the first quarter of 2021 compared to the fourth quarter of 2020, primarily due to an increase in interest earning deposits in other banks. The average yield on interest earning assets decreased from 2.89% for the fourth quarter of 2020 to 1.35% for the first quarter of 2021, primarily due to interest earning deposits in other banks being a greater percentage of interest earning assets, and lower yields on securities, interest earning deposits and loans. The lower yields on securities was driven by the impact of securities purchases during the quarter at lower rates compared to the existing portfolio. Average interest bearing liabilities decreased $4.6 million for the first quarter of 2021 compared to the fourth quarter of 2020, due to a decrease in FHLB advances. The average rate paid on total interest bearing liabilities increased from 0.87% for the fourth quarter of 2020 to 0.89% for the first quarter of 2021 due to the change in composition of liabilities impacted by the reduction in FHLB advances.

Compared to the first quarter of 2020, net interest income increased $8.0 million, due to a decrease of $4.3 million in interest expense, and an increase of $3.7 million in interest income. Average total interest earning assets increased by $5.0 billion for the first quarter of 2021 compared to the first quarter of 2020, due to an increase in interest earning deposits in other banks and loans, with loan growth driving the increase in interest income. The average yield on total interest earning assets decreased from 3.71% for the first quarter of 2020 to 1.35% for the first quarter of 2021, primarily due to interest earning deposits in other banks being a greater percentage of interest earning assets, and lower yields being realized on interest earning deposits, loans and securities. The lower yields were due to declines in federal funds rate and London Interbank Offered Rate (“LIBOR”), which were partially offset by the impact of interest rate floors. Average interest bearing liabilities decreased $391.7 million for the first quarter of 2021 compared to the first quarter of 2020, due to calling the remaining balance of brokered certificates of deposit in the second quarter of 2020. The average rate on total interest bearing liabilities decreased from 3.51% for the first quarter of 2020 to 0.89% for the first quarter of 2021, primarily due to the impact of calling a portion of brokered certificates of deposits in the first quarter of 2020, which included $2.1 million of accelerated premium expense in addition to $1.6 million of coupon interest expense for the first quarter of 2020.

Net interest margin for the first quarter of 2021 was 1.33%, compared to 2.85% for the fourth quarter of 2020, and 2.86% for the first quarter of 2020. The decrease in the net interest margin compared to the fourth quarter of 2020 was primarily driven by a greater proportion of lower yielding cash and cash equivalents as a percentage of total interest earning assets, which was driven by the increase in noninterest bearing digital currency customer deposits. The net interest margin decrease from the first quarter of 2020 was primarily due to lower yields on interest earning deposits, loans and securities due to a declining interest rate environment partially offset by lower interest expense as a result of calling the outstanding brokered certificates of deposits in the second quarter of 2020.

 

 

Three Months Ended

 

 

March 31, 2021

 

December 31, 2020

 

March 31, 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

 

$

4,450,110

 

 

$

1,279

 

 

 

0.12

%

 

$

689,385

 

 

$

314

 

 

 

0.18

%

 

$

234,356

 

 

$

724

 

 

 

1.24

%

Taxable securities

 

850,558

 

 

3,592

 

 

 

1.71

%

 

671,209

 

 

3,548

 

 

 

2.10

%

 

902,165

 

 

6,048

 

 

 

2.70

%

Tax-exempt securities(1)

 

270,711

 

 

2,146

 

 

 

3.21

%

 

266,158

 

 

2,173

 

 

 

3.25

%

 

6,611

 

 

61

 

 

 

3.71

%

Loans(2)(3)

 

1,559,989

 

 

16,597

 

 

 

4.31

%

 

1,474,893

 

 

16,374

 

 

 

4.42

%

 

1,024,982

 

 

13,121

 

 

 

5.15

%

Other

 

15,331

 

 

143

 

 

 

3.78

%

 

15,331

 

 

255

 

 

 

6.62

%

 

10,746

 

 

121

 

 

 

4.53

%

Total interest earning assets

 

7,146,699

 

 

23,757

 

 

 

1.35

%

 

3,116,976

 

 

22,664

 

 

 

2.89

%

 

2,178,860

 

 

20,075

 

 

 

3.71

%

Noninterest earning assets

 

72,155

 

 

 

 

 

 

66,477

 

 

 

 

 

 

49,307

 

 

 

 

 

Total assets

 

$

7,218,854

 

 

 

 

 

 

$

3,183,453

 

 

 

 

 

 

$

2,228,167

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits

 

$

117,228

 

 

$

46

 

 

 

0.16

%

 

$

114,782

 

 

$

47

 

 

 

0.16

%

 

$

441,682

 

 

$

4,051

 

 

 

3.69

%

FHLB advances

 

 

 

 

 

 

 

 

7,098

 

 

 

 

 

0.00

%

 

63,986

 

 

227

 

 

 

1.43

%

Subordinated debentures and other

 

15,832

 

 

245

 

 

 

6.28

%

 

15,829

 

 

253

 

 

 

6.36

%

 

19,061

 

 

306

 

 

 

6.46

%

Total interest bearing liabilities

 

133,060

 

 

291

 

 

 

0.89

%

 

137,709

 

 

300

 

 

 

0.87

%

 

524,729

 

 

4,584

 

 

 

3.51

%

Noninterest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest bearing deposits

 

6,526,555

 

 

 

 

 

 

2,732,692

 

 

 

 

 

 

1,436,062

 

 

 

 

 

Other liabilities

 

30,911

 

 

 

 

 

 

25,143

 

 

 

 

 

 

19,900

 

 

 

 

 

Shareholders’ equity

 

528,328

 

 

 

 

 

 

287,909

 

 

 

 

 

 

247,476

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

7,218,854

 

 

 

 

 

 

$

3,183,453

 

 

 

 

 

 

$

2,228,167

 

 

 

 

 

Net interest spread(4)

 

 

 

 

 

0.46

%

 

 

 

 

 

2.02

%

 

 

 

 

 

0.20

%

Net interest income, taxable equivalent basis

 

 

 

$

23,466

 

 

 

 

 

 

 

$

22,364

 

 

 

 

 

 

 

$

15,491

 

 

 

 

Net interest margin(5)

 

 

 

 

 

1.33

%

 

 

 

 

 

2.85

%

 

 

 

 

 

2.86

%

Reconciliation to reported net interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments for taxable equivalent basis

 

 

 

(451

)

 

 

 

 

 

 

(456

)

 

 

 

 

 

 

(13

)

 

 

 

Net interest income, as reported

 

 

 

$

23,015

 

 

 

 

 

 

 

$

21,908

 

 

 

 

 

 

 

$

15,478

 

 

 

 

________________________

(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 first quarter of 2021, compared to $0.2 million provision for loan losses for the fourth quarter of 2020 and $0.4 million for the first quarter of 2020.

Noninterest Income

Noninterest income for the first quarter of 2021 was $8.1 million, an increase of $3.2 million, or 66.9%, from the fourth quarter of 2020. The primary driver of this increase was a $3.3 million, or 85.3%, increase in deposit related fees. The majority of deposit related fees are from digital currency customers which were $7.1 million for the first quarter of 2021, an increase of $3.3 million, or 86.8% compared to $3.8 million for the fourth quarter of 2020.

Noninterest income for the first quarter of 2021 increased by $3.2 million, or 64.1%, compared to the first quarter of 2020. This increase was primarily due to a $5.4 million, or 303.4%, increase in deposit related fees and a $0.6 million, or 149.7% increase in mortgage warehouse fee income, partially offset by a $1.2 million decrease in gain on sale of securities, a $0.9 million decrease in gain on extinguishment of debt and a $0.5 million decrease in gain on sale of loans. Deposit related fees from digital currency customers increased $5.4 million, or 317.4%, to $7.1 million, compared to $1.7 million for the first quarter of 2020.

 

 

Three Months Ended

 

 

March 31,
2021

 

December 31,
2020

 

March 31,
2020

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Noninterest income:

 

 

 

 

 

 

Mortgage warehouse fee income

 

$

954

 

 

$

949

 

 

$

382

 

Service fees related to off-balance sheet deposits

 

 

 

 

 

70

 

Deposit related fees

 

7,124

 

 

3,844

 

 

1,766

 

Gain on sale of securities, net

 

 

 

 

 

1,197

 

Gain on sale of loans, net

 

 

 

 

 

506

 

Gain on extinguishment of debt

 

 

 

 

 

925

 

Other income

 

12

 

 

55

 

 

85

 

Total noninterest income

 

$

8,090

 

 

$

4,848

 

 

$

4,931

 

Noninterest Expense

Noninterest expense totaled $19.6 million for the first quarter of 2021, an increase of $2.0 million, or 11.2%, compared to the fourth quarter of 2020, and an increase of $5.7 million, or 41.3%, compared to the first quarter of 2020. The increase in noninterest expense compared to prior quarter and first quarter of 2020 was primarily driven by increased federal deposit insurance expense resulting from the significant growth in digital currency deposits and also by investments related to strategic growth initiatives. The increase in noninterest expense from the prior quarter was partially offset by a decrease in occupancy and equipment expense related to a $2.3 million impairment charge recorded in the fourth quarter of 2020.

 

 

Three Months Ended

 

 

March 31,
2021

 

December 31,
2020

 

March 31,
2020

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Noninterest expense:

 

 

 

 

 

 

Salaries and employee benefits

 

$

10,990

 

 

$

9,637

 

 

$

8,955

 

Occupancy and equipment

 

614

 

 

3,044

 

 

907

 

Communications and data processing

 

1,621

 

 

1,443

 

 

1,261

 

Professional services

 

1,717

 

 

1,163

 

 

985

 

Federal deposit insurance

 

2,296

 

 

658

 

 

123

 

Correspondent bank charges

 

497

 

 

410

 

 

373

 

Other loan expense

 

174

 

 

45

 

 

122

 

Other general and administrative

 

1,697

 

 

1,225

 

 

1,149

 

Total noninterest expense

 

$

19,606

 

 

$

17,625

 

 

$

13,875

 

Income Tax Expense (Benefit)

Income tax benefit was $1.2 million for the first quarter of 2021, compared to a benefit of $0.1 million for the fourth quarter of 2020, and an expense of $1.8 million for the first quarter of 2020. Our effective tax rate for the first quarter of 2021 was (10.5)%, compared to (1.6)% for the fourth quarter of 2020, and 28.8% for the first quarter of 2020. The lower effective tax rate for the first quarter of 2021 and the fourth quarter of 2020 when compared to the first quarter of 2020 was due to significant tax benefits recognized on the exercise of stock options and the impact of tax-exempt income.

Balance Sheet

Deposits

At March 31, 2021, deposits totaled $7.0 billion, an increase of $1.8 billion, or 33.4%, from December 31, 2020, and an increase of $5.0 billion, or 249.6%, from March 31, 2020. Noninterest bearing deposits totaled $6.9 billion, representing approximately 98.4% of total deposits at March 31, 2021, an increase of $1.8 billion from the prior quarter end, and a $5.1 billion increase compared to March 31, 2020. The increase in total deposits from the prior quarter end was driven by an increase in deposits from digital currency exchanges, institutional investors in digital assets and other fintech related customers, with elevated client activity evidenced by the record volume of SEN transactions during the quarter. The Bank’s 10 largest depositors accounted for $2.8 billion in deposits, or approximately 40.6% of total deposits at March 31, 2021 compared to $2.5 billion in deposits, or approximately 47.5% of total deposits at December 31, 2020, substantially all of which are 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 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 deposits during the first quarter of 2021 amounted to $6.4 billion, the high and low daily total digital currency deposit levels during such time were $8.4 billion and $4.6 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 clients to grow their business 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:

 

 

March 31, 2021

 

December 31, 2020

 

March 31, 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

 

85

 

 

$

2,993

 

 

76

 

 

$

2,479

 

 

61

 

 

$

599

 

Institutional investors

 

695

 

 

2,166

 

 

607

 

 

1,811

 

 

541

 

 

715

 

Other customers

 

324

 

 

1,634

 

 

286

 

 

749

 

 

248

 

 

379

 

Total

 

1,104

 

 

$

6,793

 

 

969

 

 

$

5,039

 

 

850

 

 

$

1,693

 

________________________

(1)

Total deposits may not foot due to rounding.

The weighted average cost of deposits for the first quarter of 2021 was 0.00%, compared to 0.01% for the fourth quarter of 2020, and 0.87% for the first quarter of 2020. The decrease in the weighted average cost of deposits compared to the first quarter of 2020 was driven by the absence of any interest expense associated with brokered certificates of deposit, which were called in the second quarter of 2020.

 

 

Three Months Ended

 

 

March 31, 2021

 

December 31, 2020

 

March 31, 2020

 

 

Average
Balance

 

Average
Rate

 

Average
Balance

 

Average
Rate

 

Average
Balance

 

Average
Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Noninterest bearing demand accounts

 

$

6,526,555

 

 

 

 

$

2,732,692

 

 

 

 

$

1,436,062

 

 

 

Interest bearing accounts:

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand accounts

 

42,197

 

 

0.13

%

 

41,968

 

 

0.17

%

 

51,551

 

 

0.13

%

Money market and savings accounts

 

74,318

 

 

0.16

%

 

71,871

 

 

0.15

%

 

81,670

 

 

0.97

%

Certificates of deposit:

 

 

 

 

 

 

 

 

 

 

 

 

Brokered certificates of deposit

 

 

 

 

 

 

 

 

 

306,828

 

 

5.02

%

Other

 

713

 

 

0.57

%

 

943

 

 

0.84

%

 

1,633

 

 

0.99

%

Total interest bearing deposits

 

117,228

 

 

0.16

%

 

114,782

 

 

0.16

%

 

441,682

 

 

3.69

%

Total deposits

 

$

6,643,783

 

 

0.00

%

 

$

2,847,474

 

 

0.01

%

 

$

1,877,744

 

 

0.87

%

Loan Portfolio

Total loans were $1.6 billion at March 31, 2021, an increase of $12.9 million, or 0.8%, from December 31, 2020, and an increase of $511.2 million, or 45.9%, from March 31, 2020. Total loans at March 31, 2021 consisted of net loans held-for-investment of $728.4 million and loans held for sale of $897.2 million.

 

 

March 31,
2021

 

December 31,
2020

 

March 31,
2020

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Real estate loans:

 

 

 

 

 

 

One-to-four family

 

$

171,045

 

 

 

$

187,855

 

 

 

$

202,214

 

 

Multi-family

 

74,003

 

 

 

77,126

 

 

 

76,721

 

 

Commercial

 

287,411

 

 

 

301,901

 

 

 

325,116

 

 

Construction

 

5,172

 

 

 

6,272

 

 

 

10,034

 

 

Commercial and industrial(1)

 

118,598

 

 

 

78,909

 

 

 

15,948

 

 

Consumer and other

 

 

 

 

162

 

 

 

154

 

 

Reverse mortgage

 

1,346

 

 

 

1,333

 

 

 

1,431

 

 

Mortgage warehouse

 

76,014

 

 

 

97,903

 

 

 

51,596

 

 

Total gross loans held-for-investment

 

733,589

 

 

 

751,461

 

 

 

683,214

 

 

Deferred fees, net

 

1,717

 

 

 

2,206

 

 

 

2,760

 

 

Total loans held-for-investment

 

735,306

 

 

 

753,667

 

 

 

685,974

 

 

Allowance for loan losses

 

(6,916

)

 

 

(6,916

)

 

 

(6,558

)

 

Loans held-for-investment, net

 

728,390

 

 

 

746,751

 

 

 

679,416

 

 

Loans held-for-sale(2)

 

897,227

 

 

 

865,961

 

 

 

435,023

 

 

Total loans

 

$

1,625,617

 

 

 

$

1,612,712

 

 

 

$

1,114,439

 

 

________________________

(1)

Commercial and industrial loans includes $117.3 million, $77.2 million and $2.0 million of SEN Leverage loans as of March 31, 2021, December 31, 2020 and March 31, 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 remained flat at $6.9 million at March 31, 2021, compared to December 31, 2020 and increased slightly from $6.6 million at March 31, 2020. The ratio of the allowance for loan losses to gross loans held-for-investment at March 31, 2021 was 0.94%, compared to 0.92% and 0.96% at December 31, 2020 and March 31, 2020, respectively.

Nonperforming assets totaled $5.3 million, or 0.07% of total assets, at March 31, 2021, an increase of $0.4 million from $5.0 million, or 0.09% of total assets at December 31, 2020. Nonperforming assets increased $0.2 million, from $5.1 million, or 0.22%, of total assets, at March 31, 2020.

 

 

March 31,
2021

 

December 31,
2020

 

March 31,
2020

 

 

 

 

 

 

 

Asset Quality

 

(Dollars in thousands)

Nonperforming Assets:

 

 

 

 

 

 

Nonperforming loans

 

$

5,333

 

$

4,982

 

$

5,126

Troubled debt restructurings

 

$

1,484

 

$

1,525

 

$

1,676

Other real estate owned, net

 

 

 

Nonperforming assets

 

$

5,333

 

$

4,982

 

$

5,126

 

 

 

 

 

 

 

Asset Quality Ratios:

 

 

 

 

 

 

Nonperforming assets to total assets

 

0.07

%

 

0.09

%

 

0.22

%

Nonperforming loans to gross loans(1)

 

0.73

%

 

0.66

%

 

0.75

%

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

 

0.73

%

 

0.66

%

 

0.75

%

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

 

0.00

%

 

0.00

%

 

0.00

%

Allowance for loan losses to gross loans(1)

 

0.94

%

 

0.92

%

 

0.96

%

Allowance for loan losses to nonperforming loans

 

129.68

%

 

138.82

%

 

127.94

%

________________________

(1)

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

Coronavirus Disease 2019 (“COVID-19”) Update

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 March 31, 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

 

$

6,928

 

 

0.9

%

Retail

 

10,492

 

 

1.4

%

Hospitality

 

40,019

 

 

5.5

%

Office

 

7,874

 

 

1.1

%

Total commercial

 

58,385

 

 

8.0

%

Total modifications outstanding

 

$

65,313

 

 

8.9

%

Securities

Securities available-for-sale increased $778.4 million, or 82.9%, from $939.0 million at December 31, 2020, and increased $753.1 million, or 78.1%, from $964.3 million at March 31, 2020, to $1.7 billion at March 31, 2021. The Company purchased $817.7 million of securities in the first quarter of 2021, including $651.1 million of agency residential mortgage-backed securities, $92.4 million of agency commercial mortgage-backed securities, and $74.2 million of tax-exempt municipal bonds.

Equity Offerings

On January 26, 2021, the Company completed its underwritten public offering of 4,563,493 shares of Class A common stock at a price of $63.00 per share, including 595,238 shares of Class A common stock upon the exercise in full by the underwriters of their option to purchase additional shares. The aggregate gross proceeds of the offering were approximately $287.5 million and net proceeds to the Company were $272.4 million after deducting underwriting discounts and offering expenses.

On March 9, 2021, the Company entered into an equity distribution agreement pursuant to which the Company may issue and sell, from time to time, up to an aggregate gross sales price of $300.0 million of the Company’s shares of Class A common stock through an “at-the-market” offering program, or ATM Program. On March 11, 2021, the Company sold 1,297,365 shares of Class A common stock at an average price of $118.39 under the ATM Program. The transaction resulted in gross proceeds of $153.6 million and net proceeds to the Company of $151.1 million after deducting underwriting discounts and offering expenses.

Capital Ratios

At March 31, 2021, the Company’s ratio of common equity to total assets was 9.20%, compared with 5.27% at December 31, 2020, and 10.59% at March 31, 2020. At March 31, 2021, the Company’s book value per share was $28.75, compared to $15.63 at December 31, 2020, and $13.11 at March 31, 2020.

At March 31, 2021, the Company had a tier 1 leverage ratio of 9.68%, common equity tier 1 capital ratio of 53.14%, tier 1 risk-based capital ratio of 54.35% and total risk-based capital ratio of 54.91%.

At March 31, 2021, the Bank had a tier 1 leverage ratio of 9.50%, common equity tier 1 capital ratio of 53.36%, tier 1 risk-based capital ratio of 53.36% and total risk-based capital ratio of 53.93%. 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)

 

March 31,
2021

 

December 31,
2020

 

March 31,
2020

The Company

 

 

 

 

 

 

Tier 1 leverage ratio

 

9.68

%

 

8.29

%

 

10.98

%

Common equity tier 1 capital ratio

 

53.14

%

 

21.53

%

 

23.75

%

Tier 1 risk-based capital ratio

 

54.35

%

 

22.88

%

 

25.35

%

Total risk-based capital ratio

 

54.91

%

 

23.49

%

 

26.05

%

Common equity to total assets

 

9.20

%

 

5.27

%

 

10.59

%

The Bank

 

 

 

 

 

 

Tier 1 leverage ratio

 

9.50

%

 

8.22

%

 

10.33

%

Common equity tier 1 capital ratio

 

53.36

%

 

22.71

%

 

23.86

%

Tier 1 risk-based capital ratio

 

53.36

%

 

22.71

%

 

23.86

%

Total risk-based capital ratio

 

53.93

%

 

23.32

%

 

24.55

%

________________________

(1)

March 31, 2021 capital ratios are preliminary.

Conference Call and Webcast

The Company will host a conference call on Tuesday, April 20, 2021 at 11:00 a.m. (Eastern Time) to present and discuss first 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 First Quarter 2021 Earnings Conference Call. A replay will be available starting at 1:00 p.m. (Eastern Time) on April 20, 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 10154088. The replay will be available until 11:59 p.m. (Eastern Time) on May 4, 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.silvergatebank.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)

 

 

 

March 31,
2021

 

December 31,
2020

 

September 30,
2020

 

June 30,
2020

 

March 31,
2020

ASSETS

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

16,422

 

 

$

16,405

 

 

$

15,152

 

 

$

13,777

 

 

$

2,778

 

Interest earning deposits in other banks

 

4,315,100

 

 

2,945,682

 

 

182,330

 

 

185,667

 

 

163,422

 

Cash and cash equivalents

 

4,331,522

 

 

2,962,087

 

 

197,482

 

 

199,444

 

 

166,200

 

Trading securities

 

1,990

 

 

 

 

 

 

 

 

 

Securities available-for-sale, at fair value

 

1,717,418

 

 

939,015

 

 

944,161

 

 

951,094

 

 

964,317

 

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

 

897,227

 

 

865,961

 

 

665,842

 

 

321,835

 

 

435,023

 

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

 

728,390

 

 

746,751

 

 

735,857

 

 

793,548

 

 

679,416

 

Federal home loan and federal reserve bank stock, at cost

 

14,851

 

 

14,851

 

 

14,839

 

 

13,499

 

 

10,269

 

Accrued interest receivable

 

9,432

 

 

8,698

 

 

7,385

 

 

7,700

 

 

6,344

 

Premises and equipment, net

 

1,758

 

 

2,072

 

 

3,122

 

 

3,326

 

 

3,406

 

Derivative assets

 

34,442

 

 

31,104

 

 

34,138

 

 

35,770

 

 

33,506

 

Other assets

 

20,122

 

 

15,696

 

 

17,747

 

 

14,497

 

 

12,227

 

Total assets

 

$

7,757,152

 

 

$

5,586,235

 

 

$

2,620,573

 

 

$

2,340,713

 

 

$

2,310,708

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

Noninterest bearing demand accounts

 

$

6,889,281

 

 

$

5,133,579

 

 

$

2,164,326

 

 

$

1,563,136

 

 

$

1,745,219

 

Interest bearing accounts

 

113,090

 

 

114,447

 

 

116,782

 

 

107,773

 

 

257,738

 

Total deposits

 

7,002,371

 

 

5,248,026

 

 

2,281,108

 

 

1,670,909

 

 

2,002,957

 

Federal home loan bank advances

 

 

 

 

 

10,000

 

 

360,000

 

 

30,000

 

Subordinated debentures, net and other

 

15,834

 

 

15,831

 

 

15,827

 

 

15,823

 

 

15,820

 

Accrued expenses and other liabilities

 

25,326

 

 

28,079

 

 

29,877

 

 

25,876

 

 

17,179

 

Total liabilities

 

7,043,531

 

 

5,291,936

 

 

2,336,812

 

 

2,072,608

 

 

2,065,956

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

 

 

 

 

Class A common stock

 

248

 

 

188

 

 

186

 

 

184

 

 

184

 

Class B non-voting common stock

 

 

 

1

 

 

1

 

 

3

 

 

3

 

Additional paid-in capital

 

551,798

 

 

129,726

 

 

132,647

 

 

132,479

 

 

132,336

 

Retained earnings

 

131,058

 

 

118,348

 

 

109,229

 

 

102,169

 

 

96,703

 

Accumulated other comprehensive income

 

30,517

 

 

46,036

 

 

41,698

 

 

33,270

 

 

15,526

 

Total shareholders’ equity

 

713,621

 

 

294,299

 

 

283,761

 

 

268,105

 

 

244,752

 

Total liabilities and shareholders’ equity

 

$

7,757,152

 

 

$

5,586,235

 

 

$

2,620,573

 

 

$

2,340,713

 

 

$

2,310,708

 

SILVERGATE CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Data)

(Unaudited)

 

 

 

Three Months Ended

 

 

March 31,
2021

 

December 31,
2020

 

March 31,
2020

Interest income

 

 

 

 

 

 

Loans, including fees

 

$

16,597

 

 

 

$

16,374

 

 

 

$

13,121

 

Taxable securities

 

3,592

 

 

 

3,548

 

 

 

6,048

 

Tax-exempt securities

 

1,695

 

 

 

1,717

 

 

 

48

 

Other interest earning assets

 

1,279

 

 

 

314

 

 

 

724

 

Dividends and other

 

143

 

 

 

255

 

 

 

121

 

Total interest income

 

23,306

 

 

 

22,208

 

 

 

20,062

 

Interest expense

 

 

 

 

 

 

Deposits

 

46

 

 

 

47

 

 

 

4,051

 

Federal home loan bank advances

 

 

 

 

 

 

 

227

 

Subordinated debentures and other

 

245

 

 

 

253

 

 

 

306

 

Total interest expense

 

291

 

 

 

300

 

 

 

4,584

 

Net interest income before provision for loan losses

 

23,015

 

 

 

21,908

 

 

 

15,478

 

Provision for loan losses

 

 

 

 

153

 

 

 

367

 

Net interest income after provision for loan losses

 

23,015

 

 

 

21,755

 

 

 

15,111

 

Noninterest income

 

 

 

 

 

 

Mortgage warehouse fee income

 

954

 

 

 

949

 

 

 

382

 

Service fees related to off-balance sheet deposits

 

 

 

 

 

 

 

70

 

Deposit related fees

 

7,124

 

 

 

3,844

 

 

 

1,766

 

Gain on sale of securities, net

 

 

 

 

 

 

 

1,197

 

Gain on sale of loans, net

 

 

 

 

 

 

 

506

 

Gain on extinguishment of debt

 

 

 

 

 

 

 

925

 

Other income

 

12

 

 

 

55

 

 

 

85

 

Total noninterest income

 

8,090

 

 

 

4,848

 

 

 

4,931

 

Noninterest expense

 

 

 

 

 

 

Salaries and employee benefits

 

10,990

 

 

 

9,637

 

 

 

8,955

 

Occupancy and equipment

 

614

 

 

 

3,044

 

 

 

907

 

Communications and data processing

 

1,621

 

 

 

1,443

 

 

 

1,261

 

Professional services

 

1,717

 

 

 

1,163

 

 

 

985

 

Federal deposit insurance

 

2,296

 

 

 

658

 

 

 

123

 

Correspondent bank charges

 

497

 

 

 

410

 

 

 

373

 

Other loan expense

 

174

 

 

 

45

 

 

 

122

 

Other general and administrative

 

1,697

 

 

 

1,225

 

 

 

1,149

 

Total noninterest expense

 

19,606

 

 

 

17,625

 

 

 

13,875

 

Income before income taxes

 

11,499

 

 

 

8,978

 

 

 

6,167

 

Income tax (benefit) expense

 

(1,211

)

 

 

(141

)

 

 

1,774

 

Net income

 

12,710

 

 

 

9,119

 

 

 

4,393

 

Basic earnings per share

 

$

0.56

 

 

 

$

0.49

 

 

 

$

0.24

 

Diluted earnings per share

 

$

0.55

 

 

 

$

0.47

 

 

 

$

0.23

 

Weighted average shares outstanding:

 

 

 

 

 

 

Basic

 

22,504

 

 

 

18,744

 

 

 

18,668

 

Diluted

 

23,010

 

 

 

19,349

 

 

 

19,117

 

 

Investor Relations Contact:

Lauren Scott / Hunter Stenback
858-200-3782
investors@silvergate.com

Source: Silvergate Capital Corporation

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