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Silvergate Capital Corporation Announces Second Quarter 2021 Results

07/20/2021

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 and six months ended June 30, 2021.

Second Quarter 2021 Highlights

  • Net income for the quarter was $20.9 million, or $0.80 per diluted share, compared to net income of $12.7 million, or $0.55 per diluted share, for the first quarter of 2021, and net income of $5.5 million, or $0.29 per diluted share, for the second quarter of 2020
  • The Silvergate Exchange Network (“SEN”) handled $239.6 billion of U.S. dollar transfers in the second quarter of 2021, an increase of 44% compared to $166.5 billion in the first quarter of 2021, and an increase of 968% compared to $22.4 billion in the second quarter of 2020
  • The SEN handled 137,947 transactions in the second quarter of 2021, a decrease of 17% compared to 166,772 transactions in the first quarter of 2021, and an increase of 242% compared to 40,286 transactions in the second quarter of 2020
  • Digital currency customer related fee income for the quarter was $11.3 million, compared to $7.1 million for the first quarter of 2021, and $2.4 million for the second quarter of 2020
  • Digital currency customers grew to 1,224 at June 30, 2021, compared to 1,104 at March 31, 2021, and 881 at June 30, 2020
  • Digital currency customer deposits grew by $4.3 billion to $11.1 billion as of June 30, 2021, compared to $6.8 billion as of March 31, 2021
  • Completed previously announced $300 million at-the-market (ATM) equity offering, which resulted in a total issuance of 2,793,826 shares of Class A common stock for net proceeds of $295.1 million after deducting commissions and expenses

Alan Lane, president and chief executive officer of Silvergate, commented, “It is an exciting time to be at Silvergate, and the second quarter was no exception. We nearly doubled pre-tax income compared to the prior quarter, driven by strong demand for our growing suite of digital currency related solutions powered by the Silvergate Exchange Network (SEN). In the second quarter of 2021, we continued to add new customers to the platform, grew network volume to a record $240 billion, and surpassed $10 million of transaction revenue for the first time. We also continued to prudently grow SEN Leverage, our differentiated bitcoin secured lending offering.”

“In addition, we continued to build our stablecoin infrastructure capabilities, including our announcement to be the exclusive issuer of U.S. dollar backed stablecoins known as Diem USD,” continued Mr. Lane. “We believe stablecoins present a massive and unique opportunity, and with the development of an appropriate regulatory framework have the potential to become an alternative payment rail for customers around the world.”

 

 

 

As of or for the Three Months Ended

 

 

June 30,
2021

 

March 31,
2021

 

June 30,
2020

 

 

 

 

 

 

 

Financial Highlights

 

(Dollars in thousands, except per share data)

Net income

 

$

20,935

 

 

$

12,710

 

 

$

5,466

 

Diluted earnings per share

 

$

0.80

 

 

$

0.55

 

 

$

0.29

 

Return on average assets (ROAA)(1)

 

0.77

%

 

0.71

%

 

1.02

%

Return on average equity (ROAE)(1)

 

10.40

%

 

9.76

%

 

8.72

%

Net interest margin(1)(2)

 

1.16

%

 

1.33

%

 

3.14

%

Cost of deposits(1)(3)

 

0.00

%

 

0.00

%

 

0.37

%

Cost of funds(1)(3)

 

0.01

%

 

0.02

%

 

0.42

%

Efficiency ratio(4)

 

50.69

%

 

63.03

%

 

65.03

%

Total assets

 

$

12,289,476

 

 

$

7,757,152

 

 

$

2,340,713

 

Total deposits

 

$

11,371,556

 

 

$

7,002,371

 

 

$

1,670,909

 

Book value per share

 

$

32.84

 

 

$

28.75

 

 

$

14.36

 

Tier 1 leverage ratio

 

7.91

%

 

9.68

%

 

11.57

%

Total risk-based capital ratio

 

48.00

%

 

54.79

%

 

25.54

%

________________________

(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 June 30, 2021, the Company’s digital currency customers increased to 1,224 from 1,104 at March 31, 2021, and from 881 at June 30, 2020. At June 30, 2021, prospective digital currency customer leads in various stages of the customer onboarding process and pipeline remained above 200. There were 137,947 transactions on the SEN for the second quarter of 2021, a decrease of 17%, compared to 166,772 transactions for the first quarter of 2021. In addition, for the second quarter of 2021, $239.6 billion of U.S. dollar transfers occurred on the SEN, another quarterly record and a 44% increase from the first quarter of 2021.

 

 

 

Three Months Ended

 

 

June 30,
2021

 

March 31,
2021

 

June 30,
2020

 

 

 

 

 

 

 

 

 

(Dollars in millions)

# SEN Transactions

 

137,947

 

 

166,772

 

 

40,286

 

$ Volume of SEN Transfers

 

$

239,589

 

 

$

166,506

 

 

$

22,423

 

 

Results of Operations, Quarter Ended June 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 $31.2 million for the second quarter of 2021, compared to $23.5 million for the first quarter of 2021, and $16.5 million for the second quarter of 2020.

Compared to the first quarter of 2021, net interest income increased $7.7 million, due to increased interest income in all asset categories, with the largest driver being higher balances of securities, while interest expense remained flat. Average total interest earning assets increased by $3.7 billion for the second quarter of 2021 compared to the first quarter of 2021, primarily due to increased digital currency related deposits that were invested in securities in the first and second quarter of 2021. The average yield on interest earning assets decreased from 1.35% for the first quarter of 2021 to 1.17% for the second quarter of 2021, primarily due to lower yields on securities. The lower yields on securities were driven by the impact of securities purchases during the quarter at lower rates than the preexisting portfolio. Average interest bearing liabilities decreased $19.7 million for the second quarter of 2021 compared to the first quarter of 2021, due to a decrease in interest bearing deposits. The average rate paid on total interest bearing liabilities increased from 0.89% for the first quarter of 2021 to 1.02% for the second 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 second quarter of 2020, net interest income increased $14.7 million, due to an increase of $13.1 million in interest income and a decrease of $1.7 million in interest expense. Average total interest earning assets increased by $8.7 billion for the second quarter of 2021 compared to the second quarter of 2020, due to an increase in noninterest bearing deposits and equity, which resulted in higher levels of interest earning deposits in other banks and securities. In addition, average loans increased by 52.9% 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 3.51% for the second quarter of 2020 to 1.17% for the second 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, securities and loans. The lower yields were due to declines in the federal funds rate and London Interbank Offered Rate (“LIBOR”), which declines were partially offset by the impact of interest rate floors. Average interest bearing liabilities decreased $171.1 million for the second quarter of 2021 compared to the second quarter of 2020, due to calling the remaining balance of brokered certificates of deposit in the second quarter of 2020 as well as reducing FHLB borrowings in 2021. The average rate on total interest bearing liabilities decreased from 2.78% for the second quarter of 2020 to 1.02% for the second quarter of 2021, primarily due to the impact of calling the remaining balance of brokered certificates of deposits in the second quarter of 2020, which included $1.2 million of accelerated premium expense in addition to $0.3 million of coupon interest expense for the second quarter of 2020.

Net interest margin for the second quarter of 2021 was 1.16%, compared to 1.33% for the first quarter of 2021, and 3.14% for the second quarter of 2020. The decrease in the net interest margin compared to the first quarter of 2021 was primarily driven by lower yields on securities due to the impact of securities purchases during the quarter at lower rates compared to the preexisting portfolio. The net interest margin decrease from the second quarter of 2020 was primarily due to a higher proportion of interest earning deposits in other banks as a percentage of total interest earning assets, as well as lower yields on interest earning deposits 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

 

 

June 30, 2021

 

March 31, 2021

 

June 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

 

$

5,603,397

 

 

$

1,599

 

 

 

0.11

%

 

$

4,450,110

 

 

$

1,279

 

 

 

0.12

%

 

$

168,297

 

 

$

405

 

 

 

0.97

%

Taxable securities

 

2,937,659

 

 

8,324

 

 

 

1.14

%

 

850,558

 

 

3,592

 

 

 

1.71

%

 

690,810

 

 

4,123

 

 

 

2.40

%

Tax-exempt securities(1)

 

698,149

 

 

3,953

 

 

 

2.27

%

 

270,711

 

 

2,146

 

 

 

3.21

%

 

231,232

 

 

1,996

 

 

 

3.47

%

Loans(2)(3)

 

1,541,373

 

 

17,158

 

 

 

4.46

%

 

1,559,989

 

 

16,597

 

 

 

4.31

%

 

1,008,242

 

 

11,710

 

 

 

4.67

%

Other

 

29,394

 

 

466

 

 

 

6.36

%

 

15,331

 

 

143

 

 

 

3.78

%

 

13,224

 

 

200

 

 

 

6.08

%

Total interest earning assets

 

10,809,972

 

 

31,500

 

 

 

1.17

%

 

7,146,699

 

 

23,757

 

 

 

1.35

%

 

2,111,805

 

 

18,434

 

 

 

3.51

%

Noninterest earning assets

 

121,288

 

 

 

 

 

 

72,155

 

 

 

 

 

 

51,776

 

 

 

 

 

Total assets

 

$

10,931,260

 

 

 

 

 

 

$

7,218,854

 

 

 

 

 

 

$

2,163,581

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits

 

$

97,463

 

 

$

35

 

 

 

0.14

%

 

$

117,228

 

 

$

46

 

 

 

0.16

%

 

$

190,394

 

 

$

1,652

 

 

 

3.49

%

FHLB advances and other borrowings

 

44

 

 

 

 

 

0.00

%

 

 

 

 

 

 

 

 

78,266

 

 

44

 

 

 

0.23

%

Subordinated debentures

 

15,836

 

 

252

 

 

 

6.38

%

 

15,832

 

 

245

 

 

 

6.28

%

 

15,821

 

 

267

 

 

 

6.79

%

Total interest bearing liabilities

 

113,343

 

 

287

 

 

 

1.02

%

 

133,060

 

 

291

 

 

 

0.89

%

 

284,481

 

 

1,963

 

 

 

2.78

%

Noninterest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest bearing deposits

 

9,980,680

 

 

 

 

 

 

6,526,555

 

 

 

 

 

 

1,611,972

 

 

 

 

 

Other liabilities

 

29,586

 

 

 

 

 

 

30,911

 

 

 

 

 

 

15,070

 

 

 

 

 

Shareholders’ equity

 

807,651

 

 

 

 

 

 

528,328

 

 

 

 

 

 

252,058

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

10,931,260

 

 

 

 

 

 

$

7,218,854

 

 

 

 

 

 

$

2,163,581

 

 

 

 

 

Net interest spread(4)

 

 

 

 

 

0.15

%

 

 

 

 

 

0.46

%

 

 

 

 

 

0.73

%

Net interest income, taxable equivalent basis

 

 

 

$

31,213

 

 

 

 

 

 

 

$

23,466

 

 

 

 

 

 

 

$

16,471

 

 

 

 

Net interest margin(5)

 

 

 

 

 

1.16

%

 

 

 

 

 

1.33

%

 

 

 

 

 

3.14

%

Reconciliation to reported net interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments for taxable equivalent basis

 

 

 

(830

)

 

 

 

 

 

 

(451

)

 

 

 

 

 

 

(419

)

 

 

 

Net interest income, as reported

 

 

 

$

30,383

 

 

 

 

 

 

 

$

23,015

 

 

 

 

 

 

 

$

16,052

 

 

 

 

________________________

(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 second quarter of 2021 or for the first quarter of 2021, compared to a provision of $0.2 million for the second quarter of 2020.

Noninterest Income

Noninterest income for the second quarter of 2021 was $12.1 million, an increase of $4.0 million, or 49.2%, from the first quarter of 2021. The primary driver of this increase was a $4.2 million, or 58.7%, increase in deposit related fees as a result of higher cash management fees and foreign currency exchange income from digital currency related customers.

Noninterest income for the second quarter of 2021 increased by $6.6 million, or 122.1%, compared to the second quarter of 2020. This increase was primarily due to a $8.9 million, or 363.8%, increase in deposit related fees and a $0.3 million, or 67.3% increase in mortgage warehouse fee income, partially offset by a $2.6 million decrease in gain on sale of securities.

 

 

 

Three Months Ended

 

 

June 30,
2021

 

March 31,
2021

 

June 30,
2020

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Noninterest income:

 

 

 

 

 

 

Mortgage warehouse fee income

 

$

753

 

 

$

954

 

 

$

450

 

 

Service fees related to off-balance sheet deposits

 

 

 

 

 

7

 

 

Deposit related fees

 

11,308

 

 

7,124

 

 

2,438

 

 

Gain on sale of securities, net

 

 

 

 

 

2,556

 

 

Loss on sale of loans, net

 

 

 

 

 

(56

)

 

Other income

 

8

 

 

12

 

 

39

 

 

Total noninterest income

 

$

12,069

 

 

$

8,090

 

 

$

5,434

 

 

 

Noninterest Expense

Noninterest expense totaled $21.5 million for the second quarter of 2021, an increase of $1.9 million, or 9.8%, compared to the first quarter of 2021, and an increase of $7.5 million, or 54.0%, compared to the second quarter of 2020. The increase in noninterest expense compared to prior quarter and second 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

 

 

June 30,
2021

 

March 31,
2021

 

June 30,
2020

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Noninterest expense:

 

 

 

 

 

 

Salaries and employee benefits

 

$

10,260

 

 

$

10,990

 

 

$

9,002

 

Occupancy and equipment

 

599

 

 

614

 

 

894

 

Communications and data processing

 

1,796

 

 

1,621

 

 

1,313

 

Professional services

 

2,594

 

 

1,717

 

 

1,105

 

Federal deposit insurance

 

3,844

 

 

2,296

 

 

182

 

Correspondent bank charges

 

812

 

 

497

 

 

347

 

Other loan expense

 

280

 

 

174

 

 

99

 

Other general and administrative

 

1,334

 

 

1,697

 

 

1,030

 

Total noninterest expense

 

$

21,519

 

 

$

19,606

 

 

$

13,972

 

 

Income Tax Expense (Benefit)

Income tax benefit was $2,000 for the second quarter of 2021, compared to a benefit of $1.2 million for the first quarter of 2021, and an expense of $1.8 million for the second quarter of 2020. Our effective tax rate for the second quarter of 2021 was zero, compared to (10.5)% for the first quarter of 2021, and 25.0% for the second quarter of 2020. The lower effective tax rate for the second quarter of 2021 and the first quarter of 2021 when compared to the second 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 June 30, 2021, deposits totaled $11.4 billion, an increase of $4.4 billion, or 62.4%, from March 31, 2021, and an increase of $9.7 billion, or 580.6%, from June 30, 2020. Noninterest bearing deposits totaled $11.3 billion, representing approximately 99.3% of total deposits at June 30, 2021, an increase of $4.4 billion from the prior quarter end, and a $9.7 billion increase compared to June 30, 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 $5.3 billion in deposits, or approximately 46.7% of total deposits at June 30, 2021, compared to $2.8 billion in deposits, or approximately 40.6% of total deposits at March 31, 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 second quarter of 2021 amounted to $9.9 billion, the high and low daily total digital currency deposit levels during such time were $11.8 billion and $6.8 billion, respectively, compared to an average of $6.4 billion during the first quarter of 2021, and high and low daily deposit levels of $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 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:

 

 

 

June 30, 2021

 

March 31, 2021

 

June 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

 

93

 

 

$

5,395

 

 

85

 

 

$

2,993

 

 

64

 

 

$

601

 

Institutional investors

 

771

 

 

3,986

 

 

695

 

 

2,166

 

 

566

 

 

577

 

Other customers

 

360

 

 

1,734

 

 

324

 

 

1,634

 

 

251

 

 

331

 

Total

 

1,224

 

 

$

11,114

 

 

1,104

 

 

$

6,793

 

 

881

 

 

$

1,509

 

________________________

(1)

 

Total deposits may not foot due to rounding.

The weighted average cost of deposits for the second quarter of 2021 and for the first quarter of 2021 was 0.00%, compared to 0.37% for the second quarter of 2020. The decreases in the weighted average cost of deposits compared to the second 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

 

 

June 30, 2021

 

March 31, 2021

 

June 30, 2020

 

 

Average
Balance

 

Average
Rate

 

Average
Balance

 

Average
Rate

 

Average
Balance

 

Average
Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Noninterest bearing demand accounts

 

$

9,980,680

 

 

 

 

$

6,526,555

 

 

 

 

$

1,611,972

 

 

 

Interest bearing accounts:

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand accounts

 

27,303

 

 

0.12

%

 

42,197

 

 

0.13

%

 

44,643

 

 

0.14

%

Money market and savings accounts

 

69,527

 

 

0.15

%

 

74,318

 

 

0.16

%

 

66,598

 

 

0.39

%

Certificates of deposit:

 

 

 

 

 

 

 

 

 

 

 

 

Brokered certificates of deposit

 

 

 

 

 

 

 

 

 

77,717

 

 

8.11

%

Other

 

633

 

 

0.63

%

 

713

 

 

0.57

%

 

1,436

 

 

0.84

%

Total interest bearing deposits

 

97,463

 

 

0.14

%

 

117,228

 

 

0.16

%

 

190,394

 

 

3.49

%

Total deposits

 

$

10,078,143

 

 

0.00

%

 

$

6,643,783

 

 

0.00

%

 

$

1,802,366

 

 

0.37

%

 

Loan Portfolio

Total loans, including net loans held-for-investment and loans held for sale, were $1.5 billion at June 30, 2021, a decrease of $136.9 million, or 8.4%, from March 31, 2021, and an increase of $373.3 million, or 33.5%, from June 30, 2020.

 

 

 

June 30,
2021

 

March 31,
2021

 

June 30,
2020

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Real estate loans:

 

 

 

 

 

 

One-to-four family

 

$

144,247

 

 

 

$

171,045

 

 

 

$

216,038

 

 

Multi-family

 

67,704

 

 

 

74,003

 

 

 

72,007

 

 

Commercial

 

272,948

 

 

 

287,411

 

 

 

316,815

 

 

Construction

 

5,481

 

 

 

5,172

 

 

 

10,822

 

 

Commercial and industrial(1)

 

204,279

 

 

 

118,598

 

 

 

24,707

 

 

Reverse mortgage and other

 

1,364

 

 

 

1,346

 

 

 

1,552

 

 

Mortgage warehouse

 

49,897

 

 

 

76,014

 

 

 

155,308

 

 

Total gross loans held-for-investment

 

745,920

 

 

 

733,589

 

 

 

797,249

 

 

Deferred fees, net

 

1,151

 

 

 

1,717

 

 

 

3,062

 

 

Total loans held-for-investment

 

747,071

 

 

 

735,306

 

 

 

800,311

 

 

Allowance for loan losses

 

(6,916

)

 

 

(6,916

)

 

 

(6,763

)

 

Loans held-for-investment, net

 

740,155

 

 

 

728,390

 

 

 

793,548

 

 

Loans held-for-sale(2)

 

748,577

 

 

 

897,227

 

 

 

321,835

 

 

Total loans

 

$

1,488,732

 

 

 

$

1,625,617

 

 

 

$

1,115,383

 

 

________________________

(1)

 

Commercial and industrial loans includes $203.4 million, $117.3 million and $20.0 million of SEN Leverage loans as of June 30, 2021, March 31, 2021 and June 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 June 30, 2021, compared to March 31, 2021 and increased slightly from $6.8 million at June 30, 2020. The ratio of the allowance for loan losses to gross loans held-for-investment at June 30, 2021 was 0.93%, compared to 0.94% and 0.85% at March 31, 2021 and June 30, 2020, respectively.

Nonperforming assets totaled $7.5 million, or 0.06% of total assets, at June 30, 2021, an increase of $2.2 million from $5.3 million, or 0.07% of total assets at March 31, 2021. Nonperforming assets increased $2.9 million, from $4.6 million, or 0.20%, of total assets, at June 30, 2020.

 

 

 

June 30,
2021

 

March 31,
2021

 

June 30,
2020

 

 

 

 

 

 

 

Asset Quality

 

(Dollars in thousands)

Nonperforming Assets:

 

 

 

 

 

 

Nonperforming loans

 

$

7,508

 

 

$

5,333

 

 

$

4,528

 

Troubled debt restructurings

 

$

1,437

 

 

$

1,484

 

 

$

1,620

 

Other real estate owned, net

 

 

 

 

 

$

51

 

Nonperforming assets

 

$

7,508

 

 

$

5,333

 

 

$

4,579

 

 

 

 

 

 

 

 

Asset Quality Ratios:

 

 

 

 

 

 

Nonperforming assets to total assets

 

0.06

%

 

0.07

%

 

0.20

%

Nonperforming loans to gross loans(1)

 

1.01

%

 

0.73

%

 

0.57

%

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

 

1.01

%

 

0.73

%

 

0.57

%

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

 

0.00

%

 

0.00

%

 

0.00

%

Allowance for loan losses to gross loans(1)

 

0.93

%

 

0.94

%

 

0.85

%

Allowance for loan losses to nonperforming loans

 

92.12

%

 

129.68

%

 

149.36

%

________________________

(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 June 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

 

$

245

 

 

0.0

%

Commercial industry sectors:

 

 

 

 

Retail

 

10,620

 

 

1.4

%

Hospitality

 

4,562

 

 

0.6

%

Office

 

7,985

 

 

1.1

%

Total commercial

 

23,167

 

 

3.1

%

Total modifications outstanding

 

$

23,412

 

 

3.1

%

 

Securities

Securities available-for-sale increased $4.5 billion, or 259.7%, from $1.7 billion at March 31, 2021, and increased $5.2 billion, or 549.4%, from $951.1 million at June 30, 2020, to $6.2 billion at June 30, 2021. The Company purchased $4.5 billion of securities in the second quarter of 2021, including $2.2 billion of agency residential mortgage-backed securities, $1.0 billion of municipal bonds, $588.2 million of U.S. agency securities excluding mortgage-backed securities, $396.4 million of agency commercial mortgage-backed securities, $333.2 million of U.S. Treasury securities, and $52.7 million of private-label commercial mortgage-backed securities, bringing total year to date securities purchases to $5.4 billion as of June 30, 2021.

Equity Offerings

On March 9, 2021, the Company entered into an equity distribution agreement pursuant to which the Company could 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” equity offering program. In the first quarter of 2021, the Company sold 1,297,365 shares of Class A common stock. During the second quarter of 2021, the Company completed the ATM equity offering by issuing 1,496,461 shares of Class A common stock for a combined total of 2,793,826 shares at an average price of $107.38. The ATM equity offering resulted in net proceeds to the Company of $295.1 million after deducting commissions and expenses.

Capital Ratios

At June 30, 2021, the Company’s ratio of common equity to total assets was 7.08%, compared with 9.20% at March 31, 2021, and 11.45% at June 30, 2020. At June 30, 2021, the Company’s book value per share was $32.84, compared to $28.75 at March 31, 2021, and $14.36 at June 30, 2020.

At June 30, 2021, the Company had a tier 1 leverage ratio of 7.91%, common equity tier 1 capital ratio of 46.75%, tier 1 risk-based capital ratio of 47.61% and total risk-based capital ratio of 48.00%.

At June 30, 2021, the Bank had a tier 1 leverage ratio of 7.86%, common equity tier 1 capital ratio of 47.29%, tier 1 risk-based capital ratio of 47.29% and total risk-based capital ratio of 47.69%. 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)

 

June 30,
2021

 

March 31,
2021

 

June 30,
2020

The Company

 

 

 

 

 

 

Tier 1 leverage ratio

 

7.91

%

 

9.68

%

 

11.57

%

Common equity tier 1 capital ratio

 

46.75

%

 

53.03

%

 

23.32

%

Tier 1 risk-based capital ratio

 

47.61

%

 

54.23

%

 

24.86

%

Total risk-based capital ratio

 

48.00

%

 

54.79

%

 

25.54

%

Common equity to total assets

 

7.08

%

 

9.20

%

 

11.45

%

The Bank

 

 

 

 

 

 

Tier 1 leverage ratio

 

7.86

%

 

9.50

%

 

10.92

%

Common equity tier 1 capital ratio

 

47.29

%

 

53.24

%

 

23.48

%

Tier 1 risk-based capital ratio

 

47.29

%

 

53.24

%

 

23.48

%

Total risk-based capital ratio

 

47.69

%

 

53.80

%

 

24.17

%

________________________

(1)

 

June 30, 2021 capital ratios are preliminary.

Conference Call and Webcast

The Company will host a conference call on Tuesday, July 20, 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 Second Quarter 2021 Earnings Conference Call. A replay will be available starting at 1:00 p.m. (Eastern Time) on July 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 10158012. The replay will be available until 11:59 p.m. (Eastern Time) on August 3, 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)

 

 

 

June 30,
2021

 

March 31,
2021

 

December 31,
2020

 

September 30,
2020

 

June 30,
2020

ASSETS

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

52,859

 

 

$

16,422

 

 

$

16,405

 

 

$

15,152

 

 

$

13,777

 

Interest earning deposits in other banks

 

4,415,458

 

 

4,315,100

 

 

2,945,682

 

 

182,330

 

 

185,667

 

Cash and cash equivalents

 

4,468,317

 

 

4,331,522

 

 

2,962,087

 

 

197,482

 

 

199,444

 

Trading securities

 

26,998

 

 

1,990

 

 

 

 

 

 

 

Securities available-for-sale, at fair value

 

6,176,778

 

 

1,717,418

 

 

939,015

 

 

944,161

 

 

951,094

 

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

 

748,577

 

 

897,227

 

 

865,961

 

 

665,842

 

 

321,835

 

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

 

740,155

 

 

728,390

 

 

746,751

 

 

735,857

 

 

793,548

 

Federal home loan and federal reserve bank stock, at cost

 

29,460

 

 

14,851

 

 

14,851

 

 

14,839

 

 

13,499

 

Accrued interest receivable

 

24,505

 

 

9,432

 

 

8,698

 

 

7,385

 

 

7,700

 

Premises and equipment, net

 

1,604

 

 

1,758

 

 

2,072

 

 

3,122

 

 

3,326

 

Derivative assets

 

39,454

 

 

34,442

 

 

31,104

 

 

34,138

 

 

35,770

 

Other assets

 

33,628

 

 

20,122

 

 

15,696

 

 

17,747

 

 

14,497

 

Total assets

 

$

12,289,476

 

 

$

7,757,152

 

 

$

5,586,235

 

 

$

2,620,573

 

 

$

2,340,713

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

Noninterest bearing demand accounts

 

$

11,290,638

 

 

$

6,889,281

 

 

$

5,133,579

 

 

$

2,164,326

 

 

$

1,563,136

 

Interest bearing accounts

 

80,918

 

 

113,090

 

 

114,447

 

 

116,782

 

 

107,773

 

Total deposits

 

11,371,556

 

 

7,002,371

 

 

5,248,026

 

 

2,281,108

 

 

1,670,909

 

Federal home loan bank advances

 

 

 

 

 

 

 

10,000

 

 

360,000

 

Subordinated debentures, net

 

15,838

 

 

15,834

 

 

15,831

 

 

15,827

 

 

15,823

 

Accrued expenses and other liabilities

 

31,575

 

 

25,326

 

 

28,079

 

 

29,877

 

 

25,876

 

Total liabilities

 

11,418,969

 

 

7,043,531

 

 

5,291,936

 

 

2,336,812

 

 

2,072,608

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

 

 

 

 

Class A common stock

 

265

 

 

248

 

 

188

 

 

186

 

 

184

 

Class B non-voting common stock

 

 

 

 

 

1

 

 

1

 

 

3

 

Additional paid-in capital

 

697,070

 

 

551,798

 

 

129,726

 

 

132,647

 

 

132,479

 

Retained earnings

 

151,993

 

 

131,058

 

 

118,348

 

 

109,229

 

 

102,169

 

Accumulated other comprehensive income

 

21,179

 

 

30,517

 

 

46,036

 

 

41,698

 

 

33,270

 

Total shareholders’ equity

 

870,507

 

 

713,621

 

 

294,299

 

 

283,761

 

 

268,105

 

Total liabilities and shareholders’ equity

 

$

12,289,476

 

 

$

7,757,152

 

 

$

5,586,235

 

 

$

2,620,573

 

 

$

2,340,713

 

SILVERGATE CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,
2021

 

March 31,
2021

 

June 30,
2020

 

June 30,
2021

 

June 30,
2020

Interest income

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

17,158

 

 

 

$

16,597

 

 

 

$

11,710

 

 

 

$

33,755

 

 

 

$

24,831

 

Taxable securities

 

8,324

 

 

 

3,592

 

 

 

4,123

 

 

 

11,916

 

 

 

10,171

 

Tax-exempt securities

 

3,123

 

 

 

1,695

 

 

 

1,577

 

 

 

4,818

 

 

 

1,625

 

Other interest earning assets

 

1,599

 

 

 

1,279

 

 

 

405

 

 

 

2,878

 

 

 

1,129

 

Dividends and other

 

466

 

 

 

143

 

 

 

200

 

 

 

609

 

 

 

321

 

Total interest income

 

30,670

 

 

 

23,306

 

 

 

18,015

 

 

 

53,976

 

 

 

38,077

 

Interest expense

 

 

 

 

 

 

 

 

 

 

Deposits

 

35

 

 

 

46

 

 

 

1,652

 

 

 

81

 

 

 

5,703

 

Federal home loan bank advances

 

 

 

 

 

 

 

44

 

 

 

 

 

 

271

 

Subordinated debentures and other

 

252

 

 

 

245

 

 

 

267

 

 

 

497

 

 

 

573

 

Total interest expense

 

287

 

 

 

291

 

 

 

1,963

 

 

 

578

 

 

 

6,547

 

Net interest income before provision for loan losses

 

30,383

 

 

 

23,015

 

 

 

16,052

 

 

 

53,398

 

 

 

31,530

 

Provision for loan losses

 

 

 

 

 

 

 

222

 

 

 

 

 

 

589

 

Net interest income after provision for loan losses

 

30,383

 

 

 

23,015

 

 

 

15,830

 

 

 

53,398

 

 

 

30,941

 

Noninterest income

 

 

 

 

 

 

 

 

 

 

Mortgage warehouse fee income

 

753

 

 

 

954

 

 

 

450

 

 

 

1,707

 

 

 

832

 

Service fees related to off-balance sheet deposits

 

 

 

 

 

 

 

7

 

 

 

 

 

 

77

 

Deposit related fees

 

11,308

 

 

 

7,124

 

 

 

2,438

 

 

 

18,432

 

 

 

4,204

 

Gain on sale of securities, net

 

 

 

 

 

 

 

2,556

 

 

 

 

 

 

3,753

 

(Loss) gain on sale of loans, net

 

 

 

 

 

 

 

(56

)

 

 

 

 

 

450

 

Gain on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

 

 

 

925

 

Other income

 

8

 

 

 

12

 

 

 

39

 

 

 

20

 

 

 

124

 

Total noninterest income

 

12,069

 

 

 

8,090

 

 

 

5,434

 

 

 

20,159

 

 

 

10,365

 

Noninterest expense

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

10,260

 

 

 

10,990

 

 

 

9,002

 

 

 

21,250

 

 

 

17,957

 

Occupancy and equipment

 

599

 

 

 

614

 

 

 

894

 

 

 

1,213

 

 

 

1,801

 

Communications and data processing

 

1,796

 

 

 

1,621

 

 

 

1,313

 

 

 

3,417

 

 

 

2,574

 

Professional services

 

2,594

 

 

 

1,717

 

 

 

1,105

 

 

 

4,311

 

 

 

2,090

 

Federal deposit insurance

 

3,844

 

 

 

2,296

 

 

 

182

 

 

 

6,140

 

 

 

305

 

Correspondent bank charges

 

812

 

 

 

497

 

 

 

347

 

 

 

1,309

 

 

 

720

 

Other loan expense

 

280

 

 

 

174

 

 

 

99

 

 

 

454

 

 

 

221

 

Other general and administrative

 

1,334

 

 

 

1,697

 

 

 

1,030

 

 

 

3,031

 

 

 

2,179

 

Total noninterest expense

 

21,519

 

 

 

19,606

 

 

 

13,972

 

 

 

41,125

 

 

 

27,847

 

Income before income taxes

 

20,933

 

 

 

11,499

 

 

 

7,292

 

 

 

32,432

 

 

 

13,459

 

Income tax (benefit) expense

 

(2

)

 

 

(1,211

)

 

 

1,826

 

 

 

(1,213

)

 

 

3,600

 

Net income

 

20,935

 

 

 

12,710

 

 

 

5,466

 

 

 

33,645

 

 

 

9,859

 

Basic earnings per share

 

$

0.81

 

 

 

$

0.56

 

 

 

$

0.29

 

 

 

$

1.40

 

 

 

$

0.53

 

Diluted earnings per share

 

$

0.80

 

 

 

$

0.55

 

 

 

$

0.29

 

 

 

$

1.37

 

 

 

$

0.52

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

Basic

 

25,707

 

 

 

22,504

 

 

 

18,672

 

 

 

24,114

 

 

 

18,670

 

Diluted

 

26,102

 

 

 

23,010

 

 

 

19,106

 

 

 

24,565

 

 

 

19,112

 

 

Investor Relations Contact:
Hunter Stenback / Ashna Vasa
858-200-3782
investors@silvergate.com

Source: Silvergate Capital Corporation

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