Silvergate Capital Corporation Announces Third Quarter 2019 Results

Silvergate Capital Corporation (Silvergate or the Company) (NYSE:SI) and its wholly-owned subsidiary, Silvergate Bank (the Bank), today announced financial results for the period ended September 30, 2019.

Third Quarter 2019 Financial Highlights

  • Net income for the quarter was $6.7 million, or $0.36 per diluted share, compared to net income of $5.2 million, or $0.28 per diluted share, for the second quarter of 2019, and net income of $6.3 million, or $0.34 per diluted share, for the third quarter of 2018
  • Digital currency customers grew to 756 in the third quarter from 655 at June 30, 2019, and from 483 at September 30, 2018
  • The Silvergate Exchange Network (SEN) handled $10.4 billion of U.S. dollar transfers in the third quarter as compared to $8.6 billion in the second quarter of 2019, and $1.7 billion in the third quarter of 2018
  • Digital currency customer related fee income for the quarter was $1.6 million as compared to $1.1 million in the second quarter of 2019, and $0.7 million in the third quarter 2018
  • Book value per share was $12.92 at September 30, 2019, compared to $12.04 at June 30, 2019, and $10.30 at September 30, 2018
  • Efficiency ratio for the quarter was 59.93%, compared to 64.50% for the second quarter of 2019 and 56.65% for the third quarter of 2018

Alan Lane, President and Chief Executive Officer of Silvergate, commented, Our third quarter results clearly demonstrate the strong network effect and growing competitive position of the Silvergate Exchange Network, ˜SEN, with 756 digital currency customers, 101 of which were added in the quarter. Our growing digital currency customer base is rapidly adopting our proprietary global payments platform with over $10 billion dollars moving across the SEN in the third quarter. We also experienced digital currency related fee income growth of 177%, year over year, as the SEN continues to gain broad adoption by both institutional investors and exchanges, and we see an opportunity to further expand the services that we offer.

Mr. Lane continued, Over much of the last year we have pursued an initial public offering, and I am pleased to report that we completed this significant milestone on November 7, 2019 when our shares began trading on the New York Stock Exchange. The successful completion of our IPO would not have been possible without our dedicated employees, customers, and partners who I would like to thank for their hard work and commitment. Our offering is an important step in the transformation and growth of Silvergate and I am excited with the many opportunities that lie ahead as we continue to grow the SEN, diversify our revenues and further scale the platform.

 

 

As of or for the Three Months Ended

 

 

September 30, 2019

 

June 30, 2019

 

September 30, 2018

 

 

 

 

 

 

 

Financial Highlights

 

(Dollars in thousands, except per share data)

Net income

 

$

6,656

 

 

$

5,156

 

 

$

6,279

 

Diluted earnings per share

 

$

0.36

 

 

$

0.28

 

 

$

0.34

 

Return on average assets (ROAA)(1)

 

1.20

%

 

1.03

%

 

1.27

%

Return on average equity (ROAE)(1)

 

11.78

%

 

10.04

%

 

13.74

%

Net interest margin(1)(2)

 

3.39

%

 

3.56

%

 

3.67

%

Cost of deposits(1)(3)

 

0.50

%

 

0.28

%

 

0.09

%

Cost of funds(1)(3)

 

0.59

%

 

0.43

%

 

0.17

%

Efficiency ratio(4)

 

59.93

%

 

64.50

%

 

56.65

%

Total assets

 

$

2,136,844

 

 

$

2,242,034

 

 

$

2,150,553

 

Total deposits

 

$

1,848,095

 

 

$

1,938,650

 

 

$

1,937,326

 

Book value per share

 

$

12.92

 

 

$

12.04

 

 

$

10.30

 

Tier 1 leverage ratio

 

10.43

%

 

11.11

%

 

10.25

%

Total risk-based capital ratio

 

25.97

%

 

26.57

%

 

26.56

%

________________________

  1. Data has been annualized.
  2. Net interest margin is a ratio calculated as annualized net interest income divided by average interest earning assets for the same period.
  3. Cost of deposits and cost of funds increased beginning in the second quarter of 2019 due to the cost of a hedging strategy discussed in Balance Sheet Securities in more detail below.
  4. Efficiency ratio is calculated by dividing noninterest expenses by net interest income plus noninterest income.

Digital Currency Initiative

At September 30, 2019, our digital currency customers increased to 756 from 655 at June 30, 2019, and from 483 at September 30, 2018. At September 30, 2019, we had 250 prospective digital currency customers in various stages of our customer onboarding process, compared to 228 at June 30, 2019. In addition, for the three months ended September 30, 2019, $10.4 billion of U.S. dollar transfers occurred on the SEN, bringing total U.S. dollar transfers on the SEN to $23.1 billion and total funds transfers including wires to $41.5 billion for the nine months ended September 30, 2019.

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 2019

 

June 30, 2019

 

September 30, 2018

 

September 30, 2019

 

September 30, 2018

 

 

(Dollars in millions)

# SEN Transactions

 

12,312

 

 

12,254

 

 

1,453

 

 

31,663

 

 

2,892

 

$ Volume of SEN Transactions

 

$

10,425

 

 

$

8,625

 

 

$

1,680

 

 

$

23,126

 

 

$

4,359

 

 

Results of Operations, Quarter Ended September 30, 2019

Net Interest Income and Net Interest Margin Analysis

Net interest income totaled $18.4 million for the third quarter of 2019, compared to $17.6 million for the second quarter of 2019, and $18.0 million for the third quarter of 2018.

Compared to the second quarter of 2019, net interest income increased $0.9 million due to an increase in interest earning assets driven primarily by an increase in average balances of securities and mortgage warehouse loans, partially offset by a decrease in interest earning deposits in other banks and an increase in interest bearing liabilities. The increase in securities was driven primarily by the purchase of fixed-rate commercial mortgage-backed securities and adjustable rate residential mortgage-backed securities. The increase in interest bearing liabilities was primarily due to the issuance of callable brokered certificates of deposits, which were used to fund fixed-rate commercial mortgage-backed securities, both associated with a hedging strategy which is discussed in further detail in the Balance SheetSecurities section.

Compared to the third quarter of 2018, net interest income increased $0.5 million due to a $217.1 million increase in average interest earning assets and an 11 basis point increase in our yield on earning assets, partially offset by a $241.3 million increase in average interest bearing liabilities. Average interest earning assets increased due to an increase in average balances of securities and loans, partly offset by a decrease in interest earning deposits in other banks. The increase in securities was driven by the purchase of fixed-rate commercial mortgage-backed securities and adjustable rate residential mortgage-backed securities, while the increase in loans was primarily driven by an increase in mortgage warehouse loans, partly offset by a decrease in commercial loans related to the sale of the business lending division in the first quarter of 2019. Yields on earning assets benefited from the increase in securities relative to interest earnings deposits in other banks, and from an overall increase in higher yielding loans. The increase in interest bearing deposits was primarily due to the issuance of callable brokered certificates of deposits, which were used to fund fixed-rate commercial mortgage-backed securities, both associated with a hedging strategy which is discussed in further detail in the Balance SheetSecurities section. Noninterest bearing deposits generated by the digital currency initiative are primarily invested in securities and interest earning deposits.

Net interest margin for the third quarter of 2019 was 3.39%, compared to 3.56% for the second quarter of 2019, and 3.67% for the third quarter of 2018. The decrease in the net interest margin compared to the second quarter of 2019 was driven by the increase in interest bearing deposits due to the issuance of callable brokered certificates of deposits, while the yield on interest earning assets was relatively flat as the impact of the federal funds rate reductions was offset by a higher level of securities and loans relative to interest earning deposits in other banks. The net margin decrease from the third quarter of 2018 was primarily due to the callable brokered certificates of deposits associated with the hedging strategy.

 

 

Three Months Ended

 

 

September 30, 2019

 

June 30, 2019

 

September 30, 2018

 

 

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

 

$

234,606

 

 

$

1,183

 

 

2.00

%

 

$

530,325

 

 

$

3,058

 

 

2.31

%

 

$

770,832

 

 

$

3,921

 

 

2.02

%

Securities

 

935,263

 

 

6,510

 

 

2.76

%

 

579,464

 

 

4,501

 

 

3.12

%

 

266,718

 

 

1,941

 

 

2.89

%

Loans(1)(2)

 

979,283

 

 

13,574

 

 

5.50

%

 

860,682

 

 

11,684

 

 

5.45

%

 

895,107

 

 

12,726

 

 

5.64

%

Other

 

10,742

 

 

121

 

 

4.47

%

 

10,743

 

 

229

 

 

8.55

%

 

10,140

 

 

119

 

 

4.66

%

Total interest earning assets

 

2,159,894

 

 

21,388

 

 

3.93

%

 

1,981,214

 

 

19,472

 

 

3.94

%

 

1,942,797

 

 

18,707

 

 

3.82

%

Noninterest earning assets

 

45,306

 

 

 

 

 

 

28,440

 

 

 

 

 

 

12,706

 

 

 

 

 

Total assets

 

$

2,205,200

 

 

 

 

 

 

$

2,009,654

 

 

 

 

 

 

$

1,955,503

 

 

 

 

 

Liabilities and Shareholders Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits

 

$

438,277

 

 

$

2,385

 

 

2.16

%

 

$

270,360

 

 

$

1,194

 

 

1.77

%

 

$

234,044

 

 

$

400

 

 

0.68

%

FHLB advances and other borrowings

 

43,642

 

 

289

 

 

2.63

%

 

60,639

 

 

443

 

 

2.93

%

 

6,622

 

 

98

 

 

5.87

%

Subordinated debentures

 

15,810

 

 

271

 

 

6.80

%

 

15,807

 

 

267

 

 

6.78

%

 

15,796

 

 

239

 

 

6.00

%

Total interest bearing liabilities

 

497,729

 

 

2,945

 

 

2.35

%

 

346,806

 

 

1,904

 

 

2.20

%

 

256,462

 

 

737

 

 

1.14

%

Noninterest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest bearing deposits

 

1,468,992

 

 

 

 

 

 

1,445,529

 

 

 

 

 

 

1,512,393

 

 

 

 

 

Other liabilities

 

14,400

 

 

 

 

 

 

11,371

 

 

 

 

 

 

5,297

 

 

 

 

 

Shareholders equity

 

224,079

 

 

 

 

 

 

205,948

 

 

 

 

 

 

181,351

 

 

 

 

 

Total liabilities and shareholders equity

 

$

2,205,200

 

 

 

 

 

 

$

2,009,654

 

 

 

 

 

 

$

1,955,503

 

 

 

 

 

Net interest spread(3)

 

 

 

 

 

1.58

%

 

 

 

 

 

1.74

%

 

 

 

 

 

2.68

%

Net interest income

 

 

 

$

18,443

 

 

 

 

 

 

$

17,568

 

 

 

 

 

 

$

17,970

 

 

 

Net interest margin(4)

 

 

 

 

 

3.39

%

 

 

 

 

 

3.56

%

 

 

 

 

 

3.67

%

________________________

  1. Loans include nonaccrual loans and loans held-for-sale, net of deferred fees and before allowance for loan losses.
  2. Interest income includes amortization of deferred loan fees, net of deferred loan costs.
  3. Net interest spread is the difference between interest rates earned on interest earning assets and interest rates paid on interest bearing liabilities.
  4. Net interest margin is a ratio calculated as annualized net interest income divided by average interest earning assets for the same period.

Provision for Loan Losses

The Company recorded a reversal of provision for loan losses of $0.9 million for the third quarter of 2019, compared to a provision of $0.2 million for the second quarter of 2019, and no provision for the third quarter of 2018. For a discussion on the provision and allowance for loan losses, see Balance SheetAsset Quality and Allowance for Loan Losses.

Noninterest Income

Noninterest income for the third quarter of 2019 was $2.6 million, an increase of $0.4 million, or 20.7%, from the second quarter of 2019. The primary driver of this increase was a $0.5 million, or 41.5% increase in deposit related fees attributed to increases in cash management, foreign exchange, and SEN related fees associated with our digital currency initiative.

Noninterest income for the third quarter of 2019 increased by $0.4 million, or 19.0%, compared to the third quarter of 2018, primarily due to an increase of $1.0 million, or 140.8%, in deposit related fees. The increase was partially offset by decreases in service fees related to off-balance sheet deposits, gain on sale of loans and other income. Deposit related fees increased primarily due to increases in cash management, foreign exchange, and SEN related fees associated with our digital currency initiative.

 

 

Three Months Ended

 

 

September 30, 2019

 

June 30, 2019

 

September 30, 2018

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Noninterest income:

 

 

 

 

 

 

Mortgage warehouse fee income

 

$

373

 

 

$

346

 

 

$

393

 

Service fees related to off-balance sheet deposits

 

283

 

 

412

 

 

573

 

Deposit related fees

 

1,657

 

 

1,171

 

 

688

 

Gain on sale of loans

 

248

 

 

156

 

 

416

 

Other income

 

38

 

 

69

 

 

114

 

Total noninterest income

 

$

2,599

 

 

$

2,154

 

 

$

2,184

 

Noninterest Expense

Noninterest expense totaled $12.6 million for the third quarter of 2019, a decrease of $0.1 million compared to the second quarter of 2019, and an increase of $1.2 million compared to the third quarter of 2018.

Noninterest expense decreased from the prior quarter due to lower occupancy and equipment, professional services and federal deposit insurance expense that was partially offset by an increase in salaries and employee benefits and communications and data processing.

Noninterest expense increased from the third quarter of 2018 due to continued expansion of our technology-driven banking platform with significant capacity to support potential future growth. Salaries and employee benefits increased $1.0 million from the third quarter of 2018 due primarily to an increase in full-time equivalent employees associated with growth in project management and operations to support the expansion of our technology driven platform. This was partially offset by a reduction in personnel as a result of the sale of the Banks San Marcos branch and business loan operations. Occupancy and equipment expense increased by $0.2 million in the third quarter of 2019 compared to the third quarter of 2018, due to an increase in leased space for the corporate headquarters, partially offset by the sale of the San Marcos branch. Communications and data processing increased $0.6 million from enhancements to our IT infrastructure and expansion projects to support our digital currency initiative.

 

 

Three Months Ended

 

 

September 30, 2019

 

June 30, 2019

 

September 30, 2018

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Noninterest expense:

 

 

 

 

 

 

Salaries and employee benefits

 

$

8,277

 

 

$

8,082

 

 

$

7,259

 

Occupancy and equipment

 

892

 

 

1,012

 

 

742

 

Communications and data processing

 

1,298

 

 

1,123

 

 

703

 

Professional services

 

889

 

 

1,073

 

 

1,507

 

Federal deposit insurance

 

39

 

 

168

 

 

214

 

Correspondent bank charges

 

288

 

 

301

 

 

240

 

Other loan expense

 

47

 

 

118

 

 

57

 

Other real estate owned expense (recovery)

 

75

 

 

5

 

 

(10

)

Other general and administrative

 

806

 

 

839

 

 

705

 

Total noninterest expense

 

$

12,611

 

 

$

12,721

 

 

$

11,417

 

Income Tax Expense

Income tax expense was $2.6 million for the third quarter of 2019, compared to $1.7 million for the second quarter of 2019, and $2.5 million for the third quarter of 2018. Our effective tax rate for the third quarter of 2019 was 28.3%, compared to 24.7% for the second quarter of 2019, and 28.1% third quarter of 2018. The lower effective tax rate for the second quarter of 2019 was due to recognized tax benefits which include excess benefits from stock-based compensation.

Results of Operations, Nine Months Ended September 30, 2019

Net income for the nine months ended September 30, 2019 was $21.2 million, or $1.16 per diluted share, compared to $14.3 million, or $0.86 per diluted share, for the same period in 2018.

Net interest income for the nine months ended September 30, 2019 was $55.3 million, compared to $48.8 million for the same period in 2018. The increase in net interest income was primarily due to an increase of $9.8 million in interest income partially offset by an increase of $3.2 million in interest expense. The increase in interest income was the result of both an increase in average earning assets and higher yields on those assets, driven in part by an increase in both securities and loans relative to cash and cash equivalents.

Noninterest income for the nine months ended September 30, 2019 was $12.6 million, compared to $5.6 million for the same period in 2018. The increase in total noninterest income was primarily due to the increase in fee income from our digital currency customers and the $5.5 million gain on sale of branch that occurred in the first quarter of 2019.

Noninterest expense was $38.8 million for the nine months ended September 30, 2019, compared to $34.3 million for the nine months ended September 30, 2018. The increase in noninterest expense was primarily due to increases in salaries and benefits and communications and data processing corresponding to our organic growth as we have expanded our operational infrastructure and implemented our plan to build an efficient, technology-driven banking operation with significant capacity for growth.

Income tax expense was $8.3 million for the nine months ended September 30, 2019, compared to an income tax expense of $5.5 million for the same period in 2018.

Balance Sheet

Deposits

At September 30, 2019, deposits totaled $1.8 billion, a decrease of $90.6 million, or 4.7%, from June 30, 2019, and a decrease of $89.2 million, or 4.6%, from September 30, 2018. Noninterest bearing deposits totaled $1.4 billion (representing approximately 75.5% of total deposits) at September 30, 2019, a decrease of $155.5 million from the prior quarter end and a $314.2 million decrease compared to September 30, 2018. The decrease in total deposits from the prior quarter reflects changes in deposit levels of our digital currency customers, offset slightly by an increase of $75.0 million in callable brokered certificates of deposit. The decrease in total deposits from September 30, 2018 was also impacted by the sale of the San Marcos branch, which reduced total deposits by $74.5 million, offset by an increase of $325.0 million in callable brokered certificates of deposit associated with the implementation of a hedging strategy. While deposits may fluctuate in the ordinary course of business, the Company has continued to add new digital currency customers each quarter.

The weighted average cost of deposits for the third quarter of 2019 was 0.50%, compared to 0.28% for the second quarter of 2019, and 0.09% for the third quarter of 2018. The increase in the weighted average cost of deposits compared to the second quarter of 2019 and the third quarter of 2018 was driven by the addition of new callable brokered certificates of deposit associated with a hedging strategy, as discussed in Balance SheetSecurities below.

 

 

Three Months Ended

 

 

September 30, 2019

 

June 30, 2019

 

September 30, 2018

 

 

Average Balance

 

Average Rate

 

Average Balance

 

Average Rate

 

Average Balance

 

Average Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Noninterest bearing demand accounts

 

$

1,468,992

 

 

 

 

$

1,445,529

 

 

 

 

$

1,512,393

 

 

 

Interest bearing accounts:

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand accounts

 

47,945

 

 

0.14

%

 

47,879

 

 

0.14

%

 

53,676

 

 

0.14

%

Money market and savings accounts

 

81,941

 

 

1.00

%

 

77,293

 

 

0.83

%

 

135,454

 

 

0.62

%

Certificates of deposit:

 

 

 

 

 

 

 

 

 

 

 

 

Brokered certificates of deposit

 

303,524

 

 

2.81

%

 

129,354

 

 

2.97

%

 

 

 

 

Other

 

4,867

 

 

1.33

%

 

15,834

 

 

1.53

%

 

44,914

 

 

1.47

%

Total interest bearing deposits

 

438,277

 

 

2.16

%

 

270,360

 

 

1.77

%

 

234,044

 

 

0.68

%

Total deposits

 

$

1,907,269

 

 

0.50

%

 

$

1,715,889

 

 

0.28

%

 

$

1,746,437

 

 

0.09

%

The demand for new deposit accounts is attributable to our banking platform for innovators that includes the SEN, which is enabled through our online banking system or our proprietary API. These tools enable our clients to grow their business and scale operations.

The following table sets forth a breakdown of our digital currency customer base and the deposits held by such customers at the dates noted below:

 

 

September 30, 2019

 

June 30, 2019

 

September 30, 2018

 

 

Number of Customers

 

Total Deposits

 

Number of Customers

 

Total Deposits

 

Number of Customers

 

Total Deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in millions)

Digital currency exchanges

 

69

 

$

546

 

51

 

$

654

 

35

 

$

793

Institutional investors

 

468

 

504

 

426

 

568

 

339

 

573

Other customers

 

219

 

247

 

178

 

242

 

109

 

227

Total

 

756

 

$

1,297

 

655

 

$

1,463

 

483

 

$

1,593

Loan Portfolio

Total loans held-for-investment were $698.2 million at September 30, 2019, an increase of $6.7 million, or 1.0%, from June 30, 2019, and an increase of $2.0 million, or 0.3%, from September 30, 2018.

 

 

September 30, 2019

 

June 30, 2019

 

September 30, 2018

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Real estate loans:

 

 

 

 

 

 

One-to-four family

 

$

212,440

 

 

$

203,885

 

 

$

184,847

 

Multi-family

 

77,901

 

 

80,080

 

 

23,270

 

Commercial

 

322,733

 

 

331,034

 

 

344,773

 

Construction

 

3,986

 

 

3,137

 

 

3,087

 

Commercial and industrial

 

14,563

 

 

10,658

 

 

88,173

 

Consumer and other

 

76

 

 

199

 

 

125

 

Reverse mortgage

 

1,629

 

 

1,686

 

 

1,901

 

Mortgage warehouse

 

61,856

 

 

57,923

 

 

48,409

 

Total gross loans held-for-investment

 

695,184

 

 

688,602

 

 

694,585

 

Deferred fees, net

 

2,997

 

 

2,857

 

 

1,621

 

Total loans held-for-investment

 

698,181

 

 

691,459

 

 

696,206

 

Allowance for loan losses

 

(6,191

)

 

(7,049

)

 

(8,388

)

Total loans held-for-investment, net

 

$

691,990

 

 

$

684,410

 

 

$

687,818

 

Total loans held-for-sale

 

$

311,410

 

 

$

235,834

 

 

$

184,105

 

Loans held-for-sale included $306.7 million, $223.9 million and $181.4 million of mortgage warehouse loans at September 30, 2019, June 30, 2019, and September 30, 2018, respectively.

Asset Quality and Allowance for Loan Losses

At September 30, 2019, our allowance for loan losses was $6.2 million, a decrease of $0.9 million from June 30, 2019, and a decrease of $2.2 million from September 30, 2018. The ratio of the allowance for loan losses to gross loans held-for-investment at September 30, 2019 was 0.89%, compared to 1.02% and 1.21% at June 30, 2019 and September 30, 2018, respectively.

Nonperforming assets totaled $6.8 million, or 0.32% of total assets, at September 30, 2019, a decrease of $0.8 million from $7.6 million, or 0.34% of total assets at June 30, 2019, primarily due to loan payoffs and principal repayments on nonperforming commercial and industrial loans. Nonperforming assets decreased $3.1 million, from $9.9 million, or 0.46% of total assets, at September 30, 2018, primarily due to principal repayments on nonperforming commercial and industrial loans.

 

 

September 30, 2019

 

June 30, 2019

 

September 30, 2018

 

 

 

 

 

 

 

Asset Quality

 

(Dollars in thousands)

Nonperforming Assets:

 

 

 

 

 

 

Nonperforming loans

 

$

6,707

 

 

$

7,518

 

 

$

9,835

 

Troubled debt restructurings

 

$

1,840

 

 

$

1,896

 

 

$

555

 

Other real estate owned, net

 

$

81

 

 

$

112

 

 

$

41

 

Nonperforming assets

 

$

6,788

 

 

$

7,630

 

 

$

9,876

 

 

 

 

 

 

 

 

Asset Quality Ratios:

 

 

 

 

 

 

Nonperforming assets to total assets

 

0.32

%

 

0.34

%

 

0.46

%

Nonperforming loans to gross loans(1)

 

0.96

%

 

1.09

%

 

1.42

%

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

 

0.98

%

 

1.11

%

 

1.42

%

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

 

0.01

%

 

0.01

%

 

(0.01

)%

Allowance for loan losses to gross loans(1)

 

0.89

%

 

1.02

%

 

1.21

%

Allowance for loan losses to nonperforming loans

 

92.31

%

 

93.76

%

 

85.29

%

________________________

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

Securities

Securities available-for-sale decreased $10.6 million, or 1.1%, from $920.5 million at June 30, 2019, and increased $607.6 million, or 201.0%, from $302.3 million at September 30, 2018, to $909.9 million at September 30, 2019. The Companys securities portfolio has grown substantially due to the implementation of a hedging strategy and the purchase of high quality available-for-sale securities. In March 2019, the Bank implemented a hedging strategy that includes purchases of interest rate floors and commercial mortgage-backed securities, primarily funded by callable brokered certificates of deposit. This hedging strategy is intended to reduce the Banks exposure to a decline in earnings in a declining interest rate environment with a minimal negative impact on current earnings. At September 30, 2019, the Company purchased $400.0 million in notional amount of interest rate floors, $350.4 million in fixed-rate commercial mortgage-backed securities and issued $325.0 million of callable brokered certificates of deposit related to the hedging strategy. The callable brokered certificates of deposit had an unamortized premium of $2.3 million and have an average life of 4.2 years as of September 30, 2019. These certificates of deposit are initially callable six months after issuance and monthly thereafter. The initial call dates for all callable brokered certificates of deposit are from October 2019 through January 2020. At September 30, 2019, we held a total of $196.0 million in callable certificates of deposit and $1.3 million of related unamortized premium, which was subsequently called after the end of the third quarter. In addition, the Company purchased $20.0 million in adjustable rate residential mortgage-backed securities during the third quarter of 2019 and sold $30.0 million of residential and commercial government agency collateralized mortgage obligations.

Capital Ratios

At September 30, 2019, the Companys ratio of common equity to total assets was 10.79%, compared with 9.58% at June 30, 2019, and 8.53% at September 30, 2018. At September 30, 2019, the Companys book value per share was $12.92, compared to $12.04 at June 30, 2019, and $10.30 at September 30, 2018.

At September 30, 2019, the Company had a tier 1 leverage ratio of 10.43%, common equity tier 1 capital ratio of 23.57%, tier 1 capital ratio of 25.28% and total capital ratio of 25.97%.

At September 30, 2019, the Bank had a tier 1 leverage ratio of 10.01%, common equity tier 1 capital ratio of 24.30%, tier 1 capital ratio of 24.30% and total capital ratio of 25.00%. These capital ratios each exceeded the well capitalized standards defined by the federal banking regulators of 5.00% for tier 1 leverage ratio, 6.5% for common equity tier 1 capital ratio, 8.00% for tier 1 capital ratio and 10.00% for total capital ratio.

Capital Ratios

 

September 30, 2019

 

June 30, 2019

 

September 30, 2018

The Company

 

 

 

 

 

 

Tier 1 leverage ratio

 

10.43

%

 

11.11

%

 

10.25

%

Common equity tier 1 capital ratio

 

23.57

%

 

23.96

%

 

23.50

%

Tier 1 risk-based capital ratio

 

25.28

%

 

25.75

%

 

25.47

%

Total risk-based capital ratio

 

25.97

%

 

26.57

%

 

26.56

%

Common equity to total assets

 

10.79

%

 

9.58

%

 

8.53

%

The Bank

 

 

 

 

 

 

Tier 1 leverage ratio

 

10.01

%

 

10.62

%

 

9.12

%

Common equity tier 1 capital ratio

 

24.30

%

 

24.66

%

 

22.72

%

Tier 1 risk-based capital ratio

 

24.30

%

 

24.66

%

 

22.72

%

Total risk-based capital ratio

 

25.00

%

 

25.49

%

 

23.81

%

About Silvergate:

Silvergate Capital Corporation is a registered bank holding company for Silvergate Bank, headquartered in La Jolla, California. Silvergate Bank is a commercial bank that opened in 1988, has been profitable for 21 consecutive years, and has focused its strategy on creating the banking platform for innovators, especially in the digital currency industry, and developing product and service solutions addressing the needs of entrepreneurs. The Companys assets consist primarily of its investment in the Bank and the Companys primary activities are conducted through the Bank. The Company is subject to supervision by the Board of Governors of the Federal Reserve System (the Federal Reserve). The Bank is subject to supervision by the California Department of Business Oversight, Division of Financial Institutions and, as a Federal Reserve member bank, the Federal Reserve. The Banks deposits are insured up to legal limits by the Federal Deposit Insurance Corporation.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This earnings release contains forward-looking statements. 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 managements 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. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. Any forward-looking statement speaks only as of the date of this shareholder letter, 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

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In Thousands)

(Unaudited)

 

 

September 30, 2019

 

June 30, 2019

 

March 31, 2019

 

December 31, 2018

 

September 30, 2018

ASSETS

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

4,098

 

 

$

2,036

 

 

$

3,865

 

 

$

4,177

 

 

$

6,488

 

Interest earning deposits in other banks

 

156,160

 

 

339,325

 

 

529,159

 

 

670,243

 

 

943,838

 

Cash and cash equivalents

 

160,258

 

 

341,361

 

 

533,024

 

 

674,420

 

 

950,326

 

Securities available-for-sale, at fair value

 

909,917

 

 

920,481

 

 

462,330

 

 

357,178

 

 

302,317

 

Securities held-to-maturity, at amortized cost

 

 

 

63

 

 

70

 

 

73

 

 

81

 

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

 

691,990

 

 

684,410

 

 

611,175

 

 

592,781

 

 

687,818

 

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

 

311,410

 

 

235,834

 

 

234,067

 

 

350,636

 

 

184,105

 

Federal home loan and federal reserve bank stock, at cost

 

10,264

 

 

10,264

 

 

10,264

 

 

9,660

 

 

9,660

 

Accrued interest receivable

 

5,875

 

 

6,296

 

 

5,474

 

 

5,770

 

 

4,391

 

Other real estate owned, net

 

81

 

 

112

 

 

31

 

 

31

 

 

41

 

Premises and equipment, net

 

3,224

 

 

3,276

 

 

3,195

 

 

3,656

 

 

2,679

 

Operating lease right-of-use assets

 

4,927

 

 

5,280

 

 

4,476

 

 

 

 

 

Derivative assets

 

30,885

 

 

25,698

 

 

3,392

 

 

999

 

 

1,305

 

Low income housing tax credit investment

 

981

 

 

1,008

 

 

1,015

 

 

1,044

 

 

1,074

 

Deferred tax asset

 

 

 

 

 

3,153

 

 

3,329

 

 

3,135

 

Other assets

 

7,032

 

 

7,951

 

 

19,728

 

 

4,741

 

 

3,621

 

Total assets

 

$

2,136,844

 

 

$

2,242,034

 

 

$

1,891,394

 

 

$

2,004,318

 

 

$

2,150,553

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS EQUITY

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

Noninterest bearing demand accounts

 

$

1,394,433

 

 

$

1,549,886

 

 

$

1,452,191

 

 

$

1,525,922

 

 

$

1,708,590

 

Interest bearing accounts

 

453,662

 

 

388,764

 

 

146,573

 

 

152,911

 

 

228,736

 

Deposits held-for-sale

 

 

 

 

 

 

 

104,172

 

 

 

Total deposits

 

1,848,095

 

 

1,938,650

 

 

1,598,764

 

 

1,783,005

 

 

1,937,326

 

Federal home loan bank advances

 

20,000

 

 

 

 

 

 

 

 

 

Other borrowings

 

 

 

53,545

 

 

57,135

 

 

 

 

 

Notes payable

 

4,000

 

 

4,286

 

 

4,286

 

 

4,857

 

 

5,143

 

Subordinated debentures, net

 

15,813

 

 

15,809

 

 

15,806

 

 

15,802

 

 

15,799

 

Operating lease liabilities

 

5,237

 

 

5,581

 

 

4,762

 

 

 

 

 

Accrued expenses and other liabilities

 

13,085

 

 

9,415

 

 

9,504

 

 

9,408

 

 

8,901

 

Total liabilities

 

1,906,230

 

 

2,027,286

 

 

1,690,257

 

 

1,813,072

 

 

1,967,169

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

 

 

 

 

Class A common stock

 

167

 

 

166

 

 

166

 

 

166

 

 

166

 

Class B non-voting common stock

 

12

 

 

12

 

 

12

 

 

12

 

 

12

 

Additional paid-in capital

 

125,573

 

 

125,599

 

 

125,684

 

 

125,665

 

 

125,610

 

Retained earnings

 

88,712

 

 

82,056

 

 

76,900

 

 

67,464

 

 

59,444

 

Accumulated other comprehensive income (loss)

 

16,150

 

 

6,915

 

 

(1,625

)

 

(2,061

)

 

(1,848

)

Total shareholders equity

 

230,614

 

 

214,748

 

 

201,137

 

 

191,246

 

 

183,384

 

Total liabilities and shareholders equity

 

$

2,136,844

 

 

$

2,242,034

 

 

$

1,891,394

 

 

$

2,004,318

 

 

$

2,150,553

 

SILVERGATE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Data)

(Unaudited)

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 2019

 

June 30, 2019

 

September 30, 2018

 

September 30, 2019

 

September 30, 2018

Interest income

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

13,574

 

 

$

11,684

 

 

$

12,726

 

 

$

38,369

 

 

$

35,357

 

Securities

 

6,510

 

 

4,501

 

 

1,941

 

 

14,044

 

 

5,016

 

Other interest earning assets

 

1,183

 

 

3,058

 

 

3,921

 

 

8,038

 

 

10,386

 

Dividends and other

 

121

 

 

229

 

 

119

 

 

472

 

 

392

 

Total interest income

 

21,388

 

 

19,472

 

 

18,707

 

 

60,923

 

 

51,151

 

Interest expense

 

 

 

 

 

 

 

 

 

 

Deposits

 

2,385

 

 

1,194

 

 

400

 

 

3,920

 

 

1,386

 

Federal home loan bank advances

 

172

 

 

 

 

 

 

172

 

 

19

 

Notes payable and other

 

117

 

 

443

 

 

98

 

 

702

 

 

315

 

Subordinated debentures

 

271

 

 

267

 

 

239

 

 

802

 

 

671

 

Total interest expense

 

2,945

 

 

1,904

 

 

737

 

 

5,596

 

 

2,391

 

Net interest income before provision for loan losses

 

18,443

 

 

17,568

 

 

17,970

 

 

55,327

 

 

48,760

 

(Reversal of) provision for loan losses

 

(858

)

 

152

 

 

 

 

(439

)

 

148

 

Net interest income after provision for loan losses

 

19,301

 

 

17,416

 

 

17,970

 

 

55,766

 

 

48,612

 

Noninterest income

 

 

 

 

 

 

 

 

 

 

Mortgage warehouse fee income

 

373

 

 

346

 

 

393

 

 

1,085

 

 

1,152

 

Service fees related to off-balance sheet deposits

 

283

 

 

412

 

 

573

 

 

1,454

 

 

1,683

 

Deposit related fees

 

1,657

 

 

1,171

 

 

688

 

 

3,815

 

 

1,655

 

Gain on sale of loans

 

248

 

 

156

 

 

416

 

 

593

 

 

699

 

Gain on sale of branch, net

 

 

 

 

 

 

 

5,509

 

 

 

Other income

 

38

 

 

69

 

 

114

 

 

168

 

 

383

 

Total noninterest income

 

2,599

 

 

2,154

 

 

2,184

 

 

12,624

 

 

5,572

 

Noninterest expense

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

8,277

 

 

8,082

 

 

7,259

 

 

25,124

 

 

21,335

 

Occupancy and equipment

 

892

 

 

1,012

 

 

742

 

 

2,777

 

 

2,251

 

Communications and data processing

 

1,298

 

 

1,123

 

 

703

 

 

3,458

 

 

2,149

 

Professional services

 

889

 

 

1,073

 

 

1,507

 

 

3,407

 

 

3,918

 

Federal deposit insurance

 

39

 

 

168

 

 

214

 

 

382

 

 

1,078

 

Correspondent bank charges

 

288

 

 

301

 

 

240

 

 

868

 

 

914

 

Other loan expense

 

47

 

 

118

 

 

57

 

 

290

 

 

198

 

Other real estate owned expense (recovery)

 

75

 

 

5

 

 

(10

)

 

80

 

 

42

 

Other general and administrative

 

806

 

 

839

 

 

705

 

 

2,432

 

 

2,461

 

Total noninterest expense

 

12,611

 

 

12,721

 

 

11,417

 

 

38,818

 

 

34,346

 

Income before income taxes

 

9,289

 

 

6,849

 

 

8,737

 

 

29,572

 

 

19,838

 

Income tax expense

 

2,633

 

 

1,693

 

 

2,458

 

 

8,324

 

 

5,525

 

Net income

 

6,656

 

 

5,156

 

 

6,279

 

 

21,248

 

 

14,313

 

Basic earnings per share

 

$

0.37

 

 

$

0.29

 

 

$

0.35

 

 

$

1.19

 

 

$

0.89

 

Diluted earnings per share

 

$

0.36

 

 

$

0.28

 

 

$

0.34

 

 

$

1.16

 

 

$

0.86

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

Basic

 

17,840

 

 

17,835

 

 

17,808

 

 

17,830

 

 

16,113

 

Diluted

 

18,246

 

 

18,257

 

 

18,254

 

 

18,252

 

 

16,607

 

 

Investor Relations:

Jamie Lillis / Shannon Devine

(858) 200-3782

[email protected]