Silvergate Capital Corporation (“Silvergate” or “Company”)
(NYSE:SI) and its wholly-owned subsidiary, Silvergate Bank
(“Bank”), today announced financial results for the three and nine
months ended September 30, 2020.
Third Quarter 2020 Financial Highlights
- Net income for the quarter was $7.1 million, or $0.37 per
diluted share, compared to net income of $5.5 million, or $0.29 per
diluted share, for the second quarter of 2020, and net income of
$6.7 million, or $0.36 per diluted share, for the third quarter of
2019
- The Silvergate Exchange Network (“SEN”) handled 68,361
transactions in the third quarter of 2020, an increase of 70%,
compared to 40,286 transactions in the second quarter of 2020, and
an increase of 455% compared to 12,312 transactions in the third
quarter of 2019
- The SEN handled $36.7 billion of U.S. dollar transfers in the
third quarter, an increase of 64% compared to $22.4 billion in the
second quarter of 2020, and an increase of 252% compared to $10.4
billion in the third quarter of 2019
- Digital currency customer related fee income for the quarter
was $3.3 million, compared to $2.4 million for the second quarter
of 2020, and $1.6 million for the third quarter of 2019
- Digital currency customers grew to 928 at September 30, 2020,
compared to 881 at June 30, 2020, and 756 at September 30,
2019
- Digital currency deposits grew by $586.0 million to $2.1
billion as of September 30, 2020, compared to $1.5 billion as of
June 30, 2020
- At September 30, 2020, outstanding loan deferrals related to
COVID-19 was 4.4% of total gross loans held-for-investment compared
to 15.5% at June 30, 2020
- Book value per share was $15.18 at September 30, 2020, compared
to $14.36 at June 30, 2020, and $12.92 at September 30, 2019
- The Company’s total risk-based capital ratio was 24.68% at
September 30, 2020, compared to 25.54% at June 30, 2020 and 25.97%
at September 30, 2019
Alan Lane, president and chief executive officer of Silvergate,
commented, “Our third quarter results clearly demonstrate the
accelerating customer adoption of the Silvergate Exchange Network
that we continue to experience as the SEN handled 68,361
transactions in the quarter, a 70% sequential increase from the
2020 second quarter and a 455% increase as compared to the 2019
third quarter. This strong growth contributed to the 106% increase
in digital currency fee income of $3.3 million in the third quarter
as compared to $1.6 million in the year ago third quarter. We also
achieved an important milestone at the conclusion of the quarter as
the SEN has handled $100 billion in transfer volumes just three
years after its creation and introduction to the digital currency
industry, which clearly demonstrates its value and importance to
the digital currency ecosystem.”
Mr. Lane continued, “Today, as an industry leader and innovator,
our team continues to provide uninterrupted banking access for our
customers with 95% of our employees working remotely. The Bank’s
infrastructure has provided Silvergate with the foundation to
succeed in what has become a very digital world and we see an ample
runway for further growth given the numerous opportunities to
expand the value of the SEN through new product development. One
such example is SEN leverage which has completed its initial pilot
phase with approved lines of credit totaling $35.5 million, up from
$22.5 million in the second quarter. We envision a significant
growth trajectory with SEN leverage and will judiciously expand
credit availability to our customers over time. In conclusion,
Silvergate continues to perform at a very high level as the network
effect and competitive barriers of the SEN further expand, the
credit metrics of our loan portfolio remain strong, and the Bank
remains well capitalized, with a strong liquidity position, to
support future growth.”
As of or for the Three Months
Ended
September 30, 2020
June 30, 2020
September 30, 2019
Financial Highlights
(Dollars in thousands, except per
share data)
Net income
$
7,060
$
5,466
$
6,656
Diluted earnings per share
$
0.37
$
0.29
$
0.36
Return on average assets (ROAA)(1)
1.13
%
1.02
%
1.20
%
Return on average equity (ROAE)(1)
10.14
%
8.72
%
11.78
%
Net interest margin(1)(2)
3.19
%
3.14
%
3.39
%
Cost of deposits(1)(3)
0.01
%
0.37
%
0.50
%
Cost of funds(1)(3)
0.07
%
0.42
%
0.59
%
Efficiency ratio(4)
61.74
%
65.03
%
59.93
%
Total assets
$
2,620,573
$
2,340,713
$
2,136,844
Total deposits
$
2,281,108
$
1,670,909
$
1,848,095
Book value per share
$
15.18
$
14.36
$
12.92
Tier 1 leverage ratio
10.36
%
11.57
%
10.43
%
Total risk-based capital ratio
24.68
%
25.54
%
25.97
%
________________________
- Data has been annualized.
- 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.
- Cost of deposits and cost of funds increased beginning in the
second quarter of 2019 due to callable brokered certificates of
deposit that were issued as part of a hedging strategy. During the
first and second quarters of 2020 all brokered certificates of
deposit were called and their unamortized premium expense was fully
written-off.
- Efficiency ratio is calculated by dividing noninterest expenses
by net interest income plus noninterest income.
Digital Currency Initiative
At September 30, 2020, the Company’s digital currency customers
increased to 928 from 881 at June 30, 2020, and from 756 at
September 30, 2019. At September 30, 2020, Silvergate had over 200
prospective digital currency customer leads in various stages of
the customer onboarding process and pipeline. There were a record
68,361 transactions on the SEN for the third quarter of 2020, an
increase of 70%, compared to 40,286 transactions for the second
quarter of 2020. In addition, for the third quarter of 2020, $36.7
billion of U.S. dollar transfers occurred on the SEN, another
quarterly record and a 64% increase from the second quarter of
2020.
Three Months Ended
September 30, 2020
June 30, 2020
September 30, 2019
(Dollars in millions)
# SEN Transactions
68,361
40,286
12,312
$ Volume of SEN Transfers
$
36,663
$
22,423
$
10,425
Results of Operations, Quarter Ended September 30,
2020
Net Interest Income and Net Interest Margin Analysis (Taxable
Equivalent Basis)
In 2020, the Company made multiple purchases of tax-exempt
municipal bonds. Tax-exempt income from these securities is
calculated 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 $19.4
million for the third quarter of 2020, compared to $16.5 million
for the second quarter of 2020, and $18.4 million for the third
quarter of 2019.
Compared to the second quarter of 2020, net interest income
increased $2.9 million due to a decrease of $1.6 million in
interest expense driven by calling the remainder of the callable
brokered certificates of deposit in the second quarter, and an
increase of $1.3 million in interest income driven primarily by
higher mortgage warehouse loan balances.
Average total interest earning assets increased by $305.8
million for the third quarter of 2020 compared to the second
quarter of 2020, primarily due to an increase in loans and, to a
lesser extent, an increase in interest earning deposits in other
banks and securities. The average yield on interest earning assets
decreased from 3.51% for the second quarter of 2020 to 3.25% for
the third quarter of 2020, primarily due to lower yields on
interest earning deposits in other banks, and the variable rate
portion of the securities and loan portfolio. The impact of lower
yields was partially offset by income from our investments in
tax-exempt municipal bonds.
Average interest bearing liabilities decreased $35.0 million for
the third quarter of 2020 compared to the second quarter of 2020,
due to calling the remaining balance of brokered certificates of
deposit in the second quarter of 2020, partially offset by an
increase in federal home loan bank (“FHLB”) advances. The average
rate paid on total interest bearing liabilities decreased from
2.78% for the second quarter of 2020 to 0.60% for the third quarter
of 2020, primarily due to no expense related to brokered
certificates of deposit compared to $1.6 million of expense in the
second quarter of 2020.
Compared to the third quarter of 2019, net interest income
increased $0.9 million, due to a decrease of $2.6 million in
interest expense, partially offset by a decrease of $1.6 million in
interest income. Average total interest earning assets increased by
$257.7 million for the third quarter of 2020 compared to the third
quarter of 2019, due to an increase in loans and, to a lesser
extent, increases in securities and interest earning deposits in
other banks. The average yield on total interest earning assets
decreased from 3.93% for the third quarter of 2019 to 3.25% for the
third quarter of 2020, primarily due to lower yields on loans,
securities and interest earning deposits in other banks. The lower
yields were due to declines in federal funds rate and London
Interbank Offered Rate (“LIBOR”), which was partially offset by the
impact of interest rate floors which were put in place during 2019.
Average interest bearing liabilities decreased $248.3 million for
the third quarter of 2020 compared to the third quarter of 2019,
due to calling the remaining balance of brokered certificates of
deposit in the second quarter of 2020, partially offset by an
increase in FHLB advances. The average rate on total interest
bearing liabilities decreased from 2.35% for the third quarter of
2019 to 0.60% for the third quarter of 2020, primarily due to the
impact of calling the remaining outstanding balance of brokered
certificates of deposits in the second quarter of 2020.
Net interest margin for the third quarter of 2020 was 3.19%,
compared to 3.14% for the second quarter of 2020, and 3.39% for the
third quarter of 2019. The increase in the net interest margin
compared to the second quarter of 2020 was driven by lower premium
expense associated with calling brokered certificates of deposits
and lower rates on other interest bearing liabilities. The net
interest margin decrease from the third quarter of 2019 was
primarily due to lower yields on loans, cash and cash equivalents,
and securities due to a declining rate environment, offset by lower
interest expense from calling the remainder of the brokered
certificates of deposit in the second quarter and a higher
proportion of loans driven by mortgage warehouse.
Three Months Ended
September 30, 2020
June 30, 2020
September 30, 2019
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
$
245,855
$
196
0.32
%
$
168,297
$
405
0.97
%
$
234,606
$
1,183
2.00
%
Taxable securities
679,277
3,746
2.19
%
690,810
4,123
2.40
%
935,263
6,510
2.76
%
Tax-exempt securities(1)
267,511
2,177
3.24
%
231,232
1,996
3.47
%
—
—
—
Loans(2)(3)
1,209,884
13,527
4.45
%
1,008,242
11,710
4.67
%
979,283
13,574
5.50
%
Other
15,112
116
3.05
%
13,224
200
6.08
%
10,742
121
4.47
%
Total interest earning assets
2,417,639
19,762
3.25
%
2,111,805
18,434
3.51
%
2,159,894
21,388
3.93
%
Noninterest earning assets
68,327
51,776
45,306
Total assets
$
2,485,966
$
2,163,581
$
2,205,200
Liabilities and Shareholders’
Equity
Interest bearing liabilities:
Interest bearing deposits
$
108,755
$
57
0.21
%
$
190,394
$
1,652
3.49
%
$
438,277
$
2,385
2.16
%
FHLB advances and other borrowings
124,886
65
0.21
%
78,266
44
0.23
%
43,642
289
2.63
%
Subordinated debentures
15,825
257
6.46
%
15,821
267
6.79
%
15,810
271
6.80
%
Total interest bearing liabilities
249,466
379
0.60
%
284,481
1,963
2.78
%
497,729
2,945
2.35
%
Noninterest bearing liabilities:
Noninterest bearing deposits
1,935,661
1,611,972
1,468,992
Other liabilities
23,860
15,070
14,400
Shareholders’ equity
276,979
252,058
224,079
Total liabilities and shareholders’
equity
$
2,485,966
$
2,163,581
$
2,205,200
Net interest spread(4)
2.65
%
0.73
%
1.58
%
Net interest income, taxable equivalent
basis
$
19,383
$
16,471
$
18,443
Net interest margin(5)
3.19
%
3.14
%
3.39
%
Reconciliation to
reported net interest income:
Adjustments for taxable equivalent
basis
(457
)
(419
)
—
Net interest income, as reported
$
18,926
$
16,052
$
18,443
________________________
- 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.
- Loans include nonaccrual loans and loans held-for-sale, net of
deferred fees and before allowance for loan losses.
- Interest income includes amortization of deferred loan fees,
net of deferred loan costs.
- Net interest spread is the difference between interest rates
earned on interest earning assets and interest rates paid on
interest bearing liabilities.
- 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 recorded no additional provision for loan losses for
the third quarter of 2020, compared to $0.2 million for the second
quarter of 2020, and reversal of $0.9 million for the third quarter
of 2019. The level of the allowance for loan losses was unchanged
from the second quarter of 2020 based on the loan-to-value ratios
in the low- to mid-50% range in the Company's commercial,
multi-family and one-to-four family real estate loans
held-for-investment portfolios as of September 30, 2020, which
provides a lower probability of loss in the event of defaults in
the Company’s loan portfolio.
Noninterest Income
Noninterest income for the third quarter of 2020 was $4.0
million, a decrease of $1.5 million, or 27.1%, from the second
quarter of 2020. The primary driver of this decrease was a
reduction of $2.6 million in gains on sale of securities offset by
a $0.9 million, or 35.1%, increase in deposit related fees. Deposit
related fees from digital currency customers were $3.3 million for
the third quarter of 2020, an increase of $0.9 million, or 36.1%
compared to $2.4 million for the second quarter of 2020.
Noninterest income for the third quarter of 2020 increased by
$1.4 million, or 52.5%, compared to the third quarter of 2019. This
increase was primarily due to a $1.6 million, or 98.7%, increase in
deposit related fees and a $0.4 million, or 103.2% increase in
mortgage warehouse fee income, partially offset by a $0.3 million
decrease in gain (loss) on sale of loans and a $0.3 million
decrease in service fees related to off-balance sheet deposits.
Deposit related fees from digital currency customers increased $1.7
million, or 106.1%, to $3.3 million compared to $1.6 million for
the third quarter of 2019.
Three Months Ended
September 30, 2020
June 30, 2020
September 30, 2019
(Dollars in thousands)
Noninterest income:
Mortgage warehouse fee income
$
758
$
450
$
373
Service fees related to off-balance sheet
deposits
1
7
283
Deposit related fees
3,293
2,438
1,657
Gain (loss) on sale of securities, net
—
2,556
(16
)
(Loss) gain on sale of loans, net
(96
)
(56
)
248
Other income
8
39
54
Total noninterest income
$
3,964
$
5,434
$
2,599
Noninterest Expense
Noninterest expense totaled $14.1 million for the third quarter
of 2020, an increase of $0.2 million compared to the second quarter
of 2020, and an increase of $1.5 million compared to the third
quarter of 2019.
Noninterest expense increased from the prior quarter due to
increases in professional services and communications and data
processing, partially offset by a decrease in salaries and employee
benefits.
Noninterest expense increased from the third quarter of 2019 due
to increases in salaries and employee benefits, professional
services and other general and administrative expense.
Three Months Ended
September 30, 2020
June 30, 2020
September 30, 2019
(Dollars in thousands)
Noninterest expense:
Salaries and employee benefits
$
8,899
$
9,002
$
8,277
Occupancy and equipment
845
894
892
Communications and data processing
1,389
1,313
1,298
Professional services
1,207
1,105
889
Federal deposit insurance
209
182
39
Correspondent bank charges
403
347
288
Other loan expense
60
99
47
Other real estate owned expense
23
—
75
Other general and administrative
1,098
1,030
806
Total noninterest expense
$
14,133
$
13,972
$
12,611
Income Tax Expense
Income tax expense was $1.7 million for the third quarter of
2020, compared to $1.8 million for the second quarter of 2020, and
$2.6 million for the third quarter of 2019. Our effective tax rate
for the third quarter of 2020 was 19.4%, compared to 25.0% for the
second quarter of 2020, and 28.3% for the third quarter of 2019.
The lower effective tax rate during the third quarter of 2020 when
compared to the second quarter of 2020 and third quarter of 2019
was due to tax-exempt income earned on certain municipal bonds and
the return to provision adjustment which included research and
development tax credits.
Results of Operations, Nine Months Ended September 30,
2020
Net income for the nine months ended September 30, 2020 was
$16.9 million, or $0.88 per diluted share, compared to $21.2
million, or $1.16 per diluted share, for the comparable period in
2019.
Net interest income for the nine months ended September 30, 2020
was $50.5 million, compared to $55.3 million for the same period in
2019. The decrease in net interest income was primarily due to a
$3.5 million decrease in interest income and a $1.3 million
increase in interest expense. The decrease in net interest income
was due to lower yields on loans, securities, and cash and cash
equivalents, as well as additional brokered certificates of deposit
interest expense driven by accelerated call premiums, partially
offset by hedge related securities investments and interest rate
floors.
Noninterest income for the nine months ended September 30, 2020
was $14.3 million, compared to $12.6 million for the same period in
2019. The increase in noninterest income was primarily due to a
$3.8 million gain on sale of securities and the $3.7 million
increase in fee income from our digital currency customers, less
the $5.5 million gain on a branch sale that occurred in the first
quarter of 2019. Digital currency customer related fee income for
the nine months ended September 30, 2020 was $7.3 million, compared
to $3.6 million for the nine months ended September 30, 2019.
Noninterest expense was $42.0 million for the nine months ended
September 30, 2020, compared to $38.8 million for the nine months
ended September 30, 2019. The increase in noninterest expense was
primarily due to increases in salaries and benefits and other
general and administrative expenses.
Income tax expense was $5.3 million for the nine months ended
September 30, 2020, compared to income tax expense of $8.3 million
for 2019. Our effective tax rates for the nine months ended
September 30, 2020 and 2019 were 23.8% and 28.1%, respectively. The
decrease in the Company’s effective tax rate was primarily related
to tax-exempt income earned on certain municipal bonds.
Balance Sheet
Deposits
At September 30, 2020, deposits totaled $2.3 billion, an
increase of $610.2 million, or 36.5%, from June 30, 2020, and an
increase of $433.0 million, or 23.4%, from September 30, 2019.
Noninterest bearing deposits totaled $2.2 billion, representing
approximately 94.9% of total deposits at September 30, 2020, an
increase of $601.2 million from the prior quarter end, and a $769.9
million increase compared to September 30, 2019. The increase in
total deposits from the prior quarter 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 weighted average cost of deposits for the third quarter of
2020 was 0.01%, compared to 0.37% for the second quarter of 2020,
and 0.50% for the third quarter of 2019. The decrease in the
weighted average cost of deposits compared to the second quarter of
2020 and the third quarter of 2019 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
September 30, 2020
June 30, 2020
September 30, 2019
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Average
Balance
Average
Rate
(Dollars in thousands)
Noninterest bearing demand accounts
$
1,935,661
—
$
1,611,972
—
$
1,468,992
—
Interest bearing accounts:
Interest bearing demand accounts
41,871
0.10
%
44,643
0.14
%
47,945
0.14
%
Money market and savings accounts
65,646
0.25
%
66,598
0.39
%
81,941
1.00
%
Certificates of deposit:
Brokered certificates of deposit
—
—
77,717
8.11
%
303,524
2.81
%
Other
1,238
0.96
%
1,436
0.84
%
4,867
1.33
%
Total interest bearing deposits
108,755
0.21
%
190,394
3.49
%
438,277
2.16
%
Total deposits
$
2,044,416
0.01
%
$
1,802,366
0.37
%
$
1,907,269
0.50
%
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 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:
September 30, 2020
June 30, 2020
September 30, 2019
Number of Customers
Total Deposits(1)
Number of Customers
Total Deposits(1)
Number of Customers
Total Deposits(1)
(Dollars in millions)
Digital currency exchanges
69
$
729
64
$
601
55
$
544
Institutional investors
599
850
566
577
482
506
Other customers
260
515
251
331
219
247
Total
928
$
2,095
881
$
1,509
756
$
1,297
________________________
- Total deposits may not foot due to rounding.
Loan Portfolio
Total loans were $1.4 billion at September 30, 2020, an increase
of $286.3 million, or 25.7%, from June 30, 2020, and an increase of
$398.3 million, or 39.7%, from September 30, 2019. Total loans at
September 30, 2020 consisted of loans held-for-investment, net of
$735.9 million and loans held for sale of $665.8 million.
September 30, 2020
June 30, 2020
September 30, 2019
(Dollars in thousands)
Real estate loans:
One-to-four family
$
209,040
$
216,038
$
212,440
Multi-family
72,714
72,007
77,901
Commercial
316,653
316,815
322,733
Construction
13,854
10,822
3,986
Commercial and industrial
25,951
24,707
14,563
Consumer and other
5,559
243
76
Reverse mortgage
1,322
1,309
1,629
Mortgage warehouse
94,684
155,308
61,856
Total gross loans held-for-investment
739,777
797,249
695,184
Deferred fees, net
2,843
3,062
2,997
Total loans held-for-investment
742,620
800,311
698,181
Allowance for loan losses
(6,763
)
(6,763
)
(6,191
)
Loans held-for-investment, net
735,857
793,548
691,990
Loans held-for-sale
665,842
321,835
311,410
Total loans
$
1,401,699
$
1,115,383
$
1,003,400
Loans held-for-sale are comprised entirely of mortgage warehouse
loans at September 30, 2020 and June 30, 2020, compared to $306.7
million of the total balance at September 30, 2019.
Asset Quality and Allowance for Loan Losses
The allowance for loan losses was $6.8 million at September 30,
2020 and June 30, 2020, compared to $6.2 million at September 30,
2019. The ratio of the allowance for loan losses to gross loans
held-for-investment at September 30, 2020 was 0.91%, compared to
0.85% and 0.89% at June 30, 2020 and September 30, 2019,
respectively.
Nonperforming assets totaled $4.1 million, or 0.16% of total
assets, at September 30, 2020, a decrease of $0.4 million from $4.6
million, or 0.20% of total assets at June 30, 2020. Nonperforming
assets decreased $2.7 million, from $6.8 million, or 0.32%, of
total assets, at September 30, 2019.
September 30, 2020
June 30, 2020
September 30, 2019
Asset Quality
(Dollars in thousands)
Nonperforming Assets:
Nonperforming loans
$
4,107
$
4,528
$
6,707
Troubled debt restructurings
$
1,572
$
1,620
$
1,840
Other real estate owned, net
$
27
51
$
81
Nonperforming assets
$
4,134
$
4,579
$
6,788
Asset Quality Ratios:
Nonperforming assets to total assets
0.16
%
0.20
%
0.32
%
Nonperforming loans to gross loans(1)
0.56
%
0.57
%
0.96
%
Nonperforming assets to gross loans and
other real estate owned(1)
0.56
%
0.57
%
0.98
%
Net charge-offs (recoveries) to average
total loans(1)
0.00
%
0.00
%
0.01
%
Allowance for loan losses to gross
loans(1)
0.91
%
0.85
%
0.89
%
Allowance for loan losses to nonperforming
loans
164.67
%
149.36
%
92.31
%
________________________
- Loans exclude loans held-for-sale at each of the dates
presented.
Coronavirus Disease 2019 (“COVID-19”) Update
During the second and third quarter of 2020, the Company
modified a total of 56 loans representing $142.9 million in loan
balances, or 19%, of total gross loans held-for-investment as of
September 30, 2020. All loans modified under these programs were
maintained on full accrual status during the deferral period.
Section 4013 of the Coronavirus Aid, Relief, and Economic Security
Act (“CARES Act”) addressed COVID-19 related modifications and
specified that such modifications made on loans that were current
as of December 31, 2019 are not troubled debt restructurings
(“TDRs”). In accordance with interagency guidance issued in April
2020, these short-term modifications made to a borrower affected by
the COVID-19 pandemic and governmental shutdown orders, such as
payment deferrals, fee waivers and extensions of repayment terms,
do not need to be identified as TDRs if the loans were current at
the time a modification plan was implemented. The Company elected
to adopt these provisions of the CARES Act for the temporary
modifications described above. None of the modified loans met the
criteria of a TDR under the CARES Act or the related interagency
statement.
As of September 30, 2020, the remaining loans modified due to
COVID-19 that are in deferral and have not resumed full contractual
payments are as follows:
Loan Balance At Period
End
Percentage of
Loan Portfolio Balance
(Dollars in thousands)
COVID-19 related modifications:
Real estate loans:
One-to-four family
$
9,320
1.3
%
Retail
1,955
0.3
%
Hospitality
21,447
2.9
%
Total commercial
23,402
3.2
%
Total modifications outstanding
$
32,722
4.4
%
Securities
Securities available-for-sale decreased $6.9 million, or 0.7%,
from $951.1 million at June 30, 2020, and increased $34.2 million,
or 3.8%, from $909.9 million at September 30, 2019, to $944.2
million at September 30, 2020. The Company did not purchase or sell
any securities during the third quarter of 2020.
Capital Ratios
At September 30, 2020, the Company’s ratio of common equity to
total assets was 10.83%, compared with 11.45% at June 30, 2020, and
10.79% at September 30, 2019. At September 30, 2020, the Company’s
book value per share was $15.18, compared to $14.36 at June 30,
2020, and $12.92 at September 30, 2019.
At September 30, 2020, the Company had a tier 1 leverage ratio
of 10.36%, common equity tier 1 capital ratio of 22.58%, tier 1
capital ratio of 24.03% and total capital ratio of 24.68%.
At September 30, 2020, the Bank had a tier 1 leverage ratio of
9.84%, common equity tier 1 capital ratio of 22.82%, tier 1 capital
ratio of 22.82% and total capital ratio of 23.47%. 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
capital ratio and 10.00% for total capital ratio.
Capital Ratios(1)
September 30, 2020
June 30, 2020
September 30, 2019
The Company
Tier 1 leverage ratio
10.36
%
11.57
%
10.43
%
Common equity tier 1 capital ratio
22.58
%
23.32
%
23.57
%
Tier 1 risk-based capital ratio
24.03
%
24.86
%
25.28
%
Total risk-based capital ratio
24.68
%
25.54
%
25.97
%
Common equity to total assets
10.83
%
11.45
%
10.79
%
The Bank
Tier 1 leverage ratio
9.84
%
10.92
%
10.01
%
Common equity tier 1 capital ratio
22.82
%
23.48
%
24.30
%
Tier 1 risk-based capital ratio
22.82
%
23.48
%
24.30
%
Total risk-based capital ratio
23.47
%
24.17
%
25.00
%
________________________
- September 30, 2020 capital ratios are preliminary.
Conference Call and Webcast
The Company will host a conference call on Monday, October 26,
2020 at 11:00 a.m. (Eastern Time) to present and discuss third
quarter 2020 results. The conference call can be accessed live by
dialing 1-877-407-4018 or for international callers,
1-201-689-8471, and requesting to be joined to the Silvergate
Capital Corporation Third Quarter 2020 Earnings Conference Call. A
replay will be available starting at 2:00 p.m. (Eastern Time) on
October 26, 2020 and can be accessed by dialing 1-844-512-2921, or
for international callers, 1-412-317-6671. The passcode for the
replay is 13711244. The replay will be available until 11:59 p.m.
(Eastern Time) on November 9, 2020.
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 is a registered bank holding
company for Silvergate Bank, headquartered in La Jolla, California.
Silvergate Bank is a commercial bank that opened in 1988 and has
been profitable for 22 consecutive years. The Bank 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
Company’s assets consist primarily of its investment in the Bank
and the Company’s 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 Bank’s
deposits are insured up to legal limits by the Federal Deposit
Insurance Corporation.
Forward Looking Statements
Statements in this earnings release may constitute
forward-looking statements within the meaning of the Securities
Exchange Act of 1934, as amended. These forward-looking statements
reflect our current views with respect to, among other things,
future events and our financial performance. These statements are
often, but not always, made through the use of words or phrases
such as “may,” “should,” “could,” “predict,” “potential,”
“believe,” “will likely result,” “expect,” “continue,” “will,”
“anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,”
“projection,” “forecast,” “goal,” “target,” “would,” “aim” and
“outlook,” or the negative version of those words or other
comparable words or phrases of a future or forward-looking nature.
These forward-looking statements are not historical facts, and are
based on current expectations, estimates and projections about our
industry and management’s beliefs and certain assumptions made by
management, many of which, by their nature, are inherently
uncertain and beyond our control. The inclusion of these
forward-looking statements should not be regarded as a
representation by us or any other person that such expectations,
estimates and projections will be achieved. Although we believe
that the expectations reflected in these forward-looking statements
are reasonable as of the date made, such forward-looking statements
are not guarantees of future performance and are subject to risks,
assumptions and uncertainties that are difficult to predict. For
information about other important factors that could cause actual
results to differ materially from those discussed in the
forward-looking statements contained in this release, please refer
to the Company's public reports filed with the U.S. Securities and
Exchange Commission.
Further, given its ongoing and dynamic nature, it is difficult
to predict the full impact of the COVID-19 outbreak on our
business. The extent of such impact will depend on future
developments, which are highly uncertain, including when the
coronavirus can be controlled and abated and when and how the
economy may be reopened. As the result of the COVID-19 pandemic and
the related adverse local and national economic consequences, we
could be subject to any of the following risks, any of which could
have a material, adverse effect on our business, financial
condition, liquidity, and results of operations: the demand for our
products and services may decline, making it difficult to grow
assets and income; if the economy is unable to fully reopen, and
high levels of unemployment continue for an extended period of
time, loan delinquencies, problem assets, and foreclosures may
increase, resulting in increased charges and reduced income;
collateral for loans, especially real estate, may decline in value,
which could cause loan losses to increase; our allowance for loan
losses may increase if borrowers experience financial difficulties,
which will adversely affect our net income; the net worth and
liquidity of loan guarantors may decline, impairing their ability
to honor commitments to us; as the result of the decline in the
Federal Reserve Board’s target federal funds rate to near 0%, the
yield on our assets may decline to a greater extent than the
decline in our cost of interest-bearing liabilities, reducing our
net interest margin and spread and reducing net income; our cyber
security risks are increased as the result of an increase in the
number of employees working remotely; and FDIC premiums may
increase if the agency experiences additional resolution costs.
Any forward-looking statement speaks only as of the date of this
earnings release, and we do not undertake any obligation to
publicly update or review any forward-looking statement, whether
because of new information, future developments or otherwise,
except as required by law. New risks and uncertainties may emerge
from time to time, and it is not possible for us to predict their
occurrence. In addition, we cannot assess the impact of each risk
and uncertainty on our business or the extent to which any risk or
uncertainty, or combination of risks and uncertainties, may cause
actual results to differ materially from those contained in any
forward-looking statements.
SILVERGATE CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In
Thousands) (Unaudited)
September 30, 2020
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
ASSETS
Cash and due from banks
$
15,152
$
13,777
$
2,778
$
1,579
$
4,098
Interest earning deposits in other
banks
182,330
185,667
163,422
132,025
156,160
Cash and cash equivalents
197,482
199,444
166,200
133,604
160,258
Securities available-for-sale, at fair
value
944,161
951,094
964,317
897,766
909,917
Securities held-to-maturity, at amortized
cost
—
—
—
—
—
Loans held-for-sale, at lower of cost or
fair value
665,842
321,835
435,023
375,922
311,410
Loans held-for-investment, net of
allowance for loan losses
735,857
793,548
679,416
664,622
691,990
Federal home loan and federal reserve bank
stock, at cost
14,839
13,499
10,269
10,264
10,264
Accrued interest receivable
7,385
7,700
6,344
5,950
5,875
Other real estate owned, net
27
51
—
128
81
Premises and equipment, net
3,122
3,326
3,406
3,259
3,224
Operating lease right-of-use assets
3,478
3,846
4,210
4,571
4,927
Derivative assets
34,138
35,770
33,506
23,440
30,885
Low income housing tax credit
investment
890
917
927
954
981
Other assets
13,352
9,683
7,090
7,647
7,032
Total assets
$
2,620,573
$
2,340,713
$
2,310,708
$
2,128,127
$
2,136,844
LIABILITIES AND SHAREHOLDERS’
EQUITY
Deposits:
Noninterest bearing demand accounts
$
2,164,326
$
1,563,136
$
1,745,219
$
1,343,667
$
1,394,433
Interest bearing accounts
116,782
107,773
257,738
470,987
453,662
Total deposits
2,281,108
1,670,909
2,002,957
1,814,654
1,848,095
Federal home loan bank advances
10,000
360,000
30,000
49,000
20,000
Notes payable
—
—
—
3,714
4,000
Subordinated debentures, net
15,827
15,823
15,820
15,816
15,813
Operating lease liabilities
3,770
4,146
4,515
4,881
5,237
Accrued expenses and other liabilities
26,107
21,730
12,664
9,026
13,085
Total liabilities
2,336,812
2,072,608
2,065,956
1,897,091
1,906,230
Commitments and contingencies
Preferred stock
—
—
—
—
—
Class A common stock
186
184
184
178
167
Class B non-voting common stock
1
3
3
9
12
Additional paid-in capital
132,647
132,479
132,336
132,138
125,573
Retained earnings
109,229
102,169
96,703
92,310
88,712
Accumulated other comprehensive income
41,698
33,270
15,526
6,401
16,150
Total shareholders’ equity
283,761
268,105
244,752
231,036
230,614
Total liabilities and shareholders’
equity
$
2,620,573
$
2,340,713
$
2,310,708
$
2,128,127
$
2,136,844
SILVERGATE CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In
Thousands, Except Per Share Data) (Unaudited)
Three Months Ended
Nine Months Ended
September 30, 2020
June 30, 2020
September 30, 2019
September 30, 2020
September 30, 2019
Interest income
Loans, including fees
$
13,527
$
11,710
$
13,574
$
38,358
$
38,369
Taxable securities
3,746
4,123
6,510
13,917
14,044
Tax-exempt securities
1,720
1,577
—
3,345
—
Other interest earning assets
196
405
1,183
1,325
8,038
Dividends and other
116
200
121
437
472
Total interest income
19,305
18,015
21,388
57,382
60,923
Interest expense
Deposits
57
1,652
2,385
5,760
3,920
Federal home loan bank advances
65
44
172
336
172
Notes payable and other
—
—
117
36
702
Subordinated debentures
257
267
271
794
802
Total interest expense
379
1,963
2,945
6,926
5,596
Net interest income before provision for
loan losses
18,926
16,052
18,443
50,456
55,327
Provision for (reversal of) loan
losses
—
222
(858
)
589
(439
)
Net interest income after provision for
loan losses
18,926
15,830
19,301
49,867
55,766
Noninterest income
Mortgage warehouse fee income
758
450
373
1,590
1,085
Service fees related to off-balance sheet
deposits
1
7
283
78
1,454
Deposit related fees
3,293
2,438
1,657
7,497
3,815
Gain (loss) on sale of securities, net
—
2,556
(16
)
3,753
(16
)
(Loss) gain on sale of loans, net
(96
)
(56
)
248
354
593
Gain on sale of branch, net
—
—
—
—
5,509
Gain on extinguishment of debt
—
—
—
925
—
Other income
8
39
54
132
184
Total noninterest income
3,964
5,434
2,599
14,329
12,624
Noninterest expense
Salaries and employee benefits
8,899
9,002
8,277
26,856
25,124
Occupancy and equipment
845
894
892
2,646
2,777
Communications and data processing
1,389
1,313
1,298
3,963
3,458
Professional services
1,207
1,105
889
3,297
3,407
Federal deposit insurance
209
182
39
514
382
Correspondent bank charges
403
347
288
1,123
868
Other loan expense
60
99
47
281
290
Other real estate owned expense
23
—
75
23
80
Other general and administrative
1,098
1,030
806
3,277
2,432
Total noninterest expense
14,133
13,972
12,611
41,980
38,818
Income before income taxes
8,757
7,292
9,289
22,216
29,572
Income tax expense
1,697
1,826
2,633
5,297
8,324
Net income
7,060
5,466
6,656
16,919
21,248
Basic earnings per share
$
0.38
$
0.29
$
0.37
$
0.91
$
1.19
Diluted earnings per share
$
0.37
$
0.29
$
0.36
$
0.88
$
1.16
Weighted average shares outstanding:
Basic
18,682
18,672
17,840
18,674
17,830
Diluted
19,134
19,106
18,246
19,119
18,252
Non-GAAP Financial Measures
The Company uses certain non-GAAP financial measures to provide
meaningful supplemental information regarding the Company’s
operational performance and to enhance investors’ overall
understanding of such financial performance. However, these
non-GAAP financial measures are supplemental and are not a
substitute for an analysis based on GAAP measures. As other
companies may use different calculations for these adjusted
measures, this presentation may not be comparable to other
similarly titled adjusted measures reported by other companies.
This earnings release includes certain non-GAAP financial
measures for the nine months ended September 30, 2020 and 2019, in
order to present our results of operations for that period on a
basis consistent with our historical operations. On November 15,
2018, the Company and the Bank entered into a purchase and
assumption agreement with HomeStreet Bank to sell the Bank’s retail
branch located in San Marcos, California and business loan
portfolio to HomeStreet Bank. This transaction, which was completed
in March 2019, generated a pre-tax gain on sale of $5.5 million.
There were no non-GAAP adjustments for the three and nine months
ended September 30, 2020 or for the three months ended September
30, 2019. Management believes that these non-GAAP financial
measures provide useful information to investors that is
supplementary to the Company’s financial condition, results of
operations and cash flows computed in accordance with GAAP.
Nine Months Ended September
30,
2020
2019
(Dollars in thousands)
Net income
Net income, as reported
$
16,919
$
21,248
Adjustments:
Gain on sale of branch, net
—
(5,509
)
Tax effect(1)
—
1,574
Adjusted net income
$
16,919
$
17,313
Noninterest income / average
assets(2)
Noninterest income
$
14,329
$
12,624
Adjustments:
Gain on sale of branch, net
—
(5,509
)
Adjusted noninterest income
14,329
7,115
Average assets
2,293,277
2,063,298
Noninterest income / average assets, as
reported
0.83
%
0.82
%
Adjusted noninterest income / average
assets
0.83
%
0.46
%
Return on average assets
(ROAA)(2)
Adjusted net income
$
16,919
$
17,313
Average assets
2,293,277
2,063,298
Return on average assets (ROAA), as
reported
0.99
%
1.38
%
Adjusted return on average assets
0.99
%
1.12
%
Return on average equity
(ROAE)(2)
Adjusted net income
$
16,919
$
17,313
Average equity
258,904
208,775
Return on average equity (ROAE), as
reported
8.73
%
13.61
%
Adjusted return on average equity
8.73
%
11.09
%
Efficiency ratio
Noninterest expense
$
41,980
$
38,818
Net interest income
50,456
55,327
Noninterest income
14,329
12,624
Total net interest income and noninterest
income
64,785
67,951
Adjustments:
Gain on sale of branch, net
—
(5,509
)
Adjusted total net interest income and
noninterest income
64,785
62,442
Efficiency ratio, as reported
64.80
%
57.13
%
Adjusted efficiency ratio
64.80
%
62.17
%
________________________
- Amount represents the total income tax effect of the
adjustment, which is calculated based on the applicable marginal
tax rate of 28.58%.
- Data has been annualized.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201026005227/en/
Jamie Lillis / Shannon Devine (858) 200-3782
investors@silvergate.com
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