LA JOLLA, Calif.--(BUSINESS WIRE)--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.”
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As of or for the Three Months Ended |
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September 30,
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June 30,
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September 30,
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Financial Highlights |
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(Dollars in thousands, except per share data) |
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Net income |
|
$ |
6,656 |
|
|
$ |
5,156 |
|
|
$ |
6,279 |
|
Diluted earnings per share |
|
$ |
0.36 |
|
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$ |
0.28 |
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$ |
0.34 |
|
Return on average assets (ROAA)(1) |
|
1.20 |
% |
|
1.03 |
% |
|
1.27 |
% |
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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 |
% |
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64.50 |
% |
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56.65 |
% |
|||
Total assets |
|
$ |
2,136,844 |
|
|
$ |
2,242,034 |
|
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$ |
2,150,553 |
|
Total deposits |
|
$ |
1,848,095 |
|
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$ |
1,938,650 |
|
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$ |
1,937,326 |
|
Book value per share |
|
$ |
12.92 |
|
|
$ |
12.04 |
|
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$ |
10.30 |
|
Tier 1 leverage ratio |
|
10.43 |
% |
|
11.11 |
% |
|
10.25 |
% |
|||
Total risk-based capital ratio |
|
25.97 |
% |
|
26.57 |
% |
|
26.56 |
% |
|||
________________________
- Data has been annualized.
- Net interest margin is a ratio calculated as annualized net interest income 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 the cost of a hedging strategy discussed in “Balance Sheet —Securities” in more detail below.
- 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 $41.5 billion for the nine months ended September 30, 2019.
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Three Months Ended |
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Nine Months Ended |
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September 30,
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June 30,
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September 30,
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September 30,
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September 30,
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(Dollars in millions) |
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# SEN Transactions |
|
12,312 |
|
|
12,254 |
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1,453 |
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31,663 |
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|
2,892 |
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$ Volume of SEN Transactions |
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$ |
10,425 |
|
|
$ |
8,625 |
|
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$ |
1,680 |
|
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$ |
23,126 |
|
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$ |
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 Sheet—Securities” 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 Sheet—Securities” 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.
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Three Months Ended |
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September 30, 2019 |
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June 30, 2019 |
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September 30, 2018 |
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Average
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Interest
|
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Average
|
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Average
|
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Interest
|
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Average
|
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Average
|
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Interest
|
|
Average
|
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(Dollars in thousands) |
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Assets |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Interest earning assets: |
|
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|
|
|
|
|
|
|
|
|
|
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|
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|
|||||||||||||||
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 |
|
|
|
|
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Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
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|
|
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Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Noninterest bearing deposits |
|
1,468,992 |
|
|
|
|
|
|
1,445,529 |
|
|
|
|
|
|
1,512,393 |
|
|
|
|
|
||||||||||||
Other liabilities |
|
14,400 |
|
|
|
|
|
|
11,371 |
|
|
|
|
|
|
5,297 |
|
|
|
|
|
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Shareholders’ equity |
|
224,079 |
|
|
|
|
|
|
205,948 |
|
|
|
|
|
|
181,351 |
|
|
|
|
|
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Total liabilities and shareholders’ equity |
|
$ |
2,205,200 |
|
|
|
|
|
|
$ |
2,009,654 |
|
|
|
|
|
|
$ |
1,955,503 |
|
|
|
|
|
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Net interest spread(3) |
|
|
|
|
|
1.58 |
% |
|
|
|
|
|
1.74 |
% |
|
|
|
|
|
2.68 |
% |
||||||||||||
Net interest income |
|
|
|
$ |
18,443 |
|
|
|
|
|
|
$ |
17,568 |
|
|
|
|
|
|
$ |
17,970 |
|
|
|
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Net interest margin(4) |
|
|
|
|
|
3.39 |
% |
|
|
|
|
|
3.56 |
% |
|
|
|
|
|
3.67 |
% |
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________________________
- 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 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 Sheet—Asset 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.
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Three Months Ended |
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September 30,
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June 30,
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September 30,
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(Dollars in thousands) |
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Noninterest income: |
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|
|
|
|
|
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Mortgage warehouse fee income |
|
$ |
373 |
|
|
$ |
346 |
|
|
$ |
393 |
|
Service fees related to off-balance sheet deposits |
|
283 |
|
|
412 |
|
|
573 |
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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 Bank’s 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.
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Three Months Ended |
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September 30,
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June 30,
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September 30,
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(Dollars in thousands) |
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Noninterest expense: |
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|
|
|
|
|
||||||
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 Sheet—Securities” below.
|
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Three Months Ended |
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|
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September 30, 2019 |
|
June 30, 2019 |
|
September 30, 2018 |
|||||||||||||||
|
|
Average
|
|
Average
|
|
Average
|
|
Average
|
|
Average
|
|
Average
|
|||||||||
|
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|
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|
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|||||||||
|
|
(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
|
|
Total
|
|
Number of
|
|
Total
|
|
Number of
|
|
Total
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
(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,
|
|
June 30,
|
|
September 30,
|
||||||
|
|
|
|
|
|
|
||||||
|
|
(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,
|
|
June 30,
|
|
September 30,
|
||||||
|
|
|
|
|
|
|
||||||
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 |
% |
|||
________________________
- 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 Company’s 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 Bank’s 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 Company’s 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 Company’s 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,
|
|
June 30,
|
|
September 30,
|
|||
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 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.
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 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. 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,
|
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
||||||||||
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,
|
|
June 30,
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
||||||||||
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 |
|
|||||
