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Silvergate Capital Corporation Announces Third Quarter 2022 Results

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, 2022.

Third Quarter 2022 Highlights

  • Net income for the quarter was $43.3 million, compared to $38.6 million for the second quarter of 2022, and $23.5 million for the third quarter of 2021
  • Net income available to common shareholders for the quarter was $40.6 million, or $1.28 per diluted common share, compared to net income of $35.9 million, or $1.13 per diluted share, for the second quarter of 2022, and net income of $23.5 million, or $0.88 per diluted share, for the third quarter of 2021
  • Digital asset customers grew to 1,677 at September 30, 2022, compared to 1,585 at June 30, 2022, and 1,305 at September 30, 2021
  • The Silvergate Exchange Network (“SEN”) handled $112.6 billion of U.S. dollar transfers in the third quarter of 2022, a decrease of 41% compared to $191.3 billion in the second quarter of 2022, and a decrease of 30% compared to $162.0 billion in the third quarter of 2021
  • Total SEN Leverage commitments increased to $1.5 billion at September 30, 2022, compared to $1.4 billion at June 30, 2022, and $322.5 million at September 30, 2021
  • Digital asset customer related fee income for the quarter was $7.9 million, compared to $8.8 million for the second quarter of 2022, and $8.1 million for the third quarter of 2021
  • Average digital asset customer deposits were $12.0 billion during the third quarter of 2022, compared to $13.8 billion during the second quarter of 2022

Alan Lane, president and chief executive officer of Silvergate, commented, “Silvergate delivered another quarter of strong performance, achieving record net income available to common shareholders of $40.6 million. While volumes on the Silvergate Exchange Network (SEN) decreased this quarter compared to the overall industry, we remain confident in the power of our platform and the opportunities for expansion within the network. We continued to see demand for our SEN Leverage product and growth in our new customer pipeline, a testament to the strength of our platform against a challenging backdrop in the broader digital asset industry.”

“We continue to invest in our strategic initiatives, and as we always have, we will balance our culture of innovation with our prudent, risk-based approach to launching new products. I look forward to the rest of this year and remain confident in our path forward as we head into the last quarter of 2022,” Lane added.

 

 

As of or for the Three Months Ended

 

 

September 30,

2022

 

June 30,

2022

 

September 30,

2021

 

 

 

 

 

 

 

Financial Highlights

 

(Dollars in thousands, except per share data)

Net income

 

$

43,328

 

 

$

38,605

 

 

$

23,492

 

Net income available to common shareholders

 

$

40,640

 

 

$

35,917

 

 

$

23,492

 

Diluted earnings per common share

 

$

1.28

 

 

$

1.13

 

 

$

0.88

 

Return on average assets (ROAA)(1)

 

 

1.04

%

 

 

0.89

%

 

 

0.75

%

Return on average common equity (ROACE)(1)

 

 

12.99

%

 

 

10.99

%

 

 

10.45

%

Net interest margin(1)(2)

 

 

2.31

%

 

 

1.96

%

 

 

1.26

%

Cost of deposits(1)

 

 

0.16

%

 

 

0.00

%

 

 

0.00

%

Cost of funds(1)

 

 

0.28

%

 

 

0.03

%

 

 

0.01

%

Efficiency ratio(3)

 

 

37.11

%

 

 

38.30

%

 

 

43.20

%

Total assets

 

$

15,467,340

 

 

$

15,900,494

 

 

$

12,776,621

 

Total deposits

 

$

13,238,426

 

 

$

13,500,720

 

 

$

11,662,520

 

Book value per common share

 

$

35.94

 

 

$

38.86

 

 

$

33.10

 

Tier 1 leverage ratio

 

 

10.71

%

 

 

10.02

%

 

 

8.71

%

Total risk-based capital ratio

 

 

46.63

%

 

 

45.58

%

 

 

47.78

%

________________________

(1)

Data has been annualized.

(2)

Net interest margin is a ratio calculated as net interest income, on a fully taxable equivalent basis for interest income on tax-exempt securities using the federal statutory tax rate of 21.0%, divided by average interest earning assets for the same period.

(3)

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

Digital Asset Initiative

At September 30, 2022, the Company’s digital asset customers increased to 1,677 from 1,585 at June 30, 2022, and from 1,305 at September 30, 2021. At September 30, 2022, prospective digital asset customer leads in various stages of the customer onboarding process and pipeline were above 300. For the third quarter of 2022, $112.6 billion of U.S. dollar transfers occurred on the SEN, a 41% decrease from $191.3 billion transfers in the second quarter of 2022, and a decrease of 30% compared to $162.0 billion in the third quarter of 2021.

Results of Operations, Quarter Ended September 30, 2022

Net Interest Income and Net Interest Margin Analysis (Taxable Equivalent Basis)

The Company’s securities portfolio includes tax-exempt municipal bonds with tax-exempt income from these securities calculated and presented below on a taxable equivalent basis. Net interest income, net interest spread and net interest margin are presented on a taxable equivalent basis to consistently reflect income from taxable securities and tax-exempt securities based on the federal statutory tax rate of 21.0%.

Net interest income on a taxable equivalent basis totaled $84.7 million for the third quarter of 2022, compared to $74.5 million for the second quarter of 2022, and $39.0 million for the third quarter of 2021.

Compared to the second quarter of 2022, net interest income increased $10.2 million due to increased interest income driven by higher yields across the majority of interest earning asset categories, partially offset by increased interest expense. Average total interest earning assets decreased by $0.7 billion for the third quarter of 2022 compared to the second quarter of 2022, primarily due to decreased securities and loans balances. The average yield on interest earning assets increased from 1.99% for the second quarter of 2022 to 2.58% for the third quarter of 2022, with the most significant impacts due to higher yields on securities and interest earning deposits in other banks. The yield on securities increased from 1.66% in the second quarter 2022 to 2.21% in the third quarter of 2022 due to an increase in market interest rates. Average interest bearing liabilities increased $1.3 billion for the third quarter of 2022 compared to the second quarter of 2022, due to the utilization of brokered certificates of deposit and higher average balances of FHLB advances. The average rate on total interest bearing liabilities increased from 0.87% for the second quarter of 2022 to 2.19% for the third quarter of 2022, primarily due to interest expense associated with recently issued brokered certificates of deposit and an increase in interest rates on FHLB advances.

Compared to the third quarter of 2021, net interest income increased $45.7 million due to increased interest income, with the largest driver being higher yields on interest earning assets, partially offset by increased interest expense. Average total interest earning assets increased by $2.3 billion for the third quarter of 2022 compared to the third quarter of 2021, primarily due to increased securities balances partially offset by a decrease in interest earning deposits in other banks. The average yield on total interest earning assets increased from 1.27% for the third quarter of 2021 to 2.58% for the third quarter of 2022, primarily due to overall higher yields resulting from increased interest rates. Average interest bearing liabilities increased $1.7 billion for the third quarter of 2022 compared to the third quarter of 2021, due to the recent utilization of brokered certificates of deposit as well as higher average FHLB advances. The average rate on total interest bearing liabilities increased from 1.17% for the third quarter of 2021 to 2.19% for the third quarter of 2022, primarily due to the impact of increased interest rates on short-term borrowings.

Net interest margin for the third quarter of 2022 was 2.31%, compared to 1.96% for the second quarter of 2022, and 1.26% for the third quarter of 2021. The increase in net interest margin compared to the second quarter of 2022 was primarily due to higher yields on adjustable rate securities and interest earning deposits in other banks reflecting the increasing interest rate environment, partially offset by higher borrowing costs associated with brokered certificates of deposit and FHLB advances as well as net expense from derivatives. The increase in net interest margin compared to the third quarter of 2021 was primarily due to higher yields on adjustable rate securities, partially offset by higher borrowing costs associated with brokered certificates of deposit and FHLB advances.

 

 

Three Months Ended

 

 

September 30, 2022

 

June 30, 2022

 

September 30, 2021

 

 

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

 

$

1,324,361

 

$

8,001

 

 

2.40

%

 

$

1,458,173

 

$

3,008

 

 

0.83

%

 

$

4,104,776

 

$

1,755

 

 

0.17

%

Taxable securities

 

 

8,868,639

 

 

47,401

 

 

2.12

%

 

 

9,058,960

 

 

30,986

 

 

1.37

%

 

 

5,449,202

 

 

14,000

 

 

1.02

%

Tax-exempt securities(1)

 

 

2,889,391

 

 

18,243

 

 

2.50

%

 

 

2,992,038

 

 

18,759

 

 

2.51

%

 

 

1,187,452

 

 

6,347

 

 

2.12

%

Loans(2)(3)

 

 

1,407,290

 

 

20,663

 

 

5.83

%

 

 

1,689,852

 

 

22,054

 

 

5.23

%

 

 

1,493,590

 

 

16,972

 

 

4.51

%

Other

 

 

62,835

 

 

289

 

 

1.82

%

 

 

58,852

 

 

719

 

 

4.90

%

 

 

31,028

 

 

195

 

 

2.49

%

Total interest earning assets

 

 

14,552,516

 

 

94,597

 

 

2.58

%

 

 

15,257,875

 

 

75,526

 

 

1.99

%

 

 

12,266,048

 

 

39,269

 

 

1.27

%

Noninterest earning assets

 

 

942,110

 

 

 

 

 

 

1,010,486

 

 

 

 

 

 

197,477

 

 

 

 

Total assets

 

$

15,494,626

 

 

 

 

 

$

16,268,361

 

 

 

 

 

$

12,463,525

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits

 

$

1,000,615

 

$

5,221

 

 

2.07

%

 

$

68,128

 

$

2

 

 

0.01

%

 

$

76,898

 

$

26

 

 

0.13

%

FHLB advances and other borrowings

 

 

769,565

 

 

4,399

 

 

2.27

%

 

 

397,810

 

 

796

 

 

0.80

%

 

 

1

 

 

 

 

0.00

%

Subordinated debentures

 

 

15,854

 

 

258

 

 

6.46

%

 

 

15,850

 

 

243

 

 

6.15

%

 

 

15,839

 

 

247

 

 

6.19

%

Total interest bearing liabilities

 

 

1,786,034

 

 

9,878

 

 

2.19

%

 

 

481,788

 

 

1,041

 

 

0.87

%

 

 

92,738

 

 

273

 

 

1.17

%

Noninterest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest bearing deposits

 

 

12,139,522

 

 

 

 

 

 

13,951,397

 

 

 

 

 

 

11,305,650

 

 

 

 

Other liabilities

 

 

134,164

 

 

 

 

 

 

330,658

 

 

 

 

 

 

50,657

 

 

 

 

Shareholders’ equity

 

 

1,434,906

 

 

 

 

 

 

1,504,518

 

 

 

 

 

 

1,014,480

 

 

 

 

Total liabilities and shareholders’ equity

 

$

15,494,626

 

 

 

 

 

$

16,268,361

 

 

 

 

 

$

12,463,525

 

 

 

 

Net interest spread(4)

 

 

 

 

 

0.39

%

 

 

 

 

 

1.12

%

 

 

 

 

 

0.10

%

Net interest income, taxable equivalent basis

 

 

 

$

84,719

 

 

 

 

 

 

$

74,485

 

 

 

 

 

 

$

38,996

 

 

 

Net interest margin(5)

 

 

 

 

 

2.31

%

 

 

 

 

 

1.96

%

 

 

 

 

 

1.26

%

Reconciliation to reported net interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments for taxable equivalent basis

 

 

 

 

(3,831

)

 

 

 

 

 

 

(3,939

)

 

 

 

 

 

 

(1,333

)

 

 

Net interest income, as reported

 

 

 

$

80,888

 

 

 

 

 

 

$

70,546

 

 

 

 

 

 

$

37,663

 

 

 

________________________

(1)

Interest income on tax-exempt securities is presented on a taxable equivalent basis using the federal statutory tax rate of 21.0% for all periods presented.

(2)

Loans include nonaccrual loans and loans held-for-sale, net of deferred fees and before allowance for loan losses.

(3)

Interest income includes amortization of deferred loan fees, net of deferred loan costs.

(4)

Net interest spread is the difference between interest rates earned on interest earning assets and interest rates paid on interest bearing liabilities.

(5)

Net interest margin is a ratio calculated as annualized net interest income, on a taxable equivalent basis, divided by average interest earning assets for the same period.

Provision (Reversal) for Loan Losses

The Company recorded a $0.6 million reversal of provision for loan losses for the third quarter of 2022, compared to no provision for the second quarter of 2022 or for the third quarter of 2021 as a result of management’s assessment of the level of the allowance for loan losses, and the amount and mix of the loan portfolio, among other factors.

Noninterest Income

Noninterest income for the third quarter of 2022 was $8.5 million, a decrease of $0.8 million, or 8.2%, from the second quarter of 2022. The primary reasons for this decrease were a $0.9 million, or 9.7%, decrease in deposit related fees and a $0.3 million loss on sale of loans, offset by a $0.3 million increase in other income. During the third quarter of 2022, the Company sold approximately $3.6 million of one-to-four family real estate loans and recognized a loss on sale of $0.3 million.

Noninterest income for the third quarter of 2022 decreased by $5.6 million, or 39.8%, compared to the third quarter of 2021. This decrease was primarily due to a $5.2 million gain on sale of securities in the third quarter of 2021.

 

 

Three Months Ended

 

 

September 30,

2022

 

June 30,

2022

 

September 30,

2021

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Noninterest income:

 

 

 

 

 

 

Deposit related fees

 

$

7,953

 

 

$

8,808

 

 

$

8,171

Mortgage warehouse fee income

 

 

482

 

 

 

555

 

 

 

665

(Loss) gain on sale of securities, net

 

 

 

 

 

(199

)

 

 

5,182

Loss on sale of loans, net

 

 

(329

)

 

 

 

 

 

Other income

 

 

348

 

 

 

50

 

 

 

24

Total noninterest income

 

$

8,454

 

 

$

9,214

 

 

$

14,042

Noninterest Expense

Noninterest expense totaled $33.2 million for the third quarter of 2022, an increase of $2.6 million, or 8.5%, compared to the second quarter of 2022, and an increase of $10.8 million, or 48.4%, compared to the third quarter of 2021. The increase in noninterest expense compared to the prior quarter was primarily due to an increase in salaries and benefits expense attributable to increased headcount as part of organic growth to support the Company’s strategic initiatives. Other general and administrative expenses in the second quarter of 2022 included a $1.6 million reversal of the provision for off-balance sheet commitments. The increase in noninterest expense from the third quarter of 2021 was primarily driven by an increase in salaries and employee benefits attributable to increased headcount as well as increases in communications and data processing, and professional services, all of which support organic growth and the Company’s strategic initiatives. This was partially offset by a decrease in federal deposit insurance expense due to a lower growth rate in deposit levels.

 

 

Three Months Ended

 

 

September 30,

2022

 

June 30,

2022

 

September 30,

2021

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Noninterest expense:

 

 

 

 

 

 

Salaries and employee benefits

 

$

19,632

 

$

16,356

 

$

10,729

Occupancy and equipment

 

 

822

 

 

1,063

 

 

523

Communications and data processing

 

 

3,210

 

 

2,967

 

 

1,793

Professional services

 

 

4,314

 

 

6,280

 

 

2,471

Federal deposit insurance

 

 

1,217

 

 

1,495

 

 

4,297

Correspondent bank charges

 

 

902

 

 

801

 

 

572

Other loan expense

 

 

529

 

 

682

 

 

299

Other general and administrative

 

 

2,527

 

 

908

 

 

1,655

Total noninterest expense

 

$

33,153

 

$

30,552

 

$

22,339

Income Tax Expense

Income tax expense was $13.5 million for the third quarter of 2022, compared to $10.6 million for the second quarter of 2022, and $5.9 million for the third quarter of 2021. Our effective tax rate for the third quarter of 2022 was 23.7%, compared to 21.5% for the second quarter of 2022, and 20.0% for the third quarter of 2021. The increase in the tax expense and effective tax rate for the third quarter of 2022 compared to the second quarter of 2022 was driven by the increase in overall earnings in proportion to tax-exempt income earned on certain municipal bonds which remained relatively consistent.

Balance Sheet

Deposits

At September 30, 2022, deposits totaled $13.2 billion, a decrease of $262.3 million, or 1.9%, from June 30, 2022, and an increase of $1.6 billion, or 13.5%, from September 30, 2021. Noninterest bearing deposits totaled $12.0 billion, representing approximately 90.7% of total deposits at September 30, 2022, a decrease of $1.4 billion from the prior quarter end, and a $0.4 billion increase compared to September 30, 2021. At September 30, 2022, the Company held $1.2 billion of brokered certificates of deposits that were issued during the third quarter of 2022.

Our continued growth has been accompanied by significant fluctuations in the levels of our deposits, in particular our deposits from customers operating in the digital asset industry. The Bank’s average total deposits from digital asset customers during the third quarter of 2022 amounted to $12.0 billion, with the high and low daily totals of these deposit levels during such time being $14.0 billion and $11.1 billion, respectively, compared to an average of $13.8 billion during the second quarter of 2022, and high and low daily deposit levels of $17.6 billion and $12.6 billion, respectively.

Demand for new deposit accounts is generated by the Company’s banking platform for innovators that includes the SEN, which is enabled through Silvergate’s proprietary API, and other cash management solutions. These tools enable Silvergate’s customers to grow their businesses and scale operations. The following table sets forth a breakdown of the Company’s digital asset customer base and the deposits held by such customers at the dates noted below:

 

 

September 30, 2022

 

June 30, 2022

 

September 30, 2021

 

 

Number of

Customers

 

Total

Deposits(1)

 

Number of

Customers

 

Total

Deposits(1)

 

Number of

Customers

 

Total

Deposits(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in millions)

Digital asset exchanges

 

108

 

$

7,579

 

102

 

$

8,133

 

94

 

$

6,759

Institutional investors

 

1,069

 

 

3,043

 

1,017

 

 

3,293

 

830

 

 

3,344

Other customers

 

500

 

 

1,247

 

466

 

 

1,879

 

381

 

 

1,365

Total

 

1,677

 

$

11,869

 

1,585

 

$

13,304

 

1,305

 

$

11,468

________________________

(1) Total deposits may not foot due to rounding.

The weighted average cost of deposits for the third quarter of 2022 was 0.16%, compared to 0.00% for the second quarter of 2022 and the third quarter of 2021. The increase in the weighted average cost of deposits in the third quarter of 2022 was due to the issuance of brokered certificates of deposit.

 

 

Three Months Ended

 

 

September 30, 2022

 

June 30, 2022

 

September 30, 2021

 

 

Average

Balance

 

Average

Rate

 

Average

Balance

 

Average

Rate

 

Average

Balance

 

Average

Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Noninterest bearing demand accounts

 

$

12,139,522

 

 

 

$

13,951,397

 

 

 

$

11,305,650

 

 

Interest bearing accounts:

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand accounts

 

 

3,470

 

0.00

%

 

 

3,250

 

0.00

%

 

 

8,597

 

0.05

%

Money market and savings accounts

 

 

49,720

 

0.00

%

 

 

64,456

 

0.01

%

 

 

67,735

 

0.14

%

Certificates of deposit

 

 

947,425

 

2.19

%

 

 

422

 

0.95

%

 

 

566

 

0.70

%

Total interest bearing deposits

 

 

1,000,615

 

2.07

%

 

 

68,128

 

0.01

%

 

 

76,898

 

0.13

%

Total deposits

 

$

13,140,137

 

0.16

%

 

$

14,019,525

 

0.00

%

 

$

11,382,548

 

0.00

%

Loan Portfolio

Total loans, including net loans held-for-investment and loans held-for-sale, were $1.4 billion at September 30, 2022, a decrease of $74.3 million, or 5.1%, from June 30, 2022, and a decrease of $235.8 million, or 14.5%, from September 30, 2021. During the third quarter of 2022, the Company sold $3.6 million of gross one-to-four family real estate loans and transferred an additional $33.9 million of gross one-to-four family loans to held-for-sale.

 

 

September 30,

2022

 

June 30,

2022

 

September 30,

2021

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Real estate loans:

 

 

 

 

 

 

One-to-four family

 

$

37,636

 

 

$

82,671

 

 

$

119,817

 

Multi-family

 

 

9,028

 

 

 

8,827

 

 

 

54,636

 

Commercial

 

 

63,979

 

 

 

69,637

 

 

 

250,295

 

Construction

 

 

 

 

 

 

 

 

6,046

 

Commercial and industrial(1)

 

 

302,160

 

 

 

302,610

 

 

 

254,624

 

Reverse mortgage and other

 

 

1,270

 

 

 

1,110

 

 

 

1,385

 

Mortgage warehouse

 

 

58,760

 

 

 

136,485

 

 

 

128,975

 

Total gross loans held-for-investment

 

 

472,833

 

 

 

601,340

 

 

 

815,778

 

Deferred fees, net

 

 

(1,871

)

 

 

(2,227

)

 

 

883

 

Total loans held-for-investment

 

 

470,962

 

 

 

599,113

 

 

 

816,661

 

Allowance for loan losses

 

 

(3,176

)

 

 

(4,442

)

 

 

(6,916

)

Loans held-for-investment, net

 

 

467,786

 

 

 

594,671

 

 

 

809,745

 

Loans held-for-sale(2)

 

 

924,644

 

 

 

872,056

 

 

 

818,447

 

Total loans

 

$

1,392,430

 

 

$

1,466,727

 

 

$

1,628,192

 

________________________

(1)

Commercial and industrial loans includes $302.2 million, $302.6 million and $254.5 million of SEN Leverage loans as of September 30, 2022, June 30, 2022 and September 30, 2021, respectively.

(2)

Loans held-for-sale includes $891.5 million, $872.1 million and $818.4 million of mortgage warehouse loans as of September 30, 2022, June 30, 2022 and September 30, 2021, respectively.

Asset Quality and Allowance for Loan Losses

The allowance for loan losses was $3.2 million at September 30, 2022, compared to $4.4 million at June 30, 2022 and $6.9 million at September 30, 2021. The ratio of the allowance for loan losses to total loans held-for-investment at September 30, 2022 was 0.67%, compared to 0.74% and 0.85% at June 30, 2022 and September 30, 2021, respectively.

Nonperforming assets totaled $3.7 million, or 0.02% of total assets, at September 30, 2022, a decrease of $26.0 thousand from $3.8 million, or 0.02% of total assets at June 30, 2022. Nonperforming assets decreased $2.0 million, from $5.8 million, or 0.05%, of total assets at September 30, 2021.

 

 

September 30,

2022

 

June 30,

2022

 

September 30,

2021

 

 

 

 

 

 

 

Asset Quality

 

(Dollars in thousands)

Nonperforming Assets:

 

 

 

 

 

 

Nonaccrual loans

 

$

3,698

 

 

$

3,724

 

 

$

5,781

 

Troubled debt restructurings

 

$

1,623

 

 

$

1,619

 

 

$

1,867

 

Other real estate owned, net

 

$

45

 

 

$

45

 

 

 

 

Nonperforming assets

 

$

3,743

 

 

$

3,769

 

 

$

5,781

 

 

 

 

 

 

 

 

Asset Quality Ratios:

 

 

 

 

 

 

Nonperforming assets to total assets

 

 

0.02

%

 

 

0.02

%

 

 

0.05

%

Nonaccrual loans to total loans(1)

 

 

0.79

%

 

 

0.62

%

 

 

0.71

%

Net charge-offs to average total loans(1)

 

 

0.09

%

 

 

0.00

%

 

 

0.00

%

Allowance for loan losses to total loans(1)

 

 

0.67

%

 

 

0.74

%

 

 

0.85

%

Allowance for loan losses to nonaccrual loans

 

 

85.88

%

 

 

119.28

%

 

 

119.63

%

________________________

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

Securities

The total securities portfolio decreased $0.4 billion, or 3.3%, from $11.8 billion at June 30, 2022, and increased $4.2 billion, or 57.9%, from $7.2 billion at September 30, 2021, to $11.4 billion at September 30, 2022. As of September 30, 2021, securities classified as held-to-maturity remained flat from prior quarter at $3.1 billion.

Capital Ratios

At September 30, 2022, the Company’s ratio of common equity to total assets was 7.36%, compared with 7.73% at June 30, 2022, and 6.88% at September 30, 2021. At September 30, 2022, the Company’s book value per common share was $35.94, compared to $38.86 at June 30, 2022, and $33.10 at September 30, 2021. The decrease in the Company’s book value per common share from June 30, 2022 was due to an increase in accumulated other comprehensive loss of $133.9 million.

At September 30, 2022, the Company had a tier 1 leverage ratio of 10.71%, common equity tier 1 capital ratio of 40.72%, tier 1 risk-based capital ratio of 46.54% and total risk-based capital ratio of 46.63%.

At September 30, 2022, the Bank had a tier 1 leverage ratio of 10.45%, common equity tier 1 capital ratio of 45.45%, tier 1 risk-based capital ratio of 45.45% and total risk-based capital ratio of 45.53%. These capital ratios each exceeded the “well capitalized” standards defined by federal banking regulations of 5.00% for tier 1 leverage ratio, 6.5% for common equity tier 1 capital ratio, 8.00% for tier 1 risk-based capital ratio and 10.00% for total risk-based capital ratio.

Capital Ratios(1)

 

September 30,

2022

 

June 30,

2022

 

September 30,

2021

The Company

 

 

 

 

 

 

Tier 1 leverage ratio

 

10.71

%

 

10.02

%

 

8.71

%

Common equity tier 1 capital ratio

 

40.72

%

 

39.64

%

 

38.30

%

Tier 1 risk-based capital ratio

 

46.54

%

 

45.45

%

 

47.47

%

Total risk-based capital ratio

 

46.63

%

 

45.58

%

 

47.78

%

Common equity to total assets

 

7.36

%

 

7.73

%

 

6.88

%

The Bank

 

 

 

 

 

 

Tier 1 leverage ratio

 

10.45

%

 

9.94

%

 

8.24

%

Common equity tier 1 capital ratio

 

45.45

%

 

45.12

%

 

44.89

%

Tier 1 risk-based capital ratio

 

45.45

%

 

45.12

%

 

44.89

%

Total risk-based capital ratio

 

45.53

%

 

45.24

%

 

45.20

%

________________________

(1) September 30, 2022 capital ratios are preliminary.

Subsequent Event

On October 11, 2022, the Company’s board of directors declared a quarterly dividend payment of $13.44 per share, equivalent to $0.336 per depositary share, on its Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”), for the period covering August 15, 2022 through November 14, 2022, for a total dividend of $2.7 million. The depositary shares representing the Series A Preferred Stock are traded on the New York Stock Exchange under the symbol “SI PRA.” The dividend will be payable on November 15, 2022 to shareholders of record of the Series A Preferred Stock as of October 28, 2022.

Conference Call and Webcast

The Company will host a conference call on Tuesday, October 18, 2022 at 11:00 a.m. (Eastern Time) to present and discuss third quarter 2022 financial results. The conference call can be accessed live by dialing 1-844-200-6205 or for international callers, 1-929-526-1599, entering the access code 636898. A replay will be available starting at 1:00 p.m. (Eastern Time) on October 18, 2022 and can be accessed by dialing 1-866-813-9403, or for international callers +44-204-525-0658. The passcode for the replay is 590370. The replay will be available until 11:59 p.m. (Eastern Time) on November 1, 2022.

Interested investors and other parties may also listen to a simultaneous webcast of the conference call by logging onto the investor relations section of the Company's website at https://ir.silvergate.com. The online replay will remain available for a limited time beginning immediately following the call.

About Silvergate

Silvergate Capital Corporation (NYSE: SI) is the leading provider of innovative financial infrastructure solutions and services for the growing digital asset industry. The Company’s real-time payments platform, known as the Silvergate Exchange Network, is at the heart of its customer-centric suite of payments, lending and funding solutions serving an expanding class of digital asset companies and investors around the world. Silvergate is enabling the rapid growth of digital asset markets and reshaping global commerce for a digital asset future.

Forward Looking Statements

Statements in this earnings release may constitute forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “projection,” “forecast,” “goal,” “target,” “would,” “aim” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry and management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. The inclusion of these forward-looking statements should not be regarded as a representation by us or any other person that such expectations, estimates and projections will be achieved. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. For information about other important factors that could cause actual results to differ materially from those discussed in the forward-looking statements contained in this release, please refer to the Company's public reports filed with the U.S. Securities and Exchange Commission.

While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ materially from those contained or implied in the forward-looking statements: changes in general economic, political, or industry conditions; geopolitical concerns, including the ongoing war in Ukraine; the magnitude and duration of the COVID-19 pandemic and related variants and mutations and their impact on the global economy and financial market conditions and our business, results of operations, and financial condition; uncertainty in U.S. fiscal and monetary policy, including the interest rate policies of the Board of Governors of the Federal Reserve System; inflation/deflation, interest rate, market, and monetary fluctuations; volatility and disruptions in global capital and credit markets; the transition away from USD LIBOR and uncertainty regarding potential alternative reference rates, including SOFR; competitive pressures on product pricing and services; success, impact, and timing of our business strategies, including market acceptance of any new products or services; the impact of changes in financial services policies, laws, and regulations, including those concerning taxes, banking, securities, digital currencies and insurance, and the application thereof by regulatory bodies; cybersecurity threats and the cost of defending against them, including the costs of compliance with potential legislation to combat cybersecurity at a state, national, or global level; and other factors that may affect our future results.

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,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

 

September 30,

2021

ASSETS

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

465,853

 

 

$

256,378

 

 

$

207,304

 

 

$

208,193

 

 

$

168,628

Interest earning deposits in other banks

 

 

1,420,970

 

 

 

1,637,410

 

 

 

1,178,205

 

 

 

5,179,753

 

 

 

3,615,860

Cash and cash equivalents

 

 

1,886,823

 

 

 

1,893,788

 

 

 

1,385,509

 

 

 

5,387,946

 

 

 

3,784,488

Securities available-for-sale, at fair value

 

 

8,317,247

 

 

 

8,686,307

 

 

 

9,463,494

 

 

 

8,625,259

 

 

 

7,234,216

Securities held-to-maturity, at amortized cost

 

 

3,104,557

 

 

 

3,131,321

 

 

 

2,751,625

 

 

 

 

 

 

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

 

 

924,644

 

 

 

872,056

 

 

 

937,140

 

 

 

893,194

 

 

 

818,447

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

 

 

467,786

 

 

 

594,671

 

 

 

739,014

 

 

 

887,304

 

 

 

809,745

Other investments

 

 

60,428

 

 

 

63,456

 

 

 

61,719

 

 

 

34,010

 

 

 

34,010

Accrued interest receivable

 

 

78,799

 

 

 

72,463

 

 

 

62,573

 

 

 

40,370

 

 

 

32,154

Premises and equipment, net

 

 

3,518

 

 

 

3,328

 

 

 

1,678

 

 

 

3,008

 

 

 

1,483

Intangible assets

 

 

194,045

 

 

 

190,455

 

 

 

189,977

 

 

 

 

 

 

Derivative assets

 

 

153,990

 

 

 

104,995

 

 

 

46,415

 

 

 

34,056

 

 

 

37,210

Safeguarding assets

 

 

 

 

 

52,838

 

 

 

243,769

 

 

 

 

 

 

Other assets

 

 

275,503

 

 

 

234,816

 

 

 

158,869

 

 

 

100,348

 

 

 

24,868

Total assets

 

$

15,467,340

 

 

$

15,900,494

 

 

$

16,041,782

 

 

$

16,005,495

 

 

$

12,776,621

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

Noninterest bearing demand accounts

 

$

12,005,719

 

 

$

13,436,017

 

 

$

13,323,535

 

 

$

14,213,472

 

 

$

11,586,318

Interest bearing accounts

 

 

1,232,707

 

 

 

64,703

 

 

 

72,627

 

 

 

77,156

 

 

 

76,202

Total deposits

 

 

13,238,426

 

 

 

13,500,720

 

 

 

13,396,162

 

 

 

14,290,628

 

 

 

11,662,520

Federal home loan bank advances

 

 

700,000

 

 

 

800,000

 

 

 

800,000

 

 

 

 

 

 

Subordinated debentures, net

 

 

15,855

 

 

 

15,852

 

 

 

15,848

 

 

 

15,845

 

 

 

15,841

Safeguarding liabilities

 

 

 

 

 

52,838

 

 

 

243,769

 

 

 

 

 

 

Accrued expenses and other liabilities

 

 

181,714

 

 

 

107,865

 

 

 

39,507

 

 

 

90,186

 

 

 

26,179

Total liabilities

 

 

14,135,995

 

 

 

14,477,275

 

 

 

14,495,286

 

 

 

14,396,659

 

 

 

11,704,540

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

2

 

 

 

2

 

 

 

2

 

 

 

2

 

 

 

2

Class A common stock

 

 

317

 

 

 

316

 

 

 

316

 

 

 

304

 

 

 

265

Class B non-voting common stock(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional paid-in capital

 

 

1,555,996

 

 

 

1,554,627

 

 

 

1,553,547

 

 

 

1,421,592

 

 

 

891,611

Retained earnings

 

 

295,115

 

 

 

254,475

 

 

 

218,558

 

 

 

193,860

 

 

 

175,485

Accumulated other comprehensive (loss) income

 

 

(520,085

)

 

 

(386,201

)

 

 

(225,927

)

 

 

(6,922

)

 

 

4,718

Total shareholders’ equity

 

 

1,331,345

 

 

 

1,423,219

 

 

 

1,546,496

 

 

 

1,608,836

 

 

 

1,072,081

Total liabilities and shareholders’ equity

 

$

15,467,340

 

 

$

15,900,494

 

 

$

16,041,782

 

 

$

16,005,495

 

 

$

12,776,621

________________________

(1)

Effective June 14, 2022, Class B non-voting common stock was cancelled and its authorized shares reallocated to Class A common stock following a shareholder approved amendment to the Company’s articles of incorporation.

 

SILVERGATE CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Data)

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

2022

 

June 30,

2022

 

September 30,

2021

 

September 30,

2022

 

September 30,

2021

Interest income

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

20,663

 

 

$

22,054

 

 

$

16,972

 

$

61,004

 

 

$

50,727

Taxable securities

 

 

47,401

 

 

 

30,986

 

 

 

14,000

 

 

96,166

 

 

 

25,916

Tax-exempt securities

 

 

14,412

 

 

 

14,820

 

 

 

5,014

 

 

42,416

 

 

 

9,832

Other interest earning assets

 

 

8,001

 

 

 

3,008

 

 

 

1,755

 

 

12,394

 

 

 

4,633

Dividends and other

 

 

289

 

 

 

719

 

 

 

195

 

 

1,211

 

 

 

804

Total interest income

 

 

90,766

 

 

 

71,587

 

 

 

37,936

 

 

213,191

 

 

 

91,912

Interest expense

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

5,221

 

 

 

2

 

 

 

26

 

 

5,244

 

 

 

107

Federal home loan bank advances and other

 

 

4,399

 

 

 

796

 

 

 

 

 

5,265

 

 

 

Subordinated debentures

 

 

258

 

 

 

243

 

 

 

247

 

 

753

 

 

 

744

Total interest expense

 

 

9,878

 

 

 

1,041

 

 

 

273

 

 

11,262

 

 

 

851

Net interest income before provision for loan losses

 

 

80,888

 

 

 

70,546

 

 

 

37,663

 

 

201,929

 

 

 

91,061

Reversal of provision for loan losses

 

 

(601

)

 

 

 

 

 

 

 

(3,075

)

 

 

Net interest income after provision for loan losses

 

 

81,489

 

 

 

70,546

 

 

 

37,663

 

 

205,004

 

 

 

91,061

Noninterest income

 

 

 

 

 

 

 

 

 

 

Deposit related fees

 

 

7,953

 

 

 

8,808

 

 

 

8,171

 

 

25,729

 

 

 

26,603

Mortgage warehouse fee income

 

 

482

 

 

 

555

 

 

 

665

 

 

1,688

 

 

 

2,372

(Loss) gain on sale of securities, net

 

 

 

 

 

(199

)

 

 

5,182

 

 

(804

)

 

 

5,182

Loss on sale of loans, net

 

 

(329

)

 

 

 

 

 

 

 

(329

)

 

 

Other income

 

 

348

 

 

 

50

 

 

 

24

 

 

834

 

 

 

44

Total noninterest income

 

 

8,454

 

 

 

9,214

 

 

 

14,042

 

 

27,118

 

 

 

34,201

Noninterest expense

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

19,632

 

 

 

16,356

 

 

 

10,729

 

 

51,532

 

 

 

31,979

Occupancy and equipment

 

 

822

 

 

 

1,063

 

 

 

523

 

 

2,471

 

 

 

1,736

Communications and data processing

 

 

3,210

 

 

 

2,967

 

 

 

1,793

 

 

8,939

 

 

 

5,210

Professional services

 

 

4,314

 

 

 

6,280

 

 

 

2,471

 

 

13,548

 

 

 

6,782

Federal deposit insurance

 

 

1,217

 

 

 

1,495

 

 

 

4,297

 

 

4,474

 

 

 

10,437

Correspondent bank charges

 

 

902

 

 

 

801

 

 

 

572

 

 

2,531

 

 

 

1,881

Other loan expense

 

 

529

 

 

 

682

 

 

 

299

 

 

1,595

 

 

 

753

Other general and administrative

 

 

2,527

 

 

 

908

 

 

 

1,655

 

 

6,633

 

 

 

4,686

Total noninterest expense

 

 

33,153

 

 

 

30,552

 

 

 

22,339

 

 

91,723

 

 

 

63,464

Income before income taxes

 

 

56,790

 

 

 

49,208

 

 

 

29,366

 

 

140,399

 

 

 

61,798

Income tax expense

 

 

13,462

 

 

 

10,603

 

 

 

5,874

 

 

31,080

 

 

 

4,661

Net income

 

 

43,328

 

 

 

38,605

 

 

 

23,492

 

 

109,319

 

 

 

57,137

Dividends on preferred stock

 

 

2,688

 

 

 

2,688

 

 

 

 

 

8,064

 

 

 

Net income available to common shareholders

 

$

40,640

 

 

$

35,917

 

 

$

23,492

 

$

101,255

 

 

$

57,137

Basic earnings per common share

 

$

1.28

 

 

$

1.14

 

 

$

0.89

 

$

3.21

 

 

$

2.29

Diluted earnings per common share

 

$

1.28

 

 

$

1.13

 

 

$

0.88

 

$

3.20

 

 

$

2.26

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

Basic

 

 

31,655

 

 

 

31,635

 

 

 

26,525

 

 

31,505

 

 

 

24,927

Diluted

 

 

31,803

 

 

 

31,799

 

 

 

26,766

 

 

31,669

 

 

 

25,308

 

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