 | Exhibit 99.1 | |||||||
Silvergate Capital Corporation Announces Fourth Quarter 2021 Results
La Jolla, CA, January 18, 2022 -- Silvergate Capital Corporation (“Silvergate” or “Company”) (NYSE:SI) and its wholly-owned subsidiary, Silvergate Bank (“Bank”), today announced financial results for the three and twelve months ended December 31, 2021.
Fourth Quarter 2021 Highlights
•Net income for the quarter was $21.4 million, compared to $23.5 million for the third quarter of 2021, and $9.1 million for the fourth quarter of 2020
•Net income available to common shareholders for the quarter was $18.4 million, or $0.66 per diluted common share, compared to net income of $23.5 million, or $0.88 per diluted share, for the third quarter of 2021, and net income of $9.1 million, or $0.47 per diluted share, for the fourth quarter of 2020
•The Silvergate Exchange Network (“SEN”) handled $219.2 billion of U.S. dollar transfers in the fourth quarter of 2021, an increase of 35% compared to $162.0 billion in the third quarter of 2021, and an increase of 270% compared to $59.2 billion in the fourth quarter of 2020
•Total SEN Leverage commitments were $570.5 million at December 31, 2021, compared to $322.5 million at September 30, 2021, and $82.5 million at December 31, 2020
•Digital currency customer related fee income for the quarter was $9.3 million, compared to $8.1 million for the third quarter of 2021, and $3.8 million for the fourth quarter of 2020
•Digital currency customers grew to 1,381 at December 31, 2021, compared to 1,305 at September 30, 2021, and 969 at December 31, 2020
•Average digital currency customer deposits grew to $13.3 billion during the fourth quarter of 2021, compared to $11.2 billion during the third quarter of 2021
•Completed $552.0 million equity offering, resulting in a total issuance of 3,806,895 shares of Class A common stock, for net proceeds of $530.3 million after deducting underwriting discounts and offering expenses
Full Year 2021 Highlights
•Net income for the year ended December 31, 2021 was $78.5 million compared to $26.0 million for the year ended December 31, 2020
•Net income available to common shareholders for the year ended December 31, 2021 was $75.5 million, or $2.91 per diluted common share, compared to net income of $26.0 million, or $1.36 per diluted share for the year ended December 31, 2020
•The SEN handled $787.4 billion of U.S. dollar transfers for the year ended December 31, 2021, compared to $135.7 billion for the year ended December 31, 2020
•Digital currency customer related fee income for the year ended December 31, 2021 was $35.8 million, compared to $11.1 million for the year ended December 31, 2020
Alan Lane, president and chief executive officer of Silvergate, commented, “2021 was another year of significant growth and momentum for Silvergate, driven by strong demand for our digital currency solutions powered by the SEN. Total deposits grew to $14.3 billion at the end of 2021 and our full year net income more than tripled compared to last year, reflecting growth in both fee income and net interest income. In the fourth quarter, we grew SEN utilization and transaction revenue, significantly grew SEN Leverage lines of credit and increased average deposits from digital currency customers to a record $13.3 billion. We also continued to build our stablecoin infrastructure capabilities, and announced the launch of the EJF Silvergate Venture Fund, an investment vehicle to support entrepreneurs who will help shape the future of the digital currency ecosystem. As we look forward to 2022 and beyond, I am excited about the opportunities and areas for growth that lie ahead as the digital currency industry continues to evolve.”
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| As of or for the Three Months Ended | ||||||||||||||||||||
| December 31, 2021 | September 30, 2021 | December 31, 2020 | ||||||||||||||||||
| Financial Highlights | (Dollars in thousands, except per share data) | |||||||||||||||||||
| Net income | $ | 21,391 | $ | 23,492 | $ | 9,119 | ||||||||||||||
| Net income available to common shareholders | $ | 18,375 | $ | 23,492 | $ | 9,119 | ||||||||||||||
| Diluted earnings per common share | $ | 0.66 | $ | 0.88 | $ | 0.47 | ||||||||||||||
Return on average assets (ROAA)(1) | 0.50 | % | 0.75 | % | 1.14 | % | ||||||||||||||
Return on average common equity (ROACE)(1) | 7.25 | % | 10.45 | % | 12.60 | % | ||||||||||||||
Net interest margin(1)(2) | 1.11 | % | 1.26 | % | 2.85 | % | ||||||||||||||
Cost of deposits(1) | 0.00 | % | 0.00 | % | 0.01 | % | ||||||||||||||
Cost of funds(1) | 0.01 | % | 0.01 | % | 0.04 | % | ||||||||||||||
Efficiency ratio(4) | 52.08 | % | 43.20 | % | 65.87 | % | ||||||||||||||
Total assets | $ | 16,005,495 | $ | 12,776,621 | $ | 5,586,235 | ||||||||||||||
Total deposits | $ | 14,290,628 | $ | 11,662,520 | $ | 5,248,026 | ||||||||||||||
Book value per common share | $ | 46.55 | $ | 33.10 | $ | 15.63 | ||||||||||||||
Tier 1 leverage ratio | 11.07 | % | 8.71 | % | 8.29 | % | ||||||||||||||
Total risk-based capital ratio | 55.60 | % | 51.13 | % | 23.49 | % | ||||||||||||||
| Year Ended December 31, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| Financial Highlights | (Dollars in thousands, except per share data) | |||||||||||||
| Net income | $ | 78,528 | $ | 26,038 | ||||||||||
Net income available to common shareholders | $ | 75,512 | $ | 26,038 | ||||||||||
Diluted earnings per common share | $ | 2.91 | $ | 1.36 | ||||||||||
| Return on average assets (ROAA) | 0.66 | % | 1.03 | % | ||||||||||
| Return on average common equity (ROACE) | 9.32 | % | 9.78 | % | ||||||||||
Net interest margin(2) | 1.20 | % | 3.00 | % | ||||||||||
Cost of deposits(3) | 0.00 | % | 0.27 | % | ||||||||||
Cost of funds(3) | 0.01 | % | 0.32 | % | ||||||||||
Efficiency ratio(4) | 51.06 | % | 65.11 | % | ||||||||||
________________________
(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)Cost of deposits and cost of funds for 2020 includes interest expense and accelerated premium amortization expense related to callable brokered certificates of deposit that were called during the second quarter of 2020.
(4)Efficiency ratio is calculated by dividing noninterest expenses by net interest income plus noninterest income.
Digital Currency Initiative
At December 31, 2021, the Company’s digital currency customers increased to 1,381 from 1,305 at September 30, 2021, and from 969 at December 31, 2020. At December 31, 2021, prospective digital currency customer leads in various stages of the customer onboarding process and pipeline was above 300. For the fourth quarter of 2021, $219.2 billion of U.S. dollar transfers occurred on the SEN, a 35% increase from $162.0 billion transfers in the third quarter of 2021, and an increase of 270% compared to $59.2 billion in the fourth quarter of 2020. Based on digital currency industry transaction data provided by Coin Metrics, bitcoin and ether dollar trading volumes increased by 14% during the fourth quarter of 2021 compared to the third quarter of 2021.
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Results of Operations, Quarter Ended December 31, 2021
Net Interest Income and Net Interest Margin Analysis (Taxable Equivalent Basis)
The Company’s securities portfolio includes tax-exempt municipal bonds with tax-exempt income from these securities calculated and presented below on a taxable equivalent basis. Net interest income, net interest spread and net interest margin are presented on a taxable equivalent basis to consistently reflect income from taxable securities and tax-exempt securities based on the federal statutory tax rate of 21.0%.
Net interest income on a taxable equivalent basis totaled $40.2 million for the fourth quarter of 2021, compared to $39.0 million for the third quarter of 2021, and $22.4 million for the fourth quarter of 2020.
Compared to the third quarter of 2021, net interest income increased $1.2 million, due to increased interest income, while interest expense remained flat. Average total interest earning assets increased by $2.2 billion for the fourth quarter of 2021 compared to the third quarter of 2021, primarily due to increased interest earning deposits in other banks. The average yield on interest earning assets decreased from 1.27% for the third quarter of 2021 to 1.11% for the fourth quarter of 2021, primarily due to lower yields on recently purchased securities and, to a lesser extent, interest earning deposits in other banks being a greater percentage of interest earning assets.
Compared to the fourth quarter of 2020, net interest income increased $17.8 million due to increased interest income, with the largest driver being higher balances of securities, while interest expense remained relatively flat. Average total interest earning assets increased by $11.3 billion for the fourth quarter of 2021 compared to the fourth quarter of 2020, due to an increase in noninterest bearing deposits, which were deployed into securities and interest earning deposits in other banks. The average yield on total interest earning assets decreased from 2.89% for the fourth quarter of 2020 to 1.11% for the fourth quarter of 2021, primarily due to interest earning deposits in other banks being a greater percentage of interest earning assets, and lower yields on securities purchased throughout 2021. Average interest bearing liabilities decreased $44.3 million for the fourth quarter of 2021 compared to the fourth quarter of 2020, due to lower balances of interest bearing deposits and reduced FHLB advances in 2021. The average rate on total interest bearing liabilities increased from 0.87% for the fourth quarter of 2020 to 1.17% for the fourth quarter of 2021, primarily due to the decrease in lower cost interest bearing deposits and FHLB advances, which resulted in a larger proportion of higher cost subordinated debentures as a percentage of total interest bearing liabilities.
Net interest margin for the fourth quarter of 2021 was 1.11%, compared to 1.26% for the third quarter of 2021, and 2.85% for the fourth quarter of 2020. The decrease in the net interest margin compared to the third quarter of 2021 was primarily due to lower yields on recently purchased securities and, to a lesser extent, interest earning deposits in other banks being a greater percentage of interest earning assets. The decrease in the net interest margin compared to the fourth quarter of 2020 was primarily due to a higher proportion of interest earning deposits as a percentage of total interest earning assets, as well as lower yields on securities due to a declining interest rate environment.
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| Three Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | September 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average Outstanding Balance | Interest Income/ Expense | Average Yield/ Rate | Average Outstanding Balance | Interest Income/ Expense | Average Yield/ Rate | Average Outstanding Balance | Interest Income/ Expense | Average Yield/ Rate | ||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest earning assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest earning deposits in other banks | $ | 5,282,661 | $ | 2,166 | 0.16 | % | $ | 4,104,776 | $ | 1,755 | 0.17 | % | $ | 689,385 | $ | 314 | 0.18 | % | ||||||||||||||||||||||||||||||||||||||
| Taxable securities | 5,735,932 | 10,178 | 0.70 | % | 5,449,202 | 14,000 | 1.02 | % | 671,209 | 3,548 | 2.10 | % | ||||||||||||||||||||||||||||||||||||||||||||
Tax-exempt securities(1) | 1,728,862 | 9,454 | 2.17 | % | 1,187,452 | 6,347 | 2.12 | % | 266,158 | 2,173 | 3.25 | % | ||||||||||||||||||||||||||||||||||||||||||||
Loans(2)(3) | 1,641,345 | 17,892 | 4.32 | % | 1,493,590 | 16,972 | 4.51 | % | 1,474,893 | 16,374 | 4.42 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Other | 34,490 | 777 | 8.94 | % | 31,028 | 195 | 2.49 | % | 15,331 | 255 | 6.62 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Total interest earning assets | 14,423,290 | 40,467 | 1.11 | % | 12,266,048 | 39,269 | 1.27 | % | 3,116,976 | 22,664 | 2.89 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Noninterest earning assets | 295,841 | 197,477 | 66,477 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 14,719,131 | $ | 12,463,525 | $ | 3,183,453 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities and Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest bearing liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest bearing deposits | $ | 77,564 | $ | 27 | 0.14 | % | $ | 76,898 | $ | 26 | 0.13 | % | $ | 114,782 | $ | 47 | 0.16 | % | ||||||||||||||||||||||||||||||||||||||
| FHLB advances and other borrowings | 12 | — | 0.00 | % | 1 | — | 0.00 | % | 7,098 | — | 0.00 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Subordinated debentures | 15,843 | 249 | 6.24 | % | 15,839 | 247 | 6.19 | % | 15,829 | 253 | 6.36 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Total interest bearing liabilities | 93,419 | 276 | 1.17 | % | 92,738 | 273 | 1.17 | % | 137,709 | 300 | 0.87 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Noninterest bearing liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Noninterest bearing deposits | 13,377,552 | 11,305,650 | 2,732,692 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other liabilities | 49,023 | 50,657 | 25,143 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders’ equity | 1,199,137 | 1,014,480 | 287,909 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 14,719,131 | $ | 12,463,525 | $ | 3,183,453 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest spread(4) | (0.06) | % | 0.10 | % | 2.02 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income, taxable equivalent basis | $ | 40,191 | $ | 38,996 | $ | 22,364 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest margin(5) | 1.11 | % | 1.26 | % | 2.85 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Reconciliation to reported net interest income: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustments for taxable equivalent basis | (1,985) | (1,333) | (456) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income, as reported | $ | 38,206 | $ | 37,663 | $ | 21,908 | ||||||||||||||||||||||||||||||||||||||||||||||||||
(1)Interest income on tax-exempt securities is presented on a taxable equivalent basis using the federal statutory tax rate of 21.0% for all periods presented.
(2)Loans include nonaccrual loans and loans held-for-sale, net of deferred fees and before allowance for loan losses.
(3)Interest income includes amortization of deferred loan fees, net of deferred loan costs.
(4)Net interest spread is the difference between interest rates earned on interest earning assets and interest rates paid on interest bearing liabilities.
(5)Net interest margin is a ratio calculated as annualized net interest income, on a taxable equivalent basis, divided by average interest earning assets for the same period.
Provision for Loan Losses
The Company did not record a provision for loan losses for the fourth quarter of 2021, the third quarter of 2021, or for the fourth quarter of 2020 as a result of management’s assessment of the level of the allowance for loan losses relative to the size and composition of the loan portfolio, among other factors.
Noninterest Income
Noninterest income for the fourth quarter of 2021 was $11.1 million, a decrease of $3.0 million, or 21.3%, from the third quarter of 2021. The primary driver of this decrease was a $5.1 million decrease in gain on sale of securities offset by a $1.2 million, or 14.8%, increase in deposit related fees as a result of higher cash management fees from digital currency related customers and a $0.9 million increase in other income due to a gain on sale of other assets.
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Noninterest income for the fourth quarter of 2021 increased by $6.2 million, or 128.0%, compared to the fourth quarter of 2020. This increase was primarily due to a $5.5 million, or 144.0%, increase in deposit related fees and a $0.9 million increase in other income due to a gain on sale of other assets, partially offset by a $0.3 million, or 27.9% decrease in mortgage warehouse fee income.
| Three Months Ended | ||||||||||||||||||||
| December 31, 2021 | September 30, 2021 | December 31, 2020 | ||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Noninterest income: | ||||||||||||||||||||
| Mortgage warehouse fee income | $ | 684 | $ | 665 | $ | 949 | ||||||||||||||
| Deposit related fees | 9,378 | 8,171 | 3,844 | |||||||||||||||||
| Gain on sale of securities, net | 56 | 5,182 | — | |||||||||||||||||
| Other income | 937 | 24 | 55 | |||||||||||||||||
| Total noninterest income | $ | 11,055 | $ | 14,042 | $ | 4,848 | ||||||||||||||
Noninterest Expense
Noninterest expense totaled $25.7 million for the fourth quarter of 2021, an increase of $3.3 million, or 14.8%, compared to the third quarter of 2021, and an increase of $8.0 million, or 45.6%, compared to the fourth quarter of 2020. The increase in noninterest expense compared to prior quarter was primarily due to an increase in salaries and employee benefits. The increase in noninterest expense from the fourth quarter of 2020 was primarily driven by an increase in salaries and employee benefits and increased federal deposit insurance expense resulting from the significant growth in digital currency deposits. The increase in noninterest expense from the prior year was partially offset by a decrease in occupancy and equipment expense related to a $2.3 million impairment charge recorded in the fourth quarter of 2020.
| Three Months Ended | ||||||||||||||||||||
| December 31, 2021 | September 30, 2021 | December 31, 2020 | ||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Noninterest expense: | ||||||||||||||||||||
| Salaries and employee benefits | $ | 13,815 | $ | 10,729 | $ | 9,637 | ||||||||||||||
| Occupancy and equipment | 728 | 523 | 3,044 | |||||||||||||||||
| Communications and data processing | 1,862 | 1,793 | 1,443 | |||||||||||||||||
| Professional services | 2,994 | 2,471 | 1,163 | |||||||||||||||||
| Federal deposit insurance | 3,100 | 4,297 | 658 | |||||||||||||||||
| Correspondent bank charges | 634 | 572 | 410 | |||||||||||||||||
| Other loan expense | 364 | 299 | 45 | |||||||||||||||||
| Other general and administrative | 2,159 | 1,655 | 1,225 | |||||||||||||||||
| Total noninterest expense | $ | 25,656 | $ | 22,339 | $ | 17,625 | ||||||||||||||
Income Tax Expense (Benefit)
Income tax expense was $2.2 million for the fourth quarter of 2021, compared to $5.9 million for the third quarter of 2021, and a benefit of $0.1 million for the fourth quarter of 2020. Our effective tax rate for the fourth quarter of 2021 was 9.4%, compared to 20.0% for the third quarter of 2021, and (1.6)% for the fourth quarter of 2020. The lower effective tax rates for the fourth quarter of 2021 and 2020, compared to the third quarter of 2021 were due to higher excess tax benefits recognized on the exercise of stock options and tax-exempt income earned on certain municipal bonds.
Results of Operations, Year Ended December 31, 2021
Net income available to common shareholders for the year ended December 31, 2021 was $75.5 million, or $2.91 per diluted common share, compared to $26.0 million, or $1.36 per diluted share, for the comparable period in 2020.
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Net interest income for the year ended December 31, 2021 was $129.3 million, compared to $72.4 million for the same period in 2020. The increase in net interest income was primarily due to a $50.8 million increase in interest income and a $6.1 million decrease in interest expense, primarily due to significant growth in our balance sheet.
Noninterest income for the year ended December 31, 2021 was $45.3 million, compared to $19.2 million for the same period in 2020. The increase in noninterest income was primarily due to a $24.6 million increase in fee income from our digital currency customers and a $1.5 million increase in gain on sale of securities. Digital currency customer related fee income for the year ended December 31, 2021 was $35.8 million, compared to $11.1 million for the year ended December 31, 2020.
Noninterest expense was $89.1 million for the year ended December 31, 2021, compared to $59.6 million for the year ended December 31, 2020. The increase in noninterest expense was primarily due to a $12.4 million increase in federal deposit insurance and a $9.3 million increase in salaries and benefits expense.
Income tax expense was $6.9 million for the year ended December 31, 2021, compared to $5.2 million for the same period in 2020. Our effective tax rates for the years ended December 31, 2021 and 2020 were 8.1% and 16.5%, respectively. The decrease in the Company’s effective tax rate in 2021 was primarily related to higher excess tax benefit from stock-based compensation and tax-exempt income earned on certain municipal bonds.
Balance Sheet
Deposits
At December 31, 2021, deposits totaled $14.3 billion, an increase of $2.6 billion, or 22.5%, from September 30, 2021, and an increase of $9.0 billion, or 172.3%, from December 31, 2020. Noninterest bearing deposits totaled $14.2 billion, representing approximately 99.5% of total deposits at December 31, 2021, an increase of $2.6 billion from the prior quarter end, and a $9.1 billion increase compared to December 31, 2020. The increase in total deposits from the prior year quarter end was driven by an increase in deposits from digital currency exchanges, institutional investors in digital assets and other fintech related customers. The Bank’s 10 largest depositors accounted for $6.5 billion in deposits, or approximately 45.3% of total deposits at December 31, 2021, compared to $5.3 billion in deposits, or approximately 45.6% of total deposits at September 30, 2021, and $2.5 billion in deposits, or approximately 47.5% of total deposits at December 31, 2020, substantially all of which are from customers operating in the digital currency industry.
Our continued growth has been accompanied by significant fluctuations in the level of our deposits, in particular our deposits from customers operating in the digital currency industry, as our customers in this industry typically carry higher balances over the weekend to take advantage of the 24/7 availability of the SEN, and carry lower balances during the business week. The Bank’s average total digital currency customer deposits during the fourth quarter of 2021 amounted to $13.3 billion, with the high and low daily total digital currency deposit levels during such time being $16.0 billion and $10.2 billion, respectively, compared to an average of $11.2 billion during the third quarter of 2021, and high and low daily deposit levels of $12.6 billion and $9.8 billion, respectively.
Demand for new deposit accounts is generated by the Company’s banking platform for innovators that includes the SEN, which is enabled through Silvergate’s proprietary API, and other cash management solutions. These tools enable Silvergate’s customers to grow their businesses and scale operations. The following table sets forth a breakdown of the Company’s digital currency customer base and the deposits held by such customers at the dates noted below:
| December 31, 2021 | September 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||||
| Number of Customers | Total Deposits(1) | Number of Customers | Total Deposits(1) | Number of Customers | Total Deposits(1) | |||||||||||||||||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||||||||||||||||||
| Digital currency exchanges | 94 | $ | 8,288 | 94 | $ | 6,759 | 76 | $ | 2,479 | |||||||||||||||||||||||||||||
| Institutional investors | 894 | 4,220 | 830 | 3,344 | 607 | 1,811 | ||||||||||||||||||||||||||||||||
| Other customers | 393 | 1,603 | 381 | 1,365 | 286 | 749 | ||||||||||||||||||||||||||||||||
| Total | 1,381 | $ | 14,111 | 1,305 | $ | 11,468 | 969 | $ | 5,039 | |||||||||||||||||||||||||||||
(1)Total deposits may not foot due to rounding.
The weighted average cost of deposits for the fourth quarter of 2021 and for the third quarter of 2021 was 0.00%, compared to 0.01% for the fourth quarter of 2020.
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| Three Months Ended | ||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | September 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||||
Average Balance | Average Rate | Average Balance | Average Rate | Average Balance | Average Rate | |||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
| Noninterest bearing demand accounts | $ | 13,377,552 | — | $ | 11,305,650 | — | $ | 2,732,692 | — | |||||||||||||||||||||||||||||
| Interest bearing accounts: | ||||||||||||||||||||||||||||||||||||||
| Interest bearing demand accounts | 7,660 | 0.05 | % | 8,597 | 0.05 | % | 41,968 | 0.17 | % | |||||||||||||||||||||||||||||
| Money market and savings accounts | 69,364 | 0.14 | % | 67,735 | 0.14 | % | 71,871 | 0.15 | % | |||||||||||||||||||||||||||||
| Certificates of deposit | 540 | 0.73 | % | 566 | 0.70 | % | 943 | 0.84 | % | |||||||||||||||||||||||||||||
| Total interest bearing deposits | 77,564 | 0.14 | % | 76,898 | 0.13 | % | 114,782 | 0.16 | % | |||||||||||||||||||||||||||||
| Total deposits | $ | 13,455,116 | 0.00 | % | $ | 11,382,548 | 0.00 | % | $ | 2,847,474 | 0.01 | % | ||||||||||||||||||||||||||
Loan Portfolio
Total loans, including net loans held-for-investment and loans held for sale, were $1.8 billion at December 31, 2021, an increase of $152.3 million, or 9.4%, from September 30, 2021, and an increase of $167.8 million, or 10.4%, from December 31, 2020.
| December 31, 2021 | September 30, 2021 | December 31, 2020 | ||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Real estate loans: | ||||||||||||||||||||
| One-to-four family | $ | 105,098 | $ | 119,817 | $ | 187,855 | ||||||||||||||
| Multi-family | 56,751 | 54,636 | 77,126 | |||||||||||||||||
| Commercial | 210,136 | 250,295 | 301,901 | |||||||||||||||||
| Construction | 7,573 | 6,046 | 6,272 | |||||||||||||||||
Commercial and industrial(1) | 335,862 | 254,624 | 78,909 | |||||||||||||||||
| Reverse mortgage and other | 1,410 | 1,385 | 1,495 | |||||||||||||||||
| Mortgage warehouse | 177,115 | 128,975 | 97,903 | |||||||||||||||||
| Total gross loans held-for-investment | 893,945 | 815,778 | 751,461 | |||||||||||||||||
| Deferred fees, net | 275 | 883 | 2,206 | |||||||||||||||||
| Total loans held-for-investment | 894,220 | 816,661 | 753,667 | |||||||||||||||||
| Allowance for loan losses | (6,916) | (6,916) | (6,916) | |||||||||||||||||
| Loans held-for-investment, net | 887,304 | 809,745 | 746,751 | |||||||||||||||||
Loans held-for-sale(2) | 893,194 | 818,447 | 865,961 | |||||||||||||||||
| Total loans | $ | 1,780,498 | $ | 1,628,192 | $ | 1,612,712 | ||||||||||||||
________________________
(1)Commercial and industrial loans includes $335.9 million, $254.5 million and $77.2 million of SEN Leverage loans as of December 31, 2021, September 30, 2021 and December 31, 2020, respectively.
(2)Loans held-for-sale are comprised entirely of mortgage warehouse loans for all periods presented.
Asset Quality and Allowance for Loan Losses
The allowance for loan losses was unchanged at $6.9 million at December 31, 2021, compared to September 30, 2021 and December 31, 2020. The ratio of the allowance for loan losses to total loans held-for-investment at December 31, 2021 was 0.77%, compared to 0.85% and 0.92% at September 30, 2021 and December 31, 2020, respectively.
Nonperforming assets totaled $4.0 million, or 0.03% of total assets, at December 31, 2021, a decrease of $1.8 million from $5.8 million, or 0.05% of total assets at September 30, 2021. Nonperforming assets decreased $0.9 million, from $4.9 million, or 0.09%, of total assets, at December 31, 2020.
7
| December 31, 2021 | September 30, 2021 | December 31, 2020 | ||||||||||||||||||
| Asset Quality | (Dollars in thousands) | |||||||||||||||||||
| Nonperforming Assets: | ||||||||||||||||||||
| Nonaccrual loans | $ | 4,007 | $ | 5,781 | $ | 4,918 | ||||||||||||||
Troubled debt restructurings | $ | 1,713 | $ | 1,867 | $ | 1,525 | ||||||||||||||
Other real estate owned, net | — | — | — | |||||||||||||||||
Nonperforming assets | $ | 4,007 | $ | 5,781 | $ | 4,918 | ||||||||||||||
| Asset Quality Ratios: | ||||||||||||||||||||
Nonperforming assets to total assets | 0.03 | % | 0.05 | % | 0.09 | % | ||||||||||||||
Nonaccrual loans to total loans(1) | 0.45 | % | 0.71 | % | 0.65 | % | ||||||||||||||
Net charge-offs (recoveries) to average total loans(1) | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||||||||
Allowance for loan losses to total loans(1) | 0.77 | % | 0.85 | % | 0.92 | % | ||||||||||||||
| Allowance for loan losses to nonaccrual loans | 172.60 | % | 119.63 | % | 140.63 | % | ||||||||||||||
(1)Loans exclude loans held-for-sale at each of the dates presented.
Securities
Securities available-for-sale increased $1.4 billion, or 19.2%, from $7.2 billion at September 30, 2021, and increased $7.7 billion, or 818.5%, from $939.0 million at December 31, 2020, to $8.6 billion at December 31, 2021. During the fourth quarter of 2021, the Company purchased $2.7 billion of securities, including $991.9 million of tax-exempt municipal bonds, $770.7 million of agency residential mortgage-backed securities, $760.8 million of agency commercial mortgage-backed securities, $121.5 million of U.S. agency securities excluding mortgage-backed securities, and $22.7 million of taxable municipal bonds, bringing total purchases during 2021 to $9.5 billion. During the fourth quarter of 2021, the Company sold $1.1 billion of longer duration securities and recognized an immaterial net gain. In addition, the Company sold its two LIBOR-based interest rate swap contracts, and the taxable municipal bond that such swap contracts hedged, in the fourth quarter of 2021. The realized gain on sale of the interest rate swap contracts of $0.9 million was recognized in other noninterest income.
Capital Ratios
At December 31, 2021, the Company’s ratio of common equity to total assets was 8.84%, compared with 6.88% at September 30, 2021, and 5.27% at December 31, 2020. At December 31, 2021, the Company’s book value per common share was $46.55, compared to $33.10 at September 30, 2021, and $15.63 at December 31, 2020.
At December 31, 2021, the Company had a tier 1 leverage ratio of 11.07%, common equity tier 1 capital ratio of 48.25%, tier 1 risk-based capital ratio of 55.35% and total risk-based capital ratio of 55.60%.
At December 31, 2021, the Bank had a tier 1 leverage ratio of 10.49%, common equity tier 1 capital ratio of 52.49%, tier 1 risk-based capital ratio of 52.49% and total risk-based capital ratio of 52.75%. 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.
8
Capital Ratios(1) | December 31, 2021 | September 30, 2021 | December 31, 2020 | |||||||||||||||||
| The Company | ||||||||||||||||||||
| Tier 1 leverage ratio | 11.07 | % | 8.71 | % | 8.29 | % | ||||||||||||||
| Common equity tier 1 capital ratio | 48.25 | % | 40.98 | % | 21.53 | % | ||||||||||||||
| Tier 1 risk-based capital ratio | 55.35 | % | 50.80 | % | 22.88 | % | ||||||||||||||
| Total risk-based capital ratio | 55.60 | % | 51.13 | % | 23.49 | % | ||||||||||||||
| Common equity to total assets | 8.84 | % | 6.88 | % | 5.27 | % | ||||||||||||||
| The Bank | ||||||||||||||||||||
| Tier 1 leverage ratio | 10.49 | % | 8.24 | % | 8.22 | % | ||||||||||||||
| Common equity tier 1 capital ratio | 52.49 | % | 48.04 | % | 22.71 | % | ||||||||||||||
| Tier 1 risk-based capital ratio | 52.49 | % | 48.04 | % | 22.71 | % | ||||||||||||||
| Total risk-based capital ratio | 52.75 | % | 48.37 | % | 23.32 | % | ||||||||||||||
________________________
(1)December 31, 2021 capital ratios are preliminary.
Equity Offerings
On December 9, 2021, the Company completed its underwritten public offering of 3,806,895 shares of Class A common stock at a price of $145.00 per share, including 496,551 shares of Class A common stock upon the exercise in full by the underwriters of their option to purchase additional shares. The aggregate gross proceeds of the offering were $552.0 million and net proceeds to the Company were $530.3 million after deducting underwriting discounts and offering expenses.
Subsequent Event
On January 13, 2021, 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 November 15, 2021 through February 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 February 15, 2022 to shareholders of record of the Series A Preferred Stock as of January 28, 2021.
Conference Call and Webcast
The Company will host a conference call on Tuesday, January 18, 2022 at 11:00 a.m. (Eastern Time) to present and discuss fourth quarter and full year 2021 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 199002. A replay will be available starting at 1:00 p.m. (Eastern Time) on January 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 675337. The replay will be available until 11:59 p.m. (Eastern Time) on February 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 currency industry. The Company’s real-time payments platform, known as the Silvergate Exchange Network, is at the heart of its customer-centric suite of payments, lending and funding solutions serving an expanding class of digital currency companies and investors around the world. Silvergate is enabling the rapid growth of digital currency markets and reshaping global commerce for a digital currency future.
Forward Looking Statements
Statements in this earnings release may constitute forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of
9
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.
Investor Relations Contact:
Hunter Stenback / Ashna Vasa
858-200-3782
investors@silvergate.com
Source: Silvergate Capital Corporation
10
SILVERGATE CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands)
(Unaudited)
| December 31, 2021 | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||||||||||
| Cash and due from banks | $ | 208,193 | $ | 168,628 | $ | 52,859 | $ | 16,422 | $ | 16,405 | ||||||||||||||||||||||
| Interest earning deposits in other banks | 5,179,753 | 3,615,860 | 4,415,458 | 4,315,100 | 2,945,682 | |||||||||||||||||||||||||||
| Cash and cash equivalents | 5,387,946 | 3,784,488 | 4,468,317 | 4,331,522 | 2,962,087 | |||||||||||||||||||||||||||
| Trading securities, at fair value | — | — | 26,998 | 1,990 | — | |||||||||||||||||||||||||||
| Securities available-for-sale, at fair value | 8,625,259 | 7,234,216 | 6,176,778 | 1,717,418 | 939,015 | |||||||||||||||||||||||||||
| Loans held-for-sale, at lower of cost or fair value | 893,194 | 818,447 | 748,577 | 897,227 | 865,961 | |||||||||||||||||||||||||||
| Loans held-for-investment, net of allowance for loan losses | 887,304 | 809,745 | 740,155 | 728,390 | 746,751 | |||||||||||||||||||||||||||
| Federal home loan and federal reserve bank stock, at cost | 34,010 | 34,010 | 29,460 | 14,851 | 14,851 | |||||||||||||||||||||||||||
| Accrued interest receivable | 40,370 | 32,154 | 24,505 | 9,432 | 8,698 | |||||||||||||||||||||||||||
| Premises and equipment, net | 3,008 | 1,483 | 1,604 | 1,758 | 2,072 | |||||||||||||||||||||||||||
| Derivative assets | 34,056 | 37,210 | 39,454 | 34,442 | 31,104 | |||||||||||||||||||||||||||
| Other assets | 100,348 | 24,868 | 33,628 | 20,122 | 15,696 | |||||||||||||||||||||||||||
| Total assets | $ | 16,005,495 | $ | 12,776,621 | $ | 12,289,476 | $ | 7,757,152 | $ | 5,586,235 | ||||||||||||||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||
| Deposits: | ||||||||||||||||||||||||||||||||
| Noninterest bearing demand accounts | $ | 14,213,472 | $ | 11,586,318 | $ | 11,290,638 | $ | 6,889,281 | $ | 5,133,579 | ||||||||||||||||||||||
| Interest bearing accounts | 77,156 | 76,202 | 80,918 | 113,090 | 114,447 | |||||||||||||||||||||||||||
| Total deposits | 14,290,628 | 11,662,520 | 11,371,556 | 7,002,371 | 5,248,026 | |||||||||||||||||||||||||||
| Subordinated debentures, net | 15,845 | 15,841 | 15,838 | 15,834 | 15,831 | |||||||||||||||||||||||||||
Accrued expenses and other liabilities | 90,186 | 26,179 | 31,575 | 25,326 | 28,079 | |||||||||||||||||||||||||||
| Total liabilities | 14,396,659 | 11,704,540 | 11,418,969 | 7,043,531 | 5,291,936 | |||||||||||||||||||||||||||
Commitments and contingencies | ||||||||||||||||||||||||||||||||
Preferred stock | 2 | 2 | — | — | — | |||||||||||||||||||||||||||
| Class A common stock | 304 | 265 | 265 | 248 | 188 | |||||||||||||||||||||||||||
| Class B non-voting common stock | — | — | — | — | 1 | |||||||||||||||||||||||||||
Additional paid-in capital | 1,421,592 | 891,611 | 697,070 | 551,798 | 129,726 | |||||||||||||||||||||||||||
Retained earnings | 193,860 | 175,485 | 151,993 | 131,058 | 118,348 | |||||||||||||||||||||||||||
| Accumulated other comprehensive (loss) income | (6,922) | 4,718 | 21,179 | 30,517 | 46,036 | |||||||||||||||||||||||||||
| Total shareholders’ equity | 1,608,836 | 1,072,081 | 870,507 | 713,621 | 294,299 | |||||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 16,005,495 | $ | 12,776,621 | $ | 12,289,476 | $ | 7,757,152 | $ | 5,586,235 | ||||||||||||||||||||||
11
SILVERGATE CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
| Three Months Ended | Year Ended | |||||||||||||||||||||||||||||||
| December 31, 2021 | September 30, 2021 | December 31, 2020 | December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||
Interest income | ||||||||||||||||||||||||||||||||
| Loans, including fees | $ | 17,892 | $ | 16,972 | $ | 16,374 | $ | 68,619 | $ | 54,732 | ||||||||||||||||||||||
| Taxable securities | 10,178 | 14,000 | 3,548 | 36,094 | 17,465 | |||||||||||||||||||||||||||
| Tax-exempt securities | 7,469 | 5,014 | 1,717 | 17,301 | 5,062 | |||||||||||||||||||||||||||
| Other interest earning assets | 2,166 | 1,755 | 314 | 6,799 | 1,639 | |||||||||||||||||||||||||||
| Dividends and other | 777 | 195 | 255 | 1,581 | 692 | |||||||||||||||||||||||||||
| Total interest income | 38,482 | 37,936 | 22,208 | 130,394 | 79,590 | |||||||||||||||||||||||||||
Interest expense | ||||||||||||||||||||||||||||||||
| Deposits | 27 | 26 | 47 | 134 | 5,807 | |||||||||||||||||||||||||||
| Federal home loan bank advances | — | — | — | — | 336 | |||||||||||||||||||||||||||
| Subordinated debentures and other | 249 | 247 | 253 | 993 | 1,083 | |||||||||||||||||||||||||||
| Total interest expense | 276 | 273 | 300 | 1,127 | 7,226 | |||||||||||||||||||||||||||
Net interest income before provision for loan losses | 38,206 | 37,663 | 21,908 | 129,267 | 72,364 | |||||||||||||||||||||||||||
| Provision for loan losses | — | — | 153 | — | 742 | |||||||||||||||||||||||||||
Net interest income after provision for loan losses | 38,206 | 37,663 | 21,755 | 129,267 | 71,622 | |||||||||||||||||||||||||||
Noninterest income | ||||||||||||||||||||||||||||||||
| Mortgage warehouse fee income | 684 | 665 | 949 | 3,056 | 2,539 | |||||||||||||||||||||||||||
| Deposit related fees | 9,378 | 8,171 | 3,844 | 35,981 | 11,341 | |||||||||||||||||||||||||||
| Gain on sale of securities, net | 56 | 5,182 | — | 5,238 | 3,753 | |||||||||||||||||||||||||||
| Gain on sale of loans, net | — | — | — | — | 354 | |||||||||||||||||||||||||||
| Gain on extinguishment of debt | — | — | — | — | 925 | |||||||||||||||||||||||||||
| Other income | 937 | 24 | 55 | 981 | 265 | |||||||||||||||||||||||||||
| Total noninterest income | 11,055 | 14,042 | 4,848 | 45,256 | 19,177 | |||||||||||||||||||||||||||
| Noninterest expense | ||||||||||||||||||||||||||||||||
| Salaries and employee benefits | 13,815 | 10,729 | 9,637 | 45,794 | 36,493 | |||||||||||||||||||||||||||
| Occupancy and equipment | 728 | 523 | 3,044 | 2,464 | 5,690 | |||||||||||||||||||||||||||
| Communications and data processing | 1,862 | 1,793 | 1,443 | 7,072 | 5,406 | |||||||||||||||||||||||||||
| Professional services | 2,994 | 2,471 | 1,163 | 9,776 | 4,460 | |||||||||||||||||||||||||||
| Federal deposit insurance | 3,100 | 4,297 | 658 | 13,537 | 1,172 | |||||||||||||||||||||||||||
| Correspondent bank charges | 634 | 572 | 410 | 2,515 | 1,533 | |||||||||||||||||||||||||||
| Other loan expense | 364 | 299 | 45 | 1,117 | 326 | |||||||||||||||||||||||||||
| Other general and administrative | 2,159 | 1,655 | 1,225 | 6,845 | 4,525 | |||||||||||||||||||||||||||
| Total noninterest expense | 25,656 | 22,339 | 17,625 | 89,120 | 59,605 | |||||||||||||||||||||||||||
Income before income taxes | 23,605 | 29,366 | 8,978 | 85,403 | 31,194 | |||||||||||||||||||||||||||
| Income tax expense (benefit) | 2,214 | 5,874 | (141) | 6,875 | 5,156 | |||||||||||||||||||||||||||
Net income | 21,391 | 23,492 | 9,119 | 78,528 | 26,038 | |||||||||||||||||||||||||||
Dividends on preferred stock | 3,016 | — | — | 3,016 | — | |||||||||||||||||||||||||||
Net income available to common shareholders | $ | 18,375 | $ | 23,492 | $ | 9,119 | $ | 75,512 | $ | 26,038 | ||||||||||||||||||||||
| Basic earnings per common share | $ | 0.67 | $ | 0.89 | $ | 0.49 | $ | 2.95 | $ | 1.39 | ||||||||||||||||||||||
| Diluted earnings per common share | $ | 0.66 | $ | 0.88 | $ | 0.47 | $ | 2.91 | $ | 1.36 | ||||||||||||||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||||||||||||||||
| Basic | 27,527 | 26,525 | 18,744 | 25,582 | 18,691 | |||||||||||||||||||||||||||
| Diluted | 27,744 | 26,766 | 19,349 | 25,922 | 19,177 | |||||||||||||||||||||||||||
12
