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Silvergate Capital Corporation Announces Second Quarter 2022 Results

LA JOLLA, Calif.–(BUSINESS WIRE)– Silvergate Capital Corporation (“Silvergate” or “Company”) (NYSE:SI) and its wholly-owned subsidiary, Silvergate Bank (“Bank”), today announced financial results for the three and six months ended June 30, 2022.

Second Quarter 2022 Highlights

  • Net income for the quarter was $38.6 million, compared to $27.4 million for the first quarter of 2022, and $20.9 million for the second quarter of 2021
  • Net income available to common shareholders for the quarter was $35.9 million, or $1.13 per diluted common share, compared to net income of $24.7 million, or $0.79 per diluted share, for the first quarter of 2022, and net income of $20.9 million, or $0.80 per diluted share, for the second quarter of 2021
  • Digital currency customers grew to 1,585 at June 30, 2022, compared to 1,503 at March 31, 2022, and 1,224 at June 30, 2021
  • The Silvergate Exchange Network (“SEN”) handled $191.3 billion of U.S. dollar transfers in the second quarter of 2022, an increase of 34% compared to $142.3 billion in the first quarter of 2022, and a decrease of 20% compared to $239.6 billion in the second quarter of 2021
  • Total SEN Leverage commitments increased to $1.4 billion at June 30, 2022, compared to $1.1 billion at March 31, 2022, and $258.5 million at June 30, 2021
  • Digital currency customer related fee income for the quarter was $8.8 million, compared to $8.9 million for the first quarter of 2022, and $11.3 million for the second quarter of 2021
  • Average digital currency customer deposits were $13.8 billion during the second quarter of 2022, compared to $14.7 billion during the first quarter of 2022

Alan Lane, president and chief executive officer of Silvergate, commented, “Silvergate had another strong quarter in light of the challenging backdrop facing the broader digital currency ecosystem. I am proud of our results as we achieved record net income available to common shareholders of $35.9 million and saw some of the highest daily dollar transfer volumes ever on the Silvergate Exchange Network (SEN). In addition, we saw continued demand for our SEN Leverage product, with no losses or forced liquidations.”

“Overall, our platform was built to support our clients in this relatively nascent industry during periods of high volumes, market volatility and transformation, and performed as designed throughout the quarter. Our balance sheet is optimized for client liquidity and risk management practices are at the forefront in all aspects of our business to ensure we are prepared for any market environment. I remain confident in our trajectory throughout the second half of 2022, while continuing to invest in our strategic initiatives,” Lane added.

  As of or for the Three Months Ended
  June 30,
2022
 March 31,
2022
 June 30,
2021
       
Financial Highlights (Dollars in thousands, except per share data)
Net income $38,605  $27,386  $20,935 
Net income available to common shareholders $35,917  $24,698  $20,935 
Diluted earnings per common share $1.13  $0.79  $0.80 
Return on average assets (ROAA)(1)  0.90%  0.60%  0.77%
Return on average common equity (ROACE)(1)  10.99%  6.87%  10.40%
Net interest margin(1)(2)  1.96%  1.36%  1.16%
Cost of deposits(1)  0.00%  0.00%  0.00%
Cost of funds(1)  0.03%  0.01%  0.01%
Efficiency ratio(3)  38.30%  46.74%  50.69%
Total assets $15,847,656  $15,798,013  $12,289,476 
Total deposits $13,500,720  $13,396,162  $11,371,556 
Book value per common share $38.86  $42.77  $32.84 
Tier 1 leverage ratio  10.10%  9.68%  7.91%
Total risk-based capital ratio  44.03%  45.01%  43.15%

________________________

(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 Currency Initiative

At June 30, 2022, the Company’s digital currency customers increased to 1,585 from 1,503 at March 31, 2022, and from 1,224 at June 30, 2021. At June 30, 2022, prospective digital currency customer leads in various stages of the customer onboarding process and pipeline were above 300. For the second quarter of 2022, $191.3 billion of U.S. dollar transfers occurred on the SEN, a 34% increase from $142.3 billion transfers in the first quarter of 2022, and a decrease of 20% compared to $239.6 billion in the second quarter of 2021. Based on digital currency industry transaction data provided by Coin Metrics, bitcoin and ether dollar trading volumes increased by 6% during the second quarter of 2022 compared to the first quarter of 2022.

Results of Operations, Quarter Ended June 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 $74.5 million for the second quarter of 2022, compared to $54.0 million for the first quarter of 2022, and $31.2 million for the second quarter of 2021.

Compared to the first quarter of 2022, net interest income increased $20.5 million due to increased interest income, driven by higher yields across all interest earning asset categories, offset slightly by increased interest expense. Average total interest earning assets decreased by $0.9 billion for the second quarter of 2022 compared to the first quarter of 2022, primarily due to decreased interest earning deposits in other banks due in part to lower average deposits and increased securities balances. The average yield on interest earning assets increased from 1.37% for the first quarter of 2022 to 1.99% for the second quarter of 2022, with the most significant impacts due to higher yields on securities and loans. Average interest bearing liabilities increased $318.2 million for the second quarter of 2022 compared to the first quarter of 2022, due to increased FHLB advances. The average rate on total interest bearing liabilities increased from 0.85% for the first quarter of 2022 to 0.87% for the second quarter of 2022, primarily due to an increase in interest rates on FHLB borrowings.

Compared to the second quarter of 2021, net interest income increased $43.3 million due to increased interest income, with the largest driver being higher securities balances, offset slightly by increased interest expense. Average total interest earning assets increased by $4.4 billion for the second quarter of 2022 compared to the second quarter of 2021, primarily due to increased securities balances funded primarily by the growth in digital currency related deposits and reallocation of interest earning deposits in other banks. The average yield on total interest earning assets increased from 1.17% for the second quarter of 2021 to 1.99% for the second quarter of 2022, primarily due to a higher proportion of securities and a lower proportion of interest earning deposits in other banks as a percentage of interest earning assets, as well as higher yields on securities, loans and interest earning deposits in other banks. Average interest bearing liabilities increased $368.4 million for the second quarter of 2022 compared to the second quarter of 2021, due to increased FHLB advances. The average rate on total interest bearing liabilities decreased from 1.02% for the second quarter of 2021 to 0.87% for the second quarter of 2022, primarily due to a higher proportion of lower cost FHLB borrowings as a percentage of interest bearing liabilities.

Net interest margin for the second quarter of 2022 was 1.96%, compared to 1.36% for the first quarter of 2022, and 1.16% for the second quarter of 2021. The increase in net interest margin compared to the first quarter of 2022 was primarily due to higher yields on adjustable rate securities and loans reflecting the increasing interest rate environment. The increase in net interest margin compared to the second quarter of 2021 was primarily due to a higher proportion of securities and a lower proportion of interest earning deposits in other banks as a percentage of interest earning assets, as well as higher yields on securities, loans and interest earning deposits in other banks.

  Three Months Ended
  June 30, 2022 March 31, 2022 June 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 $1,458,173 $3,008  0.83% $3,067,054 $1,385  0.18% $5,603,397 $1,599  0.11%
Taxable securities  9,058,960  30,986  1.37%  8,492,768  17,779  0.85%  2,937,659  8,324  1.14%
Tax-exempt securities(1)  2,992,038  18,759  2.51%  2,887,072  16,689  2.34%  698,149  3,953  2.27%
Loans(2)(3)  1,689,852  22,054  5.23%  1,644,604  18,287  4.51%  1,541,373  17,158  4.46%
Other  58,852  719  4.90%  41,751  203  1.97%  29,394  466  6.36%
Total interest earning assets  15,257,875  75,526  1.99%  16,133,249  54,343  1.37%  10,809,972  31,500  1.17%
Noninterest earning assets  729,378      500,299      121,288    
Total assets $15,987,253     $16,633,548     $10,931,260    
Liabilities and Shareholders’ Equity                  
Interest bearing liabilities:                  
Interest bearing deposits $68,128 $2  0.01% $76,663 $21  0.11% $97,463 $35  0.14%
FHLB advances and other borrowings  397,810  796  0.80%  71,111  70  0.40%  44    0.00%
Subordinated debentures  15,850  243  6.15%  15,846  252  6.45%  15,836  252  6.38%
Total interest bearing liabilities  481,788  1,041  0.87%  163,620  343  0.85%  113,343  287  1.02%
Noninterest bearing liabilities:                  
Noninterest bearing deposits  13,951,397      14,781,601      9,980,680    
Other liabilities  49,550      36,770      29,586    
Shareholders’ equity  1,504,518      1,651,557      807,651    
Total liabilities and shareholders’ equity $15,987,253     $16,633,548     $10,931,260    
Net interest spread(4)     1.12%     0.52%     0.15%
Net interest income, taxable equivalent basis   $74,485      $54,000      $31,213   
Net interest margin(5)     1.96%     1.36%     1.16%
Reconciliation to reported net interest income:                  
Adjustments for taxable equivalent basis    (3,939)      (3,505)      (830)  
Net interest income, as reported   $70,546      $50,495      $30,383   

________________________

(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 recorded no provision for loan losses for the second quarter of 2022, compared to a reversal of provision for loan losses of $2.5 million for the first quarter of 2022, and no provision for the second quarter of 2021. The reversal in the first quarter of 2022 was due to the changes in loan product and segment mix in the portfolio, including the net impact of the sale of real estate loans, partially offset by an increase in SEN Leverage loans.

Noninterest Income

Noninterest income for the second quarter of 2022 was $9.2 million, a decrease of $0.2 million, or 2.5%, from the first quarter of 2022. The primary reasons for this decrease were a $0.4 million decrease in other income due to a gain on sale of other assets of $0.4 million for the first quarter of 2022 and a $0.2 million, or 1.8%, decrease in deposit related fees which remained relatively flat, offset by a $0.4 million decrease in loss on sale of securities.

Noninterest income for the second quarter of 2022 decreased by $2.9 million, or 23.7%, compared to the second quarter of 2021. This decrease was primarily due to a $2.5 million, or 22.1%, decrease in deposit related fees as a result of lower cash management fees from digital currency related customers.

  Three Months Ended
  June 30,
2022
 March 31,
2022
 June 30,
2021
       
  (Dollars in thousands)
Noninterest income:      
Deposit related fees $8,808  $8,968  $11,308
Mortgage warehouse fee income  555   651   753
Loss on sale of securities, net  (199)  (605)  
Other income  50   436   8
Total noninterest income $9,214  $9,450  $12,069

Noninterest Expense

Noninterest expense totaled $30.6 million for the second quarter of 2022, an increase of $2.5 million, or 9.0%, compared to the first quarter of 2022, and an increase of $9.0 million, or 42.0%, compared to the second 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 as well as increases in professional services and occupancy and equipment costs, all of which support the Company’s strategic initiatives. Other general and administrative expenses decreased from the first quarter of 2022 primarily due to a $1.6 million reversal of the provision for off-balance sheet commitments due to a change in estimate related to bitcoin collateralized SEN Leverage commitments. The increase in noninterest expense from the second quarter of 2021 was primarily driven by an increase in salaries and employee benefits attributable to increased headcount as well as increases in occupancy and equipment, 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
  June 30,
2022
 March 31,
2022
 June 30,
2021
       
  (Dollars in thousands)
Noninterest expense:      
Salaries and employee benefits $16,356 $15,544 $10,260
Occupancy and equipment  1,063  586  599
Communications and data processing  2,967  2,762  1,796
Professional services  6,280  2,954  2,594
Federal deposit insurance  1,495  1,762  3,844
Correspondent bank charges  801  828  812
Other loan expense  682  384  280
Other general and administrative  908  3,198  1,334
Total noninterest expense $30,552 $28,018 $21,519

Income Tax Expense (Benefit)

Income tax expense was $10.6 million for the second quarter of 2022, compared to $7.0 million for the first quarter of 2022, and a benefit of $2,000 for the second quarter of 2021. Our effective tax rate for the second quarter of 2022 was 21.5%, compared to 20.4% for the first quarter of 2022, and zero for the second quarter of 2021. The tax expense and effective tax rate for the first and second quarter of 2022 were impacted by significant increases in tax-exempt income earned on certain municipal bonds compared to the second quarter of 2021. In addition, the lower effective tax rate for the second quarter of 2021 was due to higher excess tax benefits recognized on the exercise of stock options.

Balance Sheet

Deposits

At June 30, 2022, deposits totaled $13.5 billion, an increase of $104.6 million, or 0.8%, from March 31, 2022, and an increase of $2.1 billion, or 18.7%, from June 30, 2021. Noninterest bearing deposits totaled $13.4 billion, representing approximately 99.5% of total deposits at June 30, 2022, an increase of $112.5 million from the prior quarter end, and a $2.1 billion increase compared to June 30, 2021.

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 currency industry. The Bank’s average total deposits from digital currency customers during the second quarter of 2022 amounted to $13.8 billion, with the high and low daily totals of these deposit levels during such time being $17.6 billion and $12.6 billion, respectively, compared to an average of $14.7 billion during the first quarter of 2022, and high and low daily deposit levels of $16.2 billion and $13.2 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:

  June 30, 2022 March 31, 2022 June 30, 2021
  Number of
Customers
 Total
Deposits(1)
 Number of
Customers
 Total
Deposits(1)
 Number of
Customers
 Total
Deposits(1)
             
  (Dollars in millions)
Digital currency exchanges 102 $8,133 96 $7,960 93 $5,395
Institutional investors 1,017  3,293 966  3,109 771  3,986
Other customers 466  1,879 441  2,126 360  1,734
Total 1,585 $13,304 1,503 $13,195 1,224 $11,114

________________________

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

The weighted average cost of deposits for the second quarter of 2022, the first quarter of 2022 and the second quarter of 2021 was 0.00%.

  Three Months Ended
  June 30, 2022 March 31, 2022 June 30, 2021
  Average
Balance
 Average
Rate
 Average
Balance
 Average
Rate
 Average
Balance
 Average
Rate
             
  (Dollars in thousands)
Noninterest bearing demand accounts $13,951,397   $14,781,601   $9,980,680  
Interest bearing accounts:            
Interest bearing demand accounts  3,250 0.00%  5,531 0.07%  27,303 0.12%
Money market and savings accounts  64,456 0.01%  70,632 0.11%  69,527 0.15%
Certificates of deposit  422 0.95%  500 0.81%  633 0.63%
Total interest bearing deposits  68,128 0.01%  76,663 0.11%  97,463 0.14%
Total deposits $14,019,525 0.00% $14,858,264 0.00% $10,078,143 0.00%

Loan Portfolio

Total loans, including net loans held-for-investment and loans held-for-sale, were $1.5 billion at June 30, 2022, a decrease of $209.4 million, or 12.5%, from March 31, 2022, and a decrease of $22.0 million, or 1.5%, from June 30, 2021.

  June 30,
2022
 March 31,
2022
 June 30,
2021
       
  (Dollars in thousands)
Real estate loans:      
One-to-four family $82,671  $94,161  $144,247 
Multi-family  8,827   9,368   67,704 
Commercial  69,637   80,279   272,948 
Construction        5,481 
Commercial and industrial(1)  302,610   434,960   204,279 
Reverse mortgage and other  1,110   1,137   1,364 
Mortgage warehouse  136,485   125,435   49,897 
Total gross loans held-for-investment  601,340   745,340   745,920 
Deferred fees, net  (2,227)  (1,884)  1,151 
Total loans held-for-investment  599,113   743,456   747,071 
Allowance for loan losses  (4,442)  (4,442)  (6,916)
Loans held-for-investment, net  594,671   739,014   740,155 
Loans held-for-sale(2)  872,056   937,140   748,577 
Total loans $1,466,727  $1,676,154  $1,488,732 

________________________

(1)Commercial and industrial loans includes $302.6 million, $435.0 million and $203.4 million of SEN Leverage loans as of June 30, 2022, March 31, 2022 and June 30, 2021, respectively.
(2) Loans held-for-sale includes $872.1 million, $914.2 million and $748.6 million of mortgage warehouse loans as of June 30, 2022, March 31, 2022 and June 30, 2021, respectively.

Asset Quality and Allowance for Loan Losses

The allowance for loan losses was unchanged from $4.4 million at June 30, 2022, compared to March 31, 2022 and down from $6.9 million at June 30, 2021. The ratio of the allowance for loan losses to total loans held-for-investment at June 30, 2022 was 0.74%, compared to 0.60% and 0.93% at March 31, 2022 and June 30, 2021, respectively.

Nonperforming assets totaled $3.8 million, or 0.02% of total assets, at June 30, 2022, an increase of $0.1 million from $3.6 million, or 0.02% of total assets at March 31, 2022. Nonperforming assets decreased $3.7 million, from $7.4 million, or 0.06%, of total assets at June 30, 2021.

  June 30,
2022
 March 31,
2022
 June 30,
2021
       
Asset Quality (Dollars in thousands)
Nonperforming Assets:      
Nonaccrual loans $3,724  $3,632  $7,444 
Troubled debt restructurings $1,619  $1,703  $1,437 
Other real estate owned, net $45       
Nonperforming assets $3,769  $3,632  $7,444 
       
Asset Quality Ratios:      
Nonperforming assets to total assets  0.02%  0.02%  0.06%
Nonaccrual loans to total loans(1)  0.62%  0.49%  1.00%
Net charge-offs (recoveries) to average total loans(1)  0.00%  0.00%  0.00%
Allowance for loan losses to total loans(1)  0.74%  0.60%  0.93%
Allowance for loan losses to nonaccrual loans  119.28%  122.30%  92.91%

_______________________

(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 $12.2 billion at March 31, 2022, and increased $5.6 billion, or 90.5%, from $6.2 billion at June 30, 2021, to $11.8 billion at June 30, 2022. As of June 30, 2021, there were $3.1 billion of securities classified as held-to-maturity.

Capital Ratios

At June 30, 2022, the Company’s ratio of common equity to total assets was 7.76%, compared with 8.56% at March 31, 2022, and 7.08% at June 30, 2021. At June 30, 2022, the Company’s book value per common share was $38.86, compared to $42.77 at March 31, 2022, and $32.84 at June 30, 2021.

At June 30, 2022, the Company had a tier 1 leverage ratio of 10.10%, common equity tier 1 capital ratio of 38.36%, tier 1 risk-based capital ratio of 43.91% and total risk-based capital ratio of 44.03%.

At June 30, 2022, the Bank had a tier 1 leverage ratio of 10.04%, common equity tier 1 capital ratio of 43.66%, tier 1 risk-based capital ratio of 43.66% and total risk-based capital ratio of 43.78%. 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) June 30,
2022
 March 31,
2022
 June 30,
2021
The Company      
Tier 1 leverage ratio 10.10% 9.68% 7.91%
Common equity tier 1 capital ratio 38.36% 38.97% 42.03%
Tier 1 risk-based capital ratio 43.91% 44.84% 42.80%
Total risk-based capital ratio 44.03% 45.01% 43.15%
Common equity to total assets 7.76% 8.56% 7.08%
The Bank      
Tier 1 leverage ratio 10.04% 9.51% 7.88%
Common equity tier 1 capital ratio 43.66% 44.28% 42.51%
Tier 1 risk-based capital ratio 43.66% 44.28% 42.51%
Total risk-based capital ratio 43.78% 44.45% 42.87%

________________________

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

Subsequent Event

On July 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 May 15, 2022 through August 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 August 15, 2022 to shareholders of record of the Series A Preferred Stock as of July 29, 2022.

Conference Call and Webcast

The Company will host a conference call on Tuesday, July 19, 2022 at 11:00 a.m. (Eastern Time) to present and discuss second 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 200185. A replay will be available starting at 1:00 p.m. (Eastern Time) on July 19, 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 449932. The replay will be available until 11:59 p.m. (Eastern Time) on August 2, 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 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)
 
  June 30,
2022
 March 31,
2022
 December 31,
2021
 September 30,
2021
 June 30,
2021
ASSETS          
Cash and due from banks $256,378  $207,304  $208,193  $168,628 $52,859
Interest earning deposits in other banks  1,637,410   1,178,205   5,179,753   3,615,860  4,415,458
Cash and cash equivalents  1,893,788   1,385,509   5,387,946   3,784,488  4,468,317
Trading securities, at fair value             26,998
Securities available-for-sale, at fair value  8,686,307   9,463,494   8,625,259   7,234,216  6,176,778
Securities held-to-maturity, at amortized cost  3,131,321   2,751,625        
Loans held-for-sale, at lower of cost or fair value  872,056   937,140   893,194   818,447  748,577
Loans held-for-investment, net of allowance for loan losses  594,671   739,014   887,304   809,745  740,155
Other investments  63,456   61,719   34,010   34,010  29,460
Accrued interest receivable  72,463   62,573   40,370   32,154  24,505
Premises and equipment, net  3,328   1,678   3,008   1,483  1,604
Intangible assets  190,455   189,977        
Derivative assets  104,995   46,415   34,056   37,210  39,454
Other assets  234,816   158,869   100,348   24,868  33,628
Total assets $15,847,656  $15,798,013  $16,005,495  $12,776,621 $12,289,476
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Deposits:          
Noninterest bearing demand accounts $13,436,017  $13,323,535  $14,213,472  $11,586,318 $11,290,638
Interest bearing accounts  64,703   72,627   77,156   76,202  80,918
Total deposits  13,500,720   13,396,162   14,290,628   11,662,520  11,371,556
Federal home loan bank advances  800,000   800,000        
Subordinated debentures, net  15,852   15,848   15,845   15,841  15,838
Accrued expenses and other liabilities  107,865   39,507   90,186   26,179  31,575
Total liabilities  14,424,437   14,251,517   14,396,659   11,704,540  11,418,969
Commitments and contingencies          
Preferred stock  2   2   2   2  
Class A common stock  316   316   304   265  265
Class B non-voting common stock(1)             
Additional paid-in capital  1,554,627   1,553,547   1,421,592   891,611  697,070
Retained earnings  254,475   218,558   193,860   175,485  151,993
Accumulated other comprehensive (loss) income  (386,201)  (225,927)  (6,922)  4,718  21,179
Total shareholders’ equity  1,423,219   1,546,496   1,608,836   1,072,081  870,507
Total liabilities and shareholders’ equity $15,847,656  $15,798,013  $16,005,495  $12,776,621 $12,289,476

________________________

(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 Six Months Ended
  June 30,
2022
 March 31,
2022
 June 30,
2021
 June 30,
2022
 June 30,
2021
Interest income          
Loans, including fees $22,054  $18,287  $17,158  $40,341  $33,755 
Taxable securities  30,986   17,779   8,324   48,765   11,916 
Tax-exempt securities  14,820   13,184   3,123   28,004   4,818 
Other interest earning assets  3,008   1,385   1,599   4,393   2,878 
Dividends and other  719   203   466   922   609 
Total interest income  71,587   50,838   30,670   122,425   53,976 
Interest expense          
Deposits  2   21   35   23   81 
Federal home loan bank advances and other  796   70      866    
Subordinated debentures  243   252   252   495   497 
Total interest expense  1,041   343   287   1,384   578 
Net interest income before provision for loan losses  70,546   50,495   30,383   121,041   53,398 
Reversal of provision for loan losses     (2,474)     (2,474)   
Net interest income after provision for loan losses  70,546   52,969   30,383   123,515   53,398 
Noninterest income          
Deposit related fees  8,808   8,968   11,308   17,776   18,432 
Mortgage warehouse fee income  555   651   753   1,206   1,707 
Loss on sale of securities, net  (199)  (605)     (804)   
Other income  50   436   8   486   20 
Total noninterest income  9,214   9,450   12,069   18,664   20,159 
Noninterest expense          
Salaries and employee benefits  16,356   15,544   10,260   31,900   21,250 
Occupancy and equipment  1,063   586   599   1,649   1,213 
Communications and data processing  2,967   2,762   1,796   5,729   3,417 
Professional services  6,280   2,954   2,594   9,234   4,311 
Federal deposit insurance  1,495   1,762   3,844   3,257   6,140 
Correspondent bank charges  801   828   812   1,629   1,309 
Other loan expense  682   384   280   1,066   454 
Other general and administrative  908   3,198   1,334   4,106   3,031 
Total noninterest expense  30,552   28,018   21,519   58,570   41,125 
Income before income taxes  49,208   34,401   20,933   83,609   32,432 
Income tax expense (benefit)  10,603   7,015   (2)  17,618   (1,213)
Net income  38,605   27,386   20,935   65,991   33,645 
Dividends on preferred stock  2,688   2,688      5,376    
Net income available to common shareholders $35,917  $24,698  $20,935  $60,615  $33,645 
Basic earnings per common share $1.14  $0.79  $0.81  $1.93  $1.40 
Diluted earnings per common share $1.13  $0.79  $0.80  $1.92  $1.37 
Weighted average common shares outstanding:          
Basic  31,635   31,219   25,707   31,428   24,114 
Diluted  31,799   31,401   26,102   31,601   24,565 

Investor Relations:
Hunter Stenback / Ashna Vasa
858-200-3782
[email protected]

Source: Silvergate Capital Corporation

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