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Silvergate Capital Corporation Announces Third Quarter 2019 Results

Company Release – 12/4/2019 4:10 PM ET

LA JOLLA, Calif.–(BUSINESS WIRE)– Silvergate Capital Corporation (“Silvergate” or the “Company”) (NYSE:SI) and its wholly-owned subsidiary, Silvergate Bank (the “Bank”), today announced financial results for the period ended September 30, 2019.

Third Quarter 2019 Financial Highlights

  • Net income for the quarter was $6.7 million, or $0.36 per diluted share, compared to net income of $5.2 million, or $0.28 per diluted share, for the second quarter of 2019, and net income of $6.3 million, or $0.34 per diluted share, for the third quarter of 2018
  • Digital currency customers grew to 756 in the third quarter from 655 at June 30, 2019, and from 483 at September 30, 2018
  • The Silvergate Exchange Network (“SEN”) handled $10.4 billion of U.S. dollar transfers in the third quarter as compared to $8.6 billion in the second quarter of 2019, and $1.7 billion in the third quarter of 2018
  • Digital currency customer related fee income for the quarter was $1.6 million as compared to $1.1 million in the second quarter of 2019, and $0.7 million in the third quarter 2018
  • Book value per share was $12.92 at September 30, 2019, compared to $12.04 at June 30, 2019, and $10.30 at September 30, 2018
  • Efficiency ratio for the quarter was 59.93%, compared to 64.50% for the second quarter of 2019 and 56.65% for the third quarter of 2018

Alan Lane, President and Chief Executive Officer of Silvergate, commented, “Our third quarter results clearly demonstrate the strong network effect and growing competitive position of the Silvergate Exchange Network, ‘SEN’, with 756 digital currency customers, 101 of which were added in the quarter. Our growing digital currency customer base is rapidly adopting our proprietary global payments platform with over $10 billion dollars moving across the SEN in the third quarter. We also experienced digital currency related fee income growth of 177%, year over year, as the SEN continues to gain broad adoption by both institutional investors and exchanges, and we see an opportunity to further expand the services that we offer.”

Mr. Lane continued, “Over much of the last year we have pursued an initial public offering, and I am pleased to report that we completed this significant milestone on November 7, 2019 when our shares began trading on the New York Stock Exchange. The successful completion of our IPO would not have been possible without our dedicated employees, customers, and partners who I would like to thank for their hard work and commitment. Our offering is an important step in the transformation and growth of Silvergate and I am excited with the many opportunities that lie ahead as we continue to grow the SEN, diversify our revenues and further scale the platform.”

  As of or for the Three Months Ended
  September 30,
2019
 June 30,
2019
 September 30,
2018
       
Financial Highlights (Dollars in thousands, except per share data)
Net income $6,656  $5,156  $6,279 
Diluted earnings per share $0.36  $0.28  $0.34 
Return on average assets (ROAA)(1) 1.20% 1.03% 1.27%
Return on average equity (ROAE)(1) 11.78% 10.04% 13.74%
Net interest margin(1)(2) 3.39% 3.56% 3.67%
Cost of deposits(1)(3) 0.50% 0.28% 0.09%
Cost of funds(1)(3) 0.59% 0.43% 0.17%
Efficiency ratio(4) 59.93% 64.50% 56.65%
Total assets $2,136,844  $2,242,034  $2,150,553 
Total deposits $1,848,095  $1,938,650  $1,937,326 
Book value per share $12.92  $12.04  $10.30 
Tier 1 leverage ratio 10.43% 11.11% 10.25%
Total risk-based capital ratio 25.97% 26.57% 26.56%

________________________

  1. Data has been annualized.
  2. Net interest margin is a ratio calculated as annualized net interest income divided by average interest earning assets for the same period.
  3. Cost of deposits and cost of funds increased beginning in the second quarter of 2019 due to the cost of a hedging strategy discussed in “Balance Sheet —Securities” in more detail below.
  4. Efficiency ratio is calculated by dividing noninterest expenses by net interest income plus noninterest income.

Digital Currency Initiative

At September 30, 2019, our digital currency customers increased to 756 from 655 at June 30, 2019, and from 483 at September 30, 2018. At September 30, 2019, we had 250 prospective digital currency customers in various stages of our customer onboarding process, compared to 228 at June 30, 2019. In addition, for the three months ended September 30, 2019, $10.4 billion of U.S. dollar transfers occurred on the SEN, bringing total U.S. dollar transfers on the SEN to $23.1 billion and total funds transfers including wires to $41.5 billion for the nine months ended September 30, 2019.

  Three Months Ended Nine Months Ended
  September 30,
2019
 June 30,
2019
 September 30,
2018
 September 30,
2019
 September 30,
2018
  (Dollars in millions)
# SEN Transactions 12,312  12,254  1,453  31,663  2,892 
$ Volume of SEN Transactions $10,425  $8,625  $1,680  $23,126  $4,359 
 

Results of Operations, Quarter Ended September 30, 2019

Net Interest Income and Net Interest Margin Analysis

Net interest income totaled $18.4 million for the third quarter of 2019, compared to $17.6 million for the second quarter of 2019, and $18.0 million for the third quarter of 2018.

Compared to the second quarter of 2019, net interest income increased $0.9 million due to an increase in interest earning assets driven primarily by an increase in average balances of securities and mortgage warehouse loans, partially offset by a decrease in interest earning deposits in other banks and an increase in interest bearing liabilities. The increase in securities was driven primarily by the purchase of fixed-rate commercial mortgage-backed securities and adjustable rate residential mortgage-backed securities. The increase in interest bearing liabilities was primarily due to the issuance of callable brokered certificates of deposits, which were used to fund fixed-rate commercial mortgage-backed securities, both associated with a hedging strategy which is discussed in further detail in the “Balance Sheet—Securities” section.

Compared to the third quarter of 2018, net interest income increased $0.5 million due to a $217.1 million increase in average interest earning assets and an 11 basis point increase in our yield on earning assets, partially offset by a $241.3 million increase in average interest bearing liabilities. Average interest earning assets increased due to an increase in average balances of securities and loans, partly offset by a decrease in interest earning deposits in other banks. The increase in securities was driven by the purchase of fixed-rate commercial mortgage-backed securities and adjustable rate residential mortgage-backed securities, while the increase in loans was primarily driven by an increase in mortgage warehouse loans, partly offset by a decrease in commercial loans related to the sale of the business lending division in the first quarter of 2019. Yields on earning assets benefited from the increase in securities relative to interest earnings deposits in other banks, and from an overall increase in higher yielding loans. The increase in interest bearing deposits was primarily due to the issuance of callable brokered certificates of deposits, which were used to fund fixed-rate commercial mortgage-backed securities, both associated with a hedging strategy which is discussed in further detail in the “Balance Sheet—Securities” section. Noninterest bearing deposits generated by the digital currency initiative are primarily invested in securities and interest earning deposits.

Net interest margin for the third quarter of 2019 was 3.39%, compared to 3.56% for the second quarter of 2019, and 3.67% for the third quarter of 2018. The decrease in the net interest margin compared to the second quarter of 2019 was driven by the increase in interest bearing deposits due to the issuance of callable brokered certificates of deposits, while the yield on interest earning assets was relatively flat as the impact of the federal funds rate reductions was offset by a higher level of securities and loans relative to interest earning deposits in other banks. The net margin decrease from the third quarter of 2018 was primarily due to the callable brokered certificates of deposits associated with the hedging strategy.

  Three Months Ended
  September 30, 2019 June 30, 2019 September 30, 2018
  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 $234,606  $1,183  2.00% $530,325  $3,058  2.31% $770,832  $3,921  2.02%
Securities 935,263  6,510  2.76% 579,464  4,501  3.12% 266,718  1,941  2.89%
Loans(1)(2) 979,283  13,574  5.50% 860,682  11,684  5.45% 895,107  12,726  5.64%
Other 10,742  121  4.47% 10,743  229  8.55% 10,140  119  4.66%
Total interest earning assets 2,159,894  21,388  3.93% 1,981,214  19,472  3.94% 1,942,797  18,707  3.82%
Noninterest earning assets 45,306      28,440      12,706     
Total assets $2,205,200      $2,009,654      $1,955,503     
Liabilities and Shareholders’ Equity                  
Interest bearing liabilities:                  
Interest bearing deposits $438,277  $2,385  2.16% $270,360  $1,194  1.77% $234,044  $400  0.68%
FHLB advances and other borrowings 43,642  289  2.63% 60,639  443  2.93% 6,622  98  5.87%
Subordinated debentures 15,810  271  6.80% 15,807  267  6.78% 15,796  239  6.00%
Total interest bearing liabilities 497,729  2,945  2.35% 346,806  1,904  2.20% 256,462  737  1.14%
Noninterest bearing liabilities:                  
Noninterest bearing deposits 1,468,992      1,445,529      1,512,393     
Other liabilities 14,400      11,371      5,297     
Shareholders’ equity 224,079      205,948      181,351     
Total liabilities and shareholders’ equity $2,205,200      $2,009,654      $1,955,503     
Net interest spread(3)     1.58%     1.74%     2.68%
Net interest income   $18,443      $17,568      $17,970   
Net interest margin(4)     3.39%     3.56%     3.67%

________________________

  1. Loans include nonaccrual loans and loans held-for-sale, net of deferred fees and before allowance for loan losses.
  2. Interest income includes amortization of deferred loan fees, net of deferred loan costs.
  3. Net interest spread is the difference between interest rates earned on interest earning assets and interest rates paid on interest bearing liabilities.
  4. Net interest margin is a ratio calculated as annualized net interest income divided by average interest earning assets for the same period.

Provision for Loan Losses

The Company recorded a reversal of provision for loan losses of $0.9 million for the third quarter of 2019, compared to a provision of $0.2 million for the second quarter of 2019, and no provision for the third quarter of 2018. For a discussion on the provision and allowance for loan losses, see “Balance Sheet—Asset Quality and Allowance for Loan Losses.”

Noninterest Income

Noninterest income for the third quarter of 2019 was $2.6 million, an increase of $0.4 million, or 20.7%, from the second quarter of 2019. The primary driver of this increase was a $0.5 million, or 41.5% increase in deposit related fees attributed to increases in cash management, foreign exchange, and SEN related fees associated with our digital currency initiative.

Noninterest income for the third quarter of 2019 increased by $0.4 million, or 19.0%, compared to the third quarter of 2018, primarily due to an increase of $1.0 million, or 140.8%, in deposit related fees. The increase was partially offset by decreases in service fees related to off-balance sheet deposits, gain on sale of loans and other income. Deposit related fees increased primarily due to increases in cash management, foreign exchange, and SEN related fees associated with our digital currency initiative.

  Three Months Ended
  September 30,
2019
 June 30,
2019
 September 30,
2018
       
  (Dollars in thousands)
Noninterest income:      
Mortgage warehouse fee income $373  $346  $393 
Service fees related to off-balance sheet deposits 283  412  573 
Deposit related fees 1,657  1,171  688 
Gain on sale of loans 248  156  416 
Other income 38  69  114 
Total noninterest income $2,599  $2,154  $2,184 

Noninterest Expense

Noninterest expense totaled $12.6 million for the third quarter of 2019, a decrease of $0.1 million compared to the second quarter of 2019, and an increase of $1.2 million compared to the third quarter of 2018.

Noninterest expense decreased from the prior quarter due to lower occupancy and equipment, professional services and federal deposit insurance expense that was partially offset by an increase in salaries and employee benefits and communications and data processing.

Noninterest expense increased from the third quarter of 2018 due to continued expansion of our technology-driven banking platform with significant capacity to support potential future growth. Salaries and employee benefits increased $1.0 million from the third quarter of 2018 due primarily to an increase in full-time equivalent employees associated with growth in project management and operations to support the expansion of our technology driven platform. This was partially offset by a reduction in personnel as a result of the sale of the Bank’s San Marcos branch and business loan operations. Occupancy and equipment expense increased by $0.2 million in the third quarter of 2019 compared to the third quarter of 2018, due to an increase in leased space for the corporate headquarters, partially offset by the sale of the San Marcos branch. Communications and data processing increased $0.6 million from enhancements to our IT infrastructure and expansion projects to support our digital currency initiative.

  Three Months Ended
  September 30,
2019
 June 30,
2019
 September 30,
2018
       
  (Dollars in thousands)
Noninterest expense:      
Salaries and employee benefits $8,277  $8,082  $7,259 
Occupancy and equipment 892  1,012  742 
Communications and data processing 1,298  1,123  703 
Professional services 889  1,073  1,507 
Federal deposit insurance 39  168  214 
Correspondent bank charges 288  301  240 
Other loan expense 47  118  57 
Other real estate owned expense (recovery) 75  5  (10)
Other general and administrative 806  839  705 
Total noninterest expense $12,611  $12,721  $11,417 

Income Tax Expense

Income tax expense was $2.6 million for the third quarter of 2019, compared to $1.7 million for the second quarter of 2019, and $2.5 million for the third quarter of 2018. Our effective tax rate for the third quarter of 2019 was 28.3%, compared to 24.7% for the second quarter of 2019, and 28.1% third quarter of 2018. The lower effective tax rate for the second quarter of 2019 was due to recognized tax benefits which include excess benefits from stock-based compensation.

Results of Operations, Nine Months Ended September 30, 2019

Net income for the nine months ended September 30, 2019 was $21.2 million, or $1.16 per diluted share, compared to $14.3 million, or $0.86 per diluted share, for the same period in 2018.

Net interest income for the nine months ended September 30, 2019 was $55.3 million, compared to $48.8 million for the same period in 2018. The increase in net interest income was primarily due to an increase of $9.8 million in interest income partially offset by an increase of $3.2 million in interest expense. The increase in interest income was the result of both an increase in average earning assets and higher yields on those assets, driven in part by an increase in both securities and loans relative to cash and cash equivalents.

Noninterest income for the nine months ended September 30, 2019 was $12.6 million, compared to $5.6 million for the same period in 2018. The increase in total noninterest income was primarily due to the increase in fee income from our digital currency customers and the $5.5 million gain on sale of branch that occurred in the first quarter of 2019.

Noninterest expense was $38.8 million for the nine months ended September 30, 2019, compared to $34.3 million for the nine months ended September 30, 2018. The increase in noninterest expense was primarily due to increases in salaries and benefits and communications and data processing corresponding to our organic growth as we have expanded our operational infrastructure and implemented our plan to build an efficient, technology-driven banking operation with significant capacity for growth.

Income tax expense was $8.3 million for the nine months ended September 30, 2019, compared to an income tax expense of $5.5 million for the same period in 2018.

Balance Sheet

Deposits

At September 30, 2019, deposits totaled $1.8 billion, a decrease of $90.6 million, or 4.7%, from June 30, 2019, and a decrease of $89.2 million, or 4.6%, from September 30, 2018. Noninterest bearing deposits totaled $1.4 billion (representing approximately 75.5% of total deposits) at September 30, 2019, a decrease of $155.5 million from the prior quarter end and a $314.2 million decrease compared to September 30, 2018. The decrease in total deposits from the prior quarter reflects changes in deposit levels of our digital currency customers, offset slightly by an increase of $75.0 million in callable brokered certificates of deposit. The decrease in total deposits from September 30, 2018 was also impacted by the sale of the San Marcos branch, which reduced total deposits by $74.5 million, offset by an increase of $325.0 million in callable brokered certificates of deposit associated with the implementation of a hedging strategy. While deposits may fluctuate in the ordinary course of business, the Company has continued to add new digital currency customers each quarter.

The weighted average cost of deposits for the third quarter of 2019 was 0.50%, compared to 0.28% for the second quarter of 2019, and 0.09% for the third quarter of 2018. The increase in the weighted average cost of deposits compared to the second quarter of 2019 and the third quarter of 2018 was driven by the addition of new callable brokered certificates of deposit associated with a hedging strategy, as discussed in “Balance Sheet—Securities” below.

  Three Months Ended
  September 30, 2019 June 30, 2019 September 30, 2018
  Average
Balance
 Average
Rate
 Average
Balance
 Average
Rate
 Average
Balance
 Average
Rate
             
  (Dollars in thousands)
Noninterest bearing demand accounts $1,468,992    $1,445,529    $1,512,393   
Interest bearing accounts:            
Interest bearing demand accounts 47,945  0.14% 47,879  0.14% 53,676  0.14%
Money market and savings accounts 81,941  1.00% 77,293  0.83% 135,454  0.62%
Certificates of deposit:            
Brokered certificates of deposit 303,524  2.81% 129,354  2.97%    
Other 4,867  1.33% 15,834  1.53% 44,914  1.47%
Total interest bearing deposits 438,277  2.16% 270,360  1.77% 234,044  0.68%
Total deposits $1,907,269  0.50% $1,715,889  0.28% $1,746,437  0.09%

The demand for new deposit accounts is attributable to our banking platform for innovators that includes the SEN, which is enabled through our online banking system or our proprietary API. These tools enable our clients to grow their business and scale operations.

The following table sets forth a breakdown of our digital currency customer base and the deposits held by such customers at the dates noted below:

  September 30, 2019 June 30, 2019 September 30, 2018
  Number of
Customers
 Total
Deposits
 Number of
Customers
 Total
Deposits
 Number of
Customers
 Total
Deposits
             
  (Dollars in millions)
Digital currency exchanges 69 $546 51 $654 35 $793
Institutional investors 468 504 426 568 339 573
Other customers 219 247 178 242 109 227
Total 756 $1,297 655 $1,463 483 $1,593

Loan Portfolio

Total loans held-for-investment were $698.2 million at September 30, 2019, an increase of $6.7 million, or 1.0%, from June 30, 2019, and an increase of $2.0 million, or 0.3%, from September 30, 2018.

  September 30,
2019
 June 30,
2019
 September 30,
2018
       
  (Dollars in thousands)
Real estate loans:      
One-to-four family $212,440  $203,885  $184,847 
Multi-family 77,901  80,080  23,270 
Commercial 322,733  331,034  344,773 
Construction 3,986  3,137  3,087 
Commercial and industrial 14,563  10,658  88,173 
Consumer and other 76  199  125 
Reverse mortgage 1,629  1,686  1,901 
Mortgage warehouse 61,856  57,923  48,409 
Total gross loans held-for-investment 695,184  688,602  694,585 
Deferred fees, net 2,997  2,857  1,621 
Total loans held-for-investment 698,181  691,459  696,206 
Allowance for loan losses (6,191) (7,049) (8,388)
Total loans held-for-investment, net $691,990  $684,410  $687,818 
Total loans held-for-sale $311,410  $235,834  $184,105 

Loans held-for-sale included $306.7 million, $223.9 million and $181.4 million of mortgage warehouse loans at September 30, 2019, June 30, 2019, and September 30, 2018, respectively.

Asset Quality and Allowance for Loan Losses

At September 30, 2019, our allowance for loan losses was $6.2 million, a decrease of $0.9 million from June 30, 2019, and a decrease of $2.2 million from September 30, 2018. The ratio of the allowance for loan losses to gross loans held-for-investment at September 30, 2019 was 0.89%, compared to 1.02% and 1.21% at June 30, 2019 and September 30, 2018, respectively.

Nonperforming assets totaled $6.8 million, or 0.32% of total assets, at September 30, 2019, a decrease of $0.8 million from $7.6 million, or 0.34% of total assets at June 30, 2019, primarily due to loan payoffs and principal repayments on nonperforming commercial and industrial loans. Nonperforming assets decreased $3.1 million, from $9.9 million, or 0.46% of total assets, at September 30, 2018, primarily due to principal repayments on nonperforming commercial and industrial loans.

  September 30,
2019
 June 30,
2019
 September 30,
2018
       
Asset Quality (Dollars in thousands)
Nonperforming Assets:      
Nonperforming loans $6,707  $7,518  $9,835 
Troubled debt restructurings $1,840  $1,896  $555 
Other real estate owned, net $81  $112  $41 
Nonperforming assets $6,788  $7,630  $9,876 
       
Asset Quality Ratios:      
Nonperforming assets to total assets 0.32% 0.34% 0.46%
Nonperforming loans to gross loans(1) 0.96% 1.09% 1.42%
Nonperforming assets to gross loans and other real estate owned(1) 0.98% 1.11% 1.42%
Net charge-offs (recoveries) to average total loans(1) 0.01% 0.01% (0.01)%
Allowance for loan losses to gross loans(1) 0.89% 1.02% 1.21%
Allowance for loan losses to nonperforming loans 92.31% 93.76% 85.29%

________________________

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

Securities

Securities available-for-sale decreased $10.6 million, or 1.1%, from $920.5 million at June 30, 2019, and increased $607.6 million, or 201.0%, from $302.3 million at September 30, 2018, to $909.9 million at September 30, 2019. The Company’s securities portfolio has grown substantially due to the implementation of a hedging strategy and the purchase of high quality available-for-sale securities. In March 2019, the Bank implemented a hedging strategy that includes purchases of interest rate floors and commercial mortgage-backed securities, primarily funded by callable brokered certificates of deposit. This hedging strategy is intended to reduce the Bank’s exposure to a decline in earnings in a declining interest rate environment with a minimal negative impact on current earnings. At September 30, 2019, the Company purchased $400.0 million in notional amount of interest rate floors, $350.4 million in fixed-rate commercial mortgage-backed securities and issued $325.0 million of callable brokered certificates of deposit related to the hedging strategy. The callable brokered certificates of deposit had an unamortized premium of $2.3 million and have an average life of 4.2 years as of September 30, 2019. These certificates of deposit are initially callable six months after issuance and monthly thereafter. The initial call dates for all callable brokered certificates of deposit are from October 2019 through January 2020. At September 30, 2019, we held a total of $196.0 million in callable certificates of deposit and $1.3 million of related unamortized premium, which was subsequently called after the end of the third quarter. In addition, the Company purchased $20.0 million in adjustable rate residential mortgage-backed securities during the third quarter of 2019 and sold $30.0 million of residential and commercial government agency collateralized mortgage obligations.

Capital Ratios

At September 30, 2019, the Company’s ratio of common equity to total assets was 10.79%, compared with 9.58% at June 30, 2019, and 8.53% at September 30, 2018. At September 30, 2019, the Company’s book value per share was $12.92, compared to $12.04 at June 30, 2019, and $10.30 at September 30, 2018.

At September 30, 2019, the Company had a tier 1 leverage ratio of 10.43%, common equity tier 1 capital ratio of 23.57%, tier 1 capital ratio of 25.28% and total capital ratio of 25.97%.

At September 30, 2019, the Bank had a tier 1 leverage ratio of 10.01%, common equity tier 1 capital ratio of 24.30%, tier 1 capital ratio of 24.30% and total capital ratio of 25.00%. These capital ratios each exceeded the “well capitalized” standards defined by the federal banking regulators of 5.00% for tier 1 leverage ratio, 6.5% for common equity tier 1 capital ratio, 8.00% for tier 1 capital ratio and 10.00% for total capital ratio.

Capital Ratios September 30,
2019
 June 30,
2019
 September 30,
2018
The Company      
Tier 1 leverage ratio 10.43% 11.11% 10.25%
Common equity tier 1 capital ratio 23.57% 23.96% 23.50%
Tier 1 risk-based capital ratio 25.28% 25.75% 25.47%
Total risk-based capital ratio 25.97% 26.57% 26.56%
Common equity to total assets 10.79% 9.58% 8.53%
The Bank      
Tier 1 leverage ratio 10.01% 10.62% 9.12%
Common equity tier 1 capital ratio 24.30% 24.66% 22.72%
Tier 1 risk-based capital ratio 24.30% 24.66% 22.72%
Total risk-based capital ratio 25.00% 25.49% 23.81%

About Silvergate:

Silvergate Capital Corporation is a registered bank holding company for Silvergate Bank, headquartered in La Jolla, California. Silvergate Bank is a commercial bank that opened in 1988, has been profitable for 21 consecutive years, and has focused its strategy on creating the banking platform for innovators, especially in the digital currency industry, and developing product and service solutions addressing the needs of entrepreneurs. The Company’s assets consist primarily of its investment in the Bank and the Company’s primary activities are conducted through the Bank. The Company is subject to supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Bank is subject to supervision by the California Department of Business Oversight, Division of Financial Institutions and, as a Federal Reserve member bank, the Federal Reserve. The Bank’s deposits are insured up to legal limits by the Federal Deposit Insurance Corporation.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This earnings release contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “projection,” “forecast,” “goal,” “target,” “would,” “aim” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry and management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. The inclusion of these forward-looking statements should not be regarded as a representation by us or any other person that such expectations, estimates and projections will be achieved. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. Any forward-looking statement speaks only as of the date of this shareholder letter, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether because of new information, future developments or otherwise, except as required by law. New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence. In addition, we cannot assess the impact of each risk and uncertainty on our business or the extent to which any risk or uncertainty, or combination of risks and uncertainties, may cause actual results to differ materially from those contained in any forward-looking statements.

 
SILVERGATE CAPITAL CORPORATIONCONSOLIDATED STATEMENTS OF FINANCIAL CONDITION(In Thousands)(Unaudited)
  September 30,
2019
 June 30,
2019
 March 31,
2019
 December 31,
2018
 September 30,
2018
ASSETS          
Cash and due from banks $4,098  $2,036  $3,865  $4,177  $6,488 
Interest earning deposits in other banks 156,160  339,325  529,159  670,243  943,838 
Cash and cash equivalents 160,258  341,361  533,024  674,420  950,326 
Securities available-for-sale, at fair value 909,917  920,481  462,330  357,178  302,317 
Securities held-to-maturity, at amortized cost   63  70  73  81 
Loans held-for-investment, net of allowance for loan losses 691,990  684,410  611,175  592,781  687,818 
Loans held-for-sale, at lower of cost or fair value 311,410  235,834  234,067  350,636  184,105 
Federal home loan and federal reserve bank stock, at cost 10,264  10,264  10,264  9,660  9,660 
Accrued interest receivable 5,875  6,296  5,474  5,770  4,391 
Other real estate owned, net 81  112  31  31  41 
Premises and equipment, net 3,224  3,276  3,195  3,656  2,679 
Operating lease right-of-use assets 4,927  5,280  4,476     
Derivative assets 30,885  25,698  3,392  999  1,305 
Low income housing tax credit investment 981  1,008  1,015  1,044  1,074 
Deferred tax asset     3,153  3,329  3,135 
Other assets 7,032  7,951  19,728  4,741  3,621 
Total assets $2,136,844  $2,242,034  $1,891,394  $2,004,318  $2,150,553 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Deposits:          
Noninterest bearing demand accounts $1,394,433  $1,549,886  $1,452,191  $1,525,922  $1,708,590 
Interest bearing accounts 453,662  388,764  146,573  152,911  228,736 
Deposits held-for-sale       104,172   
Total deposits 1,848,095  1,938,650  1,598,764  1,783,005  1,937,326 
Federal home loan bank advances 20,000         
Other borrowings   53,545  57,135     
Notes payable 4,000  4,286  4,286  4,857  5,143 
Subordinated debentures, net 15,813  15,809  15,806  15,802  15,799 
Operating lease liabilities 5,237  5,581  4,762     
Accrued expenses and other liabilities 13,085  9,415  9,504  9,408  8,901 
Total liabilities 1,906,230  2,027,286  1,690,257  1,813,072  1,967,169 
Commitments and contingencies          
Preferred stock          
Class A common stock 167  166  166  166  166 
Class B non-voting common stock 12  12  12  12  12 
Additional paid-in capital 125,573  125,599  125,684  125,665  125,610 
Retained earnings 88,712  82,056  76,900  67,464  59,444 
Accumulated other comprehensive income (loss) 16,150  6,915  (1,625) (2,061) (1,848)
Total shareholders’ equity 230,614  214,748  201,137  191,246  183,384 
Total liabilities and shareholders’ equity $2,136,844  $2,242,034  $1,891,394  $2,004,318  $2,150,553 
SILVERGATE CAPITAL CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS(In Thousands, Except Per Share Data)(Unaudited)
  Three Months Ended Nine Months Ended
  September 30,
2019
 June 30,
2019
 September 30,
2018
 September 30,
2019
 September 30,
2018
Interest income          
Loans, including fees $13,574  $11,684  $12,726  $38,369  $35,357 
Securities 6,510  4,501  1,941  14,044  5,016 
Other interest earning assets 1,183  3,058  3,921  8,038  10,386 
Dividends and other 121  229  119  472  392 
Total interest income 21,388  19,472  18,707  60,923  51,151 
Interest expense          
Deposits 2,385  1,194  400  3,920  1,386 
Federal home loan bank advances 172      172  19 
Notes payable and other 117  443  98  702  315 
Subordinated debentures 271  267  239  802  671 
Total interest expense 2,945  1,904  737  5,596  2,391 
Net interest income before provision for loan losses 18,443  17,568  17,970  55,327  48,760 
(Reversal of) provision for loan losses (858) 152    (439) 148 
Net interest income after provision for loan losses 19,301  17,416  17,970  55,766  48,612 
Noninterest income          
Mortgage warehouse fee income 373  346  393  1,085  1,152 
Service fees related to off-balance sheet deposits 283  412  573  1,454  1,683 
Deposit related fees 1,657  1,171  688  3,815  1,655 
Gain on sale of loans 248  156  416  593  699 
Gain on sale of branch, net       5,509   
Other income 38  69  114  168  383 
Total noninterest income 2,599  2,154  2,184  12,624  5,572 
Noninterest expense          
Salaries and employee benefits 8,277  8,082  7,259  25,124  21,335 
Occupancy and equipment 892  1,012  742  2,777  2,251 
Communications and data processing 1,298  1,123  703  3,458  2,149 
Professional services 889  1,073  1,507  3,407  3,918 
Federal deposit insurance 39  168  214  382  1,078 
Correspondent bank charges 288  301  240  868  914 
Other loan expense 47  118  57  290  198 
Other real estate owned expense (recovery) 75  5  (10) 80  42 
Other general and administrative 806  839  705  2,432  2,461 
Total noninterest expense 12,611  12,721  11,417  38,818  34,346 
Income before income taxes 9,289  6,849  8,737  29,572  19,838 
Income tax expense 2,633  1,693  2,458  8,324  5,525 
Net income 6,656  5,156  6,279  21,248  14,313 
Basic earnings per share $0.37  $0.29  $0.35  $1.19  $0.89 
Diluted earnings per share $0.36  $0.28  $0.34  $1.16  $0.86 
Weighted average shares outstanding:          
Basic 17,840  17,835  17,808  17,830  16,113 
Diluted 18,246  18,257  18,254  18,252  16,607 

Investor Relations:
Jamie Lillis / Shannon Devine
(858) 200-3782
[email protected] in new window

Source: Silvergate Capital Corporation

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