Silvergate Capital Corporation (“Silvergate” or “Company”) (NYSE:SI) and its wholly-owned subsidiary, Silvergate Bank (“Bank”), today announced financial results for the three months ended March 31, 2021.
First Quarter 2021 Highlights
- Net income for the quarter was $12.7 million, or $0.55 per diluted share, compared to net income of $9.1 million, or $0.47 per diluted share, for the fourth quarter of 2020, and net income of $4.4 million, or $0.23 per diluted share, for the first quarter of 2020
- The Silvergate Exchange Network (“SEN”) handled 166,772 transactions in the first quarter of 2021, an increase of 84%, compared to 90,763 transactions in the fourth quarter of 2020, and an increase of 431% compared to 31,405 transactions in the first quarter of 2020
- The SEN handled $166.5 billion of U.S. dollar transfers in the first quarter of 2021, an increase of 181% compared to $59.2 billion in the fourth quarter of 2020, and an increase of 858% compared to $17.4 billion in the first quarter of 2020
- Digital currency customer related fee income for the quarter was $7.1 million, compared to $3.8 million for the fourth quarter of 2020, and $1.7 million for the first quarter of 2020
- Digital currency customers grew to 1,104 at March 31, 2021, compared to 969 at December 31, 2020, and 850 at March 31, 2020
- Digital currency customer deposits grew by $1.8 billion to $6.8 billion as of March 31, 2021, compared to $5.0 billion as of December 31, 2020
- Completed two equity offerings, which resulted in the issuance of a total of 5,860,858 shares of Class A common stock for aggregate gross proceeds of $441.1 million and net proceeds of $423.5 million after deducting underwriting discounts and offering expenses
Alan Lane, president and chief executive officer of Silvergate, commented, “We kicked off 2021 on a very strong note, as highlighted by Q1 growth across all of our Silvergate Exchange Network (SEN) key performance metrics, including continued customer growth, a significant increase in transactions and over $7 million in transaction revenue. As the SEN continues to expand, we have the opportunity to build upon the network effect to offer additional products and services to our customers. One example of this is SEN Leverage, our differentiated funding offering, which increased approved credit lines to $196.5 million in Q1 from $82.5 million in the prior quarter, as customers utilized this product. In March we announced that Coinbase Custody and Fidelity Digital Assets will be custodians for the SEN Leverage product, providing investors with more choice and greater access to capital.”
“In addition, during Q1, the average deposit balance was $6.6 billion, up from $2.8 billion in Q4 and $1.9 billion in Q1 2020,” continued Mr. Lane. “Early in the year, we issued $287.5 million in equity and later put a $300 million ATM program in place to ensure we remain well capitalized to meet regulatory capital requirements as deposit growth accelerates.”
As of or for the Three Months Ended | ||||||||||||
March 31,
| December 31,
| March 31,
| ||||||||||
Financial Highlights | (Dollars in thousands, except per share data) | |||||||||||
Net income | $ | 12,710 | $ | 9,119 | $ | 4,393 | ||||||
Diluted earnings per share | $ | 0.55 | $ | 0.47 | $ | 0.23 | ||||||
Return on average assets (ROAA)(1) | 0.71 | % | 1.14 | % | 0.79 | % | ||||||
Return on average equity (ROAE)(1) | 9.76 | % | 12.60 | % | 7.14 | % | ||||||
Net interest margin(1)(2) | 1.33 | % | 2.85 | % | 2.86 | % | ||||||
Cost of deposits(1)(3) | 0.00 | % | 0.01 | % | 0.87 | % | ||||||
Cost of funds(1)(3) | 0.02 | % | 0.04 | % | 0.94 | % | ||||||
Efficiency ratio(4) | 63.03 | % | 65.87 | % | 67.98 | % | ||||||
Total assets | $ | 7,757,152 | $ | 5,586,235 | $ | 2,310,708 | ||||||
Total deposits | $ | 7,002,371 | $ | 5,248,026 | $ | 2,002,957 | ||||||
Book value per share | $ | 28.75 | $ | 15.63 | $ | 13.11 | ||||||
Tier 1 leverage ratio | 9.68 | % | 8.29 | % | 10.98 | % | ||||||
Total risk-based capital ratio | 54.91 | % | 23.49 | % | 26.05 | % | ||||||
________________________
| (1) | Data has been annualized. | |
| (2) | Net interest margin is a ratio calculated as annualized 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 the first quarter of 2020 includes interest expense and accelerated premium amortization expense related to callable brokered certificates of deposit that were called during the first and second quarters of 2020. | |
| (4) | Efficiency ratio is calculated by dividing noninterest expenses by net interest income plus noninterest income. |
Digital Currency Initiative
At March 31, 2021, the Company’s digital currency customers increased to 1,104 from 969 at December 31, 2020, and from 850 at March 31, 2020. At March 31, 2021, prospective digital currency customer leads in various stages of the customer onboarding process and pipeline remained above 200. There was a record 166,772 transactions on the SEN for the first quarter of 2021, an increase of 84%, compared to 90,763 transactions for the fourth quarter of 2020. In addition, for the first quarter of 2021, $166.5 billion of U.S. dollar transfers occurred on the SEN, another quarterly record and a 181% increase from the fourth quarter of 2020.
Three Months Ended | ||||||||||||
March 31,
| December 31,
| March 31,
| ||||||||||
(Dollars in millions) | ||||||||||||
# SEN Transactions | 166,772 | 90,763 | 31,405 | |||||||||
$ Volume of SEN Transfers | $ | 166,506 | $ | 59,227 | $ | 17,372 | ||||||
Results of Operations, Quarter Ended March 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 $23.5 million for the first quarter of 2021, compared to $22.4 million for the fourth quarter of 2020, and $15.5 million for the first quarter of 2020.
Compared to the fourth quarter of 2020, net interest income increased $1.1 million entirely due to an increase in interest income driven primarily by higher balances of interest earning deposits in other banks, while interest expense remained flat. Average total interest earning assets increased by $4.0 billion for the first quarter of 2021 compared to the fourth quarter of 2020, primarily due to an increase in interest earning deposits in other banks. The average yield on interest earning assets decreased from 2.89% for the fourth quarter of 2020 to 1.35% for the first 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, interest earning deposits and loans. The lower yields on securities was driven by the impact of securities purchases during the quarter at lower rates compared to the existing portfolio. Average interest bearing liabilities decreased $4.6 million for the first quarter of 2021 compared to the fourth quarter of 2020, due to a decrease in FHLB advances. The average rate paid on total interest bearing liabilities increased from 0.87% for the fourth quarter of 2020 to 0.89% for the first quarter of 2021 due to the change in composition of liabilities impacted by the reduction in FHLB advances.
Compared to the first quarter of 2020, net interest income increased $8.0 million, due to a decrease of $4.3 million in interest expense, and an increase of $3.7 million in interest income. Average total interest earning assets increased by $5.0 billion for the first quarter of 2021 compared to the first quarter of 2020, due to an increase in interest earning deposits in other banks and loans, with loan growth driving the increase in interest income. The average yield on total interest earning assets decreased from 3.71% for the first quarter of 2020 to 1.35% for the first quarter of 2021, primarily due to interest earning deposits in other banks being a greater percentage of interest earning assets, and lower yields being realized on interest earning deposits, loans and securities. The lower yields were due to declines in federal funds rate and London Interbank Offered Rate (“LIBOR”), which were partially offset by the impact of interest rate floors. Average interest bearing liabilities decreased $391.7 million for the first quarter of 2021 compared to the first quarter of 2020, due to calling the remaining balance of brokered certificates of deposit in the second quarter of 2020. The average rate on total interest bearing liabilities decreased from 3.51% for the first quarter of 2020 to 0.89% for the first quarter of 2021, primarily due to the impact of calling a portion of brokered certificates of deposits in the first quarter of 2020, which included $2.1 million of accelerated premium expense in addition to $1.6 million of coupon interest expense for the first quarter of 2020.
Net interest margin for the first quarter of 2021 was 1.33%, compared to 2.85% for the fourth quarter of 2020, and 2.86% for the first quarter of 2020. The decrease in the net interest margin compared to the fourth quarter of 2020 was primarily driven by a greater proportion of lower yielding cash and cash equivalents as a percentage of total interest earning assets, which was driven by the increase in noninterest bearing digital currency customer deposits. The net interest margin decrease from the first quarter of 2020 was primarily due to lower yields on interest earning deposits, loans and securities due to a declining interest rate environment partially offset by lower interest expense as a result of calling the outstanding brokered certificates of deposits in the second quarter of 2020.
Three Months Ended | ||||||||||||||||||||||||||||||||||||
March 31, 2021 | December 31, 2020 | March 31, 2020 | ||||||||||||||||||||||||||||||||||
Average
| Interest
| Average
| Average
| Interest
| Average
| Average
| Interest
| Average
| ||||||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||
Interest earning assets: | ||||||||||||||||||||||||||||||||||||
Interest earning deposits in other banks | $ | 4,450,110 | $ | 1,279 | 0.12 | % | $ | 689,385 | $ | 314 | 0.18 | % | $ | 234,356 | $ | 724 | 1.24 | % | ||||||||||||||||||
Taxable securities | 850,558 | 3,592 | 1.71 | % | 671,209 | 3,548 | 2.10 | % | 902,165 | 6,048 | 2.70 | % | ||||||||||||||||||||||||
Tax-exempt securities(1) | 270,711 | 2,146 | 3.21 | % | 266,158 | 2,173 | 3.25 | % | 6,611 | 61 | 3.71 | % | ||||||||||||||||||||||||
Loans(2)(3) | 1,559,989 | 16,597 | 4.31 | % | 1,474,893 | 16,374 | 4.42 | % | 1,024,982 | 13,121 | 5.15 | % | ||||||||||||||||||||||||
Other | 15,331 | 143 | 3.78 | % | 15,331 | 255 | 6.62 | % | 10,746 | 121 | 4.53 | % | ||||||||||||||||||||||||
Total interest earning assets | 7,146,699 | 23,757 | 1.35 | % | 3,116,976 | 22,664 | 2.89 | % | 2,178,860 | 20,075 | 3.71 | % | ||||||||||||||||||||||||
Noninterest earning assets | 72,155 | 66,477 | 49,307 | |||||||||||||||||||||||||||||||||
Total assets | $ | 7,218,854 | $ | 3,183,453 | $ | 2,228,167 | ||||||||||||||||||||||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||
Interest bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Interest bearing deposits | $ | 117,228 | $ | 46 | 0.16 | % | $ | 114,782 | $ | 47 | 0.16 | % | $ | 441,682 | $ | 4,051 | 3.69 | % | ||||||||||||||||||
FHLB advances | — | — | — | 7,098 | — | 0.00 | % | 63,986 | 227 | 1.43 | % | |||||||||||||||||||||||||
Subordinated debentures and other | 15,832 | 245 | 6.28 | % | 15,829 | 253 | 6.36 | % | 19,061 | 306 | 6.46 | % | ||||||||||||||||||||||||
Total interest bearing liabilities | 133,060 | 291 | 0.89 | % | 137,709 | 300 | 0.87 | % | 524,729 | 4,584 | 3.51 | % | ||||||||||||||||||||||||
Noninterest bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Noninterest bearing deposits | 6,526,555 | 2,732,692 | 1,436,062 | |||||||||||||||||||||||||||||||||
Other liabilities | 30,911 | 25,143 | 19,900 | |||||||||||||||||||||||||||||||||
Shareholders’ equity | 528,328 | 287,909 | 247,476 | |||||||||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 7,218,854 | $ | 3,183,453 | $ | 2,228,167 | ||||||||||||||||||||||||||||||
Net interest spread(4) | 0.46 | % | 2.02 | % | 0.20 | % | ||||||||||||||||||||||||||||||
Net interest income, taxable equivalent basis | $ | 23,466 | $ | 22,364 | $ | 15,491 | ||||||||||||||||||||||||||||||
Net interest margin(5) | 1.33 | % | 2.85 | % | 2.86 | % | ||||||||||||||||||||||||||||||
Reconciliation to reported net interest income: | ||||||||||||||||||||||||||||||||||||
Adjustments for taxable equivalent basis | (451 | ) | (456 | ) | (13 | ) | ||||||||||||||||||||||||||||||
Net interest income, as reported | $ | 23,015 | $ | 21,908 | $ | 15,478 | ||||||||||||||||||||||||||||||
________________________
| (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 first quarter of 2021, compared to $0.2 million provision for loan losses for the fourth quarter of 2020 and $0.4 million for the first quarter of 2020.
Noninterest Income
Noninterest income for the first quarter of 2021 was $8.1 million, an increase of $3.2 million, or 66.9%, from the fourth quarter of 2020. The primary driver of this increase was a $3.3 million, or 85.3%, increase in deposit related fees. The majority of deposit related fees are from digital currency customers which were $7.1 million for the first quarter of 2021, an increase of $3.3 million, or 86.8% compared to $3.8 million for the fourth quarter of 2020.
Noninterest income for the first quarter of 2021 increased by $3.2 million, or 64.1%, compared to the first quarter of 2020. This increase was primarily due to a $5.4 million, or 303.4%, increase in deposit related fees and a $0.6 million, or 149.7% increase in mortgage warehouse fee income, partially offset by a $1.2 million decrease in gain on sale of securities, a $0.9 million decrease in gain on extinguishment of debt and a $0.5 million decrease in gain on sale of loans. Deposit related fees from digital currency customers increased $5.4 million, or 317.4%, to $7.1 million, compared to $1.7 million for the first quarter of 2020.
Three Months Ended | ||||||||||||
March 31,
| December 31,
| March 31,
| ||||||||||
(Dollars in thousands) | ||||||||||||
Noninterest income: | ||||||||||||
Mortgage warehouse fee income | $ | 954 | $ | 949 | $ | 382 | ||||||
Service fees related to off-balance sheet deposits | — | — | 70 | |||||||||
Deposit related fees | 7,124 | 3,844 | 1,766 | |||||||||
Gain on sale of securities, net | — | — | 1,197 | |||||||||
Gain on sale of loans, net | — | — | 506 | |||||||||
Gain on extinguishment of debt | — | — | 925 | |||||||||
Other income | 12 | 55 | 85 | |||||||||
Total noninterest income | $ | 8,090 | $ | 4,848 | $ | 4,931 | ||||||
Noninterest Expense
Noninterest expense totaled $19.6 million for the first quarter of 2021, an increase of $2.0 million, or 11.2%, compared to the fourth quarter of 2020, and an increase of $5.7 million, or 41.3%, compared to the first quarter of 2020. The increase in noninterest expense compared to prior quarter and first quarter of 2020 was primarily driven by increased federal deposit insurance expense resulting from the significant growth in digital currency deposits and also by investments related to strategic growth initiatives. The increase in noninterest expense from the prior quarter 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 | ||||||||||||
March 31,
| December 31,
| March 31,
| ||||||||||
(Dollars in thousands) | ||||||||||||
Noninterest expense: | ||||||||||||
Salaries and employee benefits | $ | 10,990 | $ | 9,637 | $ | 8,955 | ||||||
Occupancy and equipment | 614 | 3,044 | 907 | |||||||||
Communications and data processing | 1,621 | 1,443 | 1,261 | |||||||||
Professional services | 1,717 | 1,163 | 985 | |||||||||
Federal deposit insurance | 2,296 | 658 | 123 | |||||||||
Correspondent bank charges | 497 | 410 | 373 | |||||||||
Other loan expense | 174 | 45 | 122 | |||||||||
Other general and administrative | 1,697 | 1,225 | 1,149 | |||||||||
Total noninterest expense | $ | 19,606 | $ | 17,625 | $ | 13,875 | ||||||
Income Tax Expense (Benefit)
Income tax benefit was $1.2 million for the first quarter of 2021, compared to a benefit of $0.1 million for the fourth quarter of 2020, and an expense of $1.8 million for the first quarter of 2020. Our effective tax rate for the first quarter of 2021 was (10.5)%, compared to (1.6)% for the fourth quarter of 2020, and 28.8% for the first quarter of 2020. The lower effective tax rate for the first quarter of 2021 and the fourth quarter of 2020 when compared to the first quarter of 2020 was due to significant tax benefits recognized on the exercise of stock options and the impact of tax-exempt income.
Balance Sheet
Deposits
At March 31, 2021, deposits totaled $7.0 billion, an increase of $1.8 billion, or 33.4%, from December 31, 2020, and an increase of $5.0 billion, or 249.6%, from March 31, 2020. Noninterest bearing deposits totaled $6.9 billion, representing approximately 98.4% of total deposits at March 31, 2021, an increase of $1.8 billion from the prior quarter end, and a $5.1 billion increase compared to March 31, 2020. The increase in total deposits from the prior quarter end was driven by an increase in deposits from digital currency exchanges, institutional investors in digital assets and other fintech related customers, with elevated client activity evidenced by the record volume of SEN transactions during the quarter. The Bank’s 10 largest depositors accounted for $2.8 billion in deposits, or approximately 40.6% of total deposits at March 31, 2021 compared to $2.5 billion in deposits, or approximately 47.5% of total deposits at December 31, 2020, substantially all of which are 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 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 deposits during the first quarter of 2021 amounted to $6.4 billion, the high and low daily total digital currency deposit levels during such time were $8.4 billion and $4.6 billion, respectively.
Demand for new deposit accounts is generated by the Company’s banking platform for innovators that includes the SEN, which is enabled through Silvergate’s proprietary API, and other cash management solutions. These tools enable Silvergate’s clients to grow their business 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:
March 31, 2021 | December 31, 2020 | March 31, 2020 | |||||||||||||||||||
Number of
| Total
| Number of
| Total
| Number of
| Total
| ||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||
Digital currency exchanges | 85 | $ | 2,993 | 76 | $ | 2,479 | 61 | $ | 599 | ||||||||||||
Institutional investors | 695 | 2,166 | 607 | 1,811 | 541 | 715 | |||||||||||||||
Other customers | 324 | 1,634 | 286 | 749 | 248 | 379 | |||||||||||||||
Total | 1,104 | $ | 6,793 | 969 | $ | 5,039 | 850 | $ | 1,693 | ||||||||||||
________________________
| (1) | Total deposits may not foot due to rounding. |
The weighted average cost of deposits for the first quarter of 2021 was 0.00%, compared to 0.01% for the fourth quarter of 2020, and 0.87% for the first quarter of 2020. The decrease in the weighted average cost of deposits compared to the first quarter of 2020 was driven by the absence of any interest expense associated with brokered certificates of deposit, which were called in the second quarter of 2020.
Three Months Ended | |||||||||||||||||||||
March 31, 2021 | December 31, 2020 | March 31, 2020 | |||||||||||||||||||
Average
| Average
| Average
| Average
| Average
| Average
| ||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||
Noninterest bearing demand accounts | $ | 6,526,555 | — | $ | 2,732,692 | — | $ | 1,436,062 | — | ||||||||||||
Interest bearing accounts: | |||||||||||||||||||||
Interest bearing demand accounts | 42,197 | 0.13 | % | 41,968 | 0.17 | % | 51,551 | 0.13 | % | ||||||||||||
Money market and savings accounts | 74,318 | 0.16 | % | 71,871 | 0.15 | % | 81,670 | 0.97 | % | ||||||||||||
Certificates of deposit: | |||||||||||||||||||||
Brokered certificates of deposit | — | — | — | — | 306,828 | 5.02 | % | ||||||||||||||
Other | 713 | 0.57 | % | 943 | 0.84 | % | 1,633 | 0.99 | % | ||||||||||||
Total interest bearing deposits | 117,228 | 0.16 | % | 114,782 | 0.16 | % | 441,682 | 3.69 | % | ||||||||||||
Total deposits | $ | 6,643,783 | 0.00 | % | $ | 2,847,474 | 0.01 | % | $ | 1,877,744 | 0.87 | % | |||||||||
Loan Portfolio
Total loans were $1.6 billion at March 31, 2021, an increase of $12.9 million, or 0.8%, from December 31, 2020, and an increase of $511.2 million, or 45.9%, from March 31, 2020. Total loans at March 31, 2021 consisted of net loans held-for-investment of $728.4 million and loans held for sale of $897.2 million.
March 31,
| December 31,
| March 31,
| |||||||||||||
(Dollars in thousands) | |||||||||||||||
Real estate loans: | |||||||||||||||
One-to-four family | $ | 171,045 | $ | 187,855 | $ | 202,214 | |||||||||
Multi-family | 74,003 | 77,126 | 76,721 | ||||||||||||
Commercial | 287,411 | 301,901 | 325,116 | ||||||||||||
Construction | 5,172 | 6,272 | 10,034 | ||||||||||||
Commercial and industrial(1) | 118,598 | 78,909 | 15,948 | ||||||||||||
Consumer and other | — | 162 | 154 | ||||||||||||
Reverse mortgage | 1,346 | 1,333 | 1,431 | ||||||||||||
Mortgage warehouse | 76,014 | 97,903 | 51,596 | ||||||||||||
Total gross loans held-for-investment | 733,589 | 751,461 | 683,214 | ||||||||||||
Deferred fees, net | 1,717 | 2,206 | 2,760 | ||||||||||||
Total loans held-for-investment | 735,306 | 753,667 | 685,974 | ||||||||||||
Allowance for loan losses | (6,916 | ) | (6,916 | ) | (6,558 | ) | |||||||||
Loans held-for-investment, net | 728,390 | 746,751 | 679,416 | ||||||||||||
Loans held-for-sale(2) | 897,227 | 865,961 | 435,023 | ||||||||||||
Total loans | $ | 1,625,617 | $ | 1,612,712 | $ | 1,114,439 | |||||||||
________________________
| (1) | Commercial and industrial loans includes $117.3 million, $77.2 million and $2.0 million of SEN Leverage loans as of March 31, 2021, December 31, 2020 and March 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 remained flat at $6.9 million at March 31, 2021, compared to December 31, 2020 and increased slightly from $6.6 million at March 31, 2020. The ratio of the allowance for loan losses to gross loans held-for-investment at March 31, 2021 was 0.94%, compared to 0.92% and 0.96% at December 31, 2020 and March 31, 2020, respectively.
Nonperforming assets totaled $5.3 million, or 0.07% of total assets, at March 31, 2021, an increase of $0.4 million from $5.0 million, or 0.09% of total assets at December 31, 2020. Nonperforming assets increased $0.2 million, from $5.1 million, or 0.22%, of total assets, at March 31, 2020.
March 31,
| December 31,
| March 31,
| ||||||||||
Asset Quality | (Dollars in thousands) | |||||||||||
Nonperforming Assets: | ||||||||||||
Nonperforming loans | $ | 5,333 | $ | 4,982 | $ | 5,126 | ||||||
Troubled debt restructurings | $ | 1,484 | $ | 1,525 | $ | 1,676 | ||||||
Other real estate owned, net | — | — | — | |||||||||
Nonperforming assets | $ | 5,333 | $ | 4,982 | $ | 5,126 | ||||||
Asset Quality Ratios: | ||||||||||||
Nonperforming assets to total assets | 0.07 | % | 0.09 | % | 0.22 | % | ||||||
Nonperforming loans to gross loans(1) | 0.73 | % | 0.66 | % | 0.75 | % | ||||||
Nonperforming assets to gross loans and other real estate owned(1) | 0.73 | % | 0.66 | % | 0.75 | % | ||||||
Net charge-offs (recoveries) to average total loans(1) | 0.00 | % | 0.00 | % | 0.00 | % | ||||||
Allowance for loan losses to gross loans(1) | 0.94 | % | 0.92 | % | 0.96 | % | ||||||
Allowance for loan losses to nonperforming loans | 129.68 | % | 138.82 | % | 127.94 | % | ||||||
________________________
| (1) | Loans exclude loans held-for-sale at each of the dates presented. |
Coronavirus Disease 2019 (“COVID-19”) Update
In April 2020, the Company implemented a short-term loan modification program for customers impacted financially by the COVID-19 pandemic to provide temporary relief to certain borrowers who meet the program’s qualifications. Due to the fluid nature of COVID-19, this program has been evolving in order to provide maximum relief to bank borrowers. As of March 31, 2021, the remaining loans in deferral due to COVID-19 are as follows:
Loan Balance
| Percentage of
| ||||||
(Dollars in thousands) | |||||||
COVID-19 related modifications: | |||||||
Real estate loans: | |||||||
One-to-four family | $ | 6,928 | 0.9 | % | |||
Retail | 10,492 | 1.4 | % | ||||
Hospitality | 40,019 | 5.5 | % | ||||
Office | 7,874 | 1.1 | % | ||||
Total commercial | 58,385 | 8.0 | % | ||||
Total modifications outstanding | $ | 65,313 | 8.9 | % | |||
Securities
Securities available-for-sale increased $778.4 million, or 82.9%, from $939.0 million at December 31, 2020, and increased $753.1 million, or 78.1%, from $964.3 million at March 31, 2020, to $1.7 billion at March 31, 2021. The Company purchased $817.7 million of securities in the first quarter of 2021, including $651.1 million of agency residential mortgage-backed securities, $92.4 million of agency commercial mortgage-backed securities, and $74.2 million of tax-exempt municipal bonds.
Equity Offerings
On January 26, 2021, the Company completed its underwritten public offering of 4,563,493 shares of Class A common stock at a price of $63.00 per share, including 595,238 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 approximately $287.5 million and net proceeds to the Company were $272.4 million after deducting underwriting discounts and offering expenses.
On March 9, 2021, the Company entered into an equity distribution agreement pursuant to which the Company may issue and sell, from time to time, up to an aggregate gross sales price of $300.0 million of the Company’s shares of Class A common stock through an “at-the-market” offering program, or ATM Program. On March 11, 2021, the Company sold 1,297,365 shares of Class A common stock at an average price of $118.39 under the ATM Program. The transaction resulted in gross proceeds of $153.6 million and net proceeds to the Company of $151.1 million after deducting underwriting discounts and offering expenses.
Capital Ratios
At March 31, 2021, the Company’s ratio of common equity to total assets was 9.20%, compared with 5.27% at December 31, 2020, and 10.59% at March 31, 2020. At March 31, 2021, the Company’s book value per share was $28.75, compared to $15.63 at December 31, 2020, and $13.11 at March 31, 2020.
At March 31, 2021, the Company had a tier 1 leverage ratio of 9.68%, common equity tier 1 capital ratio of 53.14%, tier 1 risk-based capital ratio of 54.35% and total risk-based capital ratio of 54.91%.
At March 31, 2021, the Bank had a tier 1 leverage ratio of 9.50%, common equity tier 1 capital ratio of 53.36%, tier 1 risk-based capital ratio of 53.36% and total risk-based capital ratio of 53.93%. 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) | March 31,
| December 31,
| March 31,
| ||||||
The Company | |||||||||
Tier 1 leverage ratio | 9.68 | % | 8.29 | % | 10.98 | % | |||
Common equity tier 1 capital ratio | 53.14 | % | 21.53 | % | 23.75 | % | |||
Tier 1 risk-based capital ratio | 54.35 | % | 22.88 | % | 25.35 | % | |||
Total risk-based capital ratio | 54.91 | % | 23.49 | % | 26.05 | % | |||
Common equity to total assets | 9.20 | % | 5.27 | % | 10.59 | % | |||
The Bank | |||||||||
Tier 1 leverage ratio | 9.50 | % | 8.22 | % | 10.33 | % | |||
Common equity tier 1 capital ratio | 53.36 | % | 22.71 | % | 23.86 | % | |||
Tier 1 risk-based capital ratio | 53.36 | % | 22.71 | % | 23.86 | % | |||
Total risk-based capital ratio | 53.93 | % | 23.32 | % | 24.55 | % | |||
________________________
| (1) | March 31, 2021 capital ratios are preliminary. |
Conference Call and Webcast
The Company will host a conference call on Tuesday, April 20, 2021 at 11:00 a.m. (Eastern Time) to present and discuss first quarter 2021 financial results. The conference call can be accessed live by dialing 1-844-378-6480 or for international callers, 1-412-317-1088, and requesting to be joined to the Silvergate Capital Corporation First Quarter 2021 Earnings Conference Call. A replay will be available starting at 1:00 p.m. (Eastern Time) on April 20, 2021 and can be accessed by dialing 1-877-344-7529, or for international callers 1-412-317-0088. The passcode for the replay is 10154088. The replay will be available until 11:59 p.m. (Eastern Time) on May 4, 2021.
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.silvergatebank.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.
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.
SILVERGATE CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In Thousands) (Unaudited) | ||||||||||||||||||||
March 31,
| December 31,
| September 30,
| June 30,
| March 31,
| ||||||||||||||||
ASSETS | ||||||||||||||||||||
Cash and due from banks | $ | 16,422 | $ | 16,405 | $ | 15,152 | $ | 13,777 | $ | 2,778 | ||||||||||
Interest earning deposits in other banks | 4,315,100 | 2,945,682 | 182,330 | 185,667 | 163,422 | |||||||||||||||
Cash and cash equivalents | 4,331,522 | 2,962,087 | 197,482 | 199,444 | 166,200 | |||||||||||||||
Trading securities | 1,990 | — | — | — | — | |||||||||||||||
Securities available-for-sale, at fair value | 1,717,418 | 939,015 | 944,161 | 951,094 | 964,317 | |||||||||||||||
Loans held-for-sale, at lower of cost or fair value | 897,227 | 865,961 | 665,842 | 321,835 | 435,023 | |||||||||||||||
Loans held-for-investment, net of allowance for loan losses | 728,390 | 746,751 | 735,857 | 793,548 | 679,416 | |||||||||||||||
Federal home loan and federal reserve bank stock, at cost | 14,851 | 14,851 | 14,839 | 13,499 | 10,269 | |||||||||||||||
Accrued interest receivable | 9,432 | 8,698 | 7,385 | 7,700 | 6,344 | |||||||||||||||
Premises and equipment, net | 1,758 | 2,072 | 3,122 | 3,326 | 3,406 | |||||||||||||||
Derivative assets | 34,442 | 31,104 | 34,138 | 35,770 | 33,506 | |||||||||||||||
Other assets | 20,122 | 15,696 | 17,747 | 14,497 | 12,227 | |||||||||||||||
Total assets | $ | 7,757,152 | $ | 5,586,235 | $ | 2,620,573 | $ | 2,340,713 | $ | 2,310,708 | ||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
Deposits: | ||||||||||||||||||||
Noninterest bearing demand accounts | $ | 6,889,281 | $ | 5,133,579 | $ | 2,164,326 | $ | 1,563,136 | $ | 1,745,219 | ||||||||||
Interest bearing accounts | 113,090 | 114,447 | 116,782 | 107,773 | 257,738 | |||||||||||||||
Total deposits | 7,002,371 | 5,248,026 | 2,281,108 | 1,670,909 | 2,002,957 | |||||||||||||||
Federal home loan bank advances | — | — | 10,000 | 360,000 | 30,000 | |||||||||||||||
Subordinated debentures, net and other | 15,834 | 15,831 | 15,827 | 15,823 | 15,820 | |||||||||||||||
Accrued expenses and other liabilities | 25,326 | 28,079 | 29,877 | 25,876 | 17,179 | |||||||||||||||
Total liabilities | 7,043,531 | 5,291,936 | 2,336,812 | 2,072,608 | 2,065,956 | |||||||||||||||
Commitments and contingencies | ||||||||||||||||||||
Preferred stock | — | — | — | — | — | |||||||||||||||
Class A common stock | 248 | 188 | 186 | 184 | 184 | |||||||||||||||
Class B non-voting common stock | — | 1 | 1 | 3 | 3 | |||||||||||||||
Additional paid-in capital | 551,798 | 129,726 | 132,647 | 132,479 | 132,336 | |||||||||||||||
Retained earnings | 131,058 | 118,348 | 109,229 | 102,169 | 96,703 | |||||||||||||||
Accumulated other comprehensive income | 30,517 | 46,036 | 41,698 | 33,270 | 15,526 | |||||||||||||||
Total shareholders’ equity | 713,621 | 294,299 | 283,761 | 268,105 | 244,752 | |||||||||||||||
Total liabilities and shareholders’ equity | $ | 7,757,152 | $ | 5,586,235 | $ | 2,620,573 | $ | 2,340,713 | $ | 2,310,708 | ||||||||||
SILVERGATE CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Data) (Unaudited) | ||||||||||||||
Three Months Ended | ||||||||||||||
March 31,
| December 31,
| March 31,
| ||||||||||||
Interest income | ||||||||||||||
Loans, including fees | $ | 16,597 | $ | 16,374 | $ | 13,121 | ||||||||
Taxable securities | 3,592 | 3,548 | 6,048 | |||||||||||
Tax-exempt securities | 1,695 | 1,717 | 48 | |||||||||||
Other interest earning assets | 1,279 | 314 | 724 | |||||||||||
Dividends and other | 143 | 255 | 121 | |||||||||||
Total interest income | 23,306 | 22,208 | 20,062 | |||||||||||
Interest expense | ||||||||||||||
Deposits | 46 | 47 | 4,051 | |||||||||||
Federal home loan bank advances | — | — | 227 | |||||||||||
Subordinated debentures and other | 245 | 253 | 306 | |||||||||||
Total interest expense | 291 | 300 | 4,584 | |||||||||||
Net interest income before provision for loan losses | 23,015 | 21,908 | 15,478 | |||||||||||
Provision for loan losses | — | 153 | 367 | |||||||||||
Net interest income after provision for loan losses | 23,015 | 21,755 | 15,111 | |||||||||||
Noninterest income | ||||||||||||||
Mortgage warehouse fee income | 954 | 949 | 382 | |||||||||||
Service fees related to off-balance sheet deposits | — | — | 70 | |||||||||||
Deposit related fees | 7,124 | 3,844 | 1,766 | |||||||||||
Gain on sale of securities, net | — | — | 1,197 | |||||||||||
Gain on sale of loans, net | — | — | 506 | |||||||||||
Gain on extinguishment of debt | — | — | 925 | |||||||||||
Other income | 12 | 55 | 85 | |||||||||||
Total noninterest income | 8,090 | 4,848 | 4,931 | |||||||||||
Noninterest expense | ||||||||||||||
Salaries and employee benefits | 10,990 | 9,637 | 8,955 | |||||||||||
Occupancy and equipment | 614 | 3,044 | 907 | |||||||||||
Communications and data processing | 1,621 | 1,443 | 1,261 | |||||||||||
Professional services | 1,717 | 1,163 | 985 | |||||||||||
Federal deposit insurance | 2,296 | 658 | 123 | |||||||||||
Correspondent bank charges | 497 | 410 | 373 | |||||||||||
Other loan expense | 174 | 45 | 122 | |||||||||||
Other general and administrative | 1,697 | 1,225 | 1,149 | |||||||||||
Total noninterest expense | 19,606 | 17,625 | 13,875 | |||||||||||
Income before income taxes | 11,499 | 8,978 | 6,167 | |||||||||||
Income tax (benefit) expense | (1,211 | ) | (141 | ) | 1,774 | |||||||||
Net income | 12,710 | 9,119 | 4,393 | |||||||||||
Basic earnings per share | $ | 0.56 | $ | 0.49 | $ | 0.24 | ||||||||
Diluted earnings per share | $ | 0.55 | $ | 0.47 | $ | 0.23 | ||||||||
Weighted average shares outstanding: | ||||||||||||||
Basic | 22,504 | 18,744 | 18,668 | |||||||||||
Diluted | 23,010 | 19,349 | 19,117 | |||||||||||
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