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Silvergate Capital Corporation Announces Second Quarter 2020 Results

07/27/2020

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 months ended June 30, 2020.

Second Quarter 2020 Financial Highlights

  • Net income for the quarter was $5.5 million, or $0.29 per diluted share, compared to net income of $4.4 million, or $0.23 per diluted share, for the first quarter of 2020, and net income of $5.2 million, or $0.28 per diluted share, for the second quarter of 2019
  • Digital currency customers grew to 881 at June 30, 2020 compared to 850 at March 31, 2020, and 655 at June 30, 2019
  • The Silvergate Exchange Network (“SEN”) handled 40,286 transactions in the second quarter of 2020, an increase of 28% compared to 31,405 transactions in the first quarter of 2020, and 12,254 transactions in the second quarter of 2019
  • The SEN handled $22.4 billion of U.S. dollar transfers in the second quarter, an increase of 29% compared to $17.4 billion in the first quarter of 2020, and $8.6 billion in the second quarter of 2019
  • Digital currency customer related fee income for the quarter was $2.4 million, compared to $1.7 million for the first quarter of 2020, and $1.1 million for the second quarter of 2019
  • Book value per share was $14.36 at June 30, 2020, compared to $13.11 at March 31, 2020, and $12.04 at June 30, 2019
  • The Company’s total risk-based capital ratio was 25.54% at June 30, 2020, compared to 26.05% at March 31, 2020 and 26.57% at June 30, 2019

Alan Lane, president and chief executive officer of Silvergate, commented, “As our team continues to support our customers and constituents of the Bank in our new normal environment, our priority remains the safety and health of our employees and customers. As an industry innovator and leader, our infrastructure has allowed for a seamless transition during the evolving pandemic, positioning Silvergate for continued success in a digital world. We also remain confident in the credit quality of our loan portfolio given the Bank’s conservative underwriting standards and the low to moderate loan-to-value ratios across our commercial, multi-family and residential real estate portfolios which were in the low- to mid-50% range as of June 30, 2020. In fact, 27% of the loans by dollar volume that were modified as a result of hardship from the pandemic have already resumed payments as of July 15, 2020, which bodes well for the second half of the year.”

Mr. Lane continued, “Our success is also evident in our second quarter expansion of our digital payments platform, known as the Silvergate Exchange Network or SEN, and our growth in the related fee income, up 41% compared to the 2020 first quarter and 119% compared to the 2019 second quarter. Digital currency customers expanded to 881 from 850 in the first quarter of the year, while we maintained a robust pipeline of more than 200 potential customers. As we continue to grow both our digital currency customers and their utilization of the SEN, the network effect and competitive moat of our global payments platform further expands. As part of this, I am very pleased with the expansion of our newest product, SEN Leverage, which during the quarter expanded our bitcoin collateralized loans to $22.5 million in approved credit from $12.5 million in the first quarter. We are pleased with the product’s performance and see it as a potentially strong growth driver for Silvergate.”

 

 

As of or for the Three Months Ended

 

 

June 30,
2020

 

March 31,
2020

 

June 30,
2019

 

 

 

 

 

 

 

Financial Highlights

 

(Dollars in thousands, except per share data)

Net income

 

$

5,466

 

 

$

4,393

 

 

$

5,156

 

Diluted earnings per share

 

$

0.29

 

 

$

0.23

 

 

$

0.28

 

Return on average assets (ROAA)(1)

 

1.02

%

 

0.79

%

 

1.03

%

Return on average equity (ROAE)(1)

 

8.72

%

 

7.14

%

 

10.04

%

Net interest margin(1)(2)

 

3.14

%

 

2.86

%

 

3.56

%

Cost of deposits(1)(3)

 

0.37

%

 

0.87

%

 

0.28

%

Cost of funds(1)(3)

 

0.42

%

 

0.94

%

 

0.43

%

Efficiency ratio(4)

 

65.03

%

 

67.98

%

 

64.50

%

Total assets

 

$

2,340,713

 

 

$

2,310,708

 

 

$

2,242,034

 

Total deposits

 

$

1,670,909

 

 

$

2,002,957

 

 

$

1,938,650

 

Book value per share

 

$

14.36

 

 

$

13.11

 

 

$

12.04

 

Tier 1 leverage ratio

 

11.57

%

 

10.98

%

 

11.11

%

Total risk-based capital ratio

 

25.54

%

 

26.05

%

 

26.57

%

___________________________

(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 increased beginning in the second quarter of 2019 due to callable brokered certificates of deposit that were issued as part of the hedging strategy discussed in “Balance Sheet —Deposits” in more detail below. During the first and second quarters of 2020 all brokered certificates of deposit were called and the unamortized premium expense was fully written-off.

(4)

 

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

Digital Currency Initiative

At June 30, 2020, the Company’s digital currency customers increased to 881 from 850 at March 31, 2020, and from 655 at June 30, 2019. At June 30, 2020, Silvergate had over 200 prospective digital currency customer leads in various stages of the customer onboarding process and pipeline. There were a record 40,286 transactions on the SEN for the second quarter of 2020, an increase of 28% compared to 31,405 transactions for the first quarter of 2020. In addition, for the second quarter of 2020, $22.4 billion of U.S. dollar transfers occurred on the SEN, another quarterly record and a 29% increase from the first quarter of 2020.

 

 

Three Months Ended

 

 

June 30,
2020

 

March 31,
2020

 

June 30,
2019

 

 

 

 

 

 

 

 

 

(Dollars in millions)

# SEN Transactions

 

40,286

 

 

31,405

 

 

12,254

 

$ Volume of SEN Transfers

 

$

22,423

 

 

$

17,372

 

 

$

8,625

 

Results of Operations, Quarter Ended June 30, 2020

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

In 2020, the Company has made multiple purchases of tax-exempt municipal bonds. Tax-exempt income from these securities is calculated 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 $16.5 million for the second quarter of 2020, compared to $15.5 million for the first quarter of 2020, and $17.6 million for the second quarter of 2019.

Compared to the first quarter of 2020, net interest income increased $1.0 million due to a decrease of $2.6 million in interest expense offset by a decrease of $1.6 million in interest income.

Average total interest earning assets decreased by $67.1 million for the second quarter of 2020 compared to the first quarter of 2020, primarily due to decreases in interest earning deposits in other banks and loans, offset by a modest increase in securities. The yield on interest earning assets was impacted by the federal funds rate reductions in March 2020, with lower yields on deposits in other banks, taxable securities, and mortgage warehouse loans. The impact of lower yields was partially offset by income from our investments in tax-exempt municipal bonds.

Average interest bearing liabilities decreased $240.2 million for the second quarter of 2020 compared to the first quarter of 2020, due to calling the remaining balance of brokered certificates of deposit. The average rate paid on total interest bearing liabilities decreased from 3.51% for the first quarter of 2020 to 2.78% for the second quarter of 2020, primarily due to lower rates paid on both brokered certificates of deposit and FHLB advances and other borrowings. In addition, the accelerated premium expense associated with calling brokered certificates of deposit was $1.2 million in the second quarter of 2020, compared to $2.1 million in the first quarter of 2020.

Compared to the second quarter of 2019, net interest income decreased $1.1 million, due to a decrease of $1.0 million in interest income and an increase of $0.1 million in interest expense. Average total interest earning assets increased by $130.6 million for the second quarter of 2020 compared to the second quarter of 2019, due to increases in securities and loans offset by decreases in interest earning deposits in other banks. The average yield on total interest earning assets decreased from 3.94% for the second quarter of 2019 to 3.51% for the second quarter of 2020, primarily due to lower yields on interest earning deposits in other banks, securities and loans. The lower yields were due to declines in federal funds rate and LIBOR, which was partially offset by the impact of interest rate floors which were put in place during 2019. Average interest bearing liabilities decreased $62.3 million for the second quarter of 2020 compared to the second quarter of 2019 due to calling the remaining balance of brokered certificates of deposit. The average rate on total interest bearing liabilities increased from 2.20% for the second quarter of 2019 to 2.78% for the second quarter of 2020, primarily due to the impact of calling the remaining outstanding balance of brokered certificates of deposits, and the acceleration of the related premium expense.

Net interest margin for the second quarter of 2020 was 3.14%, compared to 2.86% for the first quarter of 2020, and 3.56% for the second quarter of 2019. The increase in the net interest margin compared to the first quarter of 2020 was driven by a decrease in interest expense due to lower rates and lower premium expense associated with calling brokered certificates of deposits. The net interest margin decrease from the second quarter of 2019 was primarily due to the impact of lower federal funds rates and LIBOR, partially mitigated by decreased FHLB borrowings and the combined effects associated with the hedging strategy, which included the impacts of reducing the balance of the callable brokered certificates of deposit, along with the benefit derived from the interest rate floors.

 

 

Three Months Ended

 

 

June 30, 2020

 

March 31, 2020

 

June 30, 2019

 

 

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

 

$

168,297

 

 

$

405

 

 

0.97

%

 

$

234,356

 

 

$

724

 

 

1.24

%

 

$

530,325

 

 

$

3,058

 

 

2.31

%

Taxable securities

 

690,810

 

 

4,123

 

 

2.40

%

 

902,165

 

 

6,048

 

 

2.70

%

 

579,464

 

 

4,501

 

 

3.12

%

Tax-exempt securities(1)

 

231,232

 

 

1,996

 

 

3.47

%

 

6,611

 

 

61

 

 

3.71

%

 

 

 

 

 

 

Loans(2)(3)

 

1,008,242

 

 

11,710

 

 

4.67

%

 

1,024,982

 

 

13,121

 

 

5.15

%

 

860,682

 

 

11,684

 

 

5.45

%

Other

 

13,224

 

 

200

 

 

6.08

%

 

10,746

 

 

121

 

 

4.53

%

 

10,743

 

 

229

 

 

8.55

%

Total interest earning assets

 

2,111,805

 

 

18,434

 

 

3.51

%

 

2,178,860

 

 

20,075

 

 

3.71

%

 

1,981,214

 

 

19,472

 

 

3.94

%

Noninterest earning assets

 

51,776

 

 

 

 

 

 

49,307

 

 

 

 

 

 

28,440

 

 

 

 

 

Total assets

 

$

2,163,581

 

 

 

 

 

 

$

2,228,167

 

 

 

 

 

 

$

2,009,654

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits

 

$

190,394

 

 

$

1,652

 

 

3.49

%

 

$

441,682

 

 

$

4,051

 

 

3.69

%

 

$

270,360

 

 

$

1,194

 

 

1.77

%

FHLB advances and other borrowings

 

78,266

 

 

44

 

 

0.23

%

 

67,229

 

 

263

 

 

1.57

%

 

60,639

 

 

443

 

 

2.93

%

Subordinated debentures

 

15,821

 

 

267

 

 

6.79

%

 

15,818

 

 

270

 

 

6.87

%

 

15,807

 

 

267

 

 

6.78

%

Total interest bearing liabilities

 

284,481

 

 

1,963

 

 

2.78

%

 

524,729

 

 

4,584

 

 

3.51

%

 

346,806

 

 

1,904

 

 

2.20

%

Noninterest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest bearing deposits

 

1,611,972

 

 

 

 

 

 

1,436,062

 

 

 

 

 

 

1,445,529

 

 

 

 

 

Other liabilities

 

15,070

 

 

 

 

 

 

19,900

 

 

 

 

 

 

11,371

 

 

 

 

 

Shareholders’ equity

 

252,058

 

 

 

 

 

 

247,476

 

 

 

 

 

 

205,948

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

2,163,581

 

 

 

 

 

 

$

2,228,167

 

 

 

 

 

 

$

2,009,654

 

 

 

 

 

Net interest spread(4)

 

 

 

 

 

0.73

%

 

 

 

 

 

0.20

%

 

 

 

 

 

1.74

%

Net interest income, taxable equivalent basis

 

 

 

$

16,471

 

 

 

 

 

 

$

15,491

 

 

 

 

 

 

$

17,568

 

 

 

Net interest margin(5)

 

 

 

 

 

3.14

%

 

 

 

 

 

2.86

%

 

 

 

 

 

3.56

%

Reconciliation to reported net interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments for taxable equivalent basis

 

 

 

(419

)

 

 

 

 

 

(13

)

 

 

 

 

 

 

 

 

Net interest income, as reported

 

 

 

$

16,052

 

 

 

 

 

 

$

15,478

 

 

 

 

 

 

$

17,568

 

 

 

___________________________

(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 a provision for loan losses of $0.2 million for the second quarter of 2020, compared to $0.4 million provision for the first quarter of 2020, and $0.2 million for the second quarter of 2019. The provision for the second quarter was based on modest increases in loans held-for-investment, Silvergate’s historically strong credit quality and minimal loan charge-offs, and the low to moderate loan-to-value margins in the Company's commercial, multi-family and one-to-four family real estate loans held-for-investment portfolios, as evidenced by weighted average loan-to-value ratios in the low- to mid-50% range. Although there is significant uncertainty in the current economic environment due to the impact of the COVID-19 pandemic, the Company believes the relatively low to moderate loan-to-value ratios, along with only modest exposure to the retail and hospitality sectors, provides lower probability of loss in the event of defaults in the Company’s loan portfolio. The Company has worked closely with its borrowers throughout the pandemic and 27% of borrowers who initially were granted loan deferrals have resumed payments on their borrowings as of July 15, 2020. The Company will continue to monitor trends in its portfolio segments for any known or probable adverse conditions.

Noninterest Income

Noninterest income for the second quarter of 2020 was $5.4 million, an increase of $0.5 million, or 10.2%, from the first quarter of 2020. The primary drivers of this increase were an increase of $1.4 million in gains on sale of securities and a $0.6 million, or 38.1%, increase in deposit related fees, partially offset by a decrease of $0.6 million in gains on sale of loans and no gain on extinguishment of debt during the quarter compared to $0.9 million in the first quarter of 2020. Deposit related fees from digital currency customers were $2.4 million for the second quarter of 2020, an increase of $0.7 million, or 40.7% compared to $1.7 million for the first quarter of 2020.

Noninterest income for the second quarter of 2020 increased by $3.3 million, or 152.3%, compared to the second quarter of 2019. This increase was primarily due to the gain on sale of securities of $2.6 million and a $1.3 million, or 108.2%, increase in deposit related fees, partially offset by a $0.4 million decrease in service fees related to off-balance sheet deposits. Deposit related fees from digital currency customers increased $1.3 million, or 118.8%, to $2.4 million compared to $1.1 million for the second quarter of 2019.

 

 

Three Months Ended

 

 

June 30,
2020

 

March 31,
2020

 

June 30,
2019

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Noninterest income:

 

 

 

 

 

 

Mortgage warehouse fee income

 

$

450

 

 

$

382

 

 

$

346

 

Service fees related to off-balance sheet deposits

 

7

 

 

70

 

 

412

 

Deposit related fees

 

2,438

 

 

1,766

 

 

1,171

 

Gain on sale of securities, net

 

2,556

 

 

1,197

 

 

 

(Loss) gain on sale of loans, net

 

(56

)

 

506

 

 

156

 

Gain on extinguishment of debt

 

 

 

925

 

 

 

Other income

 

39

 

 

85

 

 

69

 

Total noninterest income

 

$

5,434

 

 

$

4,931

 

 

$

2,154

 

Noninterest Expense

Noninterest expense totaled $14.0 million for the second quarter of 2020, an increase of $0.1 million compared to the first quarter of 2020, and an increase of $1.3 million compared to the second quarter of 2019.

Noninterest expense increased from the prior quarter due to increases in salaries and employee benefits and communications and data processing, and professional services, partially offset by a decrease in other general and administrative expense.

Noninterest expense increased from the second quarter of 2019 due to increases in salaries and employee benefits, communications and data processing and other general and administrative expense, partially offset by decreases in occupancy and equipment expense.

 

 

Three Months Ended

 

 

June 30,
2020

 

March 31,
2020

 

June 30,
2019

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Noninterest expense:

 

 

 

 

 

 

Salaries and employee benefits

 

$

9,002

 

 

$

8,955

 

 

$

8,082

 

Occupancy and equipment

 

894

 

 

907

 

 

1,012

 

Communications and data processing

 

1,313

 

 

1,261

 

 

1,123

 

Professional services

 

1,105

 

 

985

 

 

1,073

 

Federal deposit insurance

 

182

 

 

123

 

 

168

 

Correspondent bank charges

 

347

 

 

373

 

 

301

 

Other loan expense

 

99

 

 

122

 

 

118

 

Other real estate owned expense

 

 

 

 

 

5

 

Other general and administrative

 

1,030

 

 

1,149

 

 

839

 

Total noninterest expense

 

$

13,972

 

 

$

13,875

 

 

$

12,721

 

Income Tax Expense

Income tax expense was $1.8 million for the second quarter of 2020, compared to $1.8 million for the first quarter of 2020, and $1.7 million for the second quarter of 2019. Our effective tax rate for the second quarter of 2020 was 25.0%, compared to 28.8% for the first quarter of 2020, and 24.7% for the second quarter of 2019. The lower effective tax rate during the second quarter of 2020 when compared to the first quarter of 2020 was due to tax-exempt income earned on certain municipal bonds.

Results of Operations, Six Months Ended June 30, 2020

Net income for the six months ended June 30, 2020 was $9.9 million, or $0.52 per diluted share, compared to $14.6 million, or $0.80 per diluted share, for 2019.

Net interest income for the six months ended June 30, 2020 was $31.5 million, compared to $36.9 million for the same period in 2019. The decrease in net interest income was primarily due to a $1.5 million decrease in interest income and a $3.9 million increase in interest expense.

Noninterest income for the six months ended June 30, 2020 was $10.4 million, compared to $10.0 million for the same period in 2019. The increase in total noninterest income was primarily due to the increase in fee income from our digital currency customers, a $3.8 million gain on sale of securities offset by the $5.5 million gain on a branch sale that occurred in the first quarter of 2019. Digital currency customer related fee income for the six months ended June 30, 2020 was $4.1 million as compared to $2.0 million for the six months ended June 30, 2019.

Noninterest expense was $27.8 million for the six months ended June 30, 2020, compared to $26.2 million for the six months ended June 30, 2019. The increase in noninterest expense was primarily due to increases in salaries and benefits and other general and administrative expenses.

Income tax expense was $3.6 million for the six months ended June 30, 2020, compared to income tax expense of $5.7 million for 2019. Our effective tax rate for the six months ended June 30, 2020 and 2019 was 26.7% and 28.1%, respectively.

Balance Sheet

Deposits

At June 30, 2020, deposits totaled $1.7 billion, a decrease of $332.0 million, or 16.6%, from March 31, 2020, and a decrease of $267.7 million, or 13.8%, from June 30, 2019. Noninterest bearing deposits totaled $1.6 billion (representing approximately 93.6% of total deposits) at June 30, 2020, a decrease of $182.1 million from the prior quarter end and a $13.3 million increase compared to June 30, 2019. The decrease in total deposits from the prior quarter was driven by a decrease in deposit levels from digital currency customers as the continued volatility in digital currency prices, primarily bitcoin, resulted in the deployment of U.S. dollar deposits held at the bank into digital currency asset classes and a $141.3 million decrease from calling the brokered certificates of deposit in the second quarter of 2020. The decrease in total deposits from June 30, 2019 includes a net decrease of $248.2 million in callable brokered certificates of deposit associated with the hedging strategy, partially offset by an increase in deposit levels related to the Company’s digital currency customers.

The weighted average cost of deposits for the second quarter of 2020 was 0.37%, compared to 0.87% for the first quarter of 2020, and 0.28% for the second quarter of 2019. The decrease in the weighted average cost of deposits compared to the first quarter of 2020 was driven by lower accelerated premium expense associated with calling all remaining brokered certificates of deposit in the second quarter of 2020, when compared to the first quarter of 2020 and an increase in noninterest bearing deposits. When compared to the second quarter of 2019, the increase in weighted average cost of deposits was due to the accelerated premium resulting from calling the outstanding brokered certificates of deposit offset by lower coupon interest expense on those deposits and higher noninterest bearing deposits in the second quarter of 2020 compared to 2019.

 

 

Three Months Ended

 

 

June 30, 2020

 

March 31, 2020

 

June 30, 2019

 

 

Average
Balance

 

Average
Rate

 

Average
Balance

 

Average
Rate

 

Average
Balance

 

Average
Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Noninterest bearing demand accounts

 

$

1,611,972

 

 

 

 

$

1,436,062

 

 

 

 

$

1,445,529

 

 

 

Interest bearing accounts:

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand accounts

 

44,643

 

 

0.14

%

 

51,551

 

 

0.13

%

 

47,879

 

 

0.14

%

Money market and savings accounts

 

66,598

 

 

0.39

%

 

81,670

 

 

0.97

%

 

77,293

 

 

0.83

%

Certificates of deposit:

 

 

 

 

 

 

 

 

 

 

 

 

Brokered certificates of deposit

 

77,717

 

 

8.11

%

 

306,828

 

 

5.02

%

 

129,354

 

 

2.97

%

Other

 

1,436

 

 

0.84

%

 

1,633

 

 

0.99

%

 

15,834

 

 

1.53

%

Total interest bearing deposits

 

190,394

 

 

3.49

%

 

441,682

 

 

3.69

%

 

270,360

 

 

1.77

%

Total deposits

 

$

1,802,366

 

 

0.37

%

 

$

1,877,744

 

 

0.87

%

 

$

1,715,889

 

 

0.28

%

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 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:

 

 

June 30, 2020

 

March 31, 2020

 

June 30, 2019

 

 

Number of
Customers

 

Total
Deposits(1)

 

Number of
Customers

 

Total
Deposits(1)

 

Number of
Customers

 

Total
Deposits(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in millions)

Digital currency exchanges

 

64

 

 

$

601

 

 

61

 

 

$

599

 

 

49

 

 

$

653

 

Institutional investors

 

566

 

 

577

 

 

541

 

 

715

 

 

428

 

 

569

 

Other customers

 

251

 

 

331

 

 

248

 

 

379

 

 

178

 

 

242

 

Total

 

881

 

 

$

1,509

 

 

850

 

 

$

1,693

 

 

655

 

 

$

1,463

 

___________________________

(1)

Total deposits may not foot due to rounding.

Loan Portfolio

Total loans held-for-investment were $800.3 million at June 30, 2020, an increase of $114.3 million, or 16.7%, from March 31, 2020, and an increase of $108.9 million, or 15.7%, from June 30, 2019.

 

 

June 30,
2020

 

March 31,
2020

 

June 30,
2019

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Real estate loans:

 

 

 

 

 

 

One-to-four family

 

$

216,038

 

 

$

202,214

 

 

$

203,885

 

Multi-family

 

72,007

 

 

76,721

 

 

80,080

 

Commercial

 

316,815

 

 

325,116

 

 

331,034

 

Construction

 

10,822

 

 

10,034

 

 

3,137

 

Commercial and industrial

 

24,707

 

 

15,948

 

 

10,658

 

Consumer and other

 

243

 

 

154

 

 

199

 

Reverse mortgage

 

1,309

 

 

1,431

 

 

1,686

 

Mortgage warehouse

 

155,308

 

 

51,596

 

 

57,923

 

Total gross loans held-for-investment

 

797,249

 

 

683,214

 

 

688,602

 

Deferred fees, net

 

3,062

 

 

2,760

 

 

2,857

 

Total loans held-for-investment

 

800,311

 

 

685,974

 

 

691,459

 

Allowance for loan losses

 

(6,763

)

 

(6,558

)

 

(7,049

)

Loans held-for-investment, net

 

793,548

 

 

679,416

 

 

684,410

 

Loans held-for-sale

 

321,835

 

 

435,023

 

 

235,834

 

Total loans

 

$

1,115,383

 

 

$

1,114,439

 

 

$

920,244

 

Loans held-for-sale included $321.8 million, $435.0 million and $223.9 million of mortgage warehouse loans at June 30, 2020, March 31, 2020, and June 30, 2019, respectively.

Asset Quality and Allowance for Loan Losses

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. The program was offered to borrowers to modify their existing loans to temporarily defer principal and/or interest payments for a specified period of time, extend loan maturity dates and/or waive certain loan covenants. Deferred payments may be extended for continued hardship but are not to exceed a total of six months. The majority of short-term loan modifications for commercial real estate loan borrowers consist of deferred payments which may include principal, interest and escrow. Deferred interest is capitalized to the loan balance and deferred principal is added to the maturity or payoff date. For one-to-four family loans, the majority of short-term modifications consist of deferring full monthly payment of principal, interest and escrow, with deferred payments due at maturity or payoff of the loan. Loans qualifying for these modifications will not be required to be reported as delinquent, nonaccrual, impaired or criticized solely as a result of a COVID-19 loan modification for the months of payment deferrals. Borrowers considered current are those that are less than 30 days past due on their modified contractual payments.

During the second quarter of 2020, the Company modified 49 loans representing $136.8 million in loan balances, or 17%, of total gross loans held-for-investment as of June 30, 2020. All loans modified under these programs are maintained on full accrual status during the deferral period. Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) addressed COVID-19 related modifications and specified that such modifications made on loans that were current as of December 31, 2019 are not troubled debt restructurings (“TDRs”). In accordance with interagency guidance issued in April 2020, these short-term modifications made to a borrower affected by the COVID-19 pandemic and governmental shutdown orders, such as payment deferrals, fee waivers and extensions of repayment terms, do not need to be identified as TDRs if the loans were current at the time a modification plan was implemented. The Company elected to adopt these provisions of the CARES Act for the temporary modifications described above. None of the modified loans met the criteria of a TDR under the CARES Act or the related interagency statement.

Loans modified due to COVID-19 during the period presented are as follows:

 

 

Six Months Ended June 30, 2020

 

 

Number of
Loans

 

Loan Balance
At Period End

 

Percentage of
Loan Portfolio
Balance

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

COVID-19 related modifications:

 

 

 

 

Real estate loans:

 

 

 

 

 

 

One-to-four family

 

19

 

 

$

11,970

 

 

6%

Commercial

 

28

 

 

123,500

 

 

39%

Commercial and industrial

 

2

 

 

1,373

 

 

6%

 

 

49

 

 

$

136,843

 

 

17%

At June 30, 2020, the allowance for loan losses was $6.8 million, compared to $6.6 million at March 31, 2020, and $7.0 million at June 30, 2019. The ratio of the allowance for loan losses to gross loans held-for-investment at June 30, 2020 was 0.85%, compared to 0.96% and 1.02% at March 31, 2020 and June 30, 2019, respectively.

Nonperforming assets totaled $4.6 million, or 0.20% of total assets, at June 30, 2020, a decrease of $0.5 million from $5.1 million, or 0.22% of total assets at March 31, 2020. Nonperforming assets decreased $3.1 million, from $7.6 million, or 0.34%, of total assets, at June 30, 2019.

 

 

June 30,
2020

 

March 31,
2020

 

June 30,
2019

 

 

 

 

 

 

 

Asset Quality

 

(Dollars in thousands)

Nonperforming Assets:

 

 

 

 

 

 

Nonperforming loans

 

$

4,528

 

 

$

5,126

 

 

$

7,518

 

Troubled debt restructurings

 

$

1,620

 

 

$

1,676

 

 

$

1,896

 

Other real estate owned, net

 

$

51

 

 

 

 

$

112

 

Nonperforming assets

 

$

4,579

 

 

$

5,126

 

 

$

7,630

 

 

 

 

 

 

 

 

Asset Quality Ratios:

 

 

 

 

 

 

Nonperforming assets to total assets

 

0.20

%

 

0.22

%

 

0.34

%

Nonperforming loans to gross loans(1)

 

0.57

%

 

0.75

%

 

1.09

%

Nonperforming assets to gross loans and other real estate owned(1)

 

0.57

%

 

0.75

%

 

1.11

%

Net charge-offs (recoveries) to average total loans(1)

 

0.00

%

 

0.00

%

 

0.01

%

Allowance for loan losses to gross loans(1)

 

0.85

%

 

0.96

%

 

1.02

%

Allowance for loan losses to nonperforming loans

 

149.36

%

 

127.94

%

 

93.76

%

___________________________

(1)

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

Securities

Securities available-for-sale decreased $13.2 million, or 1.4%, from $964.3 million at March 31, 2020, and increased $30.6 million, or 3.3%, from $920.5 million at June 30, 2019, to $951.1 million at June 30, 2020. During the second quarter of 2020 the Company sold $202.3 million of fixed-rate commercial mortgage-backed securities and realized a gain on sale of $2.6 million. These bonds were originally purchased as part of the hedging strategy in 2019. The Company reinvested the proceeds from these sales in $163.8 million of highly rated fixed-rate tax-exempt municipal bonds at higher tax-equivalent yields than the commercial mortgage-backed securities that were sold. The municipal bonds that were purchased have a similar average life as the commercial mortgage-backed securities that were sold. The Company also purchased $15.8 million of highly rated fixed-rate taxable municipal bonds and entered into a series of interest rate swaps, which are accounted for as fair value hedges, to convert the bonds from fixed to floating rate yields.

Capital Ratios

At June 30, 2020, the Company’s ratio of common equity to total assets was 11.45%, compared with 10.59% at March 31, 2020, and 9.58% at June 30, 2019. At June 30, 2020, the Company’s book value per share was $14.36, compared to $13.11 at March 31, 2020, and $12.04 at June 30, 2019.

At June 30, 2020, the Company had a tier 1 leverage ratio of 11.57%, common equity tier 1 capital ratio of 23.32%, tier 1 capital ratio of 24.86% and total capital ratio of 25.54%.

At June 30, 2020, the Bank had a tier 1 leverage ratio of 10.92%, common equity tier 1 capital ratio of 23.48%, tier 1 capital ratio of 23.48% and total capital ratio of 24.17%. 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 capital ratio and 10.00% for total capital ratio.

Capital Ratios(1)

 

June 30,
2020

 

March 31,
2020

 

June 30,
2019

The Company

 

 

 

 

 

 

Tier 1 leverage ratio

 

11.57

%

 

10.98

%

 

11.11

%

Common equity tier 1 capital ratio

 

23.32

%

 

23.75

%

 

23.96

%

Tier 1 risk-based capital ratio

 

24.86

%

 

25.35

%

 

25.75

%

Total risk-based capital ratio

 

25.54

%

 

26.05

%

 

26.57

%

Common equity to total assets

 

11.45

%

 

10.59

%

 

9.58

%

The Bank

 

 

 

 

 

 

Tier 1 leverage ratio

 

10.92

%

 

10.33

%

 

10.62

%

Common equity tier 1 capital ratio

 

23.48

%

 

23.86

%

 

24.66

%

Tier 1 risk-based capital ratio

 

23.48

%

 

23.86

%

 

24.66

%

Total risk-based capital ratio

 

24.17

%

 

24.55

%

 

25.49

%

___________________________

(1)

June 30, 2020 capital ratios are preliminary.

Conference Call and Webcast

The Company will host a conference call on Monday, July 27, 2020 at 11:00 a.m. (Eastern Time) to present and discuss second quarter 2020 results. The conference call can be accessed live by dialing 1-877-407-4018 or for international callers, 1-201-689-8471, and requesting to be joined to the Silvergate Capital Corporation Second Quarter 2020 Earnings Conference Call. A replay will be available starting at 2:00 p.m. (Eastern Time) on July 27, 2020 and can be accessed by dialing 1-844-512-2921, or for international callers, 1-412-317-6671. The passcode for the replay is 13706030. The replay will be available until 11:59 p.m. (Eastern Time) on August 10, 2020.

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 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 22 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.

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)

 

 

 

June 30,
2020

 

March 31,
2020

 

December 31,
2019

 

September 30,
2019

 

June 30,
2019

ASSETS

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

13,777

 

 

$

2,778

 

 

$

1,579

 

 

$

4,098

 

 

$

2,036

 

Interest earning deposits in other banks

 

185,667

 

 

163,422

 

 

132,025

 

 

156,160

 

 

339,325

 

Cash and cash equivalents

 

199,444

 

 

166,200

 

 

133,604

 

 

160,258

 

 

341,361

 

Securities available-for-sale, at fair value

 

951,094

 

 

964,317

 

 

897,766

 

 

909,917

 

 

920,481

 

Securities held-to-maturity, at amortized cost

 

 

 

 

 

 

 

 

 

63

 

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

 

321,835

 

 

435,023

 

 

375,922

 

 

311,410

 

 

235,834

 

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

 

793,548

 

 

679,416

 

 

664,622

 

 

691,990

 

 

684,410

 

Federal home loan and federal reserve bank stock, at cost

 

13,499

 

 

10,269

 

 

10,264

 

 

10,264

 

 

10,264

 

Accrued interest receivable

 

7,700

 

 

6,344

 

 

5,950

 

 

5,875

 

 

6,296

 

Other real estate owned, net

 

51

 

 

 

 

128

 

 

81

 

 

112

 

Premises and equipment, net

 

3,326

 

 

3,406

 

 

3,259

 

 

3,224

 

 

3,276

 

Operating lease right-of-use assets

 

3,846

 

 

4,210

 

 

4,571

 

 

4,927

 

 

5,280

 

Derivative assets

 

35,770

 

 

33,506

 

 

23,440

 

 

30,885

 

 

25,698

 

Low income housing tax credit investment

 

917

 

 

927

 

 

954

 

 

981

 

 

1,008

 

Other assets

 

9,683

 

 

7,090

 

 

7,647

 

 

7,032

 

 

7,951

 

Total assets

 

$

2,340,713

 

 

$

2,310,708

 

 

$

2,128,127

 

 

$

2,136,844

 

 

$

2,242,034

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

Noninterest bearing demand accounts

 

$

1,563,136

 

 

$

1,745,219

 

 

$

1,343,667

 

 

$

1,394,433

 

 

$

1,549,886

 

Interest bearing accounts

 

107,773

 

 

257,738

 

 

470,987

 

 

453,662

 

 

388,764

 

Total deposits

 

1,670,909

 

 

2,002,957

 

 

1,814,654

 

 

1,848,095

 

 

1,938,650

 

Federal home loan bank advances

 

360,000

 

 

30,000

 

 

49,000

 

 

20,000

 

 

 

Other borrowings

 

 

 

 

 

 

 

 

 

53,545

 

Notes payable

 

 

 

 

 

3,714

 

 

4,000

 

 

4,286

 

Subordinated debentures, net

 

15,823

 

 

15,820

 

 

15,816

 

 

15,813

 

 

15,809

 

Operating lease liabilities

 

4,146

 

 

4,515

 

 

4,881

 

 

5,237

 

 

5,581

 

Accrued expenses and other liabilities

 

21,730

 

 

12,664

 

 

9,026

 

 

13,085

 

 

9,415

 

Total liabilities

 

2,072,608

 

 

2,065,956

 

 

1,897,091

 

 

1,906,230

 

 

2,027,286

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

 

 

 

 

Class A common stock

 

184

 

 

184

 

 

178

 

 

167

 

 

166

 

Class B non-voting common stock

 

3

 

 

3

 

 

9

 

 

12

 

 

12

 

Additional paid-in capital

 

132,479

 

 

132,336

 

 

132,138

 

 

125,573

 

 

125,599

 

Retained earnings

 

102,169

 

 

96,703

 

 

92,310

 

 

88,712

 

 

82,056

 

Accumulated other comprehensive income

 

33,270

 

 

15,526

 

 

6,401

 

 

16,150

 

 

6,915

 

Total shareholders’ equity

 

268,105

 

 

244,752

 

 

231,036

 

 

230,614

 

 

214,748

 

Total liabilities and shareholders’ equity

 

$

2,340,713

 

 

$

2,310,708

 

 

$

2,128,127

 

 

$

2,136,844

 

 

$

2,242,034

 

SILVERGATE CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Data)

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,
2020

 

March 31,
2020

 

June 30,
2019

 

June 30,
2020

 

June 30,
2019

Interest income

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

11,710

 

 

$

13,121

 

 

$

11,684

 

 

$

24,831

 

 

$

24,795

 

Taxable securities

 

4,123

 

 

6,048

 

 

4,501

 

 

10,171

 

 

7,534

 

Tax-exempt securities

 

1,577

 

 

48

 

 

 

 

1,625

 

 

 

Other interest earning assets

 

405

 

 

724

 

 

3,058

 

 

1,129

 

 

6,855

 

Dividends and other

 

200

 

 

121

 

 

229

 

 

321

 

 

351

 

Total interest income

 

18,015

 

 

20,062

 

 

19,472

 

 

38,077

 

 

39,535

 

Interest expense

 

 

 

 

 

 

 

 

 

 

Deposits

 

1,652

 

 

4,051

 

 

1,194

 

 

5,703

 

 

1,535

 

Federal home loan bank advances

 

44

 

 

227

 

 

 

 

271

 

 

 

Notes payable and other

 

 

 

36

 

 

443

 

 

36

 

 

585

 

Subordinated debentures

 

267

 

 

270

 

 

267

 

 

537

 

 

531

 

Total interest expense

 

1,963

 

 

4,584

 

 

1,904

 

 

6,547

 

 

2,651

 

Net interest income before provision for loan losses

 

16,052

 

 

15,478

 

 

17,568

 

 

31,530

 

 

36,884

 

Provision for loan losses

 

222

 

 

367

 

 

152

 

 

589

 

 

419

 

Net interest income after provision for loan losses

 

15,830

 

 

15,111

 

 

17,416

 

 

30,941

 

 

36,465

 

Noninterest income

 

 

 

 

 

 

 

 

 

 

Mortgage warehouse fee income

 

450

 

 

382

 

 

346

 

 

832

 

 

712

 

Service fees related to off-balance sheet deposits

 

7

 

 

70

 

 

412

 

 

77

 

 

1,171

 

Deposit related fees

 

2,438

 

 

1,766

 

 

1,171

 

 

4,204

 

 

2,158

 

Gain on sale of securities, net

 

2,556

 

 

1,197

 

 

 

 

3,753

 

 

 

(Loss) gain on sale of loans, net

 

(56

)

 

506

 

 

156

 

 

450

 

 

345

 

Gain on sale of branch, net

 

 

 

 

 

 

 

 

 

5,509

 

Gain on extinguishment of debt

 

 

 

925

 

 

 

 

925

 

 

 

Other income

 

39

 

 

85

 

 

69

 

 

124

 

 

130

 

Total noninterest income

 

5,434

 

 

4,931

 

 

2,154

 

 

10,365

 

 

10,025

 

Noninterest expense

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

9,002

 

 

8,955

 

 

8,082

 

 

17,957

 

 

16,847

 

Occupancy and equipment

 

894

 

 

907

 

 

1,012

 

 

1,801

 

 

1,885

 

Communications and data processing

 

1,313

 

 

1,261

 

 

1,123

 

 

2,574

 

 

2,160

 

Professional services

 

1,105

 

 

985

 

 

1,073

 

 

2,090

 

 

2,518

 

Federal deposit insurance

 

182

 

 

123

 

 

168

 

 

305

 

 

343

 

Correspondent bank charges

 

347

 

 

373

 

 

301

 

 

720

 

 

580

 

Other loan expense

 

99

 

 

122

 

 

118

 

 

221

 

 

243

 

Other real estate owned expense

 

 

 

 

 

5

 

 

 

 

5

 

Other general and administrative

 

1,030

 

 

1,149

 

 

839

 

 

2,179

 

 

1,626

 

Total noninterest expense

 

13,972

 

 

13,875

 

 

12,721

 

 

27,847

 

 

26,207

 

Income before income taxes

 

7,292

 

 

6,167

 

 

6,849

 

 

13,459

 

 

20,283

 

Income tax expense

 

1,826

 

 

1,774

 

 

1,693

 

 

3,600

 

 

5,691

 

Net income

 

5,466

 

 

4,393

 

 

5,156

 

 

9,859

 

 

14,592

 

Basic earnings per share

 

$

0.29

 

 

$

0.24

 

 

$

0.29

 

 

$

0.53

 

 

$

0.82

 

Diluted earnings per share

 

$

0.29

 

 

$

0.23

 

 

$

0.28

 

 

$

0.52

 

 

$

0.80

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

Basic

 

18,672

 

 

18,668

 

 

17,835

 

 

18,670

 

 

17,837

 

Diluted

 

19,124

 

 

19,117

 

 

18,257

 

 

19,112

 

 

18,267

 

Non-GAAP Financial Measures

The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for these adjusted measures, this presentation may not be comparable to other similarly titled adjusted measures reported by other companies.

This earnings release includes certain non-GAAP financial measures for the six months ended June 30, 2020 and 2019, in order to present our results of operations for that period on a basis consistent with our historical operations. On November 15, 2018, the Company and the Bank entered into a purchase and assumption agreement with HomeStreet Bank to sell the Bank’s retail branch located in San Marcos, California and business loan portfolio to HomeStreet Bank. This transaction, which was completed in March 2019, generated a pre-tax gain on sale of $5.5 million. There were no non-GAAP adjustments for the three and six months ended June 30, 2020 or for the three months ended June 30, 2019. Management believes that these non-GAAP financial measures provide useful information to investors that is supplementary to the Company’s financial condition, results of operations and cash flows computed in accordance with GAAP.

 

 

Six Months Ended
June 30,

 

 

2020

 

2019

 

 

 

 

 

 

 

(Dollars in thousands)

Net income

 

 

 

 

Net income, as reported

 

$

9,859

 

 

$

14,592

 

Adjustments:

 

 

 

 

Gain on sale of branch, net

 

 

 

(5,509

)

Tax effect(1)

 

 

 

1,574

 

Adjusted net income

 

$

9,859

 

 

$

10,657

 

 

 

 

 

 

Noninterest income / average assets(2)

 

 

 

 

Noninterest income

 

$

10,365

 

 

$

10,025

 

Adjustments:

 

 

 

 

Gain on sale of branch, net

 

 

 

(5,509

)

Adjusted noninterest income

 

10,365

 

 

4,516

 

Average assets

 

2,195,874

 

 

1,991,171

 

Noninterest income / average assets, as reported

 

0.95

%

 

1.02

%

Adjusted noninterest income / average assets

 

0.95

%

 

0.46

%

 

 

 

 

 

Return on average assets (ROAA)(2)

 

 

 

 

Adjusted net income

 

$

9,859

 

 

$

10,657

 

Average assets

 

2,195,874

 

 

1,991,171

 

Return on average assets (ROAA), as reported

 

0.90

%

 

1.48

%

Adjusted return on average assets

 

0.90

%

 

1.08

%

 

 

 

 

 

Return on average equity (ROAE)(2)

 

 

 

 

Adjusted net income

 

$

9,859

 

 

$

10,657

 

Average equity

 

249,767

 

 

200,996

 

Return on average equity (ROAE), as reported

 

7.94

%

 

14.64

%

Adjusted return on average equity

 

7.94

%

 

10.69

%

 

 

 

 

 

Efficiency ratio

 

 

 

 

Noninterest expense

 

$

27,847

 

 

$

26,207

 

Net interest income

 

31,530

 

 

36,884

 

Noninterest income

 

10,365

 

 

10,025

 

Total net interest income and noninterest income

 

41,895

 

 

46,909

 

Adjustments:

 

 

 

 

Gain on sale of branch, net

 

 

 

(5,509

)

Adjusted total net interest income and noninterest income

 

41,895

 

 

41,400

 

Efficiency ratio, as reported

 

66.47

%

 

55.87

%

Adjusted efficiency ratio

 

66.47

%

 

63.30

%

___________________________

(1)

Amount represents the total income tax effect of the adjustment, which is calculated based on the applicable marginal tax rate of 28.58%.

(2)

Data has been annualized.

 

Investor Relations Contact:
Jamie Lillis / Shannon Devine
(858) 200-3782
investors@silvergate.com

Source: Silvergate Capital Corporation

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