Business Wire | Oct 19, 2021 06:25AM EDT

Silvergate Capital Corporation Announces Third Quarter 2021 Results

Oct. 19, 2021

LA JOLLA, Calif.--(BUSINESS WIRE)--Oct. 19, 2021--Silvergate Capital Corporation ("Silvergate" or "Company") (NYSE:SI) and its wholly-owned subsidiary, Silvergate Bank ("Bank"), today announced financial results for the three and nine months ended September 30, 2021.

Third Quarter 2021 Highlights

* Net income available to common shareholders for the quarter was $23.5 million, or $0.88 per diluted share, compared to net income of $20.9 million, or $0.80 per diluted share, for the second quarter of 2021, and net income of $7.1 million, or $0.37 per diluted share, for the third quarter of 2020 * The Silvergate Exchange Network ("SEN") handled $162.0 billion of U.S. dollar transfers in the third quarter of 2021, a decrease of 32% compared to $239.6 billion in the second quarter of 2021, and an increase of 342% compared to $36.7 billion in the third quarter of 2020 * Total SEN Leverage commitments were $322.5 million at September 30, 2021, compared to $258.5 million at June 30, 2021, and $35.5 million at September 30, 2020 * Digital currency customer related fee income for the quarter was $8.1 million, compared to $11.3 million for the second quarter of 2021, and $3.3 million for the third quarter of 2020 * Digital currency customers grew to 1,305 at September 30, 2021, compared to 1,224 at June 30, 2021, and 928 at September 30, 2020 * Average digital currency customer deposits grew to $11.2 billion during the third quarter of 2021, compared to $9.9 billion during the second quarter of 2021 * Completed previously announced $200 million depository share offering, for net proceeds of $193.7 million after deducting underwriting discounts and offering expenses

Alan Lane, president and chief executive officer of Silvergate, commented, "Silvergate had another great quarter, underscored by record quarterly pre-tax income, continued platform growth, and an expanding balance sheet. In the third quarter we grew average digital currency deposits to $11.2 billion, the highest in our history, added new digital currency customers to the SEN, and further increased SEN Leverage commitments and balances. Our strong results and increasingly diverse earnings stream highlight the important roles that we play in serving our customers in the still nascent digital currency industry."

As of or for the Three Months Ended

September 30, June 30, September 30, 2021 2021 2020



Financial Highlights (Dollars in thousands, except per share data)

Net income available to common $ 23,492 $ 20,935 $ 7,060 shareholders

Diluted earnings per common share $ 0.88 $ 0.80 $ 0.37

Return on average assets (ROAA)^ 0.75 % 0.77 % 1.13 %(1)

Return on average common equity 10.45 % 10.40 % 10.14 %(ROACE)^(1)

Net interest margin^(1)(2) 1.26 % 1.16 % 3.19 %

Cost of deposits^(1)(3) 0.00 % 0.00 % 0.01 %

Cost of funds^(1)(3) 0.01 % 0.01 % 0.07 %

Efficiency ratio^(4) 43.20 % 50.69 % 61.74 %

Total assets $ 12,776,621 $ 12,289,476 $ 2,620,573

Total deposits $ 11,662,520 $ 11,371,556 $ 2,281,108

Book value per common share $ 33.10 $ 32.84 $ 15.18

Tier 1 leverage ratio 8.71 % 7.91 % 10.36 %

Total risk-based capital ratio 51.13 % 48.00 % 24.68 %

________________________

(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 second quarter of 2020 includes interest expense and accelerated premium amortization expense related to callable brokered certificates of deposit that were called during the second quarter of 2020.

(4)

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

Digital Currency Initiative

At September 30, 2021, the Company's digital currency customers increased to 1,305 from 1,224 at June 30, 2021, and from 928 at September 30, 2020. At September 30, 2021, prospective digital currency customer leads in various stages of the customer onboarding process and pipeline remained above 200. For the third quarter of 2021, $162.0 billion of U.S. dollar transfers occurred on the SEN, a 32% decrease from $239.6 billion transfers in the second quarter of 2021, and an increase of 342% compared to $36.7 billion in the third quarter of 2020. Based on digital currency industry transaction data provided by Coin Metrics, bitcoin and ether dollar trading volumes decreased by 43% during the third quarter of 2021 compared to the second quarter of 2021. The Company will no longer provide data related to the number of SEN transactions conducted quarterly but will continue to report quarterly SEN dollar volumes as industry data from Coin Metrics is more highly correlated to this metric.

Results of Operations, Quarter Ended September 30, 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 $39.0 million for the third quarter of 2021, compared to $31.2 million for the second quarter of 2021, and $19.4 million for the third quarter of 2020.

Compared to the second quarter of 2021, net interest income increased $7.8 million, due to increased interest income, with the largest driver being higher balances of securities, while interest expense remained flat. Average total interest earning assets increased by $1.5 billion for the third quarter of 2021 compared to the second quarter of 2021, primarily due to increased digital currency related deposits that were invested in securities in the second and third quarter of 2021. The average yield on interest earning assets increased from 1.17% for the second quarter of 2021 to 1.27% for the third quarter of 2021, primarily due to a higher proportion of securities and a lower proportion of lower yielding interest earnings deposits in other banks. Average interest bearing liabilities decreased $20.6 million for the third quarter of 2021 compared to the second quarter of 2021, due to a decrease in interest bearing deposits. The average rate paid on total interest bearing liabilities increased from 1.02% for the second quarter of 2021 to 1.17% for the third quarter of 2021, driven by the decrease in lower cost interest bearing deposits, which resulted in a larger proportion of higher cost subordinated debentures as a percentage of total interest bearing liabilities.

Compared to the third quarter of 2020, net interest income increased $19.6 million, due to an increase of $19.5 million in interest income and a decrease of $0.1 million in interest expense. Average total interest earning assets increased by $9.8 billion for the third quarter of 2021 compared to the third quarter of 2020, due to an increase in noninterest bearing deposits, which resulted in higher levels of interest earning deposits in other banks and securities. In addition, average loans increased by 23.4% due to increases in mortgage warehouse loans, driven by elevated mortgage refinance activity and increased SEN Leverage lending, which was launched in the first quarter of 2020. The average yield on total interest earning assets decreased from 3.25% for the third quarter of 2020 to 1.27% for the third quarter of 2021, primarily due to interest earning deposits in other banks being a greater percentage of interest earning assets, and lower yields on recently purchased securities. Average interest bearing liabilities decreased $156.7 million for the third quarter of 2021 compared to the third quarter of 2020, due to reduced FHLB advances in 2021 and lower balances of interest bearing deposits. The average rate on total interest bearing liabilities increased from 0.60% for the third quarter of 2020 to 1.17% for the third quarter of 2021, primarily due to the decrease in lower cost FHLB advances and interest bearing deposits, which resulted in a larger proportion of higher cost subordinated debentures as a percentage of total interest bearing liabilities.

Net interest margin for the third quarter of 2021 was 1.26%, compared to 1.16% for the second quarter of 2021, and 3.19% for the third quarter of 2020. The increase in the net interest margin compared to the second quarter of 2021 was primarily driven by the increase in the proportion of securities compared to lower yielding interest earning deposits in other banks. The net interest margin decrease from the third quarter of 2020 was primarily due to a higher proportion of interest earning deposits as a percentage of total interest earning assets, as well as lower yields on securities due to a declining interest rate environment.

________________________

(1) Data has been annualized.

Net interest margin is a ratio calculated as annualized net interest(2) 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.

Cost of deposits and cost of funds for the second quarter of 2020 includes(3) interest expense and accelerated premium amortization expense related to callable brokered certificates of deposit that were called during the second quarter of 2020.

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

Digital Currency Initiative

At September 30, 2021, the Company's digital currency customers increased to 1,305 from 1,224 at June 30, 2021, and from 928 at September 30, 2020. At September 30, 2021, prospective digital currency customer leads in various stages of the customer onboarding process and pipeline remained above 200. For the third quarter of 2021, $162.0 billion of U.S. dollar transfers occurred on the SEN, a 32% decrease from $239.6 billion transfers in the second quarter of 2021, and an increase of 342% compared to $36.7 billion in the third quarter of 2020. Based on digital currency industry transaction data provided by Coin Metrics, bitcoin and ether dollar trading volumes decreased by 43% during the third quarter of 2021 compared to the second quarter of 2021. The Company will no longer provide data related to the number of SEN transactions conducted quarterly but will continue to report quarterly SEN dollar volumes as industry data from Coin Metrics is more highly correlated to this metric.

Results of Operations, Quarter Ended September 30, 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 $39.0 million for the third quarter of 2021, compared to $31.2 million for the second quarter of 2021, and $19.4 million for the third quarter of 2020.

Compared to the second quarter of 2021, net interest income increased $7.8 million, due to increased interest income, with the largest driver being higher balances of securities, while interest expense remained flat. Average total interest earning assets increased by $1.5 billion for the third quarter of 2021 compared to the second quarter of 2021, primarily due to increased digital currency related deposits that were invested in securities in the second and third quarter of 2021. The average yield on interest earning assets increased from 1.17% for the second quarter of 2021 to 1.27% for the third quarter of 2021, primarily due to a higher proportion of securities and a lower proportion of lower yielding interest earnings deposits in other banks. Average interest bearing liabilities decreased $20.6 million for the third quarter of 2021 compared to the second quarter of 2021, due to a decrease in interest bearing deposits. The average rate paid on total interest bearing liabilities increased from 1.02% for the second quarter of 2021 to 1.17% for the third quarter of 2021, driven by the decrease in lower cost interest bearing deposits, which resulted in a larger proportion of higher cost subordinated debentures as a percentage of total interest bearing liabilities.

Compared to the third quarter of 2020, net interest income increased $19.6 million, due to an increase of $19.5 million in interest income and a decrease of $0.1 million in interest expense. Average total interest earning assets increased by $9.8 billion for the third quarter of 2021 compared to the third quarter of 2020, due to an increase in noninterest bearing deposits, which resulted in higher levels of interest earning deposits in other banks and securities. In addition, average loans increased by 23.4% due to increases in mortgage warehouse loans, driven by elevated mortgage refinance activity and increased SEN Leverage lending, which was launched in the first quarter of 2020. The average yield on total interest earning assets decreased from 3.25% for the third quarter of 2020 to 1.27% for the third quarter of 2021, primarily due to interest earning deposits in other banks being a greater percentage of interest earning assets, and lower yields on recently purchased securities. Average interest bearing liabilities decreased $156.7 million for the third quarter of 2021 compared to the third quarter of 2020, due to reduced FHLB advances in 2021 and lower balances of interest bearing deposits. The average rate on total interest bearing liabilities increased from 0.60% for the third quarter of 2020 to 1.17% for the third quarter of 2021, primarily due to the decrease in lower cost FHLB advances and interest bearing deposits, which resulted in a larger proportion of higher cost subordinated debentures as a percentage of total interest bearing liabilities.

Net interest margin for the third quarter of 2021 was 1.26%, compared to 1.16% for the second quarter of 2021, and 3.19% for the third quarter of 2020. The increase in the net interest margin compared to the second quarter of 2021 was primarily driven by the increase in the proportion of securities compared to lower yielding interest earning deposits in other banks. The net interest margin decrease from the third quarter of 2020 was primarily due to a higher proportion of interest earning deposits as a percentage of total interest earning assets, as well as lower yields on securities due to a declining interest rate environment.

Three Months Ended

September 30, 2021 June 30, 2021 September 30, 2020

Average Interest Average Average Interest Average Average Interest Average Outstanding Income/ Yield/ Outstanding Income/ Yield/ Outstanding Income/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate



(Dollars in thousands)

Assets

Interest earning assets:

Interest earningdeposits in other $ 4,104,776 $ 1,755 0.17 % $ 5,603,397 $ 1,599 0.11 % $ 245,855 $ 196 0.32 %banks

Taxable securities 5,449,202 14,000 1.02 % 2,937,659 8,324 1.14 % 679,277 3,746 2.19 %

Tax-exempt 1,187,452 6,347 2.12 % 698,149 3,953 2.27 % 267,511 2,177 3.24 %securities^(1)

Loans^(2)(3) 1,493,590 16,972 4.51 % 1,541,373 17,158 4.46 % 1,209,884 13,527 4.45 %

Other 31,028 195 2.49 % 29,394 466 6.36 % 15,112 116 3.05 %

Total interest 12,266,048 39,269 1.27 % 10,809,972 31,500 1.17 % 2,417,639 19,762 3.25 %earning assets

Noninterest 197,477 121,288 68,327 earning assets

Total assets $ 12,463,525 $ 10,931,260 $ 2,485,966

Liabilities andShareholders' Equity

Interest bearing liabilities:

Interest bearing $ 76,898 $ 26 0.13 % $ 97,463 $ 35 0.14 % $ 108,755 $ 57 0.21 %deposits

FHLB advances and 1 - 0.00 % 44 - - 124,886 65 0.21 %other borrowings

Subordinated 15,839 247 6.19 % 15,836 252 6.38 % 15,825 257 6.46 %debentures

Total interestbearing 92,738 273 1.17 % 113,343 287 1.02 % 249,466 379 0.60 %liabilities

Noninterestbearing liabilities:

Noninterest 11,305,650 9,980,680 1,935,661 bearing deposits

Other liabilities 50,657 29,586 23,860

Shareholders' 1,014,480 807,651 276,979 equity

Total liabilitiesand shareholders' $ 12,463,525 $ 10,931,260 $ 2,485,966 equity

Net interest 0.10 % 0.15 % 2.65 %spread^(4)

Net interestincome, taxable $ 38,996 $ 31,213 $ 19,383 equivalent basis

Net interest 1.26 % 1.16 % 3.19 %margin^(5)

Reconciliation toreported net interest income:

Adjustments fortaxable equivalent (1,333) (830) (457) basis

Net interestincome, as $ 37,663 $ 30,383 $ 18,926 reported

________________________

(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 third quarter of 2021, the second quarter of 2021, or for the third quarter of 2020 as a result of management's assessment of the level of the allowance for loan losses, and the amount and mix of the loan portfolio, among other factors.

Noninterest Income

Noninterest income for the third quarter of 2021 was $14.0 million, an increase of $2.0 million, or 16.3%, from the second quarter of 2021. The primary driver of this increase was a $5.2 million gain on sale of securities offset by a $3.1 million, or 27.7%, decrease in deposit related fees as a result of lower cash management fees from digital currency related customers.

Noninterest income for the third quarter of 2021 increased by $10.1 million, or 254.2%, compared to the third quarter of 2020. This increase was primarily due to a $5.2 million increase in gain on sale of securities and a $4.9 million, or 148.1%, increase in deposit related fees, partially offset by a $0.1 million, or 12.3% decrease in mortgage warehouse fee income.

________________________

Interest income on tax-exempt securities is presented on a taxable(1) 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.

Net interest spread is the difference between interest rates earned on(4) interest earning assets and interest rates paid on interest bearing liabilities.

Net interest margin is a ratio calculated as annualized net interest(5) 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 third quarter of 2021, the second quarter of 2021, or for the third quarter of 2020 as a result of management's assessment of the level of the allowance for loan losses, and the amount and mix of the loan portfolio, among other factors.

Noninterest Income

Noninterest income for the third quarter of 2021 was $14.0 million, an increase of $2.0 million, or 16.3%, from the second quarter of 2021. The primary driver of this increase was a $5.2 million gain on sale of securities offset by a $3.1 million, or 27.7%, decrease in deposit related fees as a result of lower cash management fees from digital currency related customers.

Noninterest income for the third quarter of 2021 increased by $10.1 million, or 254.2%, compared to the third quarter of 2020. This increase was primarily due to a $5.2 million increase in gain on sale of securities and a $4.9 million, or 148.1%, increase in deposit related fees, partially offset by a $0.1 million, or 12.3% decrease in mortgage warehouse fee income.

Three Months Ended

September June 30, September 30, 2021 30, 2021 2020



(Dollars in thousands)

Noninterest income:

Mortgage warehouse fee income $ 665 $ 753 $ 758

Service fees related to off-balance - - 1 sheet deposits

Deposit related fees 8,171 11,308 3,293

Gain on sale of securities, net 5,182 - -

Loss on sale of loans, net - - (96)

Other income 24 8 8

Total noninterest income $ 14,042 $ 12,069 $ 3,964

Noninterest Expense

Noninterest expense totaled $22.3 million for the third quarter of 2021, an increase of $0.8 million, or 3.8%, compared to the second quarter of 2021, and an increase of $8.2 million, or 58.1%, compared to the third quarter of 2020. The increase in noninterest expense compared to prior quarter was due to an increase in salaries and employee benefits and federal deposit insurance. The increase in noninterest expense from the third quarter of 2020 was primarily driven by increased federal deposit insurance expense resulting from the significant growth in digital currency deposits and by ongoing investments related to strategic growth initiatives.

Three Months Ended

September 30, June 30, September 30, 2021 2021 2020



(Dollars in thousands)

Noninterest expense:

Salaries and employee benefits $ 10,729 $ 10,260 $ 8,899

Occupancy and equipment 523 599 845

Communications and data processing 1,793 1,796 1,389

Professional services 2,471 2,594 1,207

Federal deposit insurance 4,297 3,844 209

Correspondent bank charges 572 812 403

Other loan expense 299 280 60

Other general and administrative 1,655 1,334 1,121

Total noninterest expense $ 22,339 $ 21,519 $ 14,133

Income Tax Expense (Benefit)

Income tax expense was $5.9 million for the third quarter of 2021, compared to a benefit of $2,000 for the second quarter of 2021, and an expense of $1.7 million for the third quarter of 2020. Our effective tax rate for the third quarter of 2021 was 20.0%, compared to zero for the second quarter of 2021, and 19.4% for the third quarter of 2020. The lower effective tax rate for the second quarter of 2021 was due to significant tax benefits recognized on the exercise of stock options.

Balance Sheet

Deposits

At September 30, 2021, deposits totaled $11.7 billion, an increase of $291.0 million, or 2.6%, from June 30, 2021, and an increase of $9.4 billion, or 411.3%, from September 30, 2020. Noninterest bearing deposits totaled $11.6 billion, representing approximately 99.3% of total deposits at September 30, 2021, an increase of $295.7 million from the prior quarter end, and a $9.4 billion increase compared to September 30, 2020. The increase in total deposits from the prior year quarter end was driven by an increase in deposits from digital currency exchanges, institutional investors in digital assets and other fintech related customers. The Bank's 10 largest depositors accounted for $5.3 billion in deposits, or approximately 45.6% of total deposits at September 30, 2021, compared to $5.3 billion in deposits, or approximately 46.7% of total deposits at June 30, 2021, substantially all of which are from customers operating in the digital currency industry.

Our continued growth has been accompanied by significant fluctuations in the level of our deposits, in particular our deposits from customers operating in the digital currency industry, as our customers in this industry typically carry higher balances over the weekend to take advantage of the 24/7 availability of the SEN, and carry lower balances during the business week. The Bank's average total digital currency customer deposits during the third quarter of 2021 amounted to $11.2 billion, the high and low daily total digital currency deposit levels during such time were $12.6 billion and $9.8 billion, respectively, compared to an average of $9.9 billion during the second quarter of 2021, and high and low daily deposit levels of $11.8 billion and $6.8 billion, respectively.

Demand for new deposit accounts is generated by the Company's banking platform for innovators that includes the SEN, which is enabled through Silvergate's proprietary API, and other cash management solutions. These tools enable Silvergate's customers to grow their businesses and scale operations. The following table sets forth a breakdown of the Company's digital currency customer base and the deposits held by such customers at the dates noted below:

September 30, 2021 June 30, 2021 September 30, 2020

Number of Total Number of Total Number of Total Customers Deposits^ Customers Deposits^ Customers Deposits^ (1) (1) (1)



(Dollars in millions)

Digitalcurrency 94 $ 6,759 93 $ 5,395 69 $ 729 exchanges

Institutional 830 3,344 771 3,986 599 850 investors

Other customers 381 1,365 360 1,734 260 515

Total 1,305 $ 11,468 1,224 $ 11,114 928 $ 2,095

________________________

(1)

Total deposits may not foot due to rounding.

The weighted average cost of deposits for the third quarter of 2021 and for the second quarter of 2021 was 0.00%, compared to 0.01% for the third quarter of 2020.

________________________

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

The weighted average cost of deposits for the third quarter of 2021 and for the second quarter of 2021 was 0.00%, compared to 0.01% for the third quarter of 2020.

Three Months Ended

September 30, 2021 June 30, 2021 September 30, 2020

Average Average Average Average Average Average Balance Rate Balance Rate Balance Rate



(Dollars in thousands)

Noninterestbearing demand $ 11,305,650 - $ 9,980,680 - $ 1,935,661 - accounts

Interestbearing accounts:

Interestbearing demand 8,597 0.05 % 27,303 0.12 % 41,871 0.10 %accounts

Money marketand savings 67,735 0.14 % 69,527 0.15 % 65,646 0.25 %accounts

Certificates 566 0.70 % 633 0.63 % 1,238 1.29 %of deposit

Total interestbearing 76,898 0.13 % 97,463 0.14 % 108,755 0.21 %deposits

Total deposits $ 11,382,548 0.00 % $ 10,078,143 0.00 % $ 2,044,416 0.01 %

Loan Portfolio

Total loans, including net loans held-for-investment and loans held for sale, were $1.6 billion at September 30, 2021, an increase of $139.5 million, or 9.4%, from June 30, 2021, and an increase of $226.5 million, or 16.2%, from September 30, 2020.

September 30, June 30, September 30, 2021 2021 2020



(Dollars in thousands)

Real estate loans:

One-to-four family $ 119,817 $ 144,247 $ 209,040

Multi-family 54,636 67,704 72,714

Commercial 250,295 272,948 316,653

Construction 6,046 5,481 13,854

Commercial and industrial^(1) 254,624 204,279 25,951

Reverse mortgage and other 1,385 1,364 6,881

Mortgage warehouse 128,975 49,897 94,684

Total gross loans 815,778 745,920 739,777 held-for-investment

Deferred fees, net 883 1,151 2,843

Total loans held-for-investment 816,661 747,071 742,620

Allowance for loan losses (6,916) (6,916) (6,763)

Loans held-for-investment, net 809,745 740,155 735,857

Loans held-for-sale^(2) 818,447 748,577 665,842

Total loans $ 1,628,192 $ 1,488,732 $ 1,401,699

________________________

(1)

Commercial and industrial loans includes $254.5 million, $203.4 million and $22.4 million of SEN Leverage loans as of September 30, 2021, June 30, 2021 and September 30, 2020, respectively.

(2)

Loans held-for-sale are comprised entirely of mortgage warehouse loans for all periods presented.

Asset Quality and Allowance for Loan Losses

The allowance for loan losses was unchanged at $6.9 million at September 30, 2021, compared to June 30, 2021 and increased slightly from $6.8 million at September 30, 2020. The ratio of the allowance for loan losses to gross loans held-for-investment at September 30, 2021 was 0.85%, compared to 0.93% and 0.91% at June 30, 2021 and September 30, 2020, respectively.

Nonperforming assets totaled $5.8 million, or 0.05% of total assets, at September 30, 2021, a decrease of $1.7 million from $7.5 million, or 0.06% of total assets at June 30, 2021. Nonperforming assets increased $1.7 million, from $4.1 million, or 0.16%, of total assets, at September 30, 2020.

________________________

Commercial and industrial loans includes $254.5 million, $203.4 million(1) and $22.4 million of SEN Leverage loans as of September 30, 2021, June 30, 2021 and September 30, 2020, respectively.

(2) Loans held-for-sale are comprised entirely of mortgage warehouse loans for all periods presented.

Asset Quality and Allowance for Loan Losses

The allowance for loan losses was unchanged at $6.9 million at September 30, 2021, compared to June 30, 2021 and increased slightly from $6.8 million at September 30, 2020. The ratio of the allowance for loan losses to gross loans held-for-investment at September 30, 2021 was 0.85%, compared to 0.93% and 0.91% at June 30, 2021 and September 30, 2020, respectively.

Nonperforming assets totaled $5.8 million, or 0.05% of total assets, at September 30, 2021, a decrease of $1.7 million from $7.5 million, or 0.06% of total assets at June 30, 2021. Nonperforming assets increased $1.7 million, from $4.1 million, or 0.16%, of total assets, at September 30, 2020.

September June 30, September 30, 2021 30, 2021 2020



Asset Quality (Dollars in thousands)

Nonperforming Assets:

Nonperforming loans $ 5,845 $ 7,508 $ 4,107

Troubled debt restructurings $ 1,867 $ 1,437 $ 1,572

Other real estate owned, net - - $ 27

Nonperforming assets $ 5,845 $ 7,508 $ 4,134



Asset Quality Ratios:

Nonperforming assets to total assets 0.05 % 0.06 % 0.16 %

Nonperforming loans to gross loans^(1) 0.72 % 1.01 % 0.56 %

Nonperforming assets to gross loans and 0.72 % 1.01 % 0.56 %other real estate owned^(1)

Net charge-offs (recoveries) to average 0.00 % 0.00 % 0.00 %total loans^(1)

Allowance for loan losses to gross loans^(1) 0.85 % 0.93 % 0.91 %

Allowance for loan losses to nonperforming 118.32 % 92.12 % 164.67 %loans

________________________

(1)

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

Coronavirus Disease 2019 ("COVID-19") Update

As of September 30, 2021, the majority of COVID-19 related deferred loans have returned to paying, and only an immaterial amount of loans are still being deferred.

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 September 30, 2021, the remaining loans in deferral due to COVID-19 are as follows:

________________________

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

Coronavirus Disease 2019 ("COVID-19") Update

As of September 30, 2021, the majority of COVID-19 related deferred loans have returned to paying, and only an immaterial amount of loans are still being deferred.

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 September 30, 2021, the remaining loans in deferral due to COVID-19 are as follows:

Percentage of Loan Balance Gross Loans At Period End Held-for-Investment



(Dollars in thousands)

COVID-19 related modifications:

Real estate loans:

One-to-four family $ 226 0.0%

Securities

Securities available-for-sale increased $1.1 billion, or 17.1%, from $6.2 billion at June 30, 2021, and increased $6.3 billion, or 666.2%, from $944.2 million at September 30, 2020, to $7.2 billion at September 30, 2021. The Company purchased $1.6 billion of securities in the third quarter of 2021, including $530.9 million of agency residential mortgage-backed securities, $354.3 million of municipal bonds, $516.6 million of U.S. agency securities excluding mortgage-backed securities, $135.0 million of agency commercial mortgage-backed securities, and $21.0 million of private-label commercial mortgage-backed securities, bringing total year to date securities purchases to $6.9 billion as of September 30, 2021. During the third quarter of 2021, the Company sold $338.9 million of securities and recognized a gain of $5.2 million.

Capital Ratios

At September 30, 2021, the Company's ratio of common equity to total assets was 6.88%, compared with 7.08% at June 30, 2021, and 10.83% at September 30, 2020. At September 30, 2021, the Company's book value per common share was $33.10, compared to $32.84 at June 30, 2021, and $15.18 at September 30, 2020.

At September 30, 2021, the Company had a tier 1 leverage ratio of 8.71%, common equity tier 1 capital ratio of 40.98%, tier 1 risk-based capital ratio of 50.80% and total risk-based capital ratio of 51.13%.

At September 30, 2021, the Bank had a tier 1 leverage ratio of 8.24%, common equity tier 1 capital ratio of 48.04%, tier 1 risk-based capital ratio of 48.04% and total risk-based capital ratio of 48.37%. 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) September 30, June 30, September 30, 2021 2021 2020

The Company

Tier 1 leverage ratio 8.71 % 7.91 % 10.36 %

Common equity tier 1 capital ratio 40.98 % 46.75 % 22.58 %

Tier 1 risk-based capital ratio 50.80 % 47.61 % 24.03 %

Total risk-based capital ratio 51.13 % 48.00 % 24.68 %

Common equity to total assets 6.88 % 7.08 % 10.83 %

The Bank

Tier 1 leverage ratio 8.24 % 7.88 % 9.84 %

Common equity tier 1 capital ratio 48.04 % 47.29 % 22.82 %

Tier 1 risk-based capital ratio 48.04 % 47.29 % 22.82 %

Total risk-based capital ratio 48.37 % 47.69 % 23.47 %

________________________

(1)

September 30, 2021 capital ratios are preliminary.

Equity Offerings

On August 4, 2021, the Company issued and sold 8,000,000 depositary shares (the "Depositary Shares"), each representing a 1/40th interest in a share of 5.375% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share (the "Series A Preferred Stock"), with a liquidation preference of $1,000 per share of Series A Preferred Stock, equivalent to $25 per Depositary Share. The aggregate gross proceeds of the offering were $200.0 million and net proceeds to the Company were approximately $193.7 million after deducting underwriting discounts and offering expenses. When, as and if declared by our board of directors, or a duly authorized committee, of the Company, dividends will be payable from the date of issuance, quarterly in arrears, beginning on November 15, 2021. The Company may redeem the Series A Preferred Stock at its option, subject to regulatory approval, on or after August 15, 2026.

Subsequent Event

On October 14, 2021, the Company's Board of Directors declared the first quarterly dividend payment of $15.08 per share, equivalent to $0.377 per depositary share, on its Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, for the period covering August 4, 2021 through November 14, 2021, for a total dividend of $3.0 million. The depositary shares representing the Series A Preferred Stock are traded on the New York Stock Exchange under the symbol "SI.PRA." The dividend will be payable on November 15, 2021 to shareholders of record of the preferred stock as of October 29, 2021.

Conference Call and Webcast

The Company will host a conference call on Tuesday, October 19, 2021 at 11:00 a.m. (Eastern Time) to present and discuss second 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 Third Quarter 2021 Earnings Conference Call. A replay will be available starting at 1:00 p.m. (Eastern Time) on October 19, 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 10160499. The replay will be available until 11:59 p.m. (Eastern Time) on November 2, 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.silvergate.com. The online replay will remain available for a limited time beginning immediately following the call.

About Silvergate

Silvergate Capital Corporation (NYSE: SI) is the leading provider of innovative financial infrastructure solutions and services for the growing digital currency industry. The Company's real-time payments platform, known as the Silvergate Exchange Network, is at the heart of its customer-centric suite of payments, lending and funding solutions serving an expanding class of digital currency companies and investors around the world. Silvergate is enabling the rapid growth of digital currency markets and reshaping global commerce for a digital currency future.

Forward Looking Statements

Statements in this earnings release may constitute forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as "may," "should," "could," "predict," "potential," "believe," "will likely result," "expect," "continue," "will," "anticipate," "seek," "estimate," "intend," "plan," "project," "projection," "forecast," "goal," "target," "would," "aim" and "outlook," or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry and management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. The inclusion of these forward-looking statements should not be regarded as a representation by us or any other person that such expectations, estimates and projections will be achieved. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. For information about other important factors that could cause actual results to differ materially from those discussed in the forward-looking statements contained in this release, please refer to the Company's public reports filed with the U.S. Securities and Exchange Commission.

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.

________________________

(1) September 30, 2021 capital ratios are preliminary.

Equity Offerings

On August 4, 2021, the Company issued and sold 8,000,000 depositary shares (the "Depositary Shares"), each representing a 1/40th interest in a share of 5.375% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share (the "Series A Preferred Stock"), with a liquidation preference of $1,000 per share of Series A Preferred Stock, equivalent to $25 per Depositary Share. The aggregate gross proceeds of the offering were $200.0 million and net proceeds to the Company were approximately $193.7 million after deducting underwriting discounts and offering expenses. When, as and if declared by our board of directors, or a duly authorized committee, of the Company, dividends will be payable from the date of issuance, quarterly in arrears, beginning on November 15, 2021. The Company may redeem the Series A Preferred Stock at its option, subject to regulatory approval, on or after August 15, 2026.

Subsequent Event

On October 14, 2021, the Company's Board of Directors declared the first quarterly dividend payment of $15.08 per share, equivalent to $0.377 per depositary share, on its Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, for the period covering August 4, 2021 through November 14, 2021, for a total dividend of $3.0 million. The depositary shares representing the Series A Preferred Stock are traded on the New York Stock Exchange under the symbol "SI.PRA." The dividend will be payable on November 15, 2021 to shareholders of record of the preferred stock as of October 29, 2021.

Conference Call and Webcast

The Company will host a conference call on Tuesday, October 19, 2021 at 11:00 a.m. (Eastern Time) to present and discuss second 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 Third Quarter 2021 Earnings Conference Call. A replay will be available starting at 1:00 p.m. (Eastern Time) on October 19, 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 10160499. The replay will be available until 11:59 p.m. (Eastern Time) on November 2, 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.silvergate.com. The online replay will remain available for a limited time beginning immediately following the call.

About Silvergate

Silvergate Capital Corporation (NYSE: SI) is the leading provider of innovative financial infrastructure solutions and services for the growing digital currency industry. The Company's real-time payments platform, known as the Silvergate Exchange Network, is at the heart of its customer-centric suite of payments, lending and funding solutions serving an expanding class of digital currency companies and investors around the world. Silvergate is enabling the rapid growth of digital currency markets and reshaping global commerce for a digital currency future.

Forward Looking Statements

Statements in this earnings release may constitute forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as "may," "should," "could," "predict," "potential," "believe," "will likely result," "expect," "continue," "will," "anticipate," "seek," "estimate," "intend," "plan," "project," "projection," "forecast," "goal," "target," "would," "aim" and "outlook," or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry and management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. The inclusion of these forward-looking statements should not be regarded as a representation by us or any other person that such expectations, estimates and projections will be achieved. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. For information about other important factors that could cause actual results to differ materially from those discussed in the forward-looking statements contained in this release, please refer to the Company's public reports filed with the U.S. Securities and Exchange Commission.

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)

September 30, June 30, March 31, December 31, September 30, 2021 2021 2021 2020 2020

ASSETS

Cash and due from $ 168,628 $ 52,859 $ 16,422 $ 16,405 $ 15,152 banks

Interest earningdeposits in other 3,615,860 4,415,458 4,315,100 2,945,682 182,330 banks

Cash and cash 3,784,488 4,468,317 4,331,522 2,962,087 197,482 equivalents

Trading securities, - 26,998 1,990 - - at fair value

Securitiesavailable-for-sale, 7,234,216 6,176,778 1,717,418 939,015 944,161 at fair value

Loans held-for-sale,at lower of cost or 818,447 748,577 897,227 865,961 665,842 fair value

Loansheld-for-investment, 809,745 740,155 728,390 746,751 735,857 net of allowance forloan losses

Federal home loanand federal reserve 34,010 29,460 14,851 14,851 14,839 bank stock, at cost

Accrued interest 32,154 24,505 9,432 8,698 7,385 receivable

Premises and 1,483 1,604 1,758 2,072 3,122 equipment, net

Derivative assets 37,210 39,454 34,442 31,104 34,138

Other assets 24,868 33,628 20,122 15,696 17,747

Total assets $ 12,776,621 $ 12,289,476 $ 7,757,152 $ 5,586,235 $ 2,620,573

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:

Noninterest bearing $ 11,586,318 $ 11,290,638 $ 6,889,281 $ 5,133,579 $ 2,164,326 demand accounts

Interest bearing 76,202 80,918 113,090 114,447 116,782 accounts

Total deposits 11,662,520 11,371,556 7,002,371 5,248,026 2,281,108

Federal home loan - - - - 10,000 bank advances

Subordinated 15,841 15,838 15,834 15,831 15,827 debentures, net

Accrued expenses and 26,179 31,575 25,326 28,079 29,877 other liabilities

Total liabilities 11,704,540 11,418,969 7,043,531 5,291,936 2,336,812

Commitments and contingencies

Preferred stock 2 - - - -

Class A common stock 265 265 248 188 186

Class B non-voting - - - 1 1 common stock

Additional paid-in 891,611 697,070 551,798 129,726 132,647 capital

Retained earnings 175,485 151,993 131,058 118,348 109,229

Accumulated other 4,718 21,179 30,517 46,036 41,698 comprehensive income

Total shareholders' 1,072,081 870,507 713,621 294,299 283,761 equity

Total liabilitiesand shareholders' $ 12,776,621 $ 12,289,476 $ 7,757,152 $ 5,586,235 $ 2,620,573 equity

SILVERGATE CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Data)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,2021

June 30,2021

September 30,2020

September 30,2021

September 30,2020

Interest income

Loans, including fees

$

16,972

$

17,158

$

13,527

$

50,727

$

38,358

Taxable securities

14,000

8,324

3,746

25,916

13,917

Tax-exempt securities

5,014

3,123

1,720

9,832

3,345

Other interest earning assets

1,755

1,599

196

4,633

1,325

Dividends and other

195

466

116

804

437

Total interest income

37,936

30,670

19,305

91,912

57,382

Interest expense

Deposits

26

35

57

107

5,760

Federal home loan bank advances

-

-

65

-

336

Subordinated debentures and other

247

252

257

744

830

Total interest expense

273

287

379

851

6,926

Net interest income before provision for loan losses

37,663

30,383

18,926

91,061

50,456

Provision for loan losses

-

-

-

-

589

Net interest income after provision for loan losses

37,663

30,383

18,926

91,061

49,867

Noninterest income

Mortgage warehouse fee income

665

753

758

2,372

1,590

Service fees related to off-balance sheet deposits

-

-

1

-

78

Deposit related fees

8,171

11,308

3,293

26,603

7,497

Gain on sale of securities, net

5,182

-

-

5,182

3,753

(Loss) gain on sale of loans, net

-

-

(96)

-

354

Gain on extinguishment of debt

-

-

-

-

925

Other income

24

8

8

44

132

Total noninterest income

14,042

12,069

3,964

34,201

14,329

Noninterest expense

Salaries and employee benefits

10,729

10,260

8,899

31,979

26,856

Occupancy and equipment

523

599

845

1,736

2,646

Communications and data processing

1,793

1,796

1,389

5,210

3,963

Professional services

2,471

2,594

1,207

6,782

3,297

Federal deposit insurance

4,297

3,844

209

10,437

514

Correspondent bank charges

572

812

403

1,881

1,123

Other loan expense

299

280

60

753

281

Other general and administrative

1,655

1,334

1,121

4,686

3,300

Total noninterest expense

22,339

21,519

14,133

63,464

41,980

Income before income taxes

29,366

20,933

8,757

61,798

22,216

Income tax expense (benefit)

5,874

(2)

1,697

4,661

5,297

Net income

23,492

20,935

7,060

57,137

16,919

Dividends on preferred stock

-

-

-

-

-

Net income available to common shareholders

$

23,492

$

20,935

$

7,060

$

57,137

$

16,919

Basic earnings per common share

$

0.89

$

0.81

$

0.38

$

2.29

$

0.91

Diluted earnings per common share

$

0.88

$

0.80

$

0.37

$

2.26

$

0.88

Weighted average common shares outstanding:

Basic

26,525

25,707

18,682

24,927

18,674

Diluted

26,766

26,102

19,134

25,308

19,119

View source version on businesswire.com: https://www.businesswire.com/news/home/20211019005227/en/

CONTACT: Investor Relations: Hunter Stenback / Ashna Vasa 858-200-3782 investors@silvergate.com