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Yahoo Finance Plus Silvergate Capital Corporation Announces First Quarter 2022 Results
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- SI
- SI-PA
LA JOLLA, Calif., April 19, 2022--(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 March 31, 2022.
First Quarter 2022 Highlights
Net income for the quarter was $27.4 million, compared to $21.4 million for the fourth quarter of 2021, and $12.7 million for the first quarter of 2021
Net income available to common shareholders for the quarter was $24.7 million, or $0.79 per diluted common share, compared to net income of $18.4 million, or $0.66 per diluted share, for the fourth quarter of 2021, and net income of $12.7 million, or $0.55 per diluted share, for the first quarter of 2021
Digital currency customers grew to 1,503 at March 31, 2022, compared to 1,381 at December 31, 2021, and 1,104 at March 31, 2021
The Silvergate Exchange Network ("SEN") handled $142.3 billion of U.S. dollar transfers in the first quarter of 2022, a decrease of 35% compared to $219.2 billion in the fourth quarter of 2021, and a decrease of 15% compared to $166.5 billion in the first quarter of 2021; Cumulative U.S. dollar transfers on the SEN crossed $1 trillion dollars
Total SEN Leverage commitments were $1,070.1 million at March 31, 2022, compared to $570.5 million at December 31, 2021, and $196.5 million at March 31, 2021
Digital currency customer related fee income for the quarter was $8.9 million, compared to $9.3 million for the fourth quarter of 2021, and $7.1 million for the first quarter of 2021
Average digital currency customer deposits grew to $14.7 billion during the first quarter of 2022, compared to $13.3 billion during the fourth quarter of 2021
Closed acquisition of select blockchain-based payment technology assets from the Diem Group, further enhancing Silvergate’s existing stablecoin infrastructure
Alan Lane, president and chief executive officer of Silvergate, commented, "We started off 2022 on a strong note, driven by the power of our platform and continued progress on our strategic initiatives. I’m particularly pleased with our first quarter results when you consider that this was one of the most challenging periods for the broader crypto ecosystem since the beginning of the pandemic. While volume on the Silvergate Exchange Network was impacted by broader industry trends, I remain encouraged by the continued growth we saw in customers, SEN Leverage commitments, and average deposits, which reached a record $14.7 billion. To advance our customer-first approach, we continued to invest in our strategic initiatives, including stablecoin infrastructure through the acquisition of select blockchain-based payment technology assets from the Diem Group, and the launch of the Euro SEN. I look forward to the rest of 2022 and I am excited for what lies ahead for Silvergate."
As of or for the Three Months Ended | ||||||||||||
March 31, | December 31, | March 31, | ||||||||||
Financial Highlights | (Dollars in thousands, except per share data) | |||||||||||
Net income | $ | 27,386 | $ | 21,391 | $ | 12,710 | ||||||
Net income available to common shareholders | $ | 24,698 | $ | 18,375 | $ | 12,710 | ||||||
Diluted earnings per common share | $ | 0.79 | $ | 0.66 | $ | 0.55 | ||||||
Return on average assets (ROAA)(1) | 0.60 | % | 0.50 | % | 0.71 | % | ||||||
Return on average common equity (ROACE)(1) | 6.87 | % | 7.25 | % | 9.76 | % | ||||||
Net interest margin(1)(2) | 1.36 | % | 1.11 | % | 1.33 | % | ||||||
Cost of deposits(1) | 0.00 | % | 0.00 | % | 0.00 | % | ||||||
Cost of funds(1) | 0.01 | % | 0.01 | % | 0.02 | % | ||||||
Efficiency ratio(3) | 46.74 | % | 52.08 | % | 63.03 | % | ||||||
Total assets | $ | 15,798,013 | $ | 16,005,495 | $ | 7,757,152 | ||||||
Total deposits | $ | 13,396,162 | $ | 14,290,628 | $ | 7,002,371 | ||||||
Book value per common share | $ | 42.77 | $ | 46.55 | $ | 28.75 | ||||||
Tier 1 leverage ratio | 9.68 | % | 11.07 | % | 9.68 | % | ||||||
Total risk-based capital ratio | 45.01 | % | 57.08 | % | 54.79 | % | ||||||
________________________ | ||
(1) | Data has been annualized. | |
(2) | Net interest margin is a ratio calculated as net interest income, on a fully taxable equivalent basis for interest income on tax-exempt securities using the federal statutory tax rate of 21.0%, divided by average interest earning assets for the same period. | |
(3) | Efficiency ratio is calculated by dividing noninterest expenses by net interest income plus noninterest income. | |
Digital Currency Initiative
At March 31, 2022, the Company’s digital currency customers increased to 1,503 from 1,381 at December 31, 2021, and from 1,104 at March 31, 2021. At March 31, 2022, prospective digital currency customer leads in various stages of the customer onboarding process and pipeline was above 300. For the first quarter of 2022, $142.3 billion of U.S. dollar transfers occurred on the SEN, a 35% decrease from $219.2 billion transfers in the fourth quarter of 2021, and a decrease of 15% compared to $166.5 billion in the first quarter of 2021. Based on digital currency industry transaction data provided by Coin Metrics, bitcoin and ether dollar trading volumes decreased by 33% during the first quarter of 2022 compared to the fourth quarter of 2021.
Results of Operations, Quarter Ended March 31, 2022
Net Interest Income and Net Interest Margin Analysis (Taxable Equivalent Basis)
The Company’s securities portfolio includes tax-exempt municipal bonds with tax-exempt income from these securities calculated and presented below on a taxable equivalent basis. Net interest income, net interest spread and net interest margin are presented on a taxable equivalent basis to consistently reflect income from taxable securities and tax-exempt securities based on the federal statutory tax rate of 21.0%.
Net interest income on a taxable equivalent basis totaled $54.0 million for the first quarter of 2022, compared to $40.2 million for the fourth quarter of 2021, and $23.5 million for the first quarter of 2021.
Compared to the fourth quarter of 2021, net interest income increased $13.8 million, due to increased interest income, while interest expense remained flat. Average total interest earning assets increased by $1.7 billion for the first quarter of 2022 compared to the fourth quarter of 2021, primarily due to increased securities offset by decreased interest earning deposits in other banks. The average yield on interest earning assets increased from 1.11% for the fourth quarter of 2021 to 1.37% for the first quarter of 2022, primarily due to a higher proportion of securities and a lower proportion of interest earning deposits in other banks as a percentage of interest earning assets, as well as higher yields on recently purchased securities. Average interest bearing liabilities increased $70.2 million for the first quarter of 2022 compared to the fourth quarter of 2021, due to increased FHLB advances. The average rate on total interest bearing liabilities decreased from 1.17% for the fourth quarter of 2021 to 0.85% for the first quarter of 2022, primarily due to a higher proportion of lower cost FHLB borrowings as a percentage of interest bearing liabilities.
Compared to the first quarter of 2021, net interest income increased $30.5 million due to increased interest income, with the largest driver being higher balances of securities, while interest expense remained relatively flat. Average total interest earning assets increased by $9.0 billion for the first quarter of 2022 compared to the first quarter of 2021, primarily due to increased securities balances funded by the growth in digital currency related deposits. The average yield on total interest earning assets increased from 1.35% for the first quarter of 2021 to 1.37% for the first quarter of 2022, primarily due to a higher proportion of securities and a lower proportion of interest earning deposits in other banks as a percentage of interest earning assets, partially offset by lower yields on the securities portfolio due to the majority of the securities in the portfolio being acquired in the last 12 months within a lower rate environment. Average interest bearing liabilities increased $30.6 million for the first quarter of 2022 compared to the first quarter of 2021, due to increased FHLB advances offset by lower balances of interest bearing deposits. The average rate on total interest bearing liabilities decreased from 0.89% for the first quarter of 2021 to 0.85% for the first quarter of 2022, primarily due to a higher proportion of lower cost FHLB borrowings as a percentage of interest bearing liabilities.
Net interest margin for the first quarter of 2022 was 1.36%, compared to 1.11% for the fourth quarter of 2021, and 1.33% for the first quarter of 2021. The increase in the net interest margin compared to the fourth quarter of 2021 was primarily due to a higher proportion of securities and a lower proportion of interest earning deposits in other banks as a percentage of interest earning assets, as well as higher yields on recently purchased securities. The increase in the net interest margin compared to the first quarter of 2021 was primarily due to a higher proportion of securities and a lower proportion of interest earning deposits in other banks as a percentage of interest earning assets, partially offset by lower yields on the securities portfolio.
Three Months Ended | ||||||||||||||||||||||||||||||
March 31, 2022 | December 31, 2021 | March 31, 2021 | ||||||||||||||||||||||||||||
Average | Interest | Average | Average | Interest | Average | Average | Interest | Average | ||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||
Interest earning assets: | ||||||||||||||||||||||||||||||
Interest earning deposits in other banks | $ | 3,067,054 | $ | 1,385 | 0.18 | % | $ | 5,282,661 | $ | 2,166 | 0.16 | % | $ | 4,450,110 | $ | 1,279 | 0.12 | % | ||||||||||||
Taxable securities | 8,492,768 | 17,779 | 0.85 | % | 5,735,932 | 10,178 | 0.70 | % | 850,558 | 3,592 | 1.71 | % | ||||||||||||||||||
Tax-exempt securities(1) | 2,887,072 | 16,689 | 2.34 | % | 1,728,862 | 9,454 | 2.17 | % | 270,711 | 2,146 | 3.21 | % | ||||||||||||||||||
Loans(2)(3) | 1,644,604 | 18,287 | 4.51 | % | 1,641,345 | 17,892 | 4.32 | % | 1,559,989 | 16,597 | 4.31 | % | ||||||||||||||||||
Other | 41,751 | 203 | 1.97 | % | 34,490 | 777 | 8.94 | % | 15,331 | 143 | 3.78 | % | ||||||||||||||||||
Total interest earning assets | 16,133,249 | 54,343 | 1.37 | % | 14,423,290 | 40,467 | 1.11 | % | 7,146,699 | 23,757 | 1.35 | % | ||||||||||||||||||
Noninterest earning assets | 500,299 | 295,841 | 72,155 | |||||||||||||||||||||||||||
Total assets | $ | 16,633,548 | $ | 14,719,131 | $ | 7,218,854 | ||||||||||||||||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||||||||||||||||
Interest bearing liabilities: | ||||||||||||||||||||||||||||||
Interest bearing deposits | $ | 76,663 | $ | 21 | 0.11 | % | $ | 77,564 | $ | 27 | 0.14 | % | $ | 117,228 | $ | 46 | 0.16 | % | ||||||||||||
FHLB advances and other borrowings | 71,111 | 70 | 0.40 | % | 12 | — | 0.00 | % | — | — | — | |||||||||||||||||||
Subordinated debentures | 15,846 | 252 | 6.45 | % | 15,843 | 249 | 6.24 | % | 15,832 | 245 | 6.28 | % | ||||||||||||||||||
Total interest bearing liabilities | 163,620 | 343 | 0.85 | % | 93,419 | 276 | 1.17 | % | 133,060 | 291 | 0.89 | % | ||||||||||||||||||
Noninterest bearing liabilities: | ||||||||||||||||||||||||||||||
Noninterest bearing deposits | 14,781,601 | 13,377,552 | 6,526,555 | |||||||||||||||||||||||||||
Other liabilities | 36,770 | 49,023 | 30,911 | |||||||||||||||||||||||||||
Shareholders’ equity | 1,651,557 | 1,199,137 | 528,328 | |||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 16,633,548 | $ | 14,719,131 | $ | 7,218,854 | ||||||||||||||||||||||||
Net interest spread(4) | 0.52 | % | (0.06 | ) % | 0.46 | % | ||||||||||||||||||||||||
Net interest income, taxable equivalent basis | $ | 54,000 | $ | 40,191 | $ | 23,466 | ||||||||||||||||||||||||
Net interest margin(5) | 1.36 | % | 1.11 | % | 1.33 | % | ||||||||||||||||||||||||
Reconciliation to reported net interest income: | ||||||||||||||||||||||||||||||
Adjustments for taxable equivalent basis | (3,505 | ) | (1,985 | ) | (451 | ) | ||||||||||||||||||||||||
Net interest income, as reported | $ | 50,495 | $ | 38,206 | $ | 23,015 | ||||||||||||||||||||||||
________________________ | ||
(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 reversal of provision for loan losses of $2.5 million for the first quarter of 2022, compared to no provision for the fourth quarter of 2021, or for the first quarter of 2021. The reversal in the first quarter of 2022 was due to the changes in loan product and segment mix in the portfolio, including the net impact of the sale of approximately $150.8 million of real estate loans, partially offset by an increase in SEN Leverage loans.
Noninterest Income
Noninterest income for the first quarter of 2022 was $9.5 million, a decrease of $1.6 million, or 14.5%, from the fourth quarter of 2021. The primary reasons for this decrease were a $0.6 million increase in loss on sale of securities and a $0.4 million, or 4.4%, decrease in deposit related fees as a result of lower foreign exchange fees attributed in part to the geopolitical environment, which negatively impacted trading volume. Additionally, there was a $0.5 million decrease in other income due to a gain on sale of other assets of $0.4 million for the first quarter of 2022 compared to a gain on sale of other assets of $0.9 million recognized in the fourth quarter of 2021.
Noninterest income for the first quarter of 2022 increased by $1.4 million, or 16.8%, compared to the first quarter of 2021. This increase was primarily due to a $1.8 million, or 25.9%, increase in deposit related fees and a $0.4 million increase in other income due to a gain on sale of other assets, offset by a $0.3 million, or 31.8%, decrease in mortgage warehouse fee income and a $0.6 million loss on sale of securities recognized in the first quarter of 2022.
Three Months Ended | ||||||||||
March 31, | December 31, | March 31, | ||||||||
(Dollars in thousands) | ||||||||||
Noninterest income: | ||||||||||
Deposit related fees | $ | 8,968 | $ | 9,378 | $ | 7,124 | ||||
Mortgage warehouse fee income | 651 | 684 | 954 | |||||||
(Loss) gain on sale of securities, net | (605 | ) | 56 | — | ||||||
Other income | 436 | 937 | 12 | |||||||
Total noninterest income | $ | 9,450 | $ | 11,055 | $ | 8,090 | ||||
Noninterest Expense
Noninterest expense totaled $28.0 million for the first quarter of 2022, an increase of $2.4 million, or 9.2%, compared to the fourth quarter of 2021, and an increase of $8.4 million, or 42.9%, compared to the first quarter of 2021. The increase in noninterest expense compared to prior quarter was primarily due to an increase in salaries and benefits expense attributable to increased headcount as part of organic growth as well as increases in communications and data processing costs all of which support the Company’s strategic initiatives. Other general and administrative expenses increased primarily due to an increase in the provision for off-balance sheet commitments related to SEN Leverage loans. This was partially offset by a decrease in federal deposit insurance expense due to a slower growth rate in deposit levels. The increase in noninterest expense from the first quarter of 2021 was primarily driven by an increase in salaries and employee benefits attributable to increased headcount as well as increases in communications and data processing, professional services, and other general and administrative of costs all of which support organic growth and the Company’s strategic initiatives.
Three Months Ended | |||||||||
March 31, | December 31, | March 31, | |||||||
(Dollars in thousands) | |||||||||
Noninterest expense: | |||||||||
Salaries and employee benefits | $ | 15,544 | $ | 13,815 | $ | 10,990 | |||
Occupancy and equipment | 586 | 728 | 614 | ||||||
Communications and data processing | 2,762 | 1,862 | 1,621 | ||||||
Professional services | 2,954 | 2,994 | 1,717 | ||||||
Federal deposit insurance | 1,762 | 3,100 | 2,296 | ||||||
Correspondent bank charges | 828 | 634 | 497 | ||||||
Other loan expense | 384 | 364 | 174 | ||||||
Other general and administrative | 3,198 | 2,159 | 1,697 | ||||||
Total noninterest expense | $ | 28,018 | $ | 25,656 | $ | 19,606 | |||
Income Tax Expense (Benefit)
Income tax expense was $7.0 million for the first quarter of 2022, compared to $2.2 million for the fourth quarter of 2021, and a benefit of $1.2 million for the first quarter of 2021. Our effective tax rate for the first quarter of 2022 was 20.4%, compared to 9.4% for the fourth quarter of 2021, and (10.5)% for the first quarter of 2021. The tax expense and effective tax rate for the first quarter of 2022 was impacted by significant increases in tax-exempt income earned on certain municipal bonds compared to the fourth quarter of 2021 and the first quarter of 2021. In addition, the lower effective tax rates for the fourth quarter of 2022 and the first quarter of 2021, were due to higher excess tax benefits recognized on the exercise of stock options.
Balance Sheet
Deposits
At March 31, 2022, deposits totaled $13.4 billion, a decrease of $0.9 billion, or 6.3%, from December 31, 2021, and an increase of $6.4 billion, or 91.3%, from March 31, 2021. Noninterest bearing deposits totaled $13.3 billion, representing approximately 99.5% of total deposits at March 31, 2022, a decrease of $0.9 billion from the prior quarter end, and a $6.4 billion increase compared to March 31, 2021.
Our continued growth has been accompanied by significant fluctuations in the levels of our deposits, in particular our deposits from customers operating in the digital currency industry. The Bank’s average total digital currency customer deposits during the first quarter of 2022 amounted to $14.7 billion, with the high and low daily total digital currency deposit levels during such time being $16.2 billion and $13.2 billion, respectively, compared to an average of $13.3 billion during the fourth quarter of 2021, and high and low daily deposit levels of $16.0 billion and $10.2 billion, respectively.
Demand for new deposit accounts is generated by the Company’s banking platform for innovators that includes the SEN, which is enabled through Silvergate’s proprietary API, and other cash management solutions. These tools enable Silvergate’s customers to grow their businesses and scale operations. The following table sets forth a breakdown of the Company’s digital currency customer base and the deposits held by such customers at the dates noted below:
March 31, 2022 | December 31, 2021 | March 31, 2021 | ||||||||||
Number of | Total | Number of | Total | Number of | Total | |||||||
(Dollars in millions) | ||||||||||||
Digital currency exchanges | 96 | $ 7,960 | 94 | $ 8,288 | 85 | $ 2,993 | ||||||
Institutional investors | 966 | 3,109 | 894 | 4,220 | 695 | 2,166 | ||||||
Other customers | 441 | 2,126 | 393 | 1,603 | 324 | 1,634 | ||||||
Total | 1,503 | $ 13,195 | 1,381 | $ 14,111 | 1,104 | $ 6,793 | ||||||
________________________
(1) Total deposits may not foot due to rounding.
The weighted average cost of deposits for the first quarter of 2022, the fourth quarter of 2021 and the first quarter of 2021 was 0.00%.
Three Months Ended | ||||||||||||||||||
March 31, 2022 | December 31, 2021 | March 31, 2021 | ||||||||||||||||
Average | Average | Average | Average | Average | Average | |||||||||||||
(Dollars in thousands) | ||||||||||||||||||
Noninterest bearing demand accounts | $ | 14,781,601 | — | $ | 13,377,552 | — | $ | 6,526,555 | — | |||||||||
Interest bearing accounts: | ||||||||||||||||||
Interest bearing demand accounts | 5,531 | 0.07 | % | 7,660 | 0.05 | % | 42,197 | 0.13 | % | |||||||||
Money market and savings accounts | 70,632 | 0.11 | % | 69,364 | 0.14 | % | 74,318 | 0.16 | % | |||||||||
Certificates of deposit | 500 | 0.81 | % | 540 | 0.73 | % | 713 | 0.57 | % | |||||||||
Total interest bearing deposits | 76,663 | 0.11 | % | 77,564 | 0.14 | % | 117,228 | 0.16 | % | |||||||||
Total deposits | ||||||||||||||||||
