Silvergate Capital Corporation (“Silvergate” or “Company”)
(NYSE:SI) and its wholly-owned subsidiary, Silvergate Bank
(“Bank”), today announced financial results for the three and
twelve months ended December 31, 2022.
Fourth Quarter 2022 Commentary
During the fourth quarter of 2022, the digital asset industry
experienced a transformational shift, with significant
over-leverage in the industry leading to several high-profile
bankruptcies. These dynamics created a crisis of confidence across
the ecosystem and led many industry participants to shift to a
“risk off” position across digital asset trading platforms. In
turn, the Company saw significant outflows of deposits during the
quarter and took several actions to maintain cash liquidity. The
Company initially utilized wholesale funding, and subsequently sold
debt securities to accommodate sustained lower deposit levels and
maintain its highly liquid balance sheet.
As Silvergate prepares for what it expects will be a sustained
period of lower deposits, it is taking several actions to help
ensure the business is resilient, including managing its expense
base and evaluating its product portfolio and customer
relationships going forward. In addition, Silvergate has made the
difficult decision to substantively reduce its workforce in order
to account for the economic realities facing its business and the
digital asset industry today.
Alan Lane, chief executive officer of Silvergate, commented,
“While we are taking decisive actions to navigate the current
environment, our mission has not changed. We believe in the digital
asset industry, and we remain focused on providing value-added
services for our core institutional customers. To that end, we are
committed to maintaining a highly liquid balance sheet with a
strong capital position.”
Fourth Quarter 2022 Highlights
- Net loss attributable to common shareholders for the quarter
was $1.0 billion, or $33.16 loss per common share, compared to net
income of $40.6 million, or $1.28 per diluted share, for the third
quarter of 2022, and net income of $18.4 million, or $0.66 per
diluted share, for the fourth quarter of 2021
- Digital asset customers were 1,620 at December 31, 2022,
compared to 1,677 at September 30, 2022, and 1,381 at December 31,
2021
- The Silvergate Exchange Network (“SEN”) handled $117.1 billion
of U.S. dollar transfers in the fourth quarter of 2022, an increase
of 4% compared to $112.6 billion in the third quarter of 2022, and
a decrease of 47% compared to $219.2 billion in the fourth quarter
of 2021
- Total SEN Leverage commitments were $1.1 billion at December
31, 2022, compared to $1.5 billion at September 30, 2022, and
$570.5 million at December 31, 2021
- Digital asset customer related fee income for the quarter was
$6.6 million, compared to $7.9 million for the third quarter of
2022, and $9.3 million for the fourth quarter of 2021
- Average digital asset customer deposits were $7.3 billion
during the fourth quarter of 2022, compared to $12.0 billion during
the third quarter of 2022
Full Year 2022 Highlights
- Net loss attributable to common shareholders for the year ended
December 31, 2022 was $948.7 million, or $30.07 loss per common
share, compared to net income of $75.5 million, or $2.91 per
diluted share for the year ended December 31, 2021
- The SEN handled $563.3 billion of U.S. dollar transfers for the
year ended December 31, 2022, compared to $787.4 billion for the
year ended December 31, 2021
- Digital asset customer related fee income for the year ended
December 31, 2022 was $32.2 million, compared to $35.8 million for
the year ended December 31, 2021
As of or for the Three Months
Ended
December 31,
2022
September 30,
2022
December 31,
2021
Financial Highlights
(Dollars in thousands, except per
share data)
Net (loss) income attributable to common
shareholders
$
(1,049,917
)
$
40,640
$
18,375
Adjusted net income available to common
shareholders(1)
$
15,124
$
40,640
$
18,375
Diluted (loss) earnings per common
share
$
(33.16
)
$
1.28
$
0.66
Adjusted earnings per diluted share(1)
$
0.48
$
1.28
$
0.66
Return on average assets (ROAA)(2)
(27.83
) %
1.04
%
0.50
%
Adjusted return on average
assets(1)(2)
0.40
%
1.04
%
0.50
%
Return on average common equity
(ROACE)(2)
(409.02
) %
12.99
%
7.25
%
Adjusted return on average common
equity(1)(2)
5.89
%
12.99
%
7.25
%
Net interest margin(2)(3)
1.54
%
2.21
%
1.11
%
Cost of deposits(2)
0.77
%
0.16
%
0.00
%
Cost of funds(2)
1.76
%
0.28
%
0.01
%
Efficiency ratio(4)
(28.61
) %
37.11
%
52.08
%
Adjusted efficiency ratio(1)(2)
63.30
%
37.11
%
52.08
%
Total assets
$
11,355,553
$
15,467,340
$
16,005,495
Total deposits
$
6,296,550
$
13,238,426
$
14,290,628
Book value per common share
$
12.93
$
35.94
$
46.55
Tier 1 leverage ratio
5.36
%
10.71
%
11.07
%
Total risk-based capital ratio
57.26
%
46.63
%
57.08
%
Year Ended December
31,
2022
2021
Financial Highlights
(Dollars in thousands, except per
share data)
Net (loss) income attributable to common
shareholders
$
(948,662
)
$
75,512
Adjusted net income available to common
shareholders(1)
$
116,379
$
75,512
Diluted (loss) earnings per common
share
$
(30.07
)
$
2.91
Adjusted earnings per diluted share(1)
$
3.69
$
2.91
Return on average assets (ROAA)
(5.97
) %
0.66
%
Adjusted return on average assets(1)
0.73
%
0.66
%
Return on average common equity
(ROACE)
(75.54
) %
9.32
%
Adjusted return on average common
equity(1)
9.27
%
9.32
%
Net interest margin(3)
1.71
%
1.20
%
Cost of deposits
0.18
%
0.00
%
Cost of funds
0.50
%
0.01
%
Efficiency ratio(4)
(54.62
) %
51.06
%
Adjusted efficiency ratio(1)
44.93
%
51.06
%
________________________ (1)
See “Non-GAAP Financial Measures” for further information and
reconciliation of these metrics.
(2)
Data has been annualized.
(3)
Net interest margin is a ratio calculated
as net interest income divided by average interest earning assets
for the same period. For the three and twelve months ended December
31, 2021, net interest margin ratio is calculated on a fully
taxable equivalent basis for interest income on tax-exempt
securities using the federal statutory tax rate of 21.0%. As a
result of the Company recording losses in the fourth quarter of
2022 and full year 2022, the income from tax-exempt securities in
these periods does not include any adjustments for taxable
equivalent basis.
(4) Efficiency ratio is calculated by dividing noninterest expenses
by net interest income plus noninterest income.
Digital Asset Initiative
At December 31, 2022, the Company’s digital asset customers were
1,620 compared to 1,677 at September 30, 2022, and 1,381 at
December 31, 2021. As the Company prepares for what it expects will
be a sustained period of transformation, it is taking several
actions to help ensure the business is resilient, including
offboarding certain non-core customers and eliminating a portion of
its product portfolio. As a result of these efforts, the Company is
assessing its pipeline of prospective digital asset customers. For
the fourth quarter of 2022, $117.1 billion of U.S. dollar transfers
occurred on the SEN, a 4% increase from $112.6 billion transfers in
the third quarter of 2022, and a decrease of 47% compared to $219.2
billion in the fourth quarter of 2021.
Results of Operations, Quarter Ended December 31,
2022
Net Interest Income and Net Interest Margin Analysis (Taxable
Equivalent Basis)
The Company’s securities portfolio included tax-exempt municipal
bonds with tax-exempt income. As a result of the Company recording
losses in the fourth quarter of 2022 and full year 2022, the income
from tax-exempt securities in these periods does not include any
adjustments for taxable equivalent basis. For prior years, net
interest income, net interest spread and net interest margin are
presented on a taxable equivalent basis based on the federal
statutory tax rate of 21.0%.
Net interest income on a taxable equivalent basis totaled $53.7
million for the fourth quarter of 2022, compared to $80.9 million
for the third quarter of 2022, and $40.2 million for the fourth
quarter of 2021.
Compared to the third quarter of 2022, net interest income
decreased $27.2 million due to increased interest expense,
partially offset by increased interest income driven by higher
yields across all interest earning asset categories. Average total
interest earning assets decreased by $0.7 billion for the fourth
quarter of 2022 compared to the third quarter of 2022, primarily
due to decreased securities and loans balances. The average yield
on interest earning assets increased from 2.47% for the third
quarter of 2022 to 3.27% for the fourth quarter of 2022, with the
most significant impacts due to higher yields on securities and
interest earning deposits in other banks. Average interest bearing
liabilities increased $4.4 billion for the fourth quarter of 2022
compared to the third quarter of 2022, due to the significantly
higher utilization of short-term borrowings and brokered
certificates of deposit. The average rate on total interest bearing
liabilities increased from 2.19% for the third quarter of 2022 to
3.87% for the fourth quarter of 2022, primarily due to an increase
in interest rates on short-term borrowings and brokered
certificates of deposit.
Compared to the fourth quarter of 2021, net interest income
increased $13.5 million due to increased interest income, with the
largest driver being higher yields on interest earning assets,
offset by increased interest expense. Average total interest
earning assets decreased by $0.6 billion for the fourth quarter of
2022 compared to the fourth quarter of 2021, primarily due to
decreased interest earning deposits in other banks and loan
balances partially offset by an increase in securities balances.
The average yield on total interest earning assets increased from
1.11% for the fourth quarter of 2021 to 3.27% for the fourth
quarter of 2022, primarily due to overall higher yields resulting
from increased interest rates. Average interest bearing liabilities
increased $6.1 billion for the fourth quarter of 2022 compared to
the fourth quarter of 2021, due to higher average balances on
short-term borrowings and brokered certificates of deposit. The
average rate on total interest bearing liabilities increased from
1.17% for the fourth quarter of 2021 to 3.87% for the fourth
quarter of 2022, primarily due to the impact of increased interest
rates on short-term borrowings.
Net interest margin for the fourth quarter of 2022 was 1.54%,
compared to 2.21% for the third quarter of 2022, and 1.11% for the
fourth quarter of 2021. The decrease in net interest margin
compared to the third quarter of 2022 was primarily due to higher
interest expense associated with short-term borrowings and brokered
certificates of deposit. The increase in net interest margin
compared to the fourth quarter of 2021 was primarily due to higher
yields on adjustable rate securities, interest earning assets in
other banks and loans, partially offset by higher borrowing costs
associated with short-term borrowings and brokered certificates of
deposit.
Three Months Ended
December 31, 2022
September 30, 2022
December 31, 2021
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
$
2,804,816
$
27,395
3.88
%
$
1,324,361
$
8,001
2.40
%
$
5,282,661
$
2,166
0.16
%
Taxable securities
7,856,510
52,363
2.64
%
8,868,639
47,401
2.12
%
5,735,932
10,178
0.70
%
Tax-exempt securities(1)
1,972,899
12,279
2.47
%
2,889,391
14,412
1.98
%
1,728,862
9,454
2.17
%
Loans(2)(3)
1,085,757
21,046
7.69
%
1,407,290
20,663
5.83
%
1,641,345
17,892
4.32
%
Other
126,382
1,039
3.26
%
62,835
289
1.82
%
34,490
777
8.94
%
Total interest earning assets
13,846,364
114,122
3.27
%
14,552,516
90,766
2.47
%
14,423,290
40,467
1.11
%
Noninterest earning assets
1,119,827
942,110
295,841
Total assets
$
14,966,191
$
15,494,626
$
14,719,131
Liabilities and Shareholders’
Equity
Interest bearing liabilities:
Interest bearing deposits
$
1,958,921
$
18,290
3.70
%
$
1,000,615
$
5,221
2.07
%
$
77,564
$
27
0.14
%
Short-term borrowings
4,212,772
41,862
3.94
%
769,565
4,399
2.27
%
12
—
0.00
%
Subordinated debentures
15,857
281
7.03
%
15,854
258
6.46
%
15,843
249
6.24
%
Total interest bearing liabilities
6,187,550
60,433
3.87
%
1,786,034
9,878
2.19
%
93,419
276
1.17
%
Noninterest bearing liabilities:
Noninterest bearing deposits
7,432,838
12,139,522
13,377,552
Other liabilities
133,787
134,164
49,023
Shareholders’ equity
1,212,016
1,434,906
1,199,137
Total liabilities and shareholders’
equity
$
14,966,191
$
15,494,626
$
14,719,131
Net interest spread(4)
(0.60
) %
0.28
%
(0.06
) %
Net interest income, taxable equivalent
basis
$
53,689
$
80,888
$
40,191
Net interest margin(5)
1.54
%
2.21
%
1.11
%
Reconciliation to
reported net interest income:
Adjustments for taxable equivalent
basis
—
—
(1,985
)
Net interest income, as reported
$
53,689
$
80,888
$
38,206
________________________
(1)
Interest income on tax-exempt securities is presented on a
taxable equivalent basis using the federal statutory tax rate of
21.0% for the three months ended December 31, 2021. There were no
adjustments to taxable equivalent basis for the three months ended
December 31, 2022 or September 30, 2022.
(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 divided by average interest
earning assets for the same period. For the three months ended
December 31, 2021, net interest margin ratio is calculated on a
fully taxable equivalent basis for interest income on tax-exempt
securities using the federal statutory tax rate of 21.0%.
Provision (Reversal) for Loan Losses
The Company recorded a $0.5 million reversal of provision for
loan losses for the fourth quarter of 2022, compared to a $0.6
million reversal of provision for the third quarter of 2022 and no
provision for the fourth quarter of 2021 as a result of
management’s assessment of the level of the allowance for loan
losses, and the lower amount and change in mix of the loan
portfolio, among other factors.
Noninterest Income (Loss)
Noninterest loss for the fourth quarter of 2022 was $887.3
million, compared to noninterest income of $8.5 million for the
third quarter of 2022 and $11.1 million for the fourth quarter of
2021. The decline in the fourth quarter was due to losses on
securities of $751.4 million and losses on derivatives of $8.7
million resulting from sale of $5.2 billion of debt securities and
related derivatives that took place during the quarter. In
addition, the Company recorded a $134.5 million impairment charge
related to an estimated $1.7 billion of securities it expects to
sell in the first quarter of 2023 to reduce borrowings.
Three Months Ended
December 31,
2022
September 30,
2022
December 31,
2021
(Dollars in thousands)
Noninterest income:
Deposit related fees
$
6,623
$
7,953
$
9,378
Mortgage warehouse fee income
167
482
684
(Loss) gain on securities, net
(885,807
)
—
56
(Loss) gain on derivatives, net
(8,699
)
—
928
Loss on sale of loans, net
(46
)
(329
)
—
Other income
495
348
9
Total noninterest (loss) income
$
(887,267
)
$
8,454
$
11,055
Noninterest Expense
Noninterest expense totaled $238.5 million for the fourth
quarter of 2022, an increase of $205.3 million, or 619.4%, compared
to the third quarter of 2022, and an increase of $212.8 million, or
829.6%, compared to the fourth quarter of 2021. The increase in
noninterest expense compared to the prior quarter was primarily due
to a $196.2 million impairment charge on developed technology
assets acquired earlier in the year. In the fourth quarter of 2022,
the Company determined that based on recent changes in market
conditions of the digital asset industry, the likelihood of the
launch of a blockchain-based payment solution was no longer
imminent and performed an impairment analysis resulting in the
impairment charge. In addition, noninterest expense increased due
to a $7.1 million increase in salaries and benefits expense due in
large part to a $3.7 million restructuring charge related to
exiting the mortgage warehouse lending product during the fourth
quarter of 2022. The restructuring costs primarily consist of
severance and employee benefits.
The increase in noninterest expense from the fourth quarter of
2021 was primarily driven by the impairment charge discussed above
and an increase in salaries and employee benefits attributable to
increased headcount prior to December 2022, as well as increases in
communications and data processing, and professional services, all
of which supported organic growth of the Company’s strategic
initiatives. This was partially offset by a decrease in federal
deposit insurance expense due to a lower growth rate in deposit
levels.
Three Months Ended
December 31,
2022
September 30,
2022
December 31,
2021
(Dollars in thousands)
Noninterest expense:
Salaries and employee benefits
$
26,707
$
19,632
$
13,815
Occupancy and equipment
850
822
728
Impairment of intangible assets
196,223
—
—
Communications and data processing
3,306
3,210
1,862
Professional services
6,112
4,314
2,994
Federal deposit insurance
1,210
1,217
3,100
Correspondent bank charges
286
902
634
Other loan expense
528
529
364
Other general and administrative
3,270
2,527
2,159
Total noninterest expense
$
238,492
$
33,153
$
25,656
Income Tax Expense (Benefit)
Income tax benefit was $24.3 million for the fourth quarter of
2022, compared to an expense of $13.5 million for the third quarter
of 2022, and $2.2 million for the fourth quarter of 2021. Our
effective tax rate for the fourth quarter of 2022 was 2.3%,
compared to 23.7% for the third quarter of 2022, and 9.4% for the
fourth quarter of 2021. The decrease in the tax expense and
effective tax rate for the fourth quarter of 2022 compared to the
third quarter of 2022 and the fourth quarter of 2021 was driven by
losses incurred in the fourth quarter of 2022. The income tax
benefit recorded in the fourth quarter of 2022 was due to the
reversal of prior period income tax expense incurred during the
first three quarters of the year, partially offset by a charge from
the transition to a 100% valuation allowance on deferred tax
assets.
Results of Operations, Year Ended December 31, 2022
Net loss attributable to common shareholders for the year ended
December 31, 2022 was $948.7 million, or $30.07 loss per diluted
common share, compared to income of $75.5 million, or $2.91 per
diluted share, for the comparable period in 2021.
Net interest income for the year ended December 31, 2022 was
$255.6 million, compared to $129.3 million for the same period in
2021. The increase in net interest income was primarily due to a
$196.9 million increase in interest income and a $70.6 million
increase in interest expense, primarily due to growth in the
balance sheet and an increase in rates.
Noninterest loss for the year ended December 31, 2022 was $860.1
million, compared to noninterest income of $45.3 million for the
same period in 2021. The decrease in noninterest income was
primarily due to an $886.2 million net loss on securities. Digital
asset customer related fee income for the year ended December 31,
2022 was $32.2 million, compared to $35.8 million for the year
ended December 31, 2021.
Noninterest expense was $330.2 million for the year ended
December 31, 2022, compared to $89.1 million for the year ended
December 31, 2021. The increase in noninterest expense was
primarily due to a $196.2 million impairment charge on intangible
assets and a $32.4 million increase in salaries and benefits
expense.
Income tax expense was $6.7 million for the year ended December
31, 2022, compared to $6.9 million for the same period in 2021. Our
effective tax rates for the years ended December 31, 2022 and 2021
were (0.7)% and 8.1%, respectively. The decrease in the Company’s
effective tax rate in 2022 was primarily related to losses incurred
in the fourth quarter of 2022. Due to the uncertainty of future
earnings, the deferred tax asset balance of $342.0 million was
subject to a 100% valuation allowance at December 31, 2022. The
income tax expense recorded in 2022 was primarily due to the
transition to this valuation allowance, resulting in the expensing
of the $6.5 million deferred tax asset balance as of December 31,
2021. The deferred tax asset balance associated with net operating
losses will carry forward indefinitely and can be utilized against
80% of future periods taxable income.
Balance Sheet
Deposits
At December 31, 2022, deposits totaled $6.3 billion, a decrease
of $6.9 billion, or 52.4%, from September 30, 2022, and a decrease
of $8.0 billion, or 55.9%, from December 31, 2021. Noninterest
bearing deposits totaled $3.9 billion, representing approximately
61.2% of total deposits at December 31, 2022, a decrease of $8.2
billion from the prior quarter end, and a $10.4 billion decrease
compared to December 31, 2021. At December 31, 2022, the Company
held $2.4 billion of brokered certificates of deposit.
The Bank’s average total deposits from digital asset customers
during the fourth quarter of 2022 amounted to $7.3 billion, with
the high and low daily totals of these deposit levels during such
time being $11.9 billion and $3.5 billion, respectively, compared
to an average of $12.0 billion during the third quarter of 2022,
and high and low daily deposit levels of $14.0 billion and $11.1
billion, respectively.
The following table sets forth a breakdown of the Company’s
digital asset customer base and the deposits held by such customers
at the dates noted below:
December 31, 2022
September 30, 2022
December 31, 2021
Number of Customers
Total Deposits(1)
Number of Customers
Total Deposits(1)
Number of Customers
Total Deposits(1)
(Dollars in millions)
Digital asset exchanges
104
$
2,882
108
$
7,579
94
$
8,288
Institutional investors
1,025
539
1,069
3,043
894
4,220
Other customers
491
410
500
1,247
393
1,603
Total
1,620
$
3,830
1,677
$
11,869
1,381
$
14,111
________________________
(1)
Total deposits may not foot due to rounding.
The weighted average cost of deposits for the fourth quarter of
2022 was 0.77%, compared to 0.16% for the third quarter of 2022 and
0.00% for the fourth quarter of 2021. The increase in the weighted
average cost of deposits in the third and fourth quarter of 2022
was due to the issuance of brokered certificates of deposit.
Three Months Ended
December 31, 2022
September 30, 2022
December 31, 2021
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Average
Balance
Average
Rate
(Dollars in thousands)
Noninterest bearing demand accounts
$
7,432,838
—
$
12,139,522
—
$
13,377,552
—
Interest bearing accounts:
Interest bearing demand accounts
3,423
0.00
%
3,470
0.00
%
7,660
0.05
%
Money market and savings accounts
31,951
0.01
%
49,720
0.00
%
69,364
0.14
%
Certificates of deposit
1,923,547
3.77
%
947,425
2.19
%
540
0.73
%
Total interest bearing deposits
1,958,921
3.70
%
1,000,615
2.07
%
77,564
0.14
%
Total deposits
$
9,391,759
0.77
%
$
13,140,137
0.16
%
$
13,455,116
0.00
%
Loan Portfolio
Total loans, including net loans held-for-investment and loans
held-for-sale, were $590.2 million at December 31, 2022, a decrease
of $802.3 million, or 57.6%, from September 30, 2022, and a
decrease of $1.2 billion, or 66.9%, from December 31, 2021. Given
the current macro environment, the rising interest rate environment
and related reduction in mortgage volumes, Silvergate exited its
mortgage warehouse lending product in the fourth quarter of
2022.
December 31,
2022
September 30,
2022
December 31,
2021
(Dollars in thousands)
Real estate loans:
One-to-four family
$
37,495
$
37,636
$
105,098
Multi-family
9,086
9,028
56,751
Commercial
62,609
63,979
210,136
Construction
—
—
7,573
Commercial and industrial(1)
301,655
302,160
335,862
Reverse mortgage and other
1,080
1,270
1,410
Mortgage warehouse
—
58,760
177,115
Total gross loans held-for-investment
411,925
472,833
893,945
Deferred fees, net
(959
)
(1,871
)
275
Total loans held-for-investment
410,966
470,962
894,220
Allowance for loan losses
(2,638
)
(3,176
)
(6,916
)
Loans held-for-investment, net
408,328
467,786
887,304
Loans held-for-sale(2)
181,846
924,644
893,194
Total loans
$
590,174
$
1,392,430
$
1,780,498
________________________
(1)
Commercial and industrial loans includes $301.7 million, $302.2
million and $335.9 million of SEN Leverage loans as of December 31,
2022, September 30, 2022 and December 31, 2021, respectively.
(2)
Loans held-for-sale includes $181.8 million, $891.5 million and
$893.2 million of mortgage warehouse loans as of December 31, 2022,
September 30, 2022 and December 31, 2021, respectively.
Asset Quality and Allowance for Loan Losses
The allowance for loan losses was $2.6 million at December 31,
2022, compared to $3.2 million at September 30, 2022 and $6.9
million at December 31, 2021. The ratio of the allowance for loan
losses to total loans held-for-investment at December 31, 2022 was
0.64%, compared to 0.67% and 0.77% at September 30, 2022 and
December 31, 2021, respectively.
Nonperforming assets totaled $3.4 million, or 0.03% of total
assets, at December 31, 2022, a decrease of $0.3 million from $3.7
million, or 0.02% of total assets at September 30, 2022.
Nonperforming assets decreased $0.6 million, from $4.0 million, or
0.03%, of total assets at December 31, 2021.
December 31,
2022
September 30,
2022
December 31,
2021
Asset Quality
(Dollars in thousands)
Nonperforming Assets:
Nonaccrual loans
$
3,339
$
3,698
$
4,003
Troubled debt restructurings
$
1,618
$
1,623
$
1,713
Other real estate owned, net
$
83
$
45
—
Nonperforming assets
$
3,422
$
3,743
$
4,003
Asset Quality Ratios:
Nonperforming assets to total assets
0.03
%
0.02
%
0.03
%
Nonaccrual loans to total loans(1)
0.81
%
0.79
%
0.45
%
Net charge-offs to average total
loans(1)
0.10
%
0.09
%
0.00
%
Allowance for loan losses to total
loans(1)
0.64
%
0.67
%
0.77
%
Allowance for loan losses to nonaccrual
loans
79.01
%
85.88
%
172.77
%
________________________
(1)
Loans exclude loans held-for-sale at each of the dates
presented.
Securities
The total securities portfolio decreased $5.7 billion, or 49.8%,
from $11.4 billion at September 30, 2022, and decreased $2.9
billion, or 33.5%, from $8.6 billion at December 31, 2021, to $5.7
billion at December 31, 2022. In order to accommodate sustained
lower deposit levels and to maintain a highly liquid balance sheet,
Silvergate sold $5.2 billion of debt securities for cash proceeds
during the fourth quarter of 2022. The sale resulted in a loss on
the sale of securities of $751.4 million during the fourth quarter
of 2022. In addition, the Company recorded a $134.5 million
impairment charge related to an estimated $1.7 billion of
securities it expects to sell in the first quarter of 2023 to
reduce borrowings. As of December 31, 2022, all securities which
were previously classified as held-to-maturity had been transferred
to available-for-sale.
Capital Ratios
At December 31, 2022, the Company’s ratio of common equity to
total assets was 3.61%, compared with 7.36% at September 30, 2022,
and 8.84% at December 31, 2021. At December 31, 2022, the Company’s
book value per common share was $12.93, compared to $35.94 at
September 30, 2022, and $46.55 at December 31, 2021. The decrease
in the Company’s book value per common share from September 30,
2022 was primarily due to the mark-to-market impact of
reclassifying securities from held-to-maturity to
available-for-sale, the valuation allowance on deferred tax assets
and the impairment charge on intangible assets.
At December 31, 2022, the Company had a tier 1 leverage ratio of
5.36%, common equity tier 1 capital ratio of 42.48%, tier 1
risk-based capital ratio of 57.07% and total risk-based capital
ratio of 57.26%.
At December 31, 2022, the Bank had a tier 1 leverage ratio of
5.12%, common equity tier 1 capital ratio of 53.89%, tier 1
risk-based capital ratio of 53.89% and total risk-based capital
ratio of 54.07%. 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)
December 31,
2022
September 30,
2022
December 31,
2021
The Company
Tier 1 leverage ratio
5.36
%
10.71
%
11.07
%
Common equity tier 1 capital ratio
42.48
%
40.72
%
49.53
%
Tier 1 risk-based capital ratio
57.07
%
46.54
%
56.82
%
Total risk-based capital ratio
57.26
%
46.63
%
57.08
%
Common equity to total assets
3.61
%
7.36
%
8.84
%
The Bank
Tier 1 leverage ratio
5.12
%
10.45
%
10.49
%
Common equity tier 1 capital ratio
53.89
%
45.45
%
53.89
%
Tier 1 risk-based capital ratio
53.89
%
45.45
%
53.89
%
Total risk-based capital ratio
54.07
%
45.53
%
54.15
%
________________________
(1)
December 31, 2022 capital ratios are preliminary.
Subsequent Events
In 2022, the Company increased employee headcount at a rapid
rate in an effort to keep up with its growing digital asset
business and serve its customers. The Company has reduced headcount
by approximately 200 employees, or 40%, in order to account for the
economic realities facing the business and industry today. Reducing
headcount will enable Silvergate to continue to offer a tailored
customer experience, while prudently managing expenses in a more
challenging macro environment. Impacted employees were notified on
January 4, 2023, and the Company has provided these individuals
with severance packages and job placement resources. The Company
estimates aggregate costs associated with the reduction in force of
approximately $8.1 million, including approximately $6.2 million in
severance payments and $1.2 million in employee benefits. The
majority of these costs will be incurred in the first quarter of
2023.
Subsequent to December 31, 2022 and through January 17, 2023 the
Company received $1.5 billion in proceeds and recognized
approximately $11.4 million of losses and $5.0 million of gains on
sales of available-for-sale securities.
Conference Call and Webcast
The Company will host a conference call on Tuesday, January 17,
2023 at 11:00 a.m. (Eastern Time) to present and discuss fourth
quarter 2022 financial results. The conference call can be accessed
live by dialing 1-844-200-6205 or for international callers,
1-929-526-1599, entering the access code 308427. A replay will be
available starting at 1:00 p.m. (Eastern Time) on January 17, 2023
and can be accessed by dialing 1-866-813-9403, or for international
callers +44-204-525-0658. The passcode for the replay is 949184.
The replay will be available until 11:59 p.m. (Eastern Time) on
January 31, 2023.
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 digital asset 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 digital asset companies and investors
around the world. Silvergate is enabling digital asset markets and
reshaping global commerce for a digital asset 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.
While there is no assurance that any list of risks and
uncertainties or risk factors is complete, below are certain
factors which could cause actual results to differ materially from
those contained or implied in the forward-looking statements:
changes in general economic, political, or industry conditions;
geopolitical concerns, including the ongoing war in Ukraine; the
magnitude and duration of the COVID-19 pandemic and related
variants and mutations and their impact on the global economy and
financial market conditions and our business, results of
operations, and financial condition; uncertainty in U.S. fiscal and
monetary policy, including the interest rate policies of the Board
of Governors of the Federal Reserve System; inflation/deflation,
interest rate, market, and monetary fluctuations; volatility and
disruptions in global capital and credit markets; the transition
away from USD LIBOR and uncertainty regarding potential alternative
reference rates, including SOFR; competitive pressures on product
pricing and services; success, impact, and timing of our business
strategies, including market acceptance of any new products or
services; the impact of changes in financial services policies,
laws, and regulations, including those concerning taxes, banking,
securities, digital currencies and insurance, and the application
thereof by regulatory bodies; cybersecurity threats and the cost of
defending against them, including the costs of compliance with
potential legislation to combat cybersecurity at a state, national,
or global level; and other factors that may affect our future
results.
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)
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
December 31,
2021
ASSETS
Cash and due from banks
$
555,581
$
465,853
$
256,378
$
207,304
$
208,193
Interest earning deposits in other
banks
4,019,003
1,420,970
1,637,410
1,178,205
5,179,753
Cash and cash equivalents
4,574,584
1,886,823
1,893,788
1,385,509
5,387,946
Securities available-for-sale, at fair
value
5,732,539
8,317,247
8,686,307
9,463,494
8,625,259
Securities held-to-maturity, at amortized
cost
—
3,104,557
3,131,321
2,751,625
—
Loans held-for-sale, at lower of cost or
fair value
181,846
924,644
872,056
937,140
893,194
Loans held-for-investment, net of
allowance for loan losses
408,328
467,786
594,671
739,014
887,304
Other investments
169,190
60,428
63,456
61,719
34,010
Accrued interest receivable
42,944
78,799
72,463
62,573
40,370
Premises and equipment, net
3,866
3,518
3,328
1,678
3,008
Intangible assets
—
194,045
190,455
189,977
—
Derivative assets
39,998
153,990
104,995
46,415
34,056
Safeguarding assets
—
—
52,838
243,769
—
Other assets
202,258
275,503
234,816
158,869
100,348
Total assets
$
11,355,553
$
15,467,340
$
15,900,494
$
16,041,782
$
16,005,495
LIABILITIES AND SHAREHOLDERS’
EQUITY
Deposits:
Noninterest bearing demand accounts
$
3,852,547
$
12,005,719
$
13,436,017
$
13,323,535
$
14,213,472
Interest bearing accounts
2,444,003
1,232,707
64,703
72,627
77,156
Total deposits
6,296,550
13,238,426
13,500,720
13,396,162
14,290,628
Short-term borrowings
4,300,000
700,000
800,000
800,000
—
Subordinated debentures, net
15,859
15,855
15,852
15,848
15,845
Safeguarding liabilities
—
—
52,838
243,769
—
Accrued expenses and other liabilities
139,923
181,714
107,865
39,507
90,186
Total liabilities
10,752,332
14,135,995
14,477,275
14,495,286
14,396,659
Commitments and contingencies
Preferred stock
2
2
2
2
2
Class A common stock
317
317
316
316
304
Class B non-voting common stock(1)
—
—
—
—
—
Additional paid-in capital
1,557,033
1,555,996
1,554,627
1,553,547
1,421,592
Retained (deficit) earnings
(754,802
)
295,115
254,475
218,558
193,860
Accumulated other comprehensive loss
(199,329
)
(520,085
)
(386,201
)
(225,927
)
(6,922
)
Total shareholders’ equity
603,221
1,331,345
1,423,219
1,546,496
1,608,836
Total liabilities and shareholders’
equity
$
11,355,553
$
15,467,340
$
15,900,494
$
16,041,782
$
16,005,495
________________________
(1)
Effective June 14, 2022, Class B non-voting common stock was
cancelled and its authorized shares reallocated to Class A common
stock following a shareholder approved amendment to the Company’s
articles of incorporation.
SILVERGATE CAPITAL
CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share
Data)
(Unaudited)
Three Months Ended
Year Ended
December 31,
2022
September 30,
2022
December 31,
2021
December 31,
2022
December 31,
2021
Interest income
Loans, including fees
$
21,046
$
20,663
$
17,892
$
82,050
$
68,619
Taxable securities
52,363
47,401
10,178
148,529
36,094
Tax-exempt securities
12,279
14,412
7,469
54,695
17,301
Other interest earning assets
27,395
8,001
2,166
39,789
6,799
Dividends and other
1,039
289
777
2,250
1,581
Total interest income
114,122
90,766
38,482
327,313
130,394
Interest expense
Deposits
18,290
5,221
27
23,534
134
Short-term borrowings
41,862
4,399
—
47,127
—
Subordinated debentures
281
258
249
1,034
993
Total interest expense
60,433
9,878
276
71,695
1,127
Net interest income before provision for
loan losses
53,689
80,888
38,206
255,618
129,267
Reversal of provision for loan losses
(502
)
(601
)
—
(3,577
)
—
Net interest income after provision for
loan losses
54,191
81,489
38,206
259,195
129,267
Noninterest income
Deposit related fees
6,623
7,953
9,378
32,352
35,981
Mortgage warehouse fee income
167
482
684
1,855
3,056
(Loss) gain on securities, net
(885,807
)
—
56
(886,184
)
5,238
(Loss) gain on derivatives, net
(8,699
)
—
928
(8,699
)
928
Loss on sale of loans, net
(46
)
(329
)
—
(375
)
—
Other income
495
348
9
902
53
Total noninterest (loss) income
(887,267
)
8,454
11,055
(860,149
)
45,256
Noninterest expense
Salaries and employee benefits
26,707
19,632
13,815
78,239
45,794
Occupancy and equipment
850
822
728
3,321
2,464
Impairment of intangible assets
196,223
—
—
196,223
—
Communications and data processing
3,306
3,210
1,862
12,245
7,072
Professional services
6,112
4,314
2,994
19,660
9,776
Federal deposit insurance
1,210
1,217
3,100
5,684
13,537
Correspondent bank charges
286
902
634
2,817
2,515
Other loan expense
528
529
364
2,123
1,117
Other general and administrative
3,270
2,527
2,159
9,903
6,845
Total noninterest expense
238,492
33,153
25,656
330,215
89,120
(Loss) income before income taxes
(1,071,568
)
56,790
23,605
(931,169
)
85,403
Income tax (benefit) expense
(24,339
)
13,462
2,214
6,741
6,875
Net (loss) income
(1,047,229
)
43,328
21,391
(937,910
)
78,528
Dividends on preferred stock
2,688
2,688
3,016
10,752
3,016
Net (loss) income attributable to common
shareholders
$
(1,049,917
)
$
40,640
$
18,375
$
(948,662
)
$
75,512
Basic (loss) earnings per common share
$
(33.16
)
$
1.28
$
0.67
$
(30.07
)
$
2.95
Diluted (loss) earnings per common
share
$
(33.16
)
$
1.28
$
0.66
$
(30.07
)
$
2.91
Weighted average common shares
outstanding:
Basic
31,663
31,655
27,527
31,545
25,582
Diluted
31,663
31,803
27,744
31,545
25,922
Non-GAAP Financial Measures
(Unaudited)
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 periods presented below in order to present our
results of operations for that period on a basis consistent with
our historical operations. 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.
During the fourth quarter of 2022, the digital asset industry
experienced a transformational shift, with significant
over-leverage in the industry, leading to several high-profile
bankruptcies. These dynamics led to a crisis of confidence across
the ecosystem and led many industry participants to shift deposits
away from digital asset trading platforms. The Company saw
significant outflows of deposits during the quarter and took
several actions to maintain cash liquidity, which included
utilizing wholesale funding and subsequently sold debt securities
to accommodate the sustained lower deposit levels and maintain its
highly liquid balance sheet. This restructuring of the Company’s
balance sheet led to the decision to reduce its expense base going
forward by significantly reducing its workforce. The following
adjustments represent the impact of these actions in response to
the events that occurred in the fourth quarter of 2022 and are
considered infrequent in nature. The likelihood that these charges
will occur in subsequent periods may depend on deposit levels and
customer behavior.
Loss on securities: The Company sold securities in order
to manage liquidity and recognized net losses related to the
declines in market values relative to amortized cost. In addition,
an other than temporary impairment charge was recorded for
securities that the Company will more likely than not be required
to sell before recovery of its amortized cost basis.
Loss on derivatives: In conjunction with the securities
sales the Company, de-designated and sold certain related
derivatives hedging fair value of securities and realized net
losses on the change in fair value on the derivative instruments
related to the timing of the sales of derivatives.
Restructuring charges: Restructuring charges includes
direct costs related to reduction in force efforts or other exit
and disposal activities, such as decisions to no longer provide
certain products. Costs related to reduction in force actions
primarily consist of one-time termination benefits for affected
employees including severance payments, employee benefit payments,
accelerated stock-based compensation expense and other related
costs, such as job placement services and legal costs.
Impairment of intangible assets: In January 2022, the
Company purchased certain developed technology assets related to
running a block-chain-based payment network. In the fourth quarter
of 2022, the Company determined that based on recent changes in
market conditions of the digital asset industry, the likelihood of
the launch of a blockchain-based payment solution was no longer
imminent. The Company performed an impairment analysis and took an
impairment charge of $196.2 million.
Income taxes: The tax effect adjustment below was
determined by calculating the estimated annual effective tax rate
on adjusted income before income taxes and applying the rate to
pre-tax income. The difference between the estimated income tax and
the income tax expense or benefit as reported was included as a tax
effect adjustment.
Adjusted diluted shares: Adjusted earnings per diluted
share is calculated by dividing adjusted net income available to
common shareholders by the weighted average common shares
outstanding adjusted for the dilutive effects of all potential
shares of common stock. In periods where a net loss attributable to
common shareholders was reported, the diluted shares were the same
as basic shares because the effects of potentially dilutive shares
were anti-dilutive.
Three Months Ended
Year Ended
December 31,
2022
September 30,
2022
December 31,
2021
December 31,
2022
December 31,
2021
(In thousands, except per share
data)
Noninterest income
Noninterest income (loss), as reported
$
(887,267
)
$
8,454
$
11,055
$
(860,149
)
$
45,256
Adjustments:
Loss on securities, net
885,807
—
—
885,807
—
Loss on derivatives, net
8,699
—
—
8,699
—
Adjusted noninterest income
$
7,239
$
8,454
$
11,055
$
34,357
$
45,256
Noninterest expense
Noninterest expense, as reported
$
238,492
$
33,153
$
25,656
$
330,215
$
89,120
Adjustments:
Impairment of intangible assets
(196,223
)
—
—
(196,223
)
—
Restructuring charges
(3,704
)
—
—
(3,704
)
—
Adjusted noninterest expense
$
38,565
$
33,153
$
25,656
$
130,288
$
89,120
Net income (loss) attributable to
common shareholders
Net (loss) income attributable to common
shareholders, as reported
$
(1,049,917
)
$
40,640
$
18,375
$
(948,662
)
$
75,512
Adjustments:
Loss on securities, net
885,807
—
—
885,807
—
Loss on derivatives, net
8,699
—
—
8,699
—
Impairment of intangible assets
196,223
—
—
196,223
—
Restructuring charges
3,704
—
—
3,704
—
Tax effect(1)
(29,392
)
—
—
(29,392
)
—
Adjusted net income available to common
shareholders
$
15,124
$
40,640
$
18,375
$
116,379
$
75,512
Earnings (loss) per diluted
share
(Loss) earnings per diluted share, as
reported
$
(33.16
)
$
1.28
$
0.66
$
(30.07
)
$
2.91
Adjusted net income available to common
shareholders
$
15,124
$
40,640
$
18,375
$
116,379
$
75,512
Weighted average common shares
outstanding:
Diluted shares, as reported
31,663
31,803
27,744
31,545
25,922
Add: Diluted effects of stock-based
awards
104
—
—
26
—
Adjusted fully diluted shares
31,767
31,803
27,744
31,571
25,922
Adjusted earnings per diluted share
$
0.48
$
1.28
$
0.66
$
3.69
$
2.91
________________________
(1)
Amount represents the total income tax adjustment needed to
calculate an effective income tax rate on adjusted income before
income taxes of 22.1%.
Three Months Ended
Year Ended
December 31,
2022
September 30,
2022
December 31,
2021
December 31,
2022
December 31,
2021
(Dollars in thousands)
Return on average assets
(ROAA)(1)
Adjusted net income available to common
shareholders
$
15,124
$
40,640
$
18,375
$
116,379
$
75,512
Average assets
14,966,191
15,494,626
14,719,131
15,882,737
11,356,838
Return on average assets (ROAA), as
reported
(27.83
) %
1.04
%
0.50
%
(5.97
) %
0.66
%
Adjusted return on average assets
0.40
%
1.04
%
0.50
%
0.73
%
0.66
%
Return on average common equity
(ROACE)(1)
Adjusted net income available to common
shareholders
$
15,124
$
40,640
$
18,375
$
116,379
$
75,512
Average common equity
1,018,395
1,241,285
1,005,491
1,255,880
809,963
Return on average common equity (ROACE),
as reported
(409.02
) %
12.99
%
7.25
%
(75.54
) %
9.32
%
Adjusted return on average common
equity
5.89
%
12.99
%
7.25
%
9.27
%
9.32
%
Efficiency ratio
Adjusted noninterest expense
$
38,565
$
33,153
$
25,656
$
130,288
$
89,120
Net interest income
53,689
80,888
38,206
255,618
129,267
Adjusted noninterest income
7,239
8,454
11,055
34,357
45,256
Adjusted total net interest income and
noninterest income
60,928
89,342
49,261
289,975
174,523
Efficiency ratio, as reported
(28.61
) %
37.11
%
52.08
%
(54.62
) %
51.06
%
Adjusted efficiency ratio
63.30
%
37.11
%
52.08
%
44.93
%
51.06
%
________________________
(1)
Data has been annualized.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230116005542/en/
Investor Relations Contact: Edelman Smithfield for
Silvergate 858-200-3782 investors@silvergate.com
Silvergate Capital (NYSE:SI)
Gráfica de Acción Histórica
De Dic 2024 a Ene 2025
Silvergate Capital (NYSE:SI)
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