Silvergate Bank Reports Strong Second Quarter 2013 Earnings

 

"We are pleased to report that Silvergate Bank delivered another solid earnings performance in the second quarter of 2013," said Alan J. Lane, the Bank's president and chief executive officer.  "Our capital and asset quality ratios continue to be superior to comparable averages for all FDIC insured banks.  Additionally, our levels of profitability, capital and asset quality all support our ability to continue providing our clients with the innovative products and services they have come to expect from us to help them grow their business."   

At June 30, 2013, Silvergate Bank's Tier 1 Leverage Capital Ratio was 11.49% and Total Risk-Based Capital Ratio was 18.08%, both substantially exceeding 'well capitalized' minimums of 5% and 10%. The Bank's ratios of nonperforming loans to total loans and nonperforming assets to total assets both remained low, at 1.17% and 1.20%, respectively.   

Further second quarter performance highlights for Silvergate Bank were its funding of $705.3 million in single family mortgage loans through the Bank's Warehouse Lending Division and the acquisition / funding of $85.7 million in U.S. Government insured reverse mortgage loans.  

"Silvergate Bank's sustained profitability from our core commercial banking activities and diversified revenue streams continues to strengthen our capital base and enhance our ability to serve our entire range of clients," said Dennis S. Frank, the Bank's chairman.

According to Lane, the release of Silvergate Bank's mid-year 2013 earnings comes just one month before the Bank celebrates its 25th anniversary. "We value our clients who make this milestone event all the more meaningful," he said.  "We remain fully committed to providing them with the products they need and the personal service they deserve.  We also thank our employees for their dedication to serving our clients and supporting the Bank's success."

Financial Performance

The Bank's net income for the second quarter was $1.37 million, compared to $1.39 million for the prior quarter and $1.46 million for the second quarter last year.  Net income for the first half was $2.76 million, compared to $2.49 million last year.  Total assets were $642.7 million at June 30, 2013, up $4.2 million from the prior quarter and up $82.2 million from the second quarter a year ago.

The Bank's net interest margin was 3.47% for the quarter, compared to 3.41% for the prior quarter and 4.22% for the second quarter last year.  This year-over-year margin decline resulted mainly from a greater decrease in the yield on our earning assets (0.64%) than in our cost of funds (0.03%); the decline in earning asset yield was due primarily to growth in lower yielding assets including cash and reverse mortgage loans.  Net interest income was $5.39 million for the quarter, compared to $5.37 million for the prior quarter and $5.34 million last year. 

Noninterest income was $1.86 million for the quarter, compared to $1.67 million for the prior quarter and $1.34 million last year. Noninterest expense was $5.1 million for the quarter, compared to $4.7 million for the prior quarter and $4.1 million last year.  This year-over-year expense increase reflects the full effect of higher employee and occupancy costs associated with the Bank's growth in staffing, assets and headquarters space, a large portion of which occurred after the second quarter of 2012, including 2013 costs of forming a forward single-family mortgage loan correspondent group to complement the Bank's warehouse and reverse mortgage lending activities.

The Bank's strong profile in commercial real estate lending continued in the second quarter of 2013, with commercial real estate loans totaling $201.5 million at June 30, 2013, compared to $190.7 million at June 30, 2012. Total deposits grew by 32% in the past twelve months, with noninterest bearing demand deposits growing by 52%.  Despite the significant costs of opening two new branch offices and relocating a third in the past 24 months, the Bank has generated strong profits due to the ongoing strength of its core commercial lending activities and the expanded residential lending activities it has added in recent years.   

Continued High Volumes of Residential Mortgage Loan Fundings

The Bank's Mortgage Warehouse Lending Division, established in April 2009 to meet the credit needs of mortgage bankers that originate single-family residential mortgage loans, had another excellent quarter, funding $705.3 million in loans and almost $1.4 billion in the first half of 2013.  In the face of forecasts by the Mortgage Bankers Association of America and others for decreases in 2013 single-family residential loan originations, this division maintained high loan volumes through the first half of 2013 by increasing the number of mortgage banking clients it serves.

Acquisitions and Sales of Reverse Mortgage Loans

In late 2011 the Bank began to acquire Home Equity Conversion Mortgage ("HECM") loans insured by the U.S. Federal Housing Administration, and in mid-2012 the Bank was approved by the Government National Mortgage Association ("Ginnie Mae") to be an issuer of Ginnie Mae HECM backed securities. In the second quarter the Bank acquired and/or funded $85.7 million in HECM loans and completed four HECM loan pool sales and one securitization of HECM loan participations. 

About Silvergate Bank
Silvergate Bank is a San Diego-based bank that specializes in meeting the needs of small businesses through a comprehensive offering of lending products and personalized banking services. Silvergate Bank opened in 1988 and is a subsidiary of Silvergate Capital Corporation.  Bank branches are located in Carlsbad, Escondido, La Jolla, La Mesa, and Lancaster. Silvergate Bank's headquarters office is located at 4275 Executive Square, Suite 800, La Jolla, CA 92037. The Bank's website is www.silvergatebank.com. 

Statements concerning future performance, developments or events, expectations for growth and income forecasts, and any other guidance on future periods, constitute forward-looking statements that are subject to a number of risks and uncertainties. Actual results may differ materially from stated expectations.  When used in this release, the words or phrases such as "will continue," "is anticipated," "estimate," "expect," "projected," "believe," "seeking," or similar expressions, are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Readers should not place undue reliance on the forward-looking statements, which reflect views only as of the date hereof.  Neither Silvergate Capital Corporation nor Silvergate Bank undertakes any obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.

Silvergate Bank Selected Financial and Operating Data

(Dollars in Thousands - Unaudited)

Net Loan Charge-Offs to Average Total Loans

Securitized Loans, at fair value

Loans Held for Investment ("HFI")

Noninterest Bearing Demand Deposits

Interest Bearing Demand Deposits

NOW, Money Market, and Savings Accounts

FHLB Advances and Other Borrowings

Payables under Securitizations

Total Liabilities and Shareholder's Equity

Nonperforming Loans to Total Loans

Loss Allowance to Noncurrent Loans

Allowance for Loan Losses to Loans HFI

Nonperforming Assets to Total Assets

Total Risk-Based Capital Ratio

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Silvergate Bank Reports Strong Second Quarter 2013 Earnings

Silvergate Bank's just released financial results for the quarter and six-month period ended June 30, 2013, show continued strong performance with quarterly income of $1.37 million and first-half net income of $2.76 million.  Total assets were $642.7 million, and the Bank's equity capital grew to an all-time high of $72.5 million.

"We are pleased to report that Silvergate Bank delivered another solid earnings performance in the second quarter of 2013," said Alan J. Lane, the Bank's president and chief executive officer.  "Our capital and asset quality ratios continue to be superior to comparable averages for all FDIC insured banks.  Additionally, our levels of profitability, capital and asset quality all support our ability to continue providing our clients with the innovative products and services they have come to expect from us to help them grow their business."   

At June 30, 2013, Silvergate Bank's Tier 1 Leverage Capital Ratio was 11.49% and Total Risk-Based Capital Ratio was 18.08%, both substantially exceeding 'well capitalized' minimums of 5% and 10%. The Bank's ratios of nonperforming loans to total loans and nonperforming assets to total assets both remained low, at 1.17% and 1.20%, respectively.   

Further second quarter performance highlights for Silvergate Bank were its funding of $705.3 million in single family mortgage loans through the Bank's Warehouse Lending Division and the acquisition / funding of $85.7 million in U.S. Government insured reverse mortgage loans.  

"Silvergate Bank's sustained profitability from our core commercial banking activities and diversified revenue streams continues to strengthen our capital base and enhance our ability to serve our entire range of clients," said Dennis S. Frank, the Bank's chairman.

According to Lane, the release of Silvergate Bank's mid-year 2013 earnings comes just one month before the Bank celebrates its 25th anniversary. "We value our clients who make this milestone event all the more meaningful," he said.  "We remain fully committed to providing them with the products they need and the personal service they deserve.  We also thank our employees for their dedication to serving our clients and supporting the Bank's success."

Financial Performance

The Bank's net income for the second quarter was $1.37 million, compared to $1.39 million for the prior quarter and $1.46 million for the second quarter last year.  Net income for the first half was $2.76 million, compared to $2.49 million last year.  Total assets were $642.7 million at June 30, 2013, up $4.2 million from the prior quarter and up $82.2 million from the second quarter a year ago.

The Bank's net interest margin was 3.47% for the quarter, compared to 3.41% for the prior quarter and 4.22% for the second quarter last year.  This year-over-year margin decline resulted mainly from a greater decrease in the yield on our earning assets (0.64%) than in our cost of funds (0.03%); the decline in earning asset yield was due primarily to growth in lower yielding assets including cash and reverse mortgage loans.  Net interest income was $5.39 million for the quarter, compared to $5.37 million for the prior quarter and $5.34 million last year. 

Noninterest income was $1.86 million for the quarter, compared to $1.67 million for the prior quarter and $1.34 million last year. Noninterest expense was $5.1 million for the quarter, compared to $4.7 million for the prior quarter and $4.1 million last year.  This year-over-year expense increase reflects the full effect of higher employee and occupancy costs associated with the Bank's growth in staffing, assets and headquarters space, a large portion of which occurred after the second quarter of 2012, including 2013 costs of forming a forward single-family mortgage loan correspondent group to complement the Bank's warehouse and reverse mortgage lending activities.

Commercial Banking Platform

The Bank's strong profile in commercial real estate lending continued in the second quarter of 2013, with commercial real estate loans totaling $201.5 million at June 30, 2013, compared to $190.7 million at June 30, 2012. Total deposits grew by 32% in the past twelve months, with noninterest bearing demand deposits growing by 52%.  Despite the significant costs of opening two new branch offices and relocating a third in the past 24 months, the Bank has generated strong profits due to the ongoing strength of its core commercial lending activities and the expanded residential lending activities it has added in recent years.   

Continued High Volumes of Residential Mortgage Loan Fundings

The Bank's Mortgage Warehouse Lending Division, established in April 2009 to meet the credit needs of mortgage bankers that originate single-family residential mortgage loans, had another excellent quarter, funding $705.3 million in loans and almost $1.4 billion in the first half of 2013.  In the face of forecasts by the Mortgage Bankers Association of America and others for decreases in 2013 single-family residential loan originations, this division maintained high loan volumes through the first half of 2013 by increasing the number of mortgage banking clients it serves.

Acquisitions and Sales of Reverse Mortgage Loans

In late 2011 the Bank began to acquire Home Equity Conversion Mortgage ("HECM") loans insured by the U.S. Federal Housing Administration, and in mid-2012 the Bank was approved by the Government National Mortgage Association ("Ginnie Mae") to be an issuer of Ginnie Mae HECM backed securities. In the second quarter the Bank acquired and/or funded $85.7 million in HECM loans and completed four HECM loan pool sales and one securitization of HECM loan participations. 

About Silvergate Bank
Silvergate Bank is a San Diego-based bank that specializes in meeting the needs of small businesses through a comprehensive offering of lending products and personalized banking services. Silvergate Bank opened in 1988 and is a subsidiary of Silvergate Capital Corporation.  Bank branches are located in Carlsbad, Escondido, La Jolla, La Mesa, and Lancaster. Silvergate Bank's headquarters office is located at 4275 Executive Square, Suite 800, La Jolla, CA 92037. The Bank's website is www.silvergatebank.com. 

Statements concerning future performance, developments or events, expectations for growth and income forecasts, and any other guidance on future periods, constitute forward-looking statements that are subject to a number of risks and uncertainties. Actual results may differ materially from stated expectations.  When used in this release, the words or phrases such as "will continue," "is anticipated," "estimate," "expect," "projected," "believe," "seeking," or similar expressions, are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Readers should not place undue reliance on the forward-looking statements, which reflect views only as of the date hereof.  Neither Silvergate Capital Corporation nor Silvergate Bank undertakes any obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.

Silvergate Bank Selected Financial and Operating Data

(Dollars in Thousands - Unaudited)

Net Loan Charge-Offs to Average Total Loans

Securitized Loans, at fair value

Loans Held for Investment ("HFI")

Noninterest Bearing Demand Deposits

Interest Bearing Demand Deposits

NOW, Money Market, and Savings Accounts

FHLB Advances and Other Borrowings

Payables under Securitizations

Total Liabilities and Shareholder's Equity

Nonperforming Loans to Total Loans

Loss Allowance to Noncurrent Loans

Allowance for Loan Losses to Loans HFI

Nonperforming Assets to Total Assets

Total Risk-Based Capital Ratio

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

Program Links Loans to Future Earnings

He needs $80,000, even after scholarships and grants. Mr. Toole wants to finance a big chunk of that through a new company called Pave, which connects people like him with “backers.” If he reaches his goal and raises $30,000 from Pave investors, he will pay them 7 percent of his projected annual salary for 10 years.

“If I decide to go into the Peace Corps or do something like work for a major firm that didn’t pay well for the first couple years out of school, the percentage of total income would be quite a bit lower than standard 10-year loan paybacks,” said Mr. Toole, who has commitments for nearly $11,000 so far.

The program comes with other perks: the investors, who clearly want to see their human investments succeed, often double as mentors.

“This is me reaching out and seeing if I can get access to people who can guide me through my career and push me around through their own networks,” Mr. Toole added. “I need solid financial mentorship. I am not great with money, and my parents cannot provide that for me.”

This alternative form of financing is unlikely to put even a tiny dent in the vast market for federal and private student loans. But with student debt approaching more than $1.2 trillion, particularly at a time when young graduates are facing high unemployment, it’s not that surprising that some people find the idea alluring. Viewed through another prism, critics call it a form of indentured servitude.

The program enrollees I spoke with found the whole idea liberating. They said they preferred to pay back a living being who took a risk instead of a faceless institution; it felt less like a loan, they said, and more like an opportunity. If a borrower wants to take a year to start a new company, for instance, or their income drops below, say, the poverty level, they aren’t required to make payments. The risk is shouldered by the investor.

The whole notion of using a portion of your future income to pay for higher education recently made headlines in Oregon. The state Legislature there approved a bill that would create a pilot program: instead of tuition, all students enrolled in state colleges would pay, say, 3 percent of their future income for about 20 years into a state-administered fund. That means some would pay more for their education than others; the program’s supporters say people should think about it as a social insurance program, like Social Security.

Pave and its competitors, including a company called Upstart, operate differently. Upstart, for instance, tries to estimate what you are likely to earn, based on factors including the college attended, the field of study and grade point average, among other things. “Harvard M.B.A.’s have a very high earning potential,” said Dave Girouard, the founder of Upstart and a former Google executive, “and that means they can raise more money for a lower portion of income.”

Among its small crop of first users, individuals have raised about $25,000 on average, though Rachel Honeth Kim, a Harvard graduate with an M.B.A., recently raised $100,000 from 37 investors, including Mr. Girouard.

Many of the people enrolled with companies like Pave and Upstart use the money to finance their own companies and ideas, or, like Mr. Toole, to further their education or pay off existing student debt. A freshman seeking to bankroll an entire college education isn’t the type of candidate these sites are seeking, at least not now.

The companies are also ushering the most promising candidates onto their programs, often with big entrepreneurial plans or causes that are likely to catch investors’ attention. But nobody is guaranteed to raise enough money to meet their goals.

There are other risks, too. If a person is wildly or even moderately successful, they may pay far more than they would owe using a traditional loan. And people with big dreams in lower-paying professions may not necessarily raise enough to cover their education costs.

Of course, if borrowers have enough income to pay their obligations but fail to, the whole experience will begin to feel more like a traditional loan. Delinquencies will be reported to the big credit bureaus. Collection agencies will get involved. (Borrowers will be held to their contracts. Pave and Upstart also had discussions with the Consumer Financial Protection Bureau, a federal regulator that oversees financial products and services.)

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