Silvergate Capital(SICP) - 2021 Q3 - Quarterly Report

Digital Currency Market Growth - For the three and nine months ended September 30, 2021, U.S. dollar transfers on the Silvergate Exchange Network (SEN) were $162.0 billion and$568.1 billion, respectively, compared to $36.7 billion and$76.5 billion for the same periods in 2020, representing an increase of 341% and 643% year-over-year [122]. - The company has over 200 prospective digital currency customer leads in various stages of onboarding as of September 30, 2021, indicating strong demand for its services [119]. - The SEN has significantly contributed to the growth of noninterest bearing deposits from digital currency industry participants, providing a unique funding advantage over traditional financial institutions [115]. - The digital currency market opportunity has expanded significantly since 2013, with increasing infrastructure needs and regulatory complexity, positioning the company favorably in the industry [118]. - The company’s client base includes major U.S. digital currency exchanges and institutional investors, highlighting its leadership position in the digital currency sector [121]. - The company’s revenue generation strategy includes developing fee-based solutions linked to its digital currency initiatives, which are expected to enhance noninterest income [117]. - The company’s management team possesses deep expertise in both the digital currency and financial services industries, which is critical for navigating the complex regulatory landscape [118]. - The company’s SEN Leverage product is positioned as a unique offering in the digital currency industry, enhancing client relationships and potential revenue growth [162]. - The digital currency customer base grew to 1,305 customers, with total deposits of $11.5 billion as of September 30, 2021, compared to 969 customers and$5.0 billion at December 31, 2020 [187]. Financial Performance - Net income for the nine months ended September 30, 2021, was $57,137 thousand for the nine months ended September 30, 2021, compared to$16,919 thousand for the same period in 2020, indicating a growth of 337.5% [124]. - Net income for the three months ended September 30, 2021, was $23.5 million, an increase of 232.7$7.1 million for the same period in 2020 [130]. - Noninterest income reached $34,201 thousand for the nine months ended September 30, 2021, compared to$14,329 thousand in the same period of 2020, marking an increase of 138.5% [124]. - Noninterest income for the three months ended September 30, 2021, was $14.0 million, reflecting a 254.2$4.0 million in the same period of 2020 [130]. - The company reported a net income of $57,137 thousand for the nine months ended September 30, 2021, compared to$16,919 thousand for the same period in 2020, indicating a growth of 337.5% [124]. - The company maintained a total shareholders' equity of $1,072,081 thousand as of September 30, 2021, up from$294,299 thousand as of December 31, 2020 [126]. - Shareholders' equity increased by $777.8 million or 264.3$1,072.1 million at September 30, 2021, compared to $294.3 million at December 31, 2020 [155]. - The company raised$587.5 million from common equity offerings by issuing 7,357,319 shares of Class A common stock, with net proceeds of $567.5 million after expenses [198]. Asset and Deposit Growth - Total assets as of September 30, 2021, were$12,776,621 thousand, up from $5,586,235 thousand as of December 31, 2020, reflecting an increase of 129.3$6.4 billion, or 122.2%, to $11.7 billion as of September 30, 2021, compared to$5.2 billion at December 31, 2020 [187]. - Noninterest bearing deposits totaled $11.6 billion, representing approximately 99.3$5.1 billion or 97.8% at December 31, 2020 [187]. - The average total digital currency deposits during the nine months ended September 30, 2021, amounted to $9.2 billion, with a high of$12.6 billion and a low of $4.6 billion [187]. - Interest earning deposits in other banks rose from$2.9 billion at December 31, 2020, to $3.6 billion at September 30, 2021 [156]. - Securities available-for-sale increased by$6.3 billion or 670.4% from $939.0 million at December 31, 2020, to$7.2 billion at September 30, 2021 [157]. Loan Portfolio and Credit Quality - The total gross loans held-for-investment increased to $815.8 million as of September 30, 2021, compared to$751.5 million at December 31, 2020, reflecting a growth of approximately 8.5% [164]. - The commercial and industrial loan segment accounted for 31.2% of the total loan portfolio as of September 30, 2021, a substantial increase from 10.5% at December 31, 2020 [164]. - Nonperforming loans increased to $5.8 million, or 0.72$5.0 million, or 0.66% at December 31, 2020 [167]. - The allowance for loan losses remained stable at $(6.9) million for both periods, indicating consistent risk management practices [164]. - The company maintains a disciplined lending approach to manage nonperforming assets and ensure sound asset quality [167]. - The company’s credit administration staff conducts loan reviews at least four times a year to assess asset quality and loan delinquencies [177]. Interest Rate Risk Management - Interest rate risk is managed through a hedging strategy utilizing interest rate floors, caps, and swaps [206]. - The bank utilizes both static and dynamic simulation models to assess interest rate risk, focusing on net interest income and economic value [210]. - The bank's interest rate risk (IRR) simulations include various scenarios, indicating a comprehensive approach to risk management [210]. - Management can adjust asset and liability durations to manage interest rate sensitivity effectively [210]. - The cumulative gap as of September 30, 2021, was$12,442,992,000, reflecting the bank's interest rate risk exposure [210]. Regulatory Capital and Compliance - The Bank's Tier 1 leverage ratio was 8.71% as of September 30, 2021, exceeding the minimum requirement of 4.00% [200]. - The Common equity tier 1 capital ratio was 40.98% as of September 30, 2021, significantly above the minimum requirement of 4.50% [200]. - The Bank was classified as "well capitalized" under prompt corrective action regulations as of September 30, 2021 [198]. - The company intends to monitor and control growth to remain compliant with all regulatory capital standards [198].