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Silvergate Bank Posts Highest Annual Earnings in 24-Year History

"We are pleased to report that in 2011 Silvergate Bank surpassed its record earnings the prior year (2010), while also registering several other achievements that reflect our efforts to strategically grow our San Diego County service platform," said Alan J. Lane, the bank's president and chief executive officer. "We are particularly pleased by this performance in the face of continuing economic and real estate market challenges."

Silvergate Bank's financial highlights for the three months and 12 months ended December 31, 2011, included achieving record net income of over $3 million for the second consecutive year. The bank also funded $1.4 billion in residential mortgage warehouse loans, with cumulative mortgage warehouse loan fundings reaching almost $3 billion since April 2009. Additionally, Silvergate Bank received $22.2 million in equity capital contributions from its parent firm, Silvergate Capital Corporation.

Lane said Silvergate Bank continues to grow its San Diego County presence, opening a new branch in Escondido in North San Diego County, and receiving regulatory approvals for new branches in the suburban communities of La Mesa and Carlsbad, both of which will open in the first half of 2012. In 2011, the bank also opened a new reverse mortgage lending division which focuses on the acquisition of Home Equity Conversion Mortgage loans guaranteed by the U.S. Federal Housing Administration.

Silvergate Bank maintained capital ratios substantially above industry averages and federal regulatory standards, with a Tier 1 Leverage Capital Ratio of 15.5 percent and a Total Risk-Based Capital Ratio of 18.86 percent as of December 31, 2011.

Financial Performance

The Bank's net income for the fourth quarter of 2011 was $801,000, compared to $738,000 for the third quarter of 2011 and $904,000 for the fourth quarter of 2010. Net income for 2011 was $3,084,000, compared to $3,080,000 for 2010. Total assets were $470.5 million at December 31, 2011, as compared to $434.4 million at September 30, 2011, and $370.5 million at December 31, 2010. The largest factor in the Bank's asset growth was increased balances in several loan categories, especially mortgage warehouse loans and held-for-sale reverse mortgage loans.

The Bank's net interest margin was 4.20% for the fourth quarter of 2011, as compared to 4.53% for the third quarter of 2011 and 4.50% for the fourth quarter of 2010. The Bank's 2011 net interest margin of 4.37% was virtually unchanged from 4.36% for 2010. Net interest income for 2011 was $15.8 million, compared to $15.5 million for 2010, as the Bank's significantly reduced costs of deposits and borrowings exceeded the modest decline it experienced in income on interest earning assets. Noninterest income in 2011 was $1,549,000, as compared to $1,773,000 in 2010; this $224,000 decline reflected the absence of $607,000 in nonrecurring REO income from 2010, and 2011 increases of $592,000 in gains on sales of securities and SBA loans. 2011 results benefited from a $650,000 decline in the Bank's provision for loan losses, based on the Bank's reduced estimate of probable losses on loans held for investment. Noninterest expense increased from $10.5 million in 2010 to $11.3 million in 2011. This $789,000 increase included $1.7 million in higher employee-related costs associated with the Bank's staffing and asset growth, and $192,000 in higher occupancy costs for added headquarters and branch office space, partially offset by a $1.13 million net reduction in other administrative costs, including a $1.0 million reduction in REO expenses and a $310,000 reduction in deposit insurance premiums; net of these two items the Bank's other administrative costs increased by $187,000 in 2011 over 2010, or 6.8%, as compared to the Bank's 29% growth in employees and 27% growth in assets during the year.

Commenting on the Bank's results, Dennis S. Frank, Chairman, stated, "Our continued strong earnings performance in 2011 and recent successful stock offering continue to enhance our ability to deliver deposit and lending products and services to businesses and individuals throughout our communities."

Increased Fundings of Residential Mortgage Loans

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 the best year in its brief history. In 2011 it funded over 5,100 loans totaling $1.4 billion, with the Division's total fundings since April 2009 totaling almost $3 billion.

Capital Contributions from the Bank's Parent Firm

In December 2011 the Bank's parent firm, Silvergate Capital Corporation (Silvergate), completed sales of $13.8 million in common stock and in August 2011 the U.S. Treasury's Small Business Lending Fund (SBLF) completed its purchase of $12.4 million of senior preferred stock in Silvergate. From total proceeds of $26.2 million in these transactions, Silvergate contributed $22.2 million in Tier 1 equity capital to the Bank. This increased capital will support both the SBLF's goal of helping create jobs and promoting economic growth, and the Bank's commitment to delivering "Business Banking, Redefined."

New Branch Offices

In June 2011 the Bank opened a new branch at 128 North Broadway in Escondido, Calif., allowing the Bank to more conveniently serve customers throughout North San Diego County. In 2011 the Bank also received approvals to open new branches in La Mesa (a relocation and expansion of a smaller office) and Carlsbad, both of which will open in the first half of 2012. These branch office enhancements are a key element in the Bank's commitment to expanding its service capabilities throughout San Diego County.

New Reverse Mortgage Lending Division

In late 2011 the Bank established a Reverse Mortgage Lending Division. This division focuses on the acquisition of Home Equity Conversion Mortgage loans guaranteed by the U.S. Federal Housing Administration. Reverse mortgage loans have become an increasingly attractive financial resource for homeowners at least 62 years of age, and this new Bank division not only supports this market but also diversifies the Bank's asset mix with adjustable rate government guaranteed loans that strengthen the Bank's asset quality and improve its liquidity position.

Capital Ratios

The Bank continues to substantially exceed federal regulatory standards to be characterized as "well-capitalized." At December 31, 2011, its Tier 1 Leverage Capital Ratio was 15.50% and its Total Risk-Based Capital Ratio was 18.86%, as compared to 10.04% and 16.00%, respectively, at December 31, 2010. These ratios exceed the "well-capitalized" minimums for each category of 5% and 10%, respectively, and also exceed the comparable average ratios reported for all FDIC-insured institutions at September 30, 2011, which were 9.17% and 15.52%, respectively.

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 La Jolla, La Mesa, Escondido, and Lancaster, with a new branch scheduled to open in Carlsbad in April 2012. 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.

    CONTACT:   Sandra Grove
               Grove Media
               858-565-1905
                sgrove@grove-
                media.com

                                   Silvergate Bank Selected Financial and Operating Data
                                            (Dollars in Thousands - Unaudited)

                                      Three Months Ended                                     Twelve Months Ended
                                      ------------------                                     -------------------
                           December       September       December                      December       December
                              31,            30,             31,         Annual            31,            31,    Annual
    INCOME STATEMENT           2011            2011           2010       Change             2011           2010  Change
                               ----            ----           ----       ------             ----           ----  ------

    Interest Income          $5,342          $5,174         $5,439             -2%       $20,194        $21,271      -5%
    Interest Expense          1,038           1,060          1,312            -21%         4,346          5,792     -25%
                              -----           -----          -----                         -----          -----
    Net Interest Income       4,304           4,114          4,127              4%        15,848         15,479       2%
    Provision for Loan
     Losses                     250             225            100            150%           825          1,475     -44%
    Total Noninterest
     Income                     202             212            492            -59%         1,549          1,773     -13%
    Total Noninterest
     Expense                  2,892           2,843          2,979             -3%        11,319         10,530       7%
                              -----           -----          -----                        ------         ------
    Income Before Taxes       1,364           1,258          1,540            -11%         5,253          5,247       0%
    Income Tax Expense          563             520            636            -11%         2,169          2,167       0%
                                ---             ---            ---                         -----          -----
       Net Income              $801            $738           $904            -11%        $3,084         $3,080       0%
                               ====            ====           ====                        ======         ======

    Performance Ratios
    Net Interest Margin        4.20%           4.53%          4.50%                         4.37%          4.36%
    Return on Average
     Assets                    0.78%           0.81%          0.98%                         0.84%          0.85%
    Return on Average
     Equity                    6.05%           6.30%          9.69%                         6.91%          8.58%
    Efficiency Ratio          64.18%          65.72%         64.50%                        65.06%         61.04%
    Net Loan Charge-
     Offs to Average
     Total Loans               0.74%           0.47%          0.06%                         0.37%          0.34%



                           December       September                       March         December
                              31,            30,         June 30,           31,            31,          Annual
    BALANCE SHEET              2011            2011           2011           2011           2010        Change
                               ----            ----           ----           ----           ----        ------

    Cash and Due from
     Banks                  $23,438         $25,533         $8,200        $23,572        $33,199            -29%
    Investment
     Securities              76,181          80,176         81,681         74,242         63,896             19%
                             ------          ------         ------         ------         ------
       Total Cash &
        Investments          99,619         105,709         89,881         97,814         97,095              3%
    Loans Held for
     Investment ("HFI")     341,210         320,819        261,950        238,762        265,034             29%
    Allowance for Loan
     Losses                  (4,028)         (4,360)        (4,450)        (4,237)        (4,183)            -4%
                             ------          ------         ------         ------         ------
       Loans HFI, net       337,182         316,459        257,500        234,525        260,851             29%
    Loans Held for Sale      17,085             200            105          2,081          1,959            772%
    Real Estate Owned
     ("REO")                  3,793              17             73             81            156           2331%
    Other Assets             12,797          11,966         11,204         10,427         10,398             23%
                             ------          ------         ------         ------         ------
    Total Assets           $470,476        $434,351       $358,763       $344,928       $370,459             27%
                           ========        ========       ========       ========       ========

    Noninterest Bearing
     Demand Deposits        $31,530         $22,428        $14,113        $13,208        $10,911            189%
    Money Market, NOW,
     and Savings            106,133          97,016         84,319         85,934         99,636              7%
    Certificates of
     Deposit                144,982         156,031        141,072        150,003        159,672             -9%
                            -------         -------        -------        -------        -------
       Total Deposits       282,645         275,475        239,504        249,145        270,218              5%
    FHLB Advances and
     Other Borrowings       121,890         103,111         76,254         54,030         59,650            104%
    Other Liabilities         2,168           3,793          2,760          2,242          3,004            -28%
                              -----           -----          -----          -----          -----
       Total Liabilities    406,703         382,379        318,518        305,417        332,871             22%
       Total Shareholder's
        Equity               63,773          51,972         40,245         39,511         37,587             70%
                             ------          ------         ------         ------         ------
    Total Liabilities
     and Shareholder's
     Equity                $470,476        $434,351       $358,763       $344,928       $370,459             27%
                           ========        ========       ========       ========       ========

    Asset Quality
     Ratios
    Noncurrent Loans to
     Total Loans               2.94%           3.12%          4.13%          2.64%          2.33%
    Loss Allowance to
     Noncurrent Loans         38.25%          43.29%         41.10%         66.71%         67.12%
    Allowance for Loan
     Losses to Loans
     HFI                       1.18%           1.36%          1.70%          1.77%          1.58%
    Noncurrent Loans
     plus REO to Total
     Assets                    3.04%           2.32%          3.04%          1.86%          1.72%

    Capital Ratios
    Tier I Leverage
     Capital Ratio            15.50%          14.23%         11.74%         11.16%         10.04%
    Total Risk-Based
     Capital Ratio            18.86%          17.20%         16.21%         17.96%         16.00%

SOURCE Silvergate Bank