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Sunday, Apr 21, 2024

Expanding Mortgage Business a Key Factor in Silvergate’s Success


CEO: Alan Lane.

Assets: $470 million in December 2011; $370 million in December 2010.

Net income: $3 million in 2011; $3 million in 2010.

No. of local branches: Four.

No. of local employees: 67.

Headquarters: University City.

Year founded: 1988.

Company description: Commercial bank.

Key factors for success: Careful underwriting; recent capital infusion allowing further expansion; and diversified product offering, including wholesale mortgage divisions.

Silvergate Bank has jumped into the reverse mortgage lending business, setting up a wholesale division to lend to smaller originators.

“These are loans that are originated by others, mostly smaller mortgage companies, and some of these companies are ones that we already are doing business with,” said Alan Lane, the chief executive of Silvergate.

In its first month of operation in December, Silvergate funded 215 reverse mortgages worth about $17 million. In January, it produced similar numbers, Lane said.

Reverse mortgages, available only to people older than 62, allow the borrowers to extract equity they’ve built up in their homes, taking either a lump sum or monthly payments from a lender.

The mechanism has been touted in recent years as a way for seniors who have lived in a house for a long time to access money without having to sell or vacate the property.

Lane said borrowers using reverse mortgages are relieved of having to make payments, but are still responsible for paying property taxes and mortgage insurance, and maintaining the property.

While the business appeared to provide decent yields and the loans were all guaranteed by the Federal Housing Administration, Silvergate took a much deeper look after both Wells Fargo and Bank of America decided last year to exit the business.

‘Fairly Healthy’ Industry

John Lunde, president of Reverse Mortgage Insight, a consultant based in Aliso Viejo, said the industry isn’t large relative to the rest of the mortgage arena, but is still fairly healthy. “This is a great option for people to have, but there’s no one solution that is right for everybody,” Lunde said.

In recent years, the number of reverse mortgages has declined for a variety of reasons: Home prices have fallen; changes made in the rules by FHA have made the mortgages more expensive; and BofA and Wells Fargo, two dominant players, have exited that part of the business, he said.

“We think this could get about the size of our warehouse mortgage loan division,” Lane said of the new division.

In 2011, Silvergate funded more than 5,100 mortgages through its mortgage division, totaling about $1.4 billion. Since the division was launched in April 2009, its total fundings are about $3 billion, Lane said.

The bank funds only high quality, prime mortgages, which can be quickly sold to the likes of government entities Fannie Mae and Freddie Mac, and other larger banks, Lane has said.

Stronger Numbers

The expanding mortgage business has been a key reason for Silvergate’s growth. Its loan portfolio at year-end was $341 million, up 29 percent from the level at the end of 2010. Most of the loans are coming through its mortgage warehouse lending division, the bank said.

The bank reported that total assets increased 27 percent in the past year to $470 million, which ranks Silvergate as the county’s fourth largest locally based bank.

In its most recent quarterly report, Silvergate said it generated record annual net income of $3,084,000 for 2011, up by $4,000 from 2010, or basically flat. For the fourth quarter, it reported net income of $801,000, compared with $904,000 in net income for the like quarter of 2010.

Like a few other local banks, Silvergate’s parent firm, Silvergate Capital Corp., raised new capital last year.

In August, it obtained $12.4 million in preferred stock investment through the U.S. Treasury’s Small Business Lending Fund, and in December, the parent firm completed the sale of $13.8 million in common stock. The parent firm allocated $22.2 million in equity to the bank, boosting its capital ratios well above the measures demanded by regulators. Its Tier 1 leverage capital ratio at Dec. 31 was 15.5 percent — three times the minimum required, the bank reported.

Armed with the hefty capital base, Silvergate is not only expanding its product mix, it’s opening up more offices. It opened a branch in Escondido last year. This month, it said it plans to relocate and renovate its La Mesa office, and plans to open a branch in Carlsbad by the middle of the year, bringing its total to five.


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