Financial Data and Key Metrics Changes - The company reported a net loss attributable to common shareholders of $1 billion, equating to a loss of $33.16 per common share, with adjusted net income available to common shareholders at $15.1 million or $0.48 per adjusted diluted share [70] - Total deposits from digital asset customers declined to $3.8 billion at December 31, 2022, down from $11.9 billion at September 30, 2022, and $14.1 billion in the fourth quarter of 2021 [65][41] - Net interest income was $53.7 million in the fourth quarter, a decrease of $27.2 million compared to the third quarter, but an increase of $15.5 million compared to the fourth quarter of 2021 [42] - The weighted average cost of deposits increased to 77 basis points compared to 16 basis points during the third quarter [71] Business Line Data and Key Metrics Changes - The Silvergate Exchange Network (SEN) transfer volume was $117 billion, an increase of 4% sequentially, despite the decline in deposits [66] - The company plans to offboard certain non-core customers, which is expected to impact digital asset-related deposits by no more than 10% [29] - The company is eliminating certain products, including digital asset custody and some cash management services, which are deemed too costly or complex [67] Market Data and Key Metrics Changes - The company experienced a crisis of confidence in the digital asset ecosystem, leading to a modest decline in digital asset customers in the fourth quarter, a trend expected to continue in 2023 [27] - Approximately $150 million of Silvergate deposits were from customers that had filed for bankruptcy as of December 31, 2022 [65] Company Strategy and Development Direction - The company is focusing on maintaining a highly liquid balance sheet with minimal credit exposure and a strong capital position, ensuring maximum flexibility for customers [39] - The company is committed to serving core customers and has made the decision to reduce workforce by approximately 200 people or 40% to align with economic realities [30][75] - The company expects to return to profitability in the second half of 2023 by streamlining its product offerings and managing expenses [68] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the significant challenges in the broader digital asset industry and emphasized the importance of instilling confidence in customers by maintaining cash on the balance sheet [117] - The company does not provide forward guidance but aims to manage the balance sheet to ensure customers can access 100% of their deposits [131] - Management indicated that the outlook for profitability is uncertain in the near term, reflected in the establishment of a 100% valuation allowance against deferred tax assets [96] Other Important Information - The company sold $5.2 billion of debt securities during the quarter, resulting in a loss on the sale of securities of $751.4 million [72] - The company recognized a tax benefit of $24.3 million for the fourth quarter, reflecting an effective tax recovery rate of 2.3% [76] Q&A Session Summary Question: Update on deposit flows and customer behavior - Management stated that they will not provide guidance on deposit movements, emphasizing that any short-term updates are not indicative of longer-term trends [49] Question: ROI on SEN and other products - Management acknowledged that some products have become too costly or complex to continue offering, but they expect significant fee income from core products like SEN [81][84] Question: Implications of 100% valuation allowance on DTA - Management indicated that the valuation allowance reflects a cautious outlook for near-term profitability, but they do not provide specific guidance on future performance [124] Question: Concentration of deposits from top clients - Management did not disclose specific concentration numbers but acknowledged that the concentration has likely decreased significantly [101] Question: Future capital raising plans - Management stated that they do not plan to provide guidance on potential capital raises but emphasized robust risk-based capital ratios [133]

Silvergate Capital Corporation (SI) Business Update Conference Call Summary Company Overview - **Company**: Silvergate Capital Corporation (SI) - **Date of Call**: January 5, 2023 - **Participants**: CEO Alan Lane, CFO Tony Martino, President Ben Reynolds, and various analysts from financial institutions Key Industry Insights - **Digital Asset Industry**: The digital asset industry is experiencing a significant transformation, marked by over-leverage leading to high-profile bankruptcies and a crisis of confidence among participants [6][8] - **Market Dynamics**: Many industry players have adopted a risk-off approach, resulting in decreased trading activity and a decline in deposits [6][8][25] Financial Metrics - **SEN Performance**: The Silvergate Exchange Network (SEN) maintained an average daily volume of $1.3 billion in Q4 2022, up from $1.2 billion in Q3 2022 [7] - **Deposit Decline**: Total deposits from digital asset customers fell to $3.8 billion by December 31, 2022, down from $11.9 billion at the end of Q3 2022 [8] - **Cash Position**: Silvergate held approximately $4.6 billion in cash and cash equivalents, exceeding the deposits from digital asset customers [9] - **Securities Sale**: The company sold $5.2 billion in debt securities during Q4 2022, incurring a loss of $718 million [10] Strategic Actions - **Workforce Reduction**: Silvergate announced a workforce reduction of approximately 200 employees (40%) to manage expenses in light of the current economic realities [12] - **Product Portfolio Streamlining**: The company is focusing on providing value-added solutions for core digital asset customers and has exited the mortgage warehouse lending product [13] - **Impairment Charge**: An impairment charge of $196 million was taken in Q4 2022 related to developed technology assets from the Diem Group, reflecting the challenges in launching a blockchain-based payment solution [14] Future Outlook - **Liquidity Management**: Silvergate aims to maintain a highly liquid balance sheet with minimal credit exposure, ensuring flexibility for customers [15] - **Customer Behavior**: The company is monitoring deposit flows and customer behavior closely, acknowledging the volatility in the digital asset space [25][70] - **Market Confidence**: Despite the challenges, there is a belief that institutional clients remain committed to the digital asset space and may return when market conditions improve [28] Regulatory and Legal Considerations - **Compliance**: Silvergate emphasizes its commitment to compliance and risk management, particularly in light of ongoing litigation related to FTX and Alameda [50][52] - **Regulatory Engagement**: The company has maintained ongoing engagement with regulators, ensuring transparency in its operations [53] Additional Insights - **SEN Leverage Product**: The SEN Leverage product continues to perform well, with zero forced liquidations to date, despite a decline in overall activity [74] - **Future of Diem Assets**: While there are still personnel working on the Diem project, the launch of a tokenized dollar is not imminent due to current market conditions [87] This summary encapsulates the critical points discussed during the conference call, highlighting the challenges and strategic responses of Silvergate Capital Corporation in the evolving digital asset landscape.

Financial Performance - Net income for the three months ended September 30, 2022, was $43.3 million, an increase of 12.2% from $38.6 million for the three months ended June 30, 2022 [149]. - Net income for the nine months ended September 30, 2022, was $109.3 million, a 91.3% increase from $57.1 million for the same period in 2021 [149]. - Net interest income increased by $10.3 million for the three months ended September 30, 2022, compared to the previous quarter [149]. - Net interest income for the three months ended September 30, 2022, was $80,888,000, a 14.7% increase from $70,546,000 for the previous quarter [150]. - Noninterest income decreased by 8.2% to $8,454,000 from $9,214,000 in the prior quarter [150]. - Noninterest income decreased by $7.1 million or 20.7% for the nine months ended September 30, 2022, compared to the same period in 2021 [169]. - The company reported a net interest margin of 2.31% for the three months ended September 30, 2022, compared to 1.96% in the previous quarter [155]. - The average annualized yield on total interest earning assets increased from 1.25% for the nine months ended September 30, 2021, to 1.96% for the nine months ended September 30, 2022 [163]. Asset and Equity Management - Total assets as of September 30, 2022, were $15.47 billion, a decrease from $16.01 billion as of December 31, 2021 [145]. - Total shareholders' equity decreased to $1.33 billion as of September 30, 2022, from $1.61 billion as of December 31, 2021 [145]. - Shareholders' equity decreased by $0.3 billion or 17.2% to $1.3 billion at September 30, 2022, compared to $1.6 billion at December 31, 2021 [175]. - The company had $1.2 billion in credit extension commitments as of September 30, 2022, indicating significant off-balance sheet exposure [219]. Loan and Deposit Activity - The total loans held-for-investment amounted to $470.962 million, with $108.281 million due in one year or less and $317.278 million due in one to five years [186]. - Total loans outstanding at the end of the period were $470.96 million, down from $599.11 million at June 30, 2022, and $816.66 million at September 30, 2021 [202]. - Deposits decreased by $1.1 billion or 7.4% to $13.2 billion at September 30, 2022, compared to $14.3 billion at December 31, 2021 [209]. - Noninterest bearing deposits totaled $12.0 billion, representing approximately 90.7% of total deposits at September 30, 2022, down from 99.5% at December 31, 2021 [209]. Regulatory Compliance and Risk Management - The company is subject to supervision by the Federal Reserve and the California Department of Financial Protection and Innovation, ensuring regulatory compliance in its operations [135]. - The company maintained a comprehensive liquidity risk management process to address potential adverse liquidity events [218]. - The company has access to diverse funding sources, including lines of credit and repurchase agreements, to support liquidity needs [218]. - The bank employs interest rate floors, caps, and swaps to manage interest rate risk exposure [225]. Digital Asset Market Position - The digital asset industry is viewed as a significant and growing market, with the company leveraging its expertise to provide critical financial infrastructure solutions [136]. - The company has experienced a first-mover advantage in the digital asset industry, which is considered a cornerstone of its leadership position today [136]. - The company’s customer base includes major U.S. exchanges and global investors, indicating a strong market presence in the digital asset sector [139]. - As of September 30, 2022, the company had over 300 prospective digital asset customer leads in various stages of onboarding, reflecting strong demand for its services in the digital asset industry [137]. Interest Rate Sensitivity - The bank's interest-sensitive assets exceed interest-sensitive liabilities, resulting in an asset-sensitive position with a period gap of $7,383,364 thousand [226]. - Under a static balance sheet scenario, a +100 bps interest rate shock would increase net interest income by 13.66% [228]. - The economic value of equity (EVE) analysis shows a decrease of 10.01% under a +100 bps interest rate shock as of September 30, 2022 [229]. Employee and Operational Metrics - Total headcount increased to 439 as of September 30, 2022, from 279 as of December 31, 2021 [145]. - Noninterest expense increased by $2.6 million or 8.5% for the three months ended September 30, 2022, primarily due to increases in salaries and employee benefits [171]. - Salaries and employee benefits rose by $3.3 million or 20.0% for the three months ended September 30, 2022, driven by a 20.2% increase in average full-time equivalent employees from 336 to 404 [171].

Financial Data and Key Metrics Changes - Silvergate reported record net income available to common shareholders of $40.6 million, a 13% increase compared to the second quarter, and up from $23.5 million in the third quarter of 2021 [7][16] - Revenue reached $89.3 million, up 12% sequentially and 73% year-over-year, driven by higher net interest income [16] - Average digital asset customer deposits declined to $12 billion, down 13% from the previous quarter [17] - Net interest income was $80.9 million, an increase of $10.3 million from the second quarter and $43.2 million from the same quarter last year [18] - Non-interest income for the third quarter was $8.5 million, a decrease of $0.8 million from the prior quarter and $5.6 million year-over-year [20] - Non-interest expense increased to $33.2 million, up $2.6 million from the prior quarter and $10.8 million compared to the same quarter last year [21] Business Line Data and Key Metrics Changes - The number of digital asset customers increased to 1,677, up over 350 customers since the same quarter last year [10] - SEN Leverage commitments grew 9% to $1.5 billion, with average outstanding balances of $308 million [11] - The range of deposits narrowed, indicating lower volatility, with a high of $14 billion and a low of $11.1 billion [10][17] Market Data and Key Metrics Changes - Bitcoin and Ethereum dollar trading volumes increased compared to the second quarter, but SEN transfer volume decreased by 41% sequentially to $113 billion [9] - The total market value of USDC declined from $55 billion to $47 billion, reflecting broader market trends [34] Company Strategy and Development Direction - The company aims to balance innovation with a risk-based approach, focusing on launching a regulatory compliant tokenized dollar on the blockchain, although the timeline has been pushed back [12][31] - Silvergate is positioned to disrupt the $67 trillion global commerce market with blockchain-based payment solutions [13] - The company plans to enhance customer support to provide 24/7 assistance, which is crucial for the digital asset industry [14] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges in the digital asset ecosystem but expressed confidence in the company's platform and growth potential [7][12] - The management noted that the current bear market is similar to past experiences, and they expect to continue adding customers despite the macroeconomic conditions [33] - There is optimism regarding long-term opportunities as institutional adoption of digital assets continues to grow [51] Other Important Information - The company maintained strong capital ratios, with a Tier 1 leverage ratio of 10.71%, an increase of 7% compared to the previous quarter [16] - The company hedged approximately 40% of its interest-earning assets to reduce interest rate risk [18] Q&A Session Summary Question: SEN platform volumes down 40% Q-on-Q, what drives this? - Management indicated that lower volatility in Bitcoin prices contributed to reduced trading opportunities, impacting SEN volumes [24][25] Question: What is the balance sheet strategy going into 2023? - Management confirmed that the strategy remains consistent, utilizing short-term wholesale funding to maintain stability [27][29] Question: Delay in stablecoin rollout, is it regulatory or technology-related? - Management clarified that the delay is due to regulatory discussions, not technology issues, and emphasized the importance of compliance [31] Question: How much of the $12 billion in digital asset deposits is related to stablecoin volumes? - Management noted that the decline in USDC market value correlates with the drop in average deposits, indicating a directional relationship [32][34] Question: What could drive SEN leverage balances higher? - Management suggested that increased market volatility and stability in Bitcoin prices could lead to higher borrowings [58] Question: Is there competitive pressure affecting SEN volumes? - Management stated that the decline in volumes is more reflective of market conditions rather than a shift to alternative platforms [59] Question: How does the company view the impact of Coinbase's announcement with another platform? - Management anticipated no significant impact on SEN volumes from the announcement, as redundancy has been expected in the market [62]

Financial Performance - Interest income for the three months ended June 30, 2022, was $71,587,000, an increase from $50,838,000 for the three months ended March 31, 2022, representing a growth of 40.9%[138]. - Net interest income after provision for loan losses was $70,546,000 for the three months ended June 30, 2022, compared to $52,969,000 for the previous quarter, marking a 33.3% increase[138]. - Noninterest income was $9,214,000 for the three months ended June 30, 2022, slightly down from $9,450,000 in the previous quarter[138]. - Net income available to common shareholders was $35,917,000 for the three months ended June 30, 2022, up from $24,698,000 in the previous quarter, reflecting a 45.4% increase[138]. - Net income for the three months ended June 30, 2022 was $38.6 million, an increase of $11.2 million or 41.0% from $27.4 million for the three months ended March 31, 2022[145]. - Net income for the six months ended June 30, 2022 was $66.0 million, an increase of $32.3 million or 96.1% from $33.6 million for the same period in 2021[145]. Asset and Liability Management - Total assets decreased to $15,900,494,000 as of June 30, 2022, from $16,005,495,000 as of December 31, 2021[140]. - Total liabilities increased to $14,477,275,000 as of June 30, 2022, compared to $14,396,659,000 as of December 31, 2021[140]. - Total assets amounted to $16.55 billion as of June 30, 2022[156]. - Shareholders' equity decreased by $185.6 million to $1.4 billion at June 30, 2022, primarily due to a $379.3 million decrease in accumulated other comprehensive income[212]. - The Company maintained a Tier 1 leverage ratio of 10.02% and a common equity tier 1 capital ratio of 39.64% as of June 30, 2022, exceeding regulatory requirements[212]. Loan Portfolio and Quality - Total gross loans held-for-investment decreased to $601.3 million as of June 30, 2022, from $893.9 million in December 2021, reflecting a decrease of approximately $292.6 million[176]. - The allowance for loan losses was $4.4 million as of June 30, 2022, down from $6.9 million in December 2021[176]. - The total amount of loans classified as special mention was $4.3 million as of June 30, 2022[190]. - The company emphasized SEN Leverage as its core lending product, moving away from custodial arrangements subject to SAB 121[179]. - The company has established underwriting guidelines and monitors delinquency levels to maintain loan portfolio quality[181]. Deposits and Funding - Deposits decreased by $0.8 billion or 5.5% to $13.5 billion at June 30, 2022, compared to $14.3 billion at December 31, 2021[199]. - Noninterest bearing deposits totaled $13.4 billion, representing approximately 99.5% of total deposits at June 30, 2022[199]. - The Company had $800 million of outstanding FHLB advances as of June 30, 2022, with an additional $1.6 billion in available borrowing capacity[204]. - The total deposits held by digital currency exchanges amounted to $8.1 billion as of June 30, 2022, with 102 customers[200]. Digital Currency and Market Position - The company has over 300 prospective digital currency customer leads in various stages of onboarding as of June 30, 2022, indicating strong demand for its services[132]. - The digital currency industry is viewed as a significant and growing market, with the company leveraging its expertise to develop critical financial infrastructure solutions[131]. - The company aims to develop additional products and services to enhance the SEN network effects and provide further financial infrastructure solutions[130]. - The company has experienced a first-mover advantage in the digital currency industry since it began exploring this market in 2013, which has contributed to its leadership position[131]. Regulatory Compliance - The company is subject to supervision by the Federal Reserve and the California Department of Financial Protection and Innovation, ensuring regulatory compliance[130]. - The Company is classified as "well capitalized" under prompt corrective action regulations, complying with all applicable regulatory capital requirements[212]. Interest Rate and Risk Management - The Company utilizes interest rate floors, caps, and swaps to hedge against interest rate risk, maintaining an asset-sensitive position[214]. - The Bank's asset liability management strategy includes regular reviews of interest rate sensitivity and liquidity to optimize financial performance[214].

Financial Data and Key Metrics Changes - Silvergate reported record net income available to common shareholders of $35.9 million, an increase of 45% from the previous quarter, with EPS of $1.13, up 43% from the prior quarter [7][15] - Revenue reached $79.8 million, up 33% sequentially and 88% year-over-year, driven by higher net interest income [15][16] - Total assets remained stable at $15.8 billion, a 29% increase compared to the same quarter last year [16] Business Line Data and Key Metrics Changes - Average deposits from digital currency customers decreased to $13.8 billion, down 6% from the previous quarter, with significant fluctuations observed during the quarter [11][17] - The number of digital currency customers increased to 1,585, adding over 80 clients during the quarter, although this was a decline compared to Q1 [12] - SEN Leverage commitments grew 28% to $1.4 billion, with no losses or forced liquidations reported [13] Market Data and Key Metrics Changes - Bitcoin and Ethereum dollar trading volumes were relatively flat, yet the SEN experienced some of its highest daily trading volumes ever, with transfer volume of $191 billion, a 34% increase sequentially [10] - The price of Bitcoin dropped from approximately $45,000 at the end of Q1 to about $20,000 by the end of Q2, reflecting significant market volatility [31] Company Strategy and Development Direction - The company aims to launch its own U.S. dollar-backed stablecoin in 2022, following the acquisition of blockchain-based payment technology assets [14][50] - Silvergate emphasizes a disciplined approach to innovation, focusing on introducing new products that solve customer problems while managing risk [9] Management's Comments on Operating Environment and Future Outlook - Management noted that despite the challenging environment in the digital asset industry, they did not see a slowdown in institutional customer interest [25] - The company remains optimistic about deposit stability during market downturns, based on historical performance [26] - Management expressed confidence in their risk management practices, stating no need for changes despite market volatility [72] Other Important Information - Non-interest income for Q2 was $9.2 million, relatively flat compared to the prior quarter, with a year-over-year decline primarily due to lower trading volumes [21] - Non-interest expenses increased to $30.6 million, driven by higher salaries and professional services expenses related to strategic growth initiatives [22] Q&A Session Summary Question: How are institutional customers responding to recent market volatility? - Management indicated no slowdown in institutional interest, with many viewing the pullback as an opportunity [25] Question: What is the outlook for deposit growth in the second half? - Management refrained from making predictions but noted historical stability in deposits during downturns [26] Question: Can you provide insights on deposit trends throughout the quarter? - Management highlighted significant fluctuations in deposits, driven by market events, but emphasized the resilience of their customer base [29][31] Question: How is the company managing SEN Leverage commitments? - Management expressed satisfaction with SEN Leverage performance and indicated a cautious approach to risk management [35][37] Question: What updates can be shared regarding the stablecoin initiative? - Management confirmed they are on track to launch the stablecoin by the end of the year, emphasizing compliance and safety [50][64] Question: Are there any pressures from competition affecting client behavior? - Management reported no significant pressure on fees or deposit balances, attributing customer focus to risk management during market stress [66]

Financial Performance - For the three months ended March 31, 2022, net income was $27.4 million, an increase from $21.4 million for the same period in 2021, representing a 28.5% year-over-year growth [126]. - Net interest income for the three months ended March 31, 2022, was $50.5 million, up from $38.2 million in the previous year, reflecting a 32.5% increase [126]. - Noninterest income was $9.5 million for the three months ended March 31, 2022, compared to $11.1 million in the same period of 2021, showing a decline of 14.5% [126]. - Basic earnings per common share increased to $0.79 for the three months ended March 31, 2022, compared to $0.67 for the same period in 2021, a growth of 17.9% [126]. - Net income for the three months ended March 31, 2022, was $27.4 million, an increase of 28.0% from $21.4 million for the three months ended December 31, 2021 [132]. - Net interest income increased by $12.3 million, contributing to the overall net income growth [132]. Asset and Liability Management - Total assets decreased to $15.8 billion as of March 31, 2022, from $16.0 billion as of December 31, 2021 [128]. - Total deposits decreased to $13.4 billion from $14.3 billion [128]. - The Tier 1 leverage ratio decreased to 9.68% from 11.07% [128]. - Total interest earning assets increased to $16,133,249 thousand with an income of $54,343 thousand, yielding 1.37% [137]. - Total assets increased to $16,633,548 thousand, demonstrating growth in the company's financial base [137]. - Interest bearing liabilities totaled $163,620 thousand, with a net interest spread of 0.52% [139]. Loan Portfolio and Quality - The loan portfolio totaled $745,340 million, with commercial and industrial loans comprising 58.3% of the total, up from 37.6% in December 2021 [162]. - Total net loans held-for-investment decreased to $739,014 million from $887,304 million, indicating a significant reduction in the loan portfolio [162]. - The company reported an allowance for loan losses of $4,442 million as of March 31, 2022, down from $6,916 million in the previous period [162]. - Nonaccrual loans decreased to $3.6 million, or 0.49% of total loans, as of March 31, 2022, compared to $4.0 million, or 0.45% of total loans, at December 31, 2021 [170]. - The company maintains a disciplined lending approach to manage nonperforming assets, which has resulted in sound asset quality [167]. Deposits and Funding - Noninterest bearing deposits totaled $13.3 billion, representing approximately 99.5% of total deposits at March 31, 2022 [182]. - Average total digital currency deposits during the three months ended March 31, 2022 amounted to $14.7 billion, compared to an average of $10.2 billion during the three months ended December 31, 2021 [184]. - The Bank's 10 largest depositors accounted for $6.5 billion in deposits, or approximately 48.2% of total deposits at March 31, 2022 [184]. - As of March 31, 2022, the Company had $800 million of outstanding FHLB advances and an additional $1.2 billion in available borrowing capacity from the FHLB [186]. Interest Rate Risk Management - The Company is managing interest rate risk through interest rate floors and caps, aiming to mitigate exposure in a declining rate environment [195]. - The Asset Liability Committee regularly reviews the sensitivity of assets and liabilities to interest rate changes, ensuring compliance with policy limits [195]. - Interest rate risk is assessed using quarterly simulations to evaluate the impact of changing interest rates on net interest income [198]. - The bank employs interest rate floors and caps to hedge against interest rate risk, managing exposure through its Asset Liability Committee [195]. Operational Efficiency - The efficiency ratio improved to 46.74% for the three months ended March 31, 2022, down from 52.08% in the same period of 2021, indicating better operational efficiency [126]. - Noninterest expense increased by $2.4 million or 9.2% for the three months ended March 31, 2022, compared to the previous quarter, primarily due to increases in salaries and employee benefits, communications and data processing, and other general and administrative expenses [151]. - Salaries and employee benefits rose by $1.7 million or 12.5% due to a 10.9% increase in average full-time equivalent employees, from 265 to 294 [151].

Financial Data and Key Metrics Changes - The company reported a first quarter net income available to common shareholders of $24.7 million, a 94% increase compared to the first quarter of 2021 [6][14] - Revenue for the first quarter was $59.9 million, up 22% sequentially and 93% year-over-year, driven by higher net interest income [14][15] - Average deposits from digital currency customers reached a record $14.7 billion, compared to $13.3 billion in the fourth quarter and $6.4 billion in the first quarter of 2021 [9][16] - Net interest income was $50.5 million, an increase of $12.3 million compared to the fourth quarter and $27.5 million compared to the first quarter of 2021 [19] Business Line Data and Key Metrics Changes - SEN transfer volume was $142 billion, declining 35% sequentially and 15% year-over-year [7] - Transaction revenue from digital currency customers was $8.9 million, a 26% increase year-over-year but a 4% decline sequentially [7] - Total approved commitments for SEN leverage grew 88% to $1.1 billion compared to the end of the fourth quarter [9] Market Data and Key Metrics Changes - The first quarter saw significant declines in Bitcoin and Ethereum dollar trading volumes, impacting overall market activity [7] - The company noted that the number of digital currency customers increased to 1,503, up nearly 400 customers from the same quarter last year [8] Company Strategy and Development Direction - The company is focused on enhancing its stablecoin infrastructure and plans to launch a U.S. dollar-backed stablecoin in 2022 [11] - The expansion of Euro SEN allows customers to transfer euros in near real-time, enhancing the company's service offerings [12] - The EJF Silvergate Ventures Fund closed its first capital call with total commitments of $114 million, aimed at supporting early-stage startups in the digital currency ecosystem [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's growth trajectory despite broader industry challenges, emphasizing the importance of customer growth and SEN leverage commitments [8] - The company is well-positioned for a rising interest rate environment, with approximately 55% of its securities and 90% of its loans being floating rate [20] - Management highlighted the importance of maintaining liquidity for customers, which is a key differentiator from traditional banks [52] Other Important Information - The company expects full-year 2022 operating expenses to be in the range of approximately $130 million to $140 million, excluding any intangible amortization [22] - The acquisition of stablecoin assets from the DM Group is expected to incur approximately $30 million in costs in 2022 [23] Q&A Session Summary Question: Update on the stablecoin initiative and customer readiness - Management indicated they are on target for the stablecoin initiative, planning a small pilot with a handful of customers, and do not expect significant deposit inflows in 2022 [26][27] Question: Impact of crypto price volatility on institutional adoption - Management noted that institutional clients view price pullbacks as opportunities, and the lead time for institutional adoption remains significant [31] Question: SEN leverage product availability to other banks - Management confirmed active discussions with several banks regarding syndication of SEN leverage loans, with expectations for developments later in the year [33] Question: Contribution of Euro SEN to activity - Management stated that Euro SEN did not have a significant impact in the first quarter as the rollout is ongoing and focused on ensuring functionality for initial customers [42] Question: Risk parameters for the loan to MacroStrategy - Management highlighted a lower loan-to-value ratio for the loan to MacroStrategy, indicating a strong collateral coverage ratio, which reduces risk [46]

Financial Performance - Total consolidated assets increased to $16.0 billion as of December 31, 2021, representing a growth of $10.4 billion or 186.5% from December 31, 2020[128]. - Net income for 2021 reached $78,528 million, representing a 201.5% increase from $26,038 million in 2020[265]. - Basic earnings per common share increased to $2.95 in 2021, up from $1.39 in 2020, reflecting a growth of 112.2%[263]. - Total interest income for 2021 was $130,394 million, a significant increase of 63.9% compared to $79,590 million in 2020[263]. - Total noninterest income for 2021 was $45,256 million, a substantial rise of 135.9% from $19,177 million in 2020[263]. - Total noninterest expense increased to $89,120 million in 2021, up from $59,605 million in 2020, marking a rise of 49.5%[263]. - Total comprehensive income for 2021 was $25,570 million, a decrease from $65,673 million in 2020, primarily due to unrealized losses on securities[265]. - The company reported a net income available to common shareholders of $75,512 thousand for 2021, compared to $26,038 thousand in 2020[391]. Asset Management - As of December 31, 2021, the fair value of the company's available-for-sale investment securities portfolio was $8.6 billion, with gross unrealized losses of $58.5 million and gross unrealized gains of $44.8 million[121]. - The company invests 53.9% of its total assets in investment securities to provide liquidity and manage interest rate risk[121]. - Total assets increased to $16,005,495 thousand as of December 31, 2021, up from $5,586,235 thousand in 2020, representing a growth of approximately 187%[259]. - The company has not pledged any investment securities for borrowings or other purposes as of December 31, 2021, and 2020[312]. - The amortized cost and estimated fair value of investment securities as of December 31, 2021, totaled $8.638 billion and $8.625 billion, respectively[316]. Capital and Funding - The company may need to raise additional capital in the future to sustain its growth strategy, although the timing and amounts are currently unknown[128]. - Future capital requirements may lead to substantial dilution for existing shareholders if additional shares are issued[146]. - The company issued 8,000,000 depositary shares of Series A Preferred Stock, raising gross proceeds of $200.0 million, with net proceeds of approximately $193.7 million after expenses[393]. - The company completed a public offering of 4,563,493 shares of Class A common stock at $63.00 per share, raising gross proceeds of $287.5 million and net proceeds of $272.4 million[396]. - The company sold 2,793,826 shares of Class A common stock through an ATM Offering at an average price of $107.38, resulting in net proceeds of $295.1 million[396]. - A subsequent public offering of 3,806,895 shares of Class A common stock was completed at $145.00 per share, generating gross proceeds of $552.0 million and net proceeds of $530.3 million[396]. Risk Management - The company faces risks related to noncompliance with the Bank Secrecy Act and anti-money laundering regulations, particularly concerning its digital currency initiative[137]. - Future regulatory changes regarding digital currencies may significantly impact the company's operations and growth prospects[130]. - The company is subject to operational risks, including potential fraud by employees or third parties, which could lead to financial losses[125]. - The company relies heavily on its executive management team, and the unexpected loss of key personnel could negatively impact its financial condition and operations[126]. - Negative public opinion or reputational damage could adversely affect the company's ability to attract new customers and retain existing ones[127]. Regulatory Compliance - Regulatory capital requirements have become more stringent due to the Dodd-Frank Act, which could limit the company's activities and growth initiatives[133]. - The company is subject to anti-corruption laws, including the U.S. Foreign Corrupt Practices Act (FCPA), which could lead to civil or criminal penalties if not complied with, adversely affecting its financial condition and results of operations[139]. - The monetary policies and regulations of the Federal Reserve significantly influence the company's earnings and growth, with potential adverse effects on its financial condition and results of operations[142]. - As of December 31, 2021, the company no longer qualifies as an "emerging growth company," leading to increased costs and demands on management due to more stringent reporting requirements[143]. Interest Rate Risk - Interest rate risk is a primary component of market risk for the company, with strategies in place to manage exposure through interest rate floors, caps, and swaps[238]. - The company has an asset-sensitive position, meaning rising interest rates would generally have a positive effect on net interest income, while falling rates would have the opposite effect[238]. - Under a static balance sheet scenario, net interest income is projected to increase by 59.71% with a +100 bps interest rate shock[242]. - The cumulative gap ratio to total earning assets was 73.90% as of December 31, 2021, indicating a stable interest rate risk profile[239]. Loan and Credit Quality - The allowance for loan losses was reported at $6,916 thousand, consistent with the previous year, indicating stable credit quality management[259]. - The provision for loan losses was $0 in 2021, compared to $742 million in 2020, indicating a significant improvement in loan loss provisions[263]. - The total allowance for loan losses was $6,916 thousand as of December 31, 2021, with $1,023 thousand attributed to one-to-four family loans and $2,017 thousand to commercial real estate[324]. - The total past due loans as of December 31, 2021, amounted to $894.22 million, with $4.16 million classified as nonaccruing loans[329]. - The Company reported a total of 4,003 nonaccruing loans as of December 31, 2021, compared to 3,080 in the previous year[329]. Shareholder Information - The weighted average common shares outstanding increased to 25,582 million in 2021 from 18,691 million in 2020, reflecting a growth of 37.0%[263]. - The company declared dividends on preferred stock amounting to $3,016 million in 2021[263]. - The intrinsic value of options exercised was approximately $43.0 million for the year ended December 31, 2021, up from $7.8 million in 2020[372]. - The total unrecognized compensation expense related to nonvested restricted stock unit awards was approximately $2.6 million, expected to be recognized over a weighted-average period of 2.1 years[375].

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% from $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% increase from $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% to $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% [126]. - Total deposits increased by $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% of total deposits at September 30, 2021, up from $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% of total loans, as of September 30, 2021, compared to $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].