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Silvergate Capital(SICP) - 2022 Q3 - Earnings Call Transcript
SICPSilvergate Capital(SICP)2022-10-18 19:17
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Financial Data and Key Metrics Changes - Silvergate reported record net income available to common shareholders of 40.6million,a1340.6 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 89.3million,up1289.3 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 80.9million,anincreaseof80.9 million, an increase of 10.3 million from the second quarter and 43.2millionfromthesamequarterlastyear[18]−Non−interestincomeforthethirdquarterwas43.2 million from the same quarter last year [18] - Non-interest income for the third quarter was 8.5 million, a decrease of 0.8millionfromthepriorquarterand0.8 million from the prior quarter and 5.6 million year-over-year [20] - Non-interest expense increased to 33.2million,up33.2 million, up 2.6 million from the prior quarter and 10.8millioncomparedtothesamequarterlastyear[21]BusinessLineDataandKeyMetricsChanges−Thenumberofdigitalassetcustomersincreasedto1,677,upover350customerssincethesamequarterlastyear[10]−SENLeveragecommitmentsgrew910.8 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 308million[11]−Therangeofdepositsnarrowed,indicatinglowervolatility,withahighof308 million [11] - The range of deposits narrowed, indicating lower volatility, with a high of 14 billion and a low of 11.1billion[10][17]MarketDataandKeyMetricsChanges−BitcoinandEthereumdollartradingvolumesincreasedcomparedtothesecondquarter,butSENtransfervolumedecreasedby4111.1 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 55billionto55 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 67trillionglobalcommercemarketwithblockchain−basedpaymentsolutions[13]−Thecompanyplanstoenhancecustomersupporttoprovide24/7assistance,whichiscrucialforthedigitalassetindustry[14]Management′sCommentsonOperatingEnvironmentandFutureOutlook−Managementacknowledgedthechallengesinthedigitalassetecosystembutexpressedconfidenceinthecompany′splatformandgrowthpotential[7][12]−Themanagementnotedthatthecurrentbearmarketissimilartopastexperiences,andtheyexpecttocontinueaddingcustomersdespitethemacroeconomicconditions[33]−Thereisoptimismregardinglong−termopportunitiesasinstitutionaladoptionofdigitalassetscontinuestogrow[51]OtherImportantInformation−Thecompanymaintainedstrongcapitalratios,withaTier1leverageratioof10.7167 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]