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Silvergate Capital(SICP) - 2022 Q4 - Earnings Call Transcript
SICPSilvergate Capital(SICP)2023-01-17 19:35

Financial Data and Key Metrics Changes - The company reported a net loss attributable to common shareholders of 1billion,equatingtoalossof1 billion, equating to a loss of 33.16 per common share, with adjusted net income available to common shareholders at 15.1millionor15.1 million or 0.48 per adjusted diluted share [70] - Total deposits from digital asset customers declined to 3.8billionatDecember31,2022,downfrom3.8 billion at December 31, 2022, down from 11.9 billion at September 30, 2022, and 14.1billioninthefourthquarterof2021[65][41]Netinterestincomewas14.1 billion in the fourth quarter of 2021 [65][41] - Net interest income was 53.7 million in the fourth quarter, a decrease of 27.2millioncomparedtothethirdquarter,butanincreaseof27.2 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 117billion,anincreaseof4117 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 5.2billionofdebtsecuritiesduringthequarter,resultinginalossonthesaleofsecuritiesof5.2 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]