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Silvergate Capital Corp (SICP)·Q3 2022 Earnings Summary

Executive Summary

  • Silvergate delivered record net income available to common shareholders of $40.6M and diluted EPS of $1.28, with “revenue” (net interest income + noninterest income) of $89.3M; net interest margin expanded to 2.31% driven by higher yields on adjustable-rate securities and deposits in other banks .
  • Digital asset ecosystem softness weighed on activity: SEN transfers fell 41% QoQ to $112.6B and average digital asset deposits declined to $12.0B; management reaffirmed confidence in the platform and noted customer growth to 1,677 (+92 QoQ) .
  • Funding mix shifted: issuance of $1.2B brokered CDs lifted overall deposit cost to 0.16%, while the annualized cost of digital asset deposits remained 0.00% (clarifies apparent discrepancy between press release tables and the slide commentary) .
  • Guidance maintained: full‑year 2022 noninterest expense expected at ~$130–$140M; company declared quarterly Series A preferred dividend ($13.44 per share of the preferred, $0.336 per depositary share) payable Nov 15, 2022 .
  • Wall Street consensus (S&P Global) could not be retrieved for SICP, so estimate comparison is unavailable; investors should focus on margin expansion vs declining SEN volumes and funding cost normalization as near‑term stock drivers . Values retrieved from S&P Global were unavailable due to mapping.

What Went Well and What Went Wrong

What Went Well

  • Record profitability: net income available to common shareholders reached $40.6M and diluted EPS was $1.28; ROAA rose to 1.04% and ROACE to 12.99% amid NIM expansion to 2.31% .
  • Customer growth and product traction: digital asset customers increased to 1,677 (+5.8% QoQ), and SEN Leverage commitments rose to $1.5B (+$0.1B QoQ) .
  • CEO tone confident despite industry headwinds: “Silvergate delivered another quarter of strong performance… we remain confident in the power of our platform and the opportunities for expansion within the network” (Alan Lane) .

What Went Wrong

  • Network activity and deposit pressure: SEN transfers decreased 41% QoQ to $112.6B and average digital asset deposits fell to $12.0B from $13.8B in Q2 .
  • Higher funding costs: weighted average cost of deposits increased to 0.16% given brokered CDs ($1.2B issued in Q3), and interest bearing liabilities’ average rate rose to 2.19% (vs 0.87% in Q2) .
  • Elevated operating expenses: noninterest expense rose 9% QoQ to $33.2M, driven by salaries/benefits and growth investments; deposit‑related fees declined to $7.95M (from $8.81M in Q2) .

Financial Results

Core financials by quarter (oldest → newest)

MetricQ3 2021Q1 2022Q2 2022Q3 2022
Revenue ($USD Millions)$51.71 $59.90 $79.80 $89.30
Net Interest Income (as reported) ($USD Millions)$37.66 $50.50 $70.55 $80.89
Noninterest Income ($USD Millions)$14.04 $9.45 $9.21 $8.45
Net Income Available to Common ($USD Millions)$23.49 $24.70 $35.92 $40.64
Diluted EPS ($USD)$0.88 $0.79 $1.13 $1.28
Net Interest Margin (%)1.26% 1.36% 1.96% 2.31%
ROAA (%)0.75% 0.60% 0.90% 1.04%
ROACE (%)10.45% 6.87% 10.99% 12.99%
Total Assets ($USD Billions)$12.78 $15.80 $15.85 $15.47
Total Deposits ($USD Billions)$11.66 $13.40 $13.50 $13.24

Notes: “Revenue” represents net interest income plus noninterest income per company definition .

KPIs

KPIQ1 2022Q2 2022Q3 2022
Digital asset customers (count)1,503 1,585 1,677
SEN transfers ($USD Billions)$142.3 $191.3 $112.6
SEN Leverage commitments ($USD Billions)$1.070 $1.400 $1.500
Digital asset customer fee income ($USD Millions)$8.90 $8.81 $7.95
Average digital asset deposits ($USD Billions)$14.7 $13.8 $12.0
Weighted avg cost of total deposits (%)0.00% 0.00% 0.16%

Segment/Balance Composition (3Q22)

CategoryShare of Total AssetsYield (3Q22)
Securities portfolio ($11.4B)74% 2.21%
Loans portfolio ($1.4B)9% 5.83%
Loan mix: Mortgage warehouse68.2% n/a
Loan mix: SEN Leverage21.7% n/a
Loan mix: Real estate & other10.1% n/a
Securities mix: Residential MBS/CMO31.3% n/a
Securities mix: Commercial MBS/CMO16.0% n/a
Securities mix: Municipal bonds27.4% n/a
Securities mix: U.S. Treasuries11.2% n/a
Securities mix: U.S. agency securities12.3% n/a
Securities mix: Asset‑backed securities1.8% n/a

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Noninterest expense (ex‑intangible amort.)FY 2022~$130–$140M (Q1, Q2) ~$130–$140M (Q3) Maintained
NII sensitivity to +25bpsNext 12 months~$16M (Q2) ; ~$23M (Q1) ~$16M (Q3) Maintained vs Q2; Lower vs Q1
Series A preferred dividendQ4 2022 pay date$13.44 per share; $0.336 per depositary share; paid Aug 15, 2022 $13.44 per share; $0.336 per depositary share; payable Nov 15, 2022 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Digital asset market volumesQ1: Industry spot volumes declined 33% QoQ; SEN transfers down accordingly . Q2: SEN transfers +34% QoQ as industry volumes stabilized modestly .SEN transfers −41% QoQ; volumes impacted particularly by stablecoin market cap declines; management emphasized SEN’s use cases beyond trading .Down sequentially; management confident in platform .
Deposits and funding costsQ1/Q2: Average digital asset deposits $14.7B/$13.8B; cost 0.00% .Average digital asset deposits $12.0B; total deposit cost increased to 0.16% due to brokered CDs; digital asset deposit cost commentary remained 0.00% .Lower deposits; higher overall funding cost .
Margin and ratesQ1/Q2 NIM 1.36%/1.96%; floating‑rate asset base drove sensitivity .NIM 2.31% with 63% of interest earning assets adjustable and ~40% hedged; sensitivity ~$16M per +25bps .Margin expanding with rising rates .
SEN LeverageQ1/Q2 commitments $1.07B/$1.40B; risk‑managed growth .Commitments $1.49B; continued demand .Gradual growth .
Regulatory/payments (stablecoin infrastructure)Q1: Closed Diem asset purchase to enhance stablecoin infra .Discussion on scaling stablecoins for payments use cases (potential $1T+ value) and risk‑based approach; active policy dialogue (from Q&A) .Ongoing regulatory engagement .

Management Commentary

  • Alan Lane (CEO): “Silvergate delivered another quarter of strong performance, achieving record net income available to common shareholders of $40.6 million… we remain confident in the power of our platform and the opportunities for expansion within the network” .
  • Prepared remarks (Alan Lane): Volumes were mainly impacted by broader industry trends, notably a sizable drop in stablecoin market cap; correlation between SEN and industry “won’t always be linear,” given different use cases, and management remains confident in expansion opportunities .
  • Tony Martino (CFO): Reviewed key results; emphasized rate sensitivity and asset/liability mix underpinning NIM expansion and earnings trajectory (context from slides and call) .

Q&A Highlights

  • Stablecoin dynamics: Discussion on how declines in stablecoin market cap affected volumes and SEN activity; management highlighted longer‑term payments opportunity and necessary risk frameworks at larger scale .
  • Deposit behavior: Analysts probed how customer deposit volatility and alternatives (higher rates elsewhere) affected average balances; management indicated limited ability to disaggregate drivers but acknowledged both volatility and rate environment influences .
  • Rate sensitivity and hedging: Clarifications on the mix of adjustable‑rate assets, hedged exposures (~40%), and the ~$16M per +25bps NII sensitivity under a static balance sheet assumption .
  • Operating expense trajectory: Reinforced FY22 noninterest expense outlook ($130–$140M), reflecting continued investments in strategic initiatives .

Estimates Context

  • S&P Global consensus EPS and revenue estimates for Q3 2022 were unavailable for ticker SICP due to missing Capital IQ mapping; a comparison to Street expectations could not be performed. Values retrieved from S&P Global were unavailable due to mapping.
  • Without estimates, focus on operational beats: margin expansion (2.31% vs 1.96% in Q2), record net income, and resilient fee income vs prior year ($7.95M vs $8.17M in Q3 2021) despite lower SEN transfers .

Key Takeaways for Investors

  • Margin expansion is the key earnings driver near‑term, supported by adjustable‑rate securities and deposits in other banks, partially offset by higher borrowing costs from brokered CDs and FHLB advances .
  • Network activity softness continued, but customer count and SEN Leverage commitments grew; watch for stabilization in stablecoin volumes to support SEN transfers .
  • Funding mix normalization increased deposit costs (0.16% overall), while digital asset deposits remained at 0.00% annualized cost per company commentary; net impact is modest vs margin tailwinds .
  • Operating discipline: FY22 noninterest expense guidance maintained at $130–$140M, reflecting continued investment in platform growth and product innovation .
  • Capital remains strong with tier 1 leverage ratio of 10.71% and total risk‑based capital ratio of 46.63%; book value per share fell QoQ driven by higher AOCI losses amid rate moves .
  • Preferred dividend continuity supports income investors; equity holders should monitor AOCI impacts and deposit trends into Q4 .
  • Near‑term stock reaction likely tied to the narrative balance between strong NIM/earnings vs SEN volume declines and higher funding costs; any signs of activity stabilization or regulatory clarity on stablecoin payments could be positive catalysts .

Additional documents accessed:

  • Q3 2022 press release and 8‑K exhibits ; Business Wire posting .
  • Q3 2022 earnings presentation and earnings call transcript ; call notice (Oct 4, 2022) .
  • Prior quarters’ press releases and exhibits for trend analysis (Q2 2022 and Q1 2022) .