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New words:
composition, formal, identification, opening, organization, size
Removed:
alongside, currency, migrate, operationalized, preliminary, run, subcommittee
Financial report summary
?Risks
- The characteristics of digital currency have been, and may in the future continue to be, exploited to facilitate illegal activity such as fraud, money laundering, tax evasion and ransomware scams; if any of our customers do so or are alleged to have done so, it could adversely affect us.
- We rely heavily on the success of the digital currency industry, the development and acceptance of which is subject to a variety of factors that are difficult to evaluate.
- We may not be able to implement aspects of our growth strategy, which may impact our position as the leading provider of innovative financial infrastructure solutions and services to participants in the digital currency industry and adversely affect our ability to maintain our recent growth and earnings trends.
- The Bank has several large depositor relationships that are concentrated in the digital currency industry generally and among digital currency exchanges in particular, the loss of any of which could force us to fund our business through more expensive and less stable sources.
- Our digital currency initiative has contributed significantly to an increase in our noninterest bearing deposits, which has driven the Bank’s funding costs to levels that may not be sustainable.
- The prices of digital currencies are extremely volatile. Fluctuations in the price of various digital currencies may cause uncertainty in the market and could negatively impact trading volumes of digital currencies and therefore the extent to which participants in the digital currency industry demand our services and solutions, which would adversely affect our business, financial condition and results of operations.
- System failure or cybersecurity breaches of our network security could subject us to increased operating costs as well as litigation and other potential losses.
- We may not have the resources to keep pace with rapid technological changes in the industry or implement new technology effectively.
- Our operations could be interrupted if our third-party service providers experience operational or other systems difficulties, terminate their services or fail to comply with banking regulations.
- As a business operating in the financial services industry, our business and operations may be adversely affected in numerous and complex ways by weak economic conditions.
- Unpredictable future developments related to or resulting from the COVID-19 pandemic could materially and adversely affect our business and results of operations.
- We face strong competition from financial services companies and other companies that offer banking services.
- We may not be able to measure and limit our credit risk adequately, which could lead to unexpected losses.
- Our allowance for loan losses may prove to be insufficient to absorb potential losses in our loan portfolio.
- Because a significant portion of our loan portfolio held-for-investment is comprised of real estate loans, negative changes in the economy affecting real estate values and liquidity could impair the value of collateral securing our real estate loans and result in loan and other losses.
- Our nascent SEN Leverage product has unique risks and may not perform to our expectations in the future, which would adversely affect our business, financial condition and results of operations.
- In the case of defaults on loans secured by real estate, we may be forced to foreclose on the collateral, subjecting us to the costs and potential risks associated with the ownership of the real property, or consumer protection initiatives or changes in state or federal law that may substantially raise the cost of foreclosure or prevent us from foreclosing at all.
- We may not be able to protect our intellectual property rights, and may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful.
- Our concentration of large loans to a limited number of borrowers may increase our credit risk.
- A lack of liquidity could impair our ability to fund operations and adversely impact our business, financial condition and results of operations.
- We are subject to interest rate risk as fluctuations in interest rates may adversely affect our earnings.
- Any future failure to maintain effective internal control over financial reporting could impair the reliability of our financial statements, which in turn could harm our business, impair investor confidence in the accuracy and completeness of our financial reports and our access to the capital markets and cause the price of our common stock to decline and subject us to regulatory penalties.
- The accuracy of our financial statements and related disclosures could be affected if the judgments, assumptions or estimates used in our critical accounting policies are inaccurate.
- We could recognize losses on investment securities held in our securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate.
- We are subject to certain operational risks, including, but not limited to, customer, employee or third-party fraud.
- We rely heavily on our executive management team and other key employees, and we could be adversely affected by the unexpected loss of their services.
- Negative public opinion regarding the Company or failure to maintain our reputation in the communities we serve could adversely affect our business and prevent us from growing our business.
- We may not be able to raise the additional capital needed, in absolute terms or on terms acceptable to us, to fund our growth strategy in the future if we continue to grow at our current pace.
- There is substantial legal and regulatory uncertainty regarding the regulation of digital currencies and digital currency activities. This uncertainty or adverse regulatory changes may inhibit the growth of the digital currency industry, including our customers, and therefore have a material adverse effect on the digital currency initiative.
- Legislative and regulatory actions taken now or in the future may increase our costs and impact our business, governance structure, financial condition or results of operations.
- Because of the Dodd-Frank Act and related rulemaking, the Bank and the Company are subject to more stringent capital requirements.
- Federal and state banking agencies periodically conduct examinations of our business, including our compliance with laws and regulations, and our failure to comply with any supervisory actions to which we are or become subject based on such examinations could adversely affect us.
- Our regulators may limit current or planned activities related to the digital currency industry.
- Financial institutions, such as the Bank, face risks of noncompliance and enforcement actions related to the Bank Secrecy Act and other anti-money laundering statutes and regulations (in particular, as such statutes and regulations relate to the digital currency industry).
- We are subject to anticorruption laws, including the U.S. Foreign Corrupt Practices Act (“FCPA”) and we may be subject to other anti-corruption laws, as well as anti-money laundering and sanctions laws and other laws governing our operations, to the extent our business expands to non-U.S. jurisdictions. If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures, and legal expenses, which could adversely affect our business, financial condition and results of operations.
- Increases in FDIC insurance premiums could adversely affect our earnings and results of operations.
- Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations.
- Effective December 31, 2021, the Company no longer qualified as an “an emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies no longer apply, which will increase the Company’s costs and demands on management.
- The market price of our common stock may be subject to substantial fluctuations, which may make it difficult for you to sell your shares at the volume, prices and times desired.
- You may experience future dilution as a result of future equity offerings.
- Our common stock is subordinate to our existing and future indebtedness and preferred stock.
- While our growth strategy is focused on the digital currency industry, investors should not expect that the value of our common stock to be correlated with the value of digital currencies. Our common stock is not a proxy for gaining exposure to digital currencies.
- Provisions in our governing documents and Maryland law may have an anti-takeover effect, and there are substantial regulatory limitations on changes of control of bank holding companies.
- Our common stock is not an insured deposit and is subject to risk of loss.
Management Discussion
- Net income for the three months ended September 30, 2022 was $43.3 million, an increase of $4.7 million or 12.2% from net income of $38.6 million for the three months ended June 30, 2022. The increase was primarily due to a $10.3 million increase in net interest income and a $0.6 million reversal of provision for loan losses, offset by a $0.8 million decrease in noninterest income, a $2.9 million increase in income tax expense and a $2.6 million increase in noninterest expense, all as described below.
- Net income for the nine months ended September 30, 2022 was $109.3 million, an increase of $52.2 million or 91.3% from net income of $57.1 million for the nine months ended September 30, 2021. The increase was primarily due to a $110.9 million increase in net interest income and a $3.1 million reversal of provision for loan losses, offset by a $7.1 million decrease in noninterest income, a $26.4 million increase in income tax expense and a $28.3 million increase in noninterest expense, all as described below.
- We analyze our ability to maximize income generated from interest earning assets and control the interest expenses of our liabilities, measured as net interest income, through our net interest margin and net interest spread. Net interest income is the difference between the interest and fees earned on interest earning assets, such as loans, interest earning deposits in other banks and securities, and the interest expense incurred on interest bearing liabilities, such as deposits and borrowings, which are used to fund those assets.