Earnings call transcript Q4 2022

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Operator

Hello and welcome to today’s Silvergate Capital Corporation Fourth Quarter 2022 Earnings Conference Call. My name is Bailey and I will be the operator for today’s call. [Operator Instructions]

I would now like to pass the conference to our host, Hunter Stenback, Silvergate Capital Investor Relations. Please go ahead.

Hunter Stenback

good and operator, you, morning, everyone. Thank your quarter XXXX appreciate participation in fourth Corporation Capital Silvergate earnings the We call. Officer; our With me Tony Financial Officer; our Chief Ben here today are Martino, Alan our President. Lane, Executive and Reynolds, Chief

As Access be Eastern through will this our available Relations replay the a is a JanuaryXX, on XX:XX website. XXXX. section the telephonic Investor reminder, on of call replay Time to p.m. also available of

of our a deck section on complement the discussion today’s available slide is website. Additionally, to IR

Before set within begin, everyone Securities including a other undertake variety this of results actual other implied such could to statements we Commission. statements. expectations, XXXX. me the Such indicated not Securities let We that uncertainties future estimates, and and with risks, to update that Exchange the duty of Private differ are in management’s of beliefs, call remind Such that COVID-XX and statements or are factors, certain statements. from plans those These subject constitute current reports forward-looking by may about prospects. and include forth do Litigation the cause the to risks such contain Reform filed Act forward-looking any our periodic remarks statements pandemic meaning and materially factors

the Now, over I to like to call would turn Alan.

Alan Lane

Thank you, Hunter, and good morning, everyone.

unaudited financial metrics quarter fourth on of many and provided know, you Xth. preliminary As select we January

provide want asset I its recap Before on industry and [Technical months to what a recent impact happened our I Difficulty] the in dive of in digital into Silvergate.

across confidence and the and led asset ecosystem. sparked of crisis high-profile the in several digital has bankruptcies leverage over industry entire Significant lack of trust a to

transformation. Silvergate’s asset asset that shifted XXXX many across digital as digital industry trend asset “risk industry the platforms. the quarter, further expect in in a a participants continue that end, To a trading a fourth to modest position to undergoes decline we in saw result, customers As have off” we digital

In at September total a to compared Difficulty] quarter. low the deposits $X.X billion were billion turn, customers XXXX. billion of high at $X.X a with asset and XX, deposits XXXX, declined during XX, billion $XX.X December [Technical of fourth Average from $XX.X digital to billion

of XXXX, had customers from XX, filed approximately for December were $XXX million of Silvergate bankruptcy. deposits As that

our order we we to sheet. In sustained initially deposit satisfy that these excess digital lower cash satisfy balance commensurate asset were outflows, maintain sold related and steps liquidity to securities to maintaining utilized liquid ensure to debt accommodate took and deposit highly wholesale of subsequently, We outflows, deposits. funding we in levels

of deposits. sales [ph] currently we maintain will deposits, our a Importantly, on and management color they minutes. in in sheet position balance the a related security and more few strategy Tony of access can XXX% their cash excess know provide digital customers asset

operated despite a offerings, asset core our $XXX significant hours an deposits, the our digital market seven the critical X% decline or for that Network, continues as to demonstrating increase XX has Turning SEN in was volume transfer infrastructure The uninterrupted SEN, the on billion, Exchange sequential Silvergate industry. serve basis, day, on SEN a to days platform a of the week.

Leverage. end Turning the quarter. of $X.X at the SEN $X.X to to billion approved XX% billion commitments declined compared Total third to

of million outstanding In during SEN between with $XXX a $XXX million we $XXX quarter experienced and average of million. an addition, range Leverage balances balance the outstanding

losses to with of as forced perform loans no or expected continued Leverage All SEN our liquidations.

approximately commitments end expect Leverage utilization by maintain we shrink and SEN second the of XXXX. the XXXX million to ahead, $XXX to quarter in existing to Looking of for expect

customer of during our end, evaluating are a a decisive To the remains and of several in focus resilient that relationships our we we As business Update we actions discussed portfolio levels. lower on Call, with ensure on period process Business taking sustained deposit our profitability. are product to

relates offboard have we in decision non-core made it difficult the the customer customers base, but to to deliberate analysis, As certain thorough a coming after our weeks.

the Importantly, we core are prioritizing and on routinely SEN. transact customers to committed remain our who

While we digital customer of still being conducted, the will of XX% deposits. not believe related exceed these is asset impact our valuation our exits

We will certain also or costly that eliminating have become be too complex. products

of such We longer significant a which and asset have can no used to concluded cash that are product require be custody profitably. as and by resources certain digital management operate, services, customers minority offered our

allow reducing customers. our While asset to focused institutional providing on our we remain will serve better us product solutions, digital innovative portfolio core

with wires Moving forward, accounts. best, reflect our our our what SEN, solutions offering API product [ph] we the and deposit proprietary consists via most do solutions like value-added of and

addition, made aggregate estimate and XXX million, consisting reduce of decision reduction the We people or severance difficult approximately workforce the to costs payments, XX%. $X approximately primarily our benefits, force In related we with of in employee costs. associated by

majority these incur XXXX. We the quarter charges in of expect to the first of

our Taken providing managing a return in help to Silvergate second core we customers that on expenses XXXX. and the half to of together, believe will streamlined offering profitability focusing

profitable While but we we've core confident are I mission in I changes will these serve that made we not that us that are emphasize changed. customers has difficult to to some enable Silvergate's focus, our responsible narrowing manner. our recognize a want decisions and recently,

our to credit capital are customers. balance minimal position, for and We ensuring sheet committed strong maximum flexibility exposure with liquid highly a maintaining a

We asset stand digital believe in our to and ready industry support continue the to customers.

the in your I'll before to questions. to results our call more over we financial now turn take detail Tony Tony? review

Tony Martino

everyone. Thank morning, you, and Alan, good

common key slide or $XX.XX on reported common results. to net with per $X Starting of billion X financial loss of attributable Silvergate our share. a loss shareholders

Excluding net approximately ratio was assets adjusted restructuring Tier share. as million defined capitalized the federal or shareholders [Technical standards diluted income charges, $XX.X and banking regulations. was X continues impairment $X.XX common by well to and adjusted on based and leverage to per $XX average charges billion exceed available X.XX%, derivatives, Difficulty] of

and the reduce size resultant our funding our leverage balance time wholesale We Tier as X expect to sheet. over improve ratio of we

book addition, $XX.XX. In common was value per share

X. slide Moving on to

total and the asset in $X.X digital declined $XX.X we compared from fourth customers to in XX% customer to quarter month, asset deposits earlier of during billion deposits down the As billion $X.X Average were last quarter, to XXXX. digital $XX.X the this quarter, third quarter. billion the compared in billion disclosed quarter

confidence we As during crisis widened quarter a a of $XX.X volatility our of the saw higher the deposits industry $X.X result a deposit of of experienced, high low in billion. of the the billion to base as range within

Our XX weighted average XX points quarter. basis for during compared the cost to the quarter deposits increased points basis to third of

of The low remained As we mentioned, asset wholesale strategy. cost Alan digital annualized at digital deposits funding to deposit satisfy reflecting outflows. our asset initially cost utilized zero,

before, equivalents and been end be excess total to in held. $X.X have which said is deposits with from quarter, asset and As cash of safely fourth have Silvergate of held deposits billion, cash of we the customers. we continue the At digital

range business accommodate and conditions. outflows Our a under of designed market inflows deposit to is

quarter net and of the X, was the Net decrease X.XX% of to fourth million third Turning in quarter an fourth million $XX.X the was quarter, quarter, X.XX% compared year. fourth last and to slide the fourth income a in million compared increase margin in X.XX% quarter the to interest quarter interest XXXX. the third $XX.X for compared to of $XX.X of

levels we debt loss in held sale available quarter, identified We that sale the to as $XXX.X maturity. lower earlier during sold balance this our and for as our update billion resulting in securities month, of to certain accommodate sheet. proceeds well liquid cash were securities we of securities maintain order $X.X As outlined debt sold deposit business This million. the highly in a for sale of securities on securities as previously included sustained

an had the down an third end with X.XX%. the of of balance yield quarter average portfolio outstanding yield of balance billion at $XX.X $X.X billion X.XX% with from its of a corresponding securities Our fourth of for the quarter corresponding average

As a securities of our $X.X billion. quarter portfolio of end, balance had

XX% we of downside our protect risk assets interest rate part our to strategy, interest As against management earning of approximately risk. hedged

ahead, approximately we resulted quarter to $XXX.X $X.X wholesale charge which in related XXXX Looking to these million estimated recognition a to of sell in reduce be loss borrowings, the of unrealized early in fourth portion the billion to the securities of expect on impairment to balance we securities as depend will expected to sold. flows to we customer of our the management deposit and be sheet billion and which liquidity continue securities, always, on the behavior. sold $X.X year, and needs, those will evaluate Subsequent end of

of quarter Turning for quarter the to income XXXX million slide the XXXX. $XXX.X compared $XX.X of quarter and of fourth prior to non-interest was in the fourth non-interest X, loss million in million $X.X

from on were charge derivative Losses $XXX.X resulting and million, securities sale quarter. $X.X and million impairment related on of the derivatives during debt and the securities losses were

the Excluding these quarter adjusted on $X.X income non-interest securities was million. for losses derivatives,

trend expect lower adjusted strategic As actions a levels. Alan fee and net quarterly income to the we income quarter interest fourth in result earlier, XXXX of outlined than XXXX

XXXX. in on million the exiting in of technology impairment benefits as attributable the mortgage the prior of compared related primarily earlier quarter Slide $XX.X and same to in increase charge expense charge the million increases restructuring non-interest million in assets salaries million developed X during $XXX.X as The a the lending we $XXX.X well shows employee and resulted last for million year-over-year quarter year, sequentially year. to and the acquired from $XX.X fourth of quarter $X.X product quarter, to

expense restructuring quarter impairment the the was assets and $XX.X Excluding intangible charges, for non-interest adjusted on million.

for XXX consisting per of costs, in with employees announced we are realities quarter. charges economic associated benefits with the in in or earlier million estimate facing the majority $X.X business of incur industry the of $X of quarter. to Cost approximately million be As to primarily the these Alan expect $X reduction to XX% and severance force this force related in and today. reduction the order cost employee month, associated to savings aggregate account the expected million, discussed, We force in the payments, and approximately the first reduction

strategic and base costs assessed the first will evaluate result a the expense vendor year mentioned. as Alan to continue the we individual of contracts as half actions Our that of other in be

expenses expect compared to the second the of year the half lower the of year. We first in be to half

benefit resulting rate valuation compared expense tax the of reversal the income fourth the effective quarter income prior to recorded from deferred an three by the XX.X%. a quarter quarter XXX% charge an the third of expense transition during of period and recognized the XXXX tax the of tax with recognized We fourth tax in tax a year, The of to tax reflecting incurred effective million the rate partially was million of the on quarters for X.X% by of recovery of quarter driven the for benefit allowance first offset XXXX during $XX.X a loss $XX.X XXXX, corresponding assets. of

balance during applied against losses associated with of $XXX valuation balance income. incurred asset deferred losses of and future and this quarter, result be asset a allowance deferred the asset. taxable indefinitely million The can forward tax XXX% established operating utilized a carry net As of against tax will we've a XX%

the of providing this further While was committed We in industry quarter we throughout to decisions tough make look as core light on business difficult significant a remain a asset our and we forward XXXX. broader digital had our company, serving in updates customers. to to challenges

With for would the any I open questions. Operator? operator line ask to the like that, up to

Operator

of Instructions] line Perito Our the [Operator first KBW. from from question comes today Michael

Michael Perito

to recent curious, -- all and earlier to update I of if decisions of have willing selling I'm deposit customer I I sale provide of that was but securities. mean, customer just The just I'll get driving sold flows in I'm the this you're point? earmarked curious kind to, some And I'm few both. about to a there's seems some ask comment behavior the your it want for month. I on that start you colleagues guess around deposit not when pre-released the want you my securities this things to others. And update let behavior on like is what but one at flows any you on I

Alan Lane

Yes. question. the I'll to question deposit touch for the turn on Tony it over securities and

So, deposit is guidance with provide -- to on which we're standard any question, the our stick not approach Mike, here, going whatsoever. to not we are

speculation. deposit guidance a any quarter. in on what movement abundantly reporting And I initiative we expect the might not indicative fashion of in is entire period clear think, this is in quarter, in As two-week for similar fourth the

to higher that lower. be want going any deposits at be think to to point surging that going would don't cause this we are so, that And update or to provide they're people

[Technical to continues XX/X. SEN The Difficulty]

initiative. maintain We balance of of in sheet our excess this in on continue cash to all deposits

XX/X SEN can Silvergate and sheet. has ready, those day, our our And those have some deposits customers access withdraw is if to deposits transfer over they So, nine in they ecosystem their wire days able that their a which this them hold they well, can or got customers know withdraw, on the balance can can years since cash have via going we're that they we to they to bring assist seven hours, a normal on hours some that our week. XX/X as to move customers liquidity If know and customers stand -- provided as have, continue have, additional needs, XX access to ago. the this function to into banking with we business during they primary choose willing

And with touch to like the Tony, sales? that, so, would you security on

Tony Martino

Alan. Thanks, sure. Yes,

the that but So, on We've that sale, And is selling securities approximately $X.X year, Alan we earmarked. charge for we're an anticipated plan. $X.X of did into impairment billion and loss. $X.X as have had as we billion two the the that sold disclosed, execute of Mike, we of we said, recorded weeks billion only which part billion

And as we've Thanks. primarily it's And was first too done in point time. earmarked -- two so, it's we reduce year. we sale. said, quarter securities that's those to But, The And beyond said, purpose borrowings. weeks the as early guide the what have Alan further. as the for transpired of of in that's early that, to in

Michael Perito

But business you're Got are of for the trying all functionality think then and curious conducting, more appropriately. I about the some element, refocusing it. more non-core when my commercial you Helpful. what kind kind you're right, SEN, and just when element. Leverage, for you just the when typical just kind commentary, everything second sure amplified are about And the deposit the products? of for getting you're and maybe deposit. As on to the still how removing about other seem I'm OpEx about the around think you lower is than some factors you those making Alan, of providing risk in business ROI that deposits thinking I of around taking size the level. side paid then And right new how expensive the question. though, think, just I'm think this bit you curious, focusing is appreciate little a SEN a that's

curious thought your updated are Just what processes there.

Alan Lane

Yes. Mike, question. to that address Thanks. ask appreciate And it. Ben I'll I

Ben Reynolds

Yes.

have continue to the become So, products as too that Alan mentioned or some comments, we in offer today costly his of prepared complex just offering.

Difficulty] products business, you and make So, new customer to don't scale as way need they corrections. make of you assumptions with any about [Technical anticipated, when the you course adoption that sometimes it's --

custody It's asset is of example difficult for digital competitive that So, differentiate to yourself. very an a us. and space

gears the that of don't the we details cash margins of because this we to products first. that income's note that tell more need can invest the won't want some we the not to that back mentioned. fee notify sure to make But, customers you'd that to we We management partners that. we to switching continue at solutions is some would provide to you Kind you to do our and I want continue strategic on to what -- time just related in, But, in we’re lower when peel going onion, be XXXX. of that

quarters. And overall so, do several decline expect by of in products next a income those we fee boost an despite discontinuing profitability

difficult offer as conditions. the our The SEN expect to is as, other on do this base, is fee But dependent that other customer on it's and are critical often predict products topic significant those income. generate mentioning wires do that's to products market that thing, we we Mike, to worth and that core

needed is we're of how question. table I'd say is the which Thanks everything's how in sort of deposits. beyond to that So, But probably to order the to do exactly the monetize through work do way say terms in the more going platform. on we for today,

Michael Perito

Thank you, guys.

Operator

you. comes today line from The question Canaccord. go from Joseph Please Thank Vafi ahead. next of the

Your now is line open.

Joseph Vafi

not guidance, where level then ago out I here couple of And perhaps quarters Alan, that that comments your deposits. back a you Silvergate’s was, made just some I of on Hey in a your extra kind weeks of continue. guys. color thumb sure of deposit the just Then of know to rule but and A income you on said couple thumb for six is pre-release. extrapolate morning. interest to of look report. to that follow-up. make broad to today you're circle makes ago weeks providing based and or wanted Good rule base I ago to think sense at have kind eight same kind of still the wanted Thanks a you of maybe,

Alan Lane

expect set, to we the terms back be what fewer the we which comments have deposits, to observation good of fact and therefore, level embedded product kind where Ben of all a support I you eight more a to two the that's a to couple comments in or on kind in I at appreciate idea that are for of and couple meant of that when net income just as back essentially regard to, adjusted ago. have customers were also very Joe, size. income, referring side I that required years also only ago really some the the this over like little to I ago. fact interest six reflective was similar in Yes. and years in focused because of was said, what asking And I that it my all was size wasn't -- not will you a a making, we reflective was clarity interest reflective staffing of that tying weeks don't quarters order this streamlined pretty also things. that were we of of were this more It ago as of this --

of really weeks with share that has here just my ecosystem all terms it been infrastructure fewer a running that profitable a in company before you comments that the critical deposits, And lower but ago with couple meant this still -- so, serves in we've provide. that and were we to of customers

environment, the we're where rate then. rate interest versus in back As to different very a we were interest environment today

essentially most environment that, and interest that of hit. a shortly basis rate quarters to like XXXX in less the throughout XX during when pandemic yielding three-month zero were the recall And growth than kind may we ago, after points. interest You of XXXX, with our rates eight zero went treasury

different rate environment. And in so, much a interest we're today,

we're so, -- we interest today try this interest environments impact our through try interest to with at And certainly And We going just rate balance rate not sheet, never different a we're environment. predict to that understand analysis rates. might a lower but how same business. higher

Joseph Vafi

historically that on Alan. a maintaining sheet obviously follow-up, not which Sure. deposits, you're you something for there color, you've excessive some super with and the balance when normalize a of relative balance right done. balance is Thanks time for now here in of provide mean, that Then over know I liquid maybe excess to down sheet guideposts can -- Is us you cash maybe liquid cash maybe sheet -- deposits? overly in that may kind to shrinking of that Thanks.

Alan Lane

across a of this say et just the difficult and to thing it's really weeks, has all ecosystem the over-leverage really of let's in focus couple the experienced on for thing and this is, and mention, the go And of cetera. we bankruptcies the goes It's and I'll back guidance and doing that actors is fair same one now? right we've the kind a this system industry of mention been of ahead predict. and But, confidence it to which of just we which some why crisis because Yes. take the significant the are always question saying just bad I that provide don't I'll last too

up we our determine And that XXX% on make we to know so, we they cash of who so looking customers XXX% cash that a to trust, our are when holding participants in in that ecosystem are this market sheet their balance deposits can of access want sure they're deposit. and trying to that their can

is meant really instill confidence. it so, to And

part that onboarded our service that banks also space committed confidence other We of we today the to to and tenure. customers still are XXXX into communicate that that during of Many -- in the we other is we customers the XXXX. XXXX are our ecosystem. to and have Many nine-year customers come this

have contracted. to some expanded trying and then we here. left, operations, What have we communicate are Some are is their that

We long are haul. here the for

with We they the and that are here can sheet. that confidence on we utilize XXX% every core to serve have balance our they day, cash have customers products core

not and if instill know long. We that for the quarter, the And future. year one so, will I with that's to foreseeable in our ecosystem want when quarter, change, confidence two don't all customers. especially

could so down I little asking really bit so, that And question, appreciate we you a the more. drill on

Operator

next The comes line from ahead. you. JP Thank today Steven the from Please of Morgan. question Alexopoulos go

is line open. now Your

Steven Alexopoulos

to I on in tangible start want book was value, the $XX.XX which quarter.

beyond terms In wanted shouldn't quarter restructuring the the that to confirm reduce charge impairments just value? million additional baseline, out, new charges could called first or a $X expect we which further book tangible you of any in I

Alan Lane

ahead Steve, I'll that to Tony. Yes. Tony? and question over kick go

Tony Martino

Yes. that's always in previously, security and already impairment value. embedded tangible for respect Hey, for billion an $X.X with to sales. There's as as book share, tangible puts I book value this And takes we in indicated Steve. With recorded question. the per there. Thanks

losses tax of are million tangible into we've future it, disclosed. $XXX income. guide in As to it's Alan's there. and a And taken built that we is couple certainly indicated and example tax That's a to forward for there it's the offset because puts But early, value to terms deferred there forward book don't path that early but the provide carry really valuation give allowance guidance. try are available not times, another the we quarter takes, of in

guidance, it's early. the provide appreciate question. don't again, but So, We

Steven Alexopoulos

this don't morning, they a AML/BSA. Thanks, follow-up, for I the indicated but know session, then that question Okay. And in had Q&A Signature Tony. my if you on And call they guys the heard was said this an more not situation. see you specifically guys a as it not for relates of AML/BSA AML/BSA concern? Do off issue. way the an Silvergate, made to They it same FTX

Alan Lane

to I of unfortunately, just we're FTX a did going all related not the comment not on they the context have referenced for Steve, don't But, to Yes. so listen at to call, matters. Signature kind how chance it. I any get

my so, this focus just to we and core we're work kind all should other things doing out. stuff let perspective, of on our from And the business its ecosystem, and help way all that that of

Steven Alexopoulos

Thanks enough. for fair taking my questions. Okay,

Alan Lane

bet. You

Operator

next Rochester you. Thank Please question The from today comes from Compass David the ahead. line Point. of go

is Your open. line now

David Rochester

morning, Good Hey. guys.

had lot yields quarter the on spot would guidance you don't a parts and the sheet just can And that margin the want moving moving balance guys the You to I But, in some of the give know the give that be any fourth in you on at of first NIM. you're impact you securities sheet lines? costs have selling I that well. the already balance the helpful. XQ on average for would would of yield the be end think that great quarter happen major you've that the And as if forward. sold, to

Alan Lane

Tony. Good Yes. question Dave. to this I'll morning, over kick

Tony Martino

Thanks question, Yes. Dave. the for

cash So the that the we if think, the the yields -- and the funds rate. of speaking, are disclosures and in sheet, federal I the cash the line sheet look with securities balance -- overwhelmingly made, with again, at securities large components that balance given you are broadly

a indicated, in agency relation all subject as a asset the for portfolio we think types billion of weeks, out there sold about of two of and in the what going primarily first makeup securities sheet or year being I securities. are -- But bit backed fund's yield the And -- the rate. -- other is trend that's -- balance earning mortgage assets XX% I rate the to securities, you XX%, federal the left also book. what But, floating the to the evolves. backed And change about said, probably could mortgage little said, will were in $X.X issued to we've of what I mean, as as we portfolio, close With forward, we is, government and backed so and figure as floating I'll say of rate adjustable the of as yearend, bulk was But rate. our the securities, the higher.

So, but, as a quarter. can't much in little point time, in that's early as be bit this more could about clear, we provide sorry, at the

David Rochester

look talk appreciate follow-up. that. valuation DTA? just Are term profitability bigger of maybe outlook that basically you're that picture, guys I allowance And analysis negligible this predicting you How about more out Okay. you need do at is out then go? XXX% on the just implications one least far Can the how far And test? guys saying you near loss? then, for that does or a on valuation to Thanks. the

Alan Lane

You keep Tony? going, want to just

Tony Martino

Thanks Yes. Yes. Alan.

tax we asset got driven of valuation that -- losses tax or a that anticipate goes, incurred So balance allowance far some as Dave, near-term, as in $XXX the the in the that of million fourth so allowance deferred the earlier, we've in losses I and by mean we've it's as both, deferred accrued said quarter XXXX. I

is tax on ‘XX, one accrued year perspective, done realized of that's basis. a things losses allowance with a So, of from that the in by will be those year some those

XXX% every at could reevaluated it's income we've implying could So, that time, assessed probably allowance, this end. an be change end. you year into allowance that, point read in it much year not in valuation allowance every And that there's too taxable shouldn't XXXX. that beyond a But because

losses disclosed have -- tax from forward at as set stone carry tax we've it's So, XXX% a indefinite not federal those for And going forward. a perspective, are purposes. in

there's future so, value income. And there to taxable the there's that future extent

Operator

of from from Gosalia Manan comes Stanley. The line next Morgan the question today

Manan Gosalia

mentioned you're core the the also morning. in back number making I I half the a core custody also should the expense we into you know comp. think I over color of year, of the million you're exit how we what reduction quarters? that And reduction number next will the and that expense deck guess, drive the mentioned going all exiting couple appreciate -- we the million businesses, $X about incremental we to one-time that this as think you should the management in about as given expenses from slide $X headcount the cash

Alan Lane

to over to thing. it I going want Tony but I'm a one second, clarify turn in to just

We could which around certain some have adoption et products, are of not Ben's of products you not launch customer and to management exiting then as to you and move go the all services, assumption cash of the yet we those some that services through But, cetera, but are. reassess make the comments as cash when you time management just and back you services, contemplate disclosed have those certain products, those. you

And Ben as color We to more get But to we some don't of And so, provide our that to to customers. no wires, core individual folks. want expense notify enabled able we'll SEN XX/X to that our rely And our services. conversations mentioned, Tony, API to key to on be the et of appropriate the cash have the you cetera. be able I API back is That longer will the with have going still being that? operational anybody to customers all once to come do. and partners with but provide we think management -- want question, what want ahead wouldn't SEN, we're take

Tony Martino

$X headcount you million as the yes, was the save quarter we related guidance a provided to million $X that So, to indicated, per reduction.

year I into overhang appreciate, back a lot half were the ecosystem saying the quarter. were and of costs expenses, lot because, mean, the it embedded of to As in you the about our as we of coming other the core as we prepared a challenges towards year, there of the intentional in indicated relates are second new remarks. end can

vendor evaluating said, drive all evaluating contracts, we’re So, items that would we're those and products we're as different services, Alan core had expenses. of evaluating

yet half time guidance. so, as to and we good position a at the you not indicated to core categories base get intend for we're in expense point of this And a in second Thanks. do the year. to evaluate further give But, all look to

Manan Gosalia

move $XX the take it to million the base from assume and you million that fair remove would is then But, million, XQ, fair? $X expense that $X lower there? Is to from

Tony Martino

were we not you as increasing the headcount may throughout It's know, may mean, not or year. so because I straightforward

the of And the in those so, flight some of the quarter. at fourth quarter the at of beginning increases headcount beginning -- were

it's are are most many of lot always. moving takes, puts that it's So, And straightforward. things, there and there as parts not -- a like there's and

guidance this about give. but So, we all time, at appreciate the that's the can question,

Manan Gosalia

past then, has end XX it. that I question quarter? the a you have Got clients. meaningfully. the concentration the the XX% number that In just fourth from quick as Would side. assume gone that top down number about deposit of on And of your come the you've deposits of would mentioned

Alan Lane

Yes.

and kick Ben. can certainly more in it's to as do ready Let me over always provide Ben disclose sure base. a We'll in But, our customer to our on today. disclose when color this back I'm deposit XX-K probably little concentrations of detail we we're jump not bit filed.

anything So, to Ben, do you have add?

Ben Reynolds

Yes. That's right, Alan.

can you down So, corresponding the do I'm if category. in disclosing that you table the gone of deposits, when category that by the and going on sure we're But, that not at look customers planning see number shows number every they've forward.

certainly before, of confidence a industry. and of entire we've of we're times kind -- the concentrations, but as is seen so, crisis risk off what really said we've And many across mindful

I in segment across So, think every board that can the you probably deposits that are see from down. table,

this So, add beyond not can more much point. that we at

Operator

today Nance Goldman The from next of line question comes Will from the Sachs.

Will Nance

period the sheet. of XX% have into billion around looks sales take account in even balance sheet. So, I'm or the if end I it looking security quarter, you'll like $X.X of the wholesale And balance the first still around in at funding

I seems outside need more you done managing term, you balance sell in or far provide back flows, on profile securities sheet the in the either know line. from the order that want it you're sharp to than So, deposits you or towards near substantially the funding looking bring the have so deposit rebound and guidance to don't in to in but earmarked

that with, or that assuming what higher XX% how any regulators you funding wholesale was you are So, that plan correct you could level? guardrails to there. you to maybe and provide wrong about the down if I'm work than Are comfortable can and there me

Alan Lane

borrowings not deposits to I in CDs. let's to, general it's calls, have be didn't it if their say specific make that -- non-core that addressed when question I've alluded the like but way the certainly if follow-up which talk call term last is, is a the is, -- observation let's funding, whether couple I and core that in brokered this to Silvergate, their correct fair -- frame just think fact Well, ago, the the or said, about it weeks Q&A session you've banks And of excess it I just a you out Yes. is in funding, observation. wholesale of short in your I which on zoom

guidance. providing And any we're so, not further at this point,

are And so, about a I not don't balance it. back all it already, said want opinion the have necessarily security. made the is that sure future. of how go foreseeable to our how agency, government is adjustable that XXX% you balance I've I access for make you we portfolio everything is sponsored the just And going our government as all everybody, thinking managing that of managing to know indicative to comments And what either sheet but issued but agency repeat us portfolio, of or you're interpret it's might would rate. securities we're we're securities they customers about to expressing, it deposits. our for remains that to government And sheet and an that investment Tony do our overwhelmingly mentioned, their

sheet our position. So, we about good very balance feel current

Will Nance

of comment on of the Got dovetailing portfolio balance off on that. sheet. last kind maybe it. then you the And made Appreciate securities the

this of you've deposits at if forward in lot a the a lot we what, are been we maintaining the today. strategy different ahead, downside approximating in what digital like of know, of presents sold to of curve interest lot But risk, it in something back currency the you the kind see that's rate cash, You now a well, current looking -- normalized of duration think the thing non-interest seems sheet and profitable level bearing balance in one is guys of have deposits I past. all rates see

rate rate how So, of about with significantly which, are you maybe ability the to interest guys your exposure thinking position, funds type a higher Tony, about fed could hedge mitigating cash cash. -- talk you like kind downside

Alan Lane

do want take Tony, to this you Yeah. question?

Tony Martino

Yes.

inappropriate no, well, an So, observation. that's yes,

interest mitigate thing yes, in that we is got downward do have, derivatives say first and disclosed -- -- rates. in downward we've I'll moves As place to we've

So, that's it. obviously part of

with that for that But component got place that point balance reinforce said, all sheet or pledgeable to issued management our government to securities make in of an foreseeable important going to So, want government forward. of the they for as sure becomes future, also, customers. to we of strategy we've as relates being for kind the want NIM liquidity. I it backed, cash continue fully that But also agency Alan be

And of about in risk. so, continue place talked put proportions rate in that managing things years several be the all Perhaps place. we've we're change, those for interest we've to that but mindful

As Alan but don't outcomes we to try got we've the of said, we and of predict for the size plan all part strategy. rates, that derivatives the is that

Operator

The next Wells from the of go Shaw Jared question comes line from ahead. today Fargo. Please

now open. is Your line

Jared Shaw

a Tier X at capital, leverage move took obviously especially big I looking guess down.

in or X think Tier about ratio, there alternatives expectations commented rate trying at? Tier capital to X looking need rebuilding some be leverage double-digit get for closer be should terms the or in to that to your comments additional growth have that You of Is opening to enough that we organic to a other leverage going may satisfy or organically. raising

Alan Lane

to raise ask -- point a not might question. to But provide is on on Tony one I'm our But, the the this. balance based very of credit going ratios to asset. when the on to again, importantly that Tony low out if in sheet. to appreciate is and we're I important is X It's number capital But would of course, minute. average risk guidance unquote, Tier think and that continue Jared, which be our touch we reflective that, Yes. I based quote thing recognize ratio will capital. just risk one, going I extremely on comment robust,

a think quarter bit thunder. you into here. And it's so, want to really stealing without in detail? as anymore Tony, about address And do that Tony's move little more that we to important first the

Tony Martino

Thanks the for Yes. Jared. Thanks, Alan. question,

disclosed, So, on Alan in that the yes, ratio X.XX, prepared leverage average my the we $XX.X as X assets as But based Tier that at I billion. it's mentioned mentioned, sheet ended $XX approximately -- balance remarks. billion,

that So, $X.X sold the subsequent wholesale we've a an that on entry securities would the pro down -- X funding, had we reduction. basis guidance year implies of that end, then, forma that point above reduce further at a disclosure billion with And further Tier to capital imply with X%. or in event

leverage of the So, path terms ratio. step that's the rebuilding kind X Tier one of of in organic

Jared Shaw

sale, And -- from the guess flow cash on then, my the remaining quarterly just that follow-up, the expected what is what's the after I securities duration? the and portfolio,

Tony Martino

Yes.

we of years It's in So, X XX% I or weight third -- was mean, a again, what weight. at to ratios, disclosed capital duration, significant in risk risk mentioning an cash risk-based in And amount reduced. in substantially I as flow terms of four those X.X. to terms don't zero have X Alan to, the securities reference present at expected closer are -- of approximately now we handy, expected were quarter. had That's duration expected

change between third the So, end. quarter significant and fourth

Operator

Hallum. George today the next from Our Craig from line comes question Sutton of

George Sutton

of they this hear think that can de-emphasis that's Can to any the about additional importance a on Signature, continued that you Also of wanted you sense us in give you the to business. sense? did give Thank of us not and digital just of from the context scrutiny offboarding landscape, decision? is you. and you just call small indicate a you of a clearly bit to taken are assume clients relatively the make a are been trying the relative how this your you mentioned. doing I a suggested I number, to

Alan Lane

And before, let's of Yes. first of doing many to question. dispel But with just George, our now assets market cetera. in institutional is regulatory that types And requisite we for on I've that times to it frame such Bitcoin. going nine been time, to entire to for for said as if -- only. every this regulated intentionally essentially digital into These scrutiny, expanded you is. fully has participants went we Stablecoins, let's regulators single in the program now. and years. a in of at risk it regulation We time, with the coming will, scrutiny, Obviously, with our context as the the regulators Bitcoin your in focused this was our right looking what we've to the this terms are the But that space We were have part that Bitcoin of with XXXX. the management over is I'm describing say at -- this Ben are it et operating to invest to business this at and and additional business, as Ethereum, offering, business other pass been tenure very this that full of year. engaged just into year

-- would products any said. you to so, comment related trim really decisions making customers specific that do decisions further? not business like you But to and/or And as and we're scrutiny, you are Ben, any to

Ben Reynolds

Yes.

our decision of profitable of George. question, non-core think the an XXXX. business on in for It to some though. operating difficult a offboard choice it's thanks our a I example So, focus was It And was our customers.

you are any operational was Alan with a just over customer time, comments the smaller profitable aren't that they than they anyone being they compliance costs had serve. simply to that because or up up originally end with it even that associated Consistent business, significant what up every products. we customer end accumulating relationships isn't core As surprise with your end don't there probably making, using expected, and

want because and a are our not than overall smaller Maybe So these for while if value I'll and that relationships negative the less we expect there's to important our now non-core that to that platform. is customers, that of fee do be offboard we than tend the say -- some expect and send in thanks to expect working ever, to highlight clients last products. it to more metrics, deposits think be income with deliberate impact that But we are to core is the you significant adding I might thing use it'll question.

George Sutton

I'm flexibility know future is broader broader we none to flexibility So, the turned smart quickly to the my is grow just in Obviously, markets your related to us. crypto to curious in are you've enough that is, it have the curious past front Bitcoin aggressively, that potentially of had per Not market. saying about that the of the if the follow-up you very if could talk and move environment us if forward. have but higher. again se, just

Alan Lane

commenting leaner we cycles continue to will If the believe I for and our sure of George, And is this room happen. give retool and to makes to and in industry are services as and to us a we with kind agree providing go then have are on year to fair go. where and and this Yes. the for ecosystem. know when, four But past reduce will meaner their grow need critical one turns XXXX tie a might when to grow. do I predicting year-end. question market to And deposits for sheet earlier I'm that that fact the that not But wholesale funding, predict not them in of our it's again, mentioned, us sideways on tends might not to also we by when the you're the definition focused your around. that the room Ben that this we the questions be as customers was work But, I It's answer prologue, future. overall we to asking your ready a colleagues to business, it's balance I time comments. clearly, making composition impossible predict. of to deposits one the of at And that do will core we be if.

George Sutton

Perfect. Thanks, guys.

Operator

Alan concludes back Lane Thank call ahead. the question-and-answer to I'd like session, go you. so today's Please remarks. closing to This pass over any for

Alan Lane

we all I through our to to Well, of our for today providing right. Bailey. move just support you want again express great additional And All look thank forward for XXXX. joining just the we customers. everybody to as get that from we want appreciation Thank and very much, updates

everybody. you, day. thank Have a So, great

Operator

you Thank for all This conference concludes call. participation. today's your

your You now lines. disconnect may

Silvergate Capital (SI) 17 Jan 232022 Q4 Earnings call transcript