Q3 2020 Silvergate Capital Corp Earnings Call

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Good morning, and welcome to the Silver Capital Corporation third quarter 2020 earnings Conference call.

During todays presentation, all parties will be in a listen only mode.

Following the presentation. The coffin find will be open for questions with instructions will follow at that time as a reminder, this conference call is being recorded I would like to turn the call over to Ms. Shannon The finance Investor Relations for Silver Gate. Please go ahead.

Thank you operator, and good morning, everyone. We appreciate your participation in our third quarter 2020 earnings call with me here today are only our president and Chief Executive Officer, Tony Marino, Our Chief Financial Officer, and bat Reynolds BBP in silver keep banks director of corporate development.

As a reminder, a telephonic replay of this call will be available through a lobby 59 P.M. eastern time on November nine 2020.

Access to the replay is also available on the Investor Relations section of our website. Additionally, a slide deck to complement today's discussion is available on the IR section of our website.

Before we begin let me remind everyone that this call may contain certain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 995. These include remarks about management's future expectations beliefs estimates plans and prospects such.

Such statements are subject to a variety of risks uncertainties and other factors included the Cobi 19 pandemic that could cause actual results to differ materially from those indicated or implied by such statements.

Such risks and other factors are set forth in our periodic and current reports filed with the Securities and Exchange Commission.

We do not undertake any duty to update such forward looking statements.

Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe are useful in evaluating our performance the.

Presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with the U.S. GAAP EPS.

Reconciliation of these non-GAAP measures to the most comparable GAAP measures can be found in our earnings release.

Oh Boy I will turn the call over to Alan.

Thank you Shannon and good morning, everyone.

Today I'll provide a high level overview of our operations before speaking to our results and the continued success, we are achieving growing our global payments platform. The silver grade exchange network or said.

I will then turn the call over to Tony who will provide a more detailed review of our third quarter financial results before opening the call for questions.

On previous earnings calls I've addressed the current environment and how we've optimized our workforce, while continuing to deliver uninterrupted service to our banking clients.

95% of our employees continue to work remotely.

I'd like to thank them once again for their continued hard work and efforts during such a challenging time.

The record results, we are achieving would not be possible without the dedicated commitment of our team.

Several years ago, we made the decision to invest in our own infrastructure, so that silver gay could compete and succeed in a digital world.

And what do we saw digital currency is emerging as an investable asset class, we doubled down on that decision by investing in the technology and regulatory compliance necessary to develop the fan.

The acceptance of the sand by the digital currency ecosystem is evident in our third quarter results, where our global payments platform achieved an incredible milestone having surpassed $100 billion in transfer volumes.

Three years from inception.

Our customers completed over $36 billion in San transfers during the third quarter alone it.

Exceeding the $32 billion that was completed during all of 2019.

This milestone further validates the sends competitive advantage and expanding network effect as we continue to add new customers to the platform.

As can be seen on slide four.

Net digital currency customers increased 23% year over year to 928 in the third quarter of 2020.

As compared to 756 in the year ago third quarter.

Looking forward, we continue to maintain a strong pipeline of potential new digital currency customers.

With more than 200 prospects either in the pipeline or Onboarding process.

Digital currency activity was very strong in the third quarter and the San handled a record 68361 transactions, representing a sequential increase of 70% as compared to the second quarter of 2020.

And then even more impressive year over year increase of 455% as compared to the year ago third quarter.

This strong growth also contributed to the 36% sequential increase in digital currency fee income to $3.3 million in the third quarter.

As compared to $2.4 million in the second quarter of 2020, and 106% increase as compared to 1.6 million in the third quarter of 2019.

These results clearly demonstrate the San strong network effect and the need for digital currency investors to beyond the said in order to efficiently transact in the digital currency ecosystem.

During the third quarter Bitcoin and other digital currency you saw strong price appreciation and an active trading environment, which we believe contributed to the increase in the number of transactions occurring on the center.

Further we saw digital currency deposits grow $586 million to $2.1 billion in the third quarter as customers maintained higher deposit balances in order to transact on the sand.

As we've seen in the past our digital currency deposit growth is not linear.

Factors, such as digital currency price appreciation trading volumes and volatility within the digital currency markets influenced deposit levels.

But we believe that as more fintech firms and corporate treasuries announced their investments in bitcoin the ecosystem as a whole will continue to expand and silver gate will continue to benefit.

Turning to send leverage which as a reminder allows customers of silver gay to obtain at U.S. dollar loans collateralized by bitcoin.

We continue to make significant progress.

We exited our pilot program at the end of the third quarter with approved lines of credit totaling $35.5 million compared to 22.5 million in the second quarter.

We anticipate a long growth trajectory for sand leverage and will judiciously expand credit availability to our customers over time.

We believe that prudent underwriting combined with the unique capabilities of the send to facilitate loan draws and repayments 24 hours a day seven days a week will enable silver gate to obtain attractive risk adjusted returns as we expand the offering.

Before turning the call over to Tony I thought I'd touch briefly on the key banking risk metrics that provide the foundation for our success.

We've always employed a disciplined and conservative credit culture, which is a key factor in our ability to navigate the recent economic duress with no loan losses and little in the way of loan loss provision expense.

Turning to interest rate risk, while we don't predict interest rates, we recognized some time ago that our net interest margin and profitability could be negatively impacted in a falling interest rate environment.

So in early 2019, we proactively address this risk with the interest rate.

Hedging strategy, we've discussed in the past.