Research: Silvergate Capital

I am so annoyed with myself for not buying into this one sooner. It has been on my radar since July and for some reason I kept putting off looking at it in detail until they released earnings today. Their Silvergate Exchange Network (for digital currency clients) is acquiring customers at a faster rate, the resulting growth in NII is great and while its not the cheapest bank in the world at ~1.5x book after today’s pop, it is not ridiculous given how they have positioned themselves. Oh well, better late than never – argh.

• market cap of $386mm (Friday close)
• book value of $277mm – trades at 1.4x book
• Operate Silvergate Exchange Network
• proprietary, virtually instantaneous payment network for participants in the digital currency industry
• saw 68,361 transactions, volume of $36.7b – this is up 70% and 65% over Q220
• Digital currency fee income of $3.3mm – up 36% compared to Q220

• say they have over 200 prospective digital currency customers
• Digital currency deposits grew by $586mm to $2.1b in quarter – most of their deposits are digital curency, about 90%
• overall NII was down but that was because of no GOS:

• their fee income is exploding
• consider that net income for the quarter was $7mm and they had fee income from digital currencies of $3.2mm and that is increasing at $1mm per quarter right now
• meanwhile their non-interest expense barely moved, up about $150k qoq
• ROA was 1.13% in the quarter, ROE was 10.14% – these seem like decent numbers even if you are buying it at 1.5x book