Will Nance: So, I’m looking at the end of period balance sheet. And even if I take into account the security sales in the first quarter, it looks like you’ll still have around $5.3 billion in wholesale funding or around 50% of the balance sheet. So, I know you don’t want to provide guidance on deposit flows, but it seems from the outside looking in that either you’re managing the balance sheet towards the sharp rebound and deposits in the near term, or you need to sell substantially more securities than you have done or earmarked so far in order to bring the funding profile back in line. So, assuming that 50% wholesale funding was higher than you or the regulators are comfortable with, and maybe you can correct me if I’m wrong there. Are there any guardrails that you could provide about how you plan to work that down and to what level?
Alan Lane: Yes. Well, it’s a fair observation. And I think I’ve said, if I didn’t say it on the — in the Q&A session of the last call a couple weeks ago, I certainly addressed this question in follow-up calls, which is that your observation is correct when — if you just zoom out — and the way I frame it is, let’s not make it specific to Silvergate, but let’s just talk about the fact that in general banks like to have their core deposits in excess of their non-core funding, which is, you’ve alluded to, wholesale funding, whether that be short term borrowings or brokered CDs. And so, at this point, we’re not providing any further guidance. And so, the comments that you made about how you might interpret us managing our balance sheet is an opinion that you’re expressing, but it’s not necessarily indicative of how we’re thinking about it.
I would just go back to everything I’ve said already, and I don’t want to repeat it all for everybody, but we are managing the balance sheet to make sure that our customers know that they have access to a 100% of their deposits. And we’re going to do that for the foreseeable future. And as Tony mentioned, our securities portfolio, what remains of our securities portfolio is overwhelmingly adjustable rate. And it is all government agency, either government issued or government agency sponsored investment security. So, we feel very good about our current balance sheet position.
Will Nance: Got it. Appreciate that. And then maybe kind of dovetailing off of the last comment you made on the securities portfolio on the balance sheet. You guys have been profitable at this level of non-interest bearing deposits in the past. But I think one thing that’s different now is you’ve sold a lot of the duration in the balance sheet and looking ahead, it seems like the strategy of maintaining a lot of digital currency deposits are all in cash, presents a lot of downside interest rate risk, if we see rates kind of normalized back to — well, something approximating what, you know, what we see in the current forward curve today. So, how are you guys thinking about mitigating downside interest rate exposure with a significantly higher cash position, which, Tony, maybe you could talk about the — your ability to hedge kind of like fed funds rate type cash.
Alan Lane: Yeah. Tony, do you want to take this question?
Tony Martino: Yes. So, well, yes, no, that’s an inappropriate observation. As — first thing I’ll say is yes, we do have, and we’ve disclosed that we’ve got derivatives in place to mitigate downward — downward moves in interest rates. So, that’s obviously part of it. So, that that becomes an important component of balance sheet management strategy as it relates to NIM going forward. But also, as Alan said, for the foreseeable future, we want to make sure that we’ve got cash in place for customers. But I kind of want to reinforce the point that with all of our securities being government issued or government agency backed, they also continue to be fully pledgeable for liquidity. And so, all those things that we’ve put in place that we’ve talked about for several years continue to be in place.
Perhaps the proportions change, but we’re mindful of managing interest rate risk. As Alan said, we don’t predict rates, but we try to plan for all the outcomes and the size of the derivatives that we’ve got is part of that strategy.
Operator: The next question today comes from the line of Jared Shaw from Wells Fargo. Please go ahead. Your line is now open.
Jared Shaw: I guess looking at capital, especially Tier 1 leverage took obviously a big move down. You commented in the opening comments about rebuilding that organically. Is that organic growth rate going to be enough to satisfy your expectations or need for Tier 1 leverage in terms of trying to get closer to a double-digit Tier 1 leverage ratio, or should we think that there may have to be some additional capital raising or other alternatives looking at?
Alan Lane: Yes. Jared, I appreciate the question. I’m going to ask Tony to comment in just a minute. But the one thing that I would point out is — and again, of course, we’re not going to provide guidance on if and when we might quote unquote, raise capital. But, I think Tony will touch on this. It’s important to recognize that, number one, our risk based capital ratios continue to be extremely robust, which is reflective of the very low credit risk on our balance sheet. But importantly that Tier 1 ratio is based on average asset. And so, it’s really important to think about that as we move into the first quarter here. And without stealing anymore Tony’s thunder. Tony, do you want to address that in a little bit more detail?
Tony Martino: Yes. Thanks, Alan. Thanks for the question, Jared. So, yes, as Alan mentioned, that — the Tier 1 leverage ratio that we disclosed, 5.36, it’s based on average assets approximately $15 billion, as I mentioned in my prepared remarks. But the balance sheet ended at $11.3 billion. So, on a pro forma basis with the Tier 1 capital that we had at year end, that would imply an entry point above 7%. And then, with the further guidance of — or subsequent event disclosure that we’ve sold down $1.5 billion in securities to reduce wholesale funding, that implies a further reduction. So, that’s kind of step one in terms of the organic path of rebuilding the Tier 1 leverage ratio.
Jared Shaw: And then, my follow-up, I guess just on the securities portfolio, what is the — after the sale, what’s the expected cash flow quarterly from that and the remaining duration?
