Media Contact: Jesse Westbrook
Email: [email protected]
Cell: 202-297-1632
LA JOLLA, CA— Today, Silvergate released the following statement after agreeing to settlements with the Board of Governors of the Federal Reserve System (Federal Reserve), the California Department of Financial Protection and Innovation (DFPI), and the Securities and Exchange Commission (SEC):
“In early March 2023, Silvergate made a responsible decision to liquidate voluntarily and without government assistance. As of November 2023, all deposits had been repaid to banking customers and Silvergate ceased banking operations soon after. The settlements announced today, which will facilitate the surrender of Silvergate’s bank charter, are part of the Bank’s continued orderly wind down and successfully conclude investigations by the Federal Reserve, DFPI, and SEC.”
LA JOLLA, Calif. – Silvergate Capital Corporation (“Silvergate” or the “Company”), the holding company for Silvergate Bank (the “Bank”), today announced that, in connection with the previously disclosed plan to wind down the operations of and voluntarily liquidate the Bank in an orderly manner and in accordance with applicable regulatory processes (the “Bank Liquidation”), the Bank has fully repaid all of its remaining deposit liabilities, other than de minimis amounts amounting to less than $10,000. Every Bank depositor has been fully repaid without risk to the Deposit Insurance Fund. Silvergate continues to focus on implementing the Bank Liquidation. After the Bank repaid all deposits in full, the Company, on a consolidated basis, held excess cash and cash equivalent balances.
While the Company currently holds positive cash and cash equivalent balances, the Company has contingent liabilities related to, among other things, regulatory matters and other inquiries and investigations that are pending with respect to the Company and the Bank, potential liabilities resulting from various litigation with respect to the Company (including private litigation) and the Bank Liquidation, and is unable to quantify the amounts of such contingent liabilities. In addition, the Company has expenses necessary for the operation of the Company and/or the Bank, employee benefits and compensation and fees and expenses of professionals retained by the Company in connection with the Bank Liquidation and such regulatory matters, investigations and litigation. Therefore, there can be no assurance of the Company’s ability to maintain positive cash and cash equivalent balances or adequate capital and reserves through the Bank Liquidation.
Forward-Looking Statements
Statements in this press release may constitute forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect our current views with respect to, among other things, the Bank Liquidation and the regulatory and other inquiries and investigations that are pending with respect to the Company and the Bank, future events and our financial performance (with respect to maintaining certain levels of cash and cash equivalents, if any). These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “projection,” “forecast,” “goal,” “target,” “would,” “aim” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry and management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. The inclusion of these forward-looking statements should not be regarded as a representation by us or any other person that such expectations, estimates and projections will be achieved. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. For information about other important factors that could cause actual results to differ materially from those discussed in the forward-looking statements contained in this release, please refer to the Company’s public reports filed with the Securities and Exchange Commission.
Any forward-looking statement speaks only as of the date of this press release, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether because of new information, future developments or otherwise, except as required by law. New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence. In addition, we cannot assess the impact of each risk and uncertainty on our business or the extent to which any risk or uncertainty, or combination of risks and uncertainties, may cause actual results to differ materially from those contained in any forward-looking statements.
LA JOLLA, Calif.–(BUSINESS WIRE)– Silvergate Capital Corporation (“Silvergate” or “Company”) (NYSE:SI), the holding company for Silvergate Bank (“Bank”), today announced that on March 17, 2023 it received a letter from the New York Stock Exchange (the “NYSE”) notifying the Company that it is not in compliance with the NYSE’s continued listing standards given the Company failed to timely file its Annual Report on Form 10-K for the year ended December 31, 2022. Although Company management has been working diligently to complete required information for the Form 10-K, and a substantial part of such information has been completed, the Company needs additional time to complete tasks related to its Form 10-K and its independent registered public accounting firm requires more time to obtain further information from the Company and complete certain audit procedures.
The NYSE will monitor the status of the Company’s late filing and related public disclosures for up to a six-month period from its due date. If the Company fails to file its delayed filing and has any subsequent delayed filings within six months from the filing due date, the NYSE may, in its sole discretion, allow the Company’s securities to trade for up to an additional six months depending on specific circumstances, as outlined in Section 802.01E of the Listed Company Manual. If the NYSE determines that an additional six-month trading period is not appropriate, suspension and delisting procedures will commence.
Receipt of the NYSE’s letter does not have any immediate effect on the listing of the Company’s securities on the NYSE, except that until the Company regains compliance with the NYSE’s listing standards, an “LF” indicator will be affixed to the Company’s trading symbols.
Forward Looking Statements
This press release contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. There are or will be important factors that could cause the Company’s actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following: the ability of the Company to wind down the Bank’s operations and liquidate the Bank in an orderly and timely manner and to fully repay customers with deposits; the Company’s ability to successfully resolve claims and preserve any residual value of its assets; the Company’s or the Bank’s ability to obtain applicable regulatory or governmental approvals relating to the wind down and liquidation process; the Company’s ability to comply with the heightened regulatory scrutiny of banking institutions that provide products and services to the digital asset industry; risks and uncertainties, including potential liability and restrictions on the Company’s historical business, resulting from various litigation (including private litigation) and regulatory and other inquiries and investigations against or with respect to the Company, investigations from our banking regulators, congressional inquiries and investigations from the U.S. Department of Justice; the timing and results of our additional procedures and documentation and the completion of audit procedures by our independent registered public accounting firm; the Company’s ability to file its Form 10-K and future SEC reports on a timely basis; the Company’s assessment in accordance with applicable accounting rules regarding the Company’s ability to continue as a going concern for the twelve months following the issuance of its financial statements; the possibility that the Company and the ongoing review by the Company’s independent registered public accounting firm may identify errors or control deficiencies with respect to the Company’s internal controls over financial reporting; the Company’s ability to remediate any possible material weaknesses; and other risk factors set forth in the Company’s SEC filings. The inclusion of these forward-looking statements should not be regarded as a representation by us or any other person that such expectations, estimates and projections will be achieved.
Investor Relations:
Edelman Smithfield for Silvergate
(858) 200-3782
[email protected]
Media:
Edelman Smithfield for Silvergate
[email protected]Source: Silvergate Capital Corporation
LA JOLLA, Calif.–(BUSINESS WIRE)– Silvergate Capital Corporation (“Silvergate” or “Company”) (NYSE:SI), the holding company for Silvergate Bank (“Bank”), today announced its intent to wind down operations and voluntarily liquidate the Bank in an orderly manner and in accordance with applicable regulatory processes.
In light of recent industry and regulatory developments, Silvergate believes that an orderly wind down of Bank operations and a voluntary liquidation of the Bank is the best path forward. The Bank’s wind down and liquidation plan includes full repayment of all deposits. The Company is also considering how best to resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets.
In connection with the above: Centerview Partners LLC is acting as financial advisor, Cravath, Swaine & Moore LLP is acting as legal advisor and Strategic Risk Associates is providing transition project management assistance.
In addition, Silvergate Bank made a decision to discontinue the Silvergate Exchange Network (SEN), which it announced on March 3, 2023 on its public website. All other deposit-related services remain operational as the Company works through the wind down process. Customers will be notified should there be any further changes.
Forward Looking Statements
This press release contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. There are or will be important factors that could cause the Company’s actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following: the ability of the Company to wind down the Bank’s operations and liquidate the Bank in an orderly and timely manner and to fully repay customer deposits; the Company’s ability to successfully resolve claims and preserve any residual value of its assets; the Company’s or the Bank’s ability to obtain applicable regulatory or governmental approvals relating to the wind down and liquidation process; the Company’s ability to comply with the heightened regulatory scrutiny of banking institutions that provide products and services to the digital asset industry; risks and uncertainties, including potential liability and restrictions on the Company’s historical business, resulting from various litigation (including private litigation) and regulatory and other inquiries and investigations against or with respect to the Company, investigations from our banking regulators, congressional inquiries and investigations from the U.S. Department of Justice; the timing and results of our additional procedures and documentation and the completion of audit procedures by our independent registered public accounting firm; the Company’s ability to file its Form 10-K and future SEC reports on a timely basis; the Company’s assessment in accordance with applicable accounting rules regarding the Company’s ability to continue as a going concern for the twelve months following the issuance of its financial statements; the possibility that the Company and the ongoing review by the Company’s independent registered public accounting firm may identify errors or control deficiencies with respect to the Company’s internal controls over financial reporting; the Company’s ability to remediate any possible material weaknesses; and other risk factors set forth in the Company’s SEC filings. The inclusion of these forward-looking statements should not be regarded as a representation by us or any other person that such expectations, estimates and projections will be achieved.
Investor Relations:
Edelman Smithfield for Silvergate
(858) 200-3782
[email protected]
Media:
Edelman Smithfield for Silvergate
[email protected]Source: Silvergate Capital Corporation
The Company’s Board of Directors will re-evaluate the payment of quarterly dividends as market conditions evolve.
About Silvergate
Silvergate Capital Corporation (NYSE: SI) is the leading provider of innovative financial infrastructure solutions and services for the digital asset industry. The Company’s real-time payments platform, known as the Silvergate Exchange Network, is at the heart of its customer-centric suite of payments, lending and funding solutions serving digital asset companies and investors around the world. Silvergate is enabling digital asset markets and reshaping global commerce for a digital asset future.
Investor Relations:
Edelman Smithfield for Silvergate
(858) 200-3782
[email protected]
Media:
Edelman Smithfield for Silvergate
[email protected]
Source: Silvergate Capital Corporation
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]]>Silvergate’s deposit relationship with Genesis was less than $2.5 million as of both December 31, 2022 and January 19, 2023. Genesis is not a custodian for Silvergate’s bitcoin-collateralized SEN Leverage loans and Silvergate has no outstanding loans to nor investments in Genesis.
While this continues to be a turbulent time in the digital asset industry, Silvergate’s exposure to Genesis is minimal and customers’ deposits are, and have always been, safely held.
About Silvergate
Silvergate Capital Corporation (NYSE: SI) is the leading provider of innovative financial infrastructure solutions and services for the digital asset industry. The Company’s real-time payments platform, known as the Silvergate Exchange Network, is at the heart of its customer-centric suite of payments, lending and funding solutions serving digital asset companies and investors around the world. Silvergate is enabling digital asset markets and reshaping global commerce for a digital asset future.
View source version on businesswire.com: https://www.businesswire.com/news/home/20230120005474/en/
Investor Relations:
Edelman Smithfield for Silvergate
(858) 200-3782
[email protected]
Media:
Edelman Smithfield for Silvergate
[email protected]
Source: Silvergate Capital Corporation
]]>Fourth Quarter 2022 Commentary
During the fourth quarter of 2022, the digital asset industry experienced a transformational shift, with significant over-leverage in the industry leading to several high-profile bankruptcies. These dynamics created a crisis of confidence across the ecosystem and led many industry participants to shift to a “risk off” position across digital asset trading platforms. In turn, the Company saw significant outflows of deposits during the quarter and took several actions to maintain cash liquidity. The Company initially utilized wholesale funding, and subsequently sold debt securities to accommodate sustained lower deposit levels and maintain its highly liquid balance sheet.
As Silvergate prepares for what it expects will be a sustained period of lower deposits, it is taking several actions to help ensure the business is resilient, including managing its expense base and evaluating its product portfolio and customer relationships going forward. In addition, Silvergate has made the difficult decision to substantively reduce its workforce in order to account for the economic realities facing its business and the digital asset industry today.
Alan Lane, chief executive officer of Silvergate, commented, “While we are taking decisive actions to navigate the current environment, our mission has not changed. We believe in the digital asset industry, and we remain focused on providing value-added services for our core institutional customers. To that end, we are committed to maintaining a highly liquid balance sheet with a strong capital position.”
Fourth Quarter 2022 Highlights
- Net loss attributable to common shareholders for the quarter was $1.0 billion, or $33.16 loss per common share, compared to net income of $40.6 million, or $1.28 per diluted share, for the third quarter of 2022, and net income of $18.4 million, or $0.66 per diluted share, for the fourth quarter of 2021
- Digital asset customers were 1,620 at December 31, 2022, compared to 1,677 at September 30, 2022, and 1,381 at December 31, 2021
- The Silvergate Exchange Network (“SEN”) handled $117.1 billion of U.S. dollar transfers in the fourth quarter of 2022, an increase of 4% compared to $112.6 billion in the third quarter of 2022, and a decrease of 47% compared to $219.2 billion in the fourth quarter of 2021
- Total SEN Leverage commitments were $1.1 billion at December 31, 2022, compared to $1.5 billion at September 30, 2022, and $570.5 million at December 31, 2021
- Digital asset customer related fee income for the quarter was $6.6 million, compared to $7.9 million for the third quarter of 2022, and $9.3 million for the fourth quarter of 2021
- Average digital asset customer deposits were $7.3 billion during the fourth quarter of 2022, compared to $12.0 billion during the third quarter of 2022
Full Year 2022 Highlights
- Net loss attributable to common shareholders for the year ended December 31, 2022 was $948.7 million, or $30.07 loss per common share, compared to net income of $75.5 million, or $2.91 per diluted share for the year ended December 31, 2021
- The SEN handled $563.3 billion of U.S. dollar transfers for the year ended December 31, 2022, compared to $787.4 billion for the year ended December 31, 2021
- Digital asset customer related fee income for the year ended December 31, 2022 was $32.2 million, compared to $35.8 million for the year ended December 31, 2021
| As of or for the Three Months Ended | ||||||||||||
| December 31, 2022 | September 30, 2022 | December 31, 2021 | ||||||||||
| Financial Highlights | (Dollars in thousands, except per share data) | |||||||||||
| Net (loss) income attributable to common shareholders | $ | (1,049,917 | ) | $ | 40,640 | $ | 18,375 | |||||
| Adjusted net income available to common shareholders(1) | $ | 15,124 | $ | 40,640 | $ | 18,375 | ||||||
| Diluted (loss) earnings per common share | $ | (33.16 | ) | $ | 1.28 | $ | 0.66 | |||||
| Adjusted earnings per diluted share(1) | $ | 0.48 | $ | 1.28 | $ | 0.66 | ||||||
| Return on average assets (ROAA)(2) | (27.83 | ) % | 1.04 | % | 0.50 | % | ||||||
| Adjusted return on average assets(1)(2) | 0.40 | % | 1.04 | % | 0.50 | % | ||||||
| Return on average common equity (ROACE)(2) | (409.02 | ) % | 12.99 | % | 7.25 | % | ||||||
| Adjusted return on average common equity(1)(2) | 5.89 | % | 12.99 | % | 7.25 | % | ||||||
| Net interest margin(2)(3) | 1.54 | % | 2.21 | % | 1.11 | % | ||||||
| Cost of deposits(2) | 0.77 | % | 0.16 | % | 0.00 | % | ||||||
| Cost of funds(2) | 1.76 | % | 0.28 | % | 0.01 | % | ||||||
| Efficiency ratio(4) | (28.61 | ) % | 37.11 | % | 52.08 | % | ||||||
| Adjusted efficiency ratio(1)(2) | 63.30 | % | 37.11 | % | 52.08 | % | ||||||
| Total assets | $ | 11,355,553 | $ | 15,467,340 | $ | 16,005,495 | ||||||
| Total deposits | $ | 6,296,550 | $ | 13,238,426 | $ | 14,290,628 | ||||||
| Book value per common share | $ | 12.93 | $ | 35.94 | $ | 46.55 | ||||||
| Tier 1 leverage ratio | 5.36 | % | 10.71 | % | 11.07 | % | ||||||
| Total risk-based capital ratio | 57.26 | % | 46.63 | % | 57.08 | % | ||||||
| Year Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Financial Highlights | (Dollars in thousands, except per share data) | |||||||
| Net (loss) income attributable to common shareholders | $ | (948,662 | ) | $ | 75,512 | |||
| Adjusted net income available to common shareholders(1) | $ | 116,379 | $ | 75,512 | ||||
| Diluted (loss) earnings per common share | $ | (30.07 | ) | $ | 2.91 | |||
| Adjusted earnings per diluted share(1) | $ | 3.69 | $ | 2.91 | ||||
| Return on average assets (ROAA) | (5.97 | ) % | 0.66 | % | ||||
| Adjusted return on average assets(1) | 0.73 | % | 0.66 | % | ||||
| Return on average common equity (ROACE) | (75.54 | ) % | 9.32 | % | ||||
| Adjusted return on average common equity(1) | 9.27 | % | 9.32 | % | ||||
| Net interest margin(3) | 1.71 | % | 1.20 | % | ||||
| Cost of deposits | 0.18 | % | 0.00 | % | ||||
| Cost of funds | 0.50 | % | 0.01 | % | ||||
| Efficiency ratio(4) | (54.62 | ) % | 51.06 | % | ||||
| Adjusted efficiency ratio(1) | 44.93 | % | 51.06 | % | ||||
| ________________________ | ||
| (1) | See “Non-GAAP Financial Measures” for further information and reconciliation of these metrics. | |
| (2) | Data has been annualized. | |
| (3) | Net interest margin is a ratio calculated as net interest income divided by average interest earning assets for the same period. For the three and twelve months ended December 31, 2021, net interest margin ratio is calculated on a fully taxable equivalent basis for interest income on tax-exempt securities using the federal statutory tax rate of 21.0%. As a result of the Company recording losses in the fourth quarter of 2022 and full year 2022, the income from tax-exempt securities in these periods does not include any adjustments for taxable equivalent basis. | |
| (4) | Efficiency ratio is calculated by dividing noninterest expenses by net interest income plus noninterest income. | |
Digital Asset Initiative
At December 31, 2022, the Company’s digital asset customers were 1,620 compared to 1,677 at September 30, 2022, and 1,381 at December 31, 2021. As the Company prepares for what it expects will be a sustained period of transformation, it is taking several actions to help ensure the business is resilient, including offboarding certain non-core customers and eliminating a portion of its product portfolio. As a result of these efforts, the Company is assessing its pipeline of prospective digital asset customers. For the fourth quarter of 2022, $117.1 billion of U.S. dollar transfers occurred on the SEN, a 4% increase from $112.6 billion transfers in the third quarter of 2022, and a decrease of 47% compared to $219.2 billion in the fourth quarter of 2021.
Results of Operations, Quarter Ended December 31, 2022
Net Interest Income and Net Interest Margin Analysis (Taxable Equivalent Basis)
The Company’s securities portfolio included tax-exempt municipal bonds with tax-exempt income. As a result of the Company recording losses in the fourth quarter of 2022 and full year 2022, the income from tax-exempt securities in these periods does not include any adjustments for taxable equivalent basis. For prior years, net interest income, net interest spread and net interest margin are presented on a taxable equivalent basis based on the federal statutory tax rate of 21.0%.
Net interest income on a taxable equivalent basis totaled $53.7 million for the fourth quarter of 2022, compared to $80.9 million for the third quarter of 2022, and $40.2 million for the fourth quarter of 2021.
Compared to the third quarter of 2022, net interest income decreased $27.2 million due to increased interest expense, partially offset by increased interest income driven by higher yields across all interest earning asset categories. Average total interest earning assets decreased by $0.7 billion for the fourth quarter of 2022 compared to the third quarter of 2022, primarily due to decreased securities and loans balances. The average yield on interest earning assets increased from 2.47% for the third quarter of 2022 to 3.27% for the fourth quarter of 2022, with the most significant impacts due to higher yields on securities and interest earning deposits in other banks. Average interest bearing liabilities increased $4.4 billion for the fourth quarter of 2022 compared to the third quarter of 2022, due to the significantly higher utilization of short-term borrowings and brokered certificates of deposit. The average rate on total interest bearing liabilities increased from 2.19% for the third quarter of 2022 to 3.87% for the fourth quarter of 2022, primarily due to an increase in interest rates on short-term borrowings and brokered certificates of deposit.
Compared to the fourth quarter of 2021, net interest income increased $13.5 million due to increased interest income, with the largest driver being higher yields on interest earning assets, offset by increased interest expense. Average total interest earning assets decreased by $0.6 billion for the fourth quarter of 2022 compared to the fourth quarter of 2021, primarily due to decreased interest earning deposits in other banks and loan balances partially offset by an increase in securities balances. The average yield on total interest earning assets increased from 1.11% for the fourth quarter of 2021 to 3.27% for the fourth quarter of 2022, primarily due to overall higher yields resulting from increased interest rates. Average interest bearing liabilities increased $6.1 billion for the fourth quarter of 2022 compared to the fourth quarter of 2021, due to higher average balances on short-term borrowings and brokered certificates of deposit. The average rate on total interest bearing liabilities increased from 1.17% for the fourth quarter of 2021 to 3.87% for the fourth quarter of 2022, primarily due to the impact of increased interest rates on short-term borrowings.
Net interest margin for the fourth quarter of 2022 was 1.54%, compared to 2.21% for the third quarter of 2022, and 1.11% for the fourth quarter of 2021. The decrease in net interest margin compared to the third quarter of 2022 was primarily due to higher interest expense associated with short-term borrowings and brokered certificates of deposit. The increase in net interest margin compared to the fourth quarter of 2021 was primarily due to higher yields on adjustable rate securities, interest earning assets in other banks and loans, partially offset by higher borrowing costs associated with short-term borrowings and brokered certificates of deposit.
| Three Months Ended | ||||||||||||||||||||||||||||
| December 31, 2022 | September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||
| AverageOutstandingBalance | InterestIncome/Expense | Average Yield/ Rate | AverageOutstandingBalance | InterestIncome/Expense | AverageYield/Rate | AverageOutstandingBalance | InterestIncome/Expense | AverageYield/Rate | ||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||
| Interest earning assets: | ||||||||||||||||||||||||||||
| Interest earning deposits in other banks | $ | 2,804,816 | $ | 27,395 | 3.88 | % | $ | 1,324,361 | $ | 8,001 | 2.40 | % | $ | 5,282,661 | $ | 2,166 | 0.16 | % | ||||||||||
| Taxable securities | 7,856,510 | 52,363 | 2.64 | % | 8,868,639 | 47,401 | 2.12 | % | 5,735,932 | 10,178 | 0.70 | % | ||||||||||||||||
| Tax-exempt securities(1) | 1,972,899 | 12,279 | 2.47 | % | 2,889,391 | 14,412 | 1.98 | % | 1,728,862 | 9,454 | 2.17 | % | ||||||||||||||||
| Loans(2)(3) | 1,085,757 | 21,046 | 7.69 | % | 1,407,290 | 20,663 | 5.83 | % | 1,641,345 | 17,892 | 4.32 | % | ||||||||||||||||
| Other | 126,382 | 1,039 | 3.26 | % | 62,835 | 289 | 1.82 | % | 34,490 | 777 | 8.94 | % | ||||||||||||||||
| Total interest earning assets | 13,846,364 | 114,122 | 3.27 | % | 14,552,516 | 90,766 | 2.47 | % | 14,423,290 | 40,467 | 1.11 | % | ||||||||||||||||
| Noninterest earning assets | 1,119,827 | 942,110 | 295,841 | |||||||||||||||||||||||||
| Total assets | $ | 14,966,191 | $ | 15,494,626 | $ | 14,719,131 | ||||||||||||||||||||||
| Liabilities and Shareholders’ Equity | ||||||||||||||||||||||||||||
| Interest bearing liabilities: | ||||||||||||||||||||||||||||
| Interest bearing deposits | $ | 1,958,921 | $ | 18,290 | 3.70 | % | $ | 1,000,615 | $ | 5,221 | 2.07 | % | $ | 77,564 | $ | 27 | 0.14 | % | ||||||||||
| Short-term borrowings | 4,212,772 | 41,862 | 3.94 | % | 769,565 | 4,399 | 2.27 | % | 12 | — | 0.00 | % | ||||||||||||||||
| Subordinated debentures | 15,857 | 281 | 7.03 | % | 15,854 | 258 | 6.46 | % | 15,843 | 249 | 6.24 | % | ||||||||||||||||
| Total interest bearing liabilities | 6,187,550 | 60,433 | 3.87 | % | 1,786,034 | 9,878 | 2.19 | % | 93,419 | 276 | 1.17 | % | ||||||||||||||||
| Noninterest bearing liabilities: | ||||||||||||||||||||||||||||
| Noninterest bearing deposits | 7,432,838 | 12,139,522 | 13,377,552 | |||||||||||||||||||||||||
| Other liabilities | 133,787 | 134,164 | 49,023 | |||||||||||||||||||||||||
| Shareholders’ equity | 1,212,016 | 1,434,906 | 1,199,137 | |||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 14,966,191 | $ | 15,494,626 | $ | 14,719,131 | ||||||||||||||||||||||
| Net interest spread(4) | (0.60 | ) % | 0.28 | % | (0.06 | ) % | ||||||||||||||||||||||
| Net interest income, taxable equivalent basis | $ | 53,689 | $ | 80,888 | $ | 40,191 | ||||||||||||||||||||||
| Net interest margin(5) | 1.54 | % | 2.21 | % | 1.11 | % | ||||||||||||||||||||||
| Reconciliation to reported net interest income: | ||||||||||||||||||||||||||||
| Adjustments for taxable equivalent basis | — | — | (1,985 | ) | ||||||||||||||||||||||||
| Net interest income, as reported | $ | 53,689 | $ | 80,888 | $ | 38,206 | ||||||||||||||||||||||
| ________________________ | ||
| (1) | Interest income on tax-exempt securities is presented on a taxable equivalent basis using the federal statutory tax rate of 21.0% for the three months ended December 31, 2021. There were no adjustments to taxable equivalent basis for the three months ended December 31, 2022 or September 30, 2022. | |
| (2) | Loans include nonaccrual loans and loans held-for-sale, net of deferred fees and before allowance for loan losses. | |
| (3) | Interest income includes amortization of deferred loan fees, net of deferred loan costs. | |
| (4) | Net interest spread is the difference between interest rates earned on interest earning assets and interest rates paid on interest bearing liabilities. | |
| (5) | Net interest margin is a ratio calculated as annualized net interest income divided by average interest earning assets for the same period. For the three months ended December 31, 2021, net interest margin ratio is calculated on a fully taxable equivalent basis for interest income on tax-exempt securities using the federal statutory tax rate of 21.0%. | |
Provision (Reversal) for Loan Losses
The Company recorded a $0.5 million reversal of provision for loan losses for the fourth quarter of 2022, compared to a $0.6 million reversal of provision for the third quarter of 2022 and no provision for the fourth quarter of 2021 as a result of management’s assessment of the level of the allowance for loan losses, and the lower amount and change in mix of the loan portfolio, among other factors.
Noninterest Income (Loss)
Noninterest loss for the fourth quarter of 2022 was $887.3 million, compared to noninterest income of $8.5 million for the third quarter of 2022 and $11.1 million for the fourth quarter of 2021. The decline in the fourth quarter was due to losses on securities of $751.4 million and losses on derivatives of $8.7 million resulting from sale of $5.2 billion of debt securities and related derivatives that took place during the quarter. In addition, the Company recorded a $134.5 million impairment charge related to an estimated $1.7 billion of securities it expects to sell in the first quarter of 2023 to reduce borrowings.
| Three Months Ended | |||||||||||
| December 31, 2022 | September 30, 2022 | December 31, 2021 | |||||||||
| (Dollars in thousands) | |||||||||||
| Noninterest income: | |||||||||||
| Deposit related fees | $ | 6,623 | $ | 7,953 | $ | 9,378 | |||||
| Mortgage warehouse fee income | 167 | 482 | 684 | ||||||||
| (Loss) gain on securities, net | (885,807 | ) | — | 56 | |||||||
| (Loss) gain on derivatives, net | (8,699 | ) | — | 928 | |||||||
| Loss on sale of loans, net | (46 | ) | (329 | ) | — | ||||||
| Other income | 495 | 348 | 9 | ||||||||
| Total noninterest (loss) income | $ | (887,267 | ) | $ | 8,454 | $ | 11,055 | ||||
Noninterest Expense
Noninterest expense totaled $238.5 million for the fourth quarter of 2022, an increase of $205.3 million, or 619.4%, compared to the third quarter of 2022, and an increase of $212.8 million, or 829.6%, compared to the fourth quarter of 2021. The increase in noninterest expense compared to the prior quarter was primarily due to a $196.2 million impairment charge on developed technology assets acquired earlier in the year. In the fourth quarter of 2022, the Company determined that based on recent changes in market conditions of the digital asset industry, the likelihood of the launch of a blockchain-based payment solution was no longer imminent and performed an impairment analysis resulting in the impairment charge. In addition, noninterest expense increased due to a $7.1 million increase in salaries and benefits expense due in large part to a $3.7 million restructuring charge related to exiting the mortgage warehouse lending product during the fourth quarter of 2022. The restructuring costs primarily consist of severance and employee benefits.
The increase in noninterest expense from the fourth quarter of 2021 was primarily driven by the impairment charge discussed above and an increase in salaries and employee benefits attributable to increased headcount prior to December 2022, as well as increases in communications and data processing, and professional services, all of which supported organic growth of the Company’s strategic initiatives. This was partially offset by a decrease in federal deposit insurance expense due to a lower growth rate in deposit levels.
| Three Months Ended | |||||||||
| December 31, 2022 | September 30, 2022 | December 31, 2021 | |||||||
| (Dollars in thousands) | |||||||||
| Noninterest expense: | |||||||||
| Salaries and employee benefits | $ | 26,707 | $ | 19,632 | $ | 13,815 | |||
| Occupancy and equipment | 850 | 822 | 728 | ||||||
| Impairment of intangible assets | 196,223 | — | — | ||||||
| Communications and data processing | 3,306 | 3,210 | 1,862 | ||||||
| Professional services | 6,112 | 4,314 | 2,994 | ||||||
| Federal deposit insurance | 1,210 | 1,217 | 3,100 | ||||||
| Correspondent bank charges | 286 | 902 | 634 | ||||||
| Other loan expense | 528 | 529 | 364 | ||||||
| Other general and administrative | 3,270 | 2,527 | 2,159 | ||||||
| Total noninterest expense | $ | 238,492 | $ | 33,153 | $ | 25,656 | |||
Income Tax Expense (Benefit)
Income tax benefit was $24.3 million for the fourth quarter of 2022, compared to an expense of $13.5 million for the third quarter of 2022, and $2.2 million for the fourth quarter of 2021. Our effective tax rate for the fourth quarter of 2022 was 2.3%, compared to 23.7% for the third quarter of 2022, and 9.4% for the fourth quarter of 2021. The decrease in the tax expense and effective tax rate for the fourth quarter of 2022 compared to the third quarter of 2022 and the fourth quarter of 2021 was driven by losses incurred in the fourth quarter of 2022. The income tax benefit recorded in the fourth quarter of 2022 was due to the reversal of prior period income tax expense incurred during the first three quarters of the year, partially offset by a charge from the transition to a 100% valuation allowance on deferred tax assets.
Results of Operations, Year Ended December 31, 2022
Net loss attributable to common shareholders for the year ended December 31, 2022 was $948.7 million, or $30.07 loss per diluted common share, compared to income of $75.5 million, or $2.91 per diluted share, for the comparable period in 2021.
Net interest income for the year ended December 31, 2022 was $255.6 million, compared to $129.3 million for the same period in 2021. The increase in net interest income was primarily due to a $196.9 million increase in interest income and a $70.6 million increase in interest expense, primarily due to growth in the balance sheet and an increase in rates.
Noninterest loss for the year ended December 31, 2022 was $860.1 million, compared to noninterest income of $45.3 million for the same period in 2021. The decrease in noninterest income was primarily due to an $886.2 million net loss on securities. Digital asset customer related fee income for the year ended December 31, 2022 was $32.2 million, compared to $35.8 million for the year ended December 31, 2021.
Noninterest expense was $330.2 million for the year ended December 31, 2022, compared to $89.1 million for the year ended December 31, 2021. The increase in noninterest expense was primarily due to a $196.2 million impairment charge on intangible assets and a $32.4 million increase in salaries and benefits expense.
Income tax expense was $6.7 million for the year ended December 31, 2022, compared to $6.9 million for the same period in 2021. Our effective tax rates for the years ended December 31, 2022 and 2021 were (0.7)% and 8.1%, respectively. The decrease in the Company’s effective tax rate in 2022 was primarily related to losses incurred in the fourth quarter of 2022. Due to the uncertainty of future earnings, the deferred tax asset balance of $342.0 million was subject to a 100% valuation allowance at December 31, 2022. The income tax expense recorded in 2022 was primarily due to the transition to this valuation allowance, resulting in the expensing of the $6.5 million deferred tax asset balance as of December 31, 2021. The deferred tax asset balance associated with net operating losses will carry forward indefinitely and can be utilized against 80% of future periods taxable income.
Balance Sheet
Deposits
At December 31, 2022, deposits totaled $6.3 billion, a decrease of $6.9 billion, or 52.4%, from September 30, 2022, and a decrease of $8.0 billion, or 55.9%, from December 31, 2021. Noninterest bearing deposits totaled $3.9 billion, representing approximately 61.2% of total deposits at December 31, 2022, a decrease of $8.2 billion from the prior quarter end, and a $10.4 billion decrease compared to December 31, 2021. At December 31, 2022, the Company held $2.4 billion of brokered certificates of deposit.
The Bank’s average total deposits from digital asset customers during the fourth quarter of 2022 amounted to $7.3 billion, with the high and low daily totals of these deposit levels during such time being $11.9 billion and $3.5 billion, respectively, compared to an average of $12.0 billion during the third quarter of 2022, and high and low daily deposit levels of $14.0 billion and $11.1 billion, respectively.
The following table sets forth a breakdown of the Company’s digital asset customer base and the deposits held by such customers at the dates noted below:
| December 31, 2022 | September 30, 2022 | December 31, 2021 | |||||||||||||
| Number of Customers | Total Deposits(1) | Number of Customers | Total Deposits(1) | Number of Customers | Total Deposits(1) | ||||||||||
| (Dollars in millions) | |||||||||||||||
| Digital asset exchanges | 104 | $ | 2,882 | 108 | $ | 7,579 | 94 | $ | 8,288 | ||||||
| Institutional investors | 1,025 | 539 | 1,069 | 3,043 | 894 | 4,220 | |||||||||
| Other customers | 491 | 410 | 500 | 1,247 | 393 | 1,603 | |||||||||
| Total | 1,620 | $ | 3,830 | 1,677 | $ | 11,869 | 1,381 | $ | 14,111 | ||||||
| ________________________ | ||
| (1) | Total deposits may not foot due to rounding. | |
The weighted average cost of deposits for the fourth quarter of 2022 was 0.77%, compared to 0.16% for the third quarter of 2022 and 0.00% for the fourth quarter of 2021. The increase in the weighted average cost of deposits in the third and fourth quarter of 2022 was due to the issuance of brokered certificates of deposit.
| Three Months Ended | ||||||||||||||||||
| December 31, 2022 | September 30, 2022 | December 31, 2021 | ||||||||||||||||
| AverageBalance | AverageRate | AverageBalance | AverageRate | AverageBalance | AverageRate | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||||
| Noninterest bearing demand accounts | $ | 7,432,838 | — | $ | 12,139,522 | — | $ | 13,377,552 | — | |||||||||
| Interest bearing accounts: | ||||||||||||||||||
| Interest bearing demand accounts | 3,423 | 0.00 | % | 3,470 | 0.00 | % | 7,660 | 0.05 | % | |||||||||
| Money market and savings accounts | 31,951 | 0.01 | % | 49,720 | 0.00 | % | 69,364 | 0.14 | % | |||||||||
| Certificates of deposit | 1,923,547 | 3.77 | % | 947,425 | 2.19 | % | 540 | 0.73 | % | |||||||||
| Total interest bearing deposits | 1,958,921 | 3.70 | % | 1,000,615 | 2.07 | % | 77,564 | 0.14 | % | |||||||||
| Total deposits | $ | 9,391,759 | 0.77 | % | $ | 13,140,137 | 0.16 | % | $ | 13,455,116 | 0.00 | % | ||||||
Loan Portfolio
Total loans, including net loans held-for-investment and loans held-for-sale, were $590.2 million at December 31, 2022, a decrease of $802.3 million, or 57.6%, from September 30, 2022, and a decrease of $1.2 billion, or 66.9%, from December 31, 2021. Given the current macro environment, the rising interest rate environment and related reduction in mortgage volumes, Silvergate exited its mortgage warehouse lending product in the fourth quarter of 2022.
| December 31, 2022 | September 30, 2022 | December 31, 2021 | ||||||||||
| (Dollars in thousands) | ||||||||||||
| Real estate loans: | ||||||||||||
| One-to-four family | $ | 37,495 | $ | 37,636 | $ | 105,098 | ||||||
| Multi-family | 9,086 | 9,028 | 56,751 | |||||||||
| Commercial | 62,609 | 63,979 | 210,136 | |||||||||
| Construction | — | — | 7,573 | |||||||||
| Commercial and industrial(1) | 301,655 | 302,160 | 335,862 | |||||||||
| Reverse mortgage and other | 1,080 | 1,270 | 1,410 | |||||||||
| Mortgage warehouse | — | 58,760 | 177,115 | |||||||||
| Total gross loans held-for-investment | 411,925 | 472,833 | 893,945 | |||||||||
| Deferred fees, net | (959 | ) | (1,871 | ) | 275 | |||||||
| Total loans held-for-investment | 410,966 | 470,962 | 894,220 | |||||||||
| Allowance for loan losses | (2,638 | ) | (3,176 | ) | (6,916 | ) | ||||||
| Loans held-for-investment, net | 408,328 | 467,786 | 887,304 | |||||||||
| Loans held-for-sale(2) | 181,846 | 924,644 | 893,194 | |||||||||
| Total loans | $ | 590,174 | $ | 1,392,430 | $ | 1,780,498 | ||||||
| ________________________ | ||
| (1) | Commercial and industrial loans includes $301.7 million, $302.2 million and $335.9 million of SEN Leverage loans as of December 31, 2022, September 30, 2022 and December 31, 2021, respectively. | |
| (2) | Loans held-for-sale includes $181.8 million, $891.5 million and $893.2 million of mortgage warehouse loans as of December 31, 2022, September 30, 2022 and December 31, 2021, respectively. | |
Asset Quality and Allowance for Loan Losses
The allowance for loan losses was $2.6 million at December 31, 2022, compared to $3.2 million at September 30, 2022 and $6.9 million at December 31, 2021. The ratio of the allowance for loan losses to total loans held-for-investment at December 31, 2022 was 0.64%, compared to 0.67% and 0.77% at September 30, 2022 and December 31, 2021, respectively.
Nonperforming assets totaled $3.4 million, or 0.03% of total assets, at December 31, 2022, a decrease of $0.3 million from $3.7 million, or 0.02% of total assets at September 30, 2022. Nonperforming assets decreased $0.6 million, from $4.0 million, or 0.03%, of total assets at December 31, 2021.
| December 31, 2022 | September 30, 2022 | December 31, 2021 | ||||||||||
| Asset Quality | (Dollars in thousands) | |||||||||||
| Nonperforming Assets: | ||||||||||||
| Nonaccrual loans | $ | 3,339 | $ | 3,698 | $ | 4,003 | ||||||
| Troubled debt restructurings | $ | 1,618 | $ | 1,623 | $ | 1,713 | ||||||
| Other real estate owned, net | $ | 83 | $ | 45 | — | |||||||
| Nonperforming assets | $ | 3,422 | $ | 3,743 | $ | 4,003 | ||||||
| Asset Quality Ratios: | ||||||||||||
| Nonperforming assets to total assets | 0.03 | % | 0.02 | % | 0.03 | % | ||||||
| Nonaccrual loans to total loans(1) | 0.81 | % | 0.79 | % | 0.45 | % | ||||||
| Net charge-offs to average total loans(1) | 0.10 | % | 0.09 | % | 0.00 | % | ||||||
| Allowance for loan losses to total loans(1) | 0.64 | % | 0.67 | % | 0.77 | % | ||||||
| Allowance for loan losses to nonaccrual loans | 79.01 | % | 85.88 | % | 172.77 | % | ||||||
| ________________________ | ||
| (1) | Loans exclude loans held-for-sale at each of the dates presented. | |
Securities
The total securities portfolio decreased $5.7 billion, or 49.8%, from $11.4 billion at September 30, 2022, and decreased $2.9 billion, or 33.5%, from $8.6 billion at December 31, 2021, to $5.7 billion at December 31, 2022. In order to accommodate sustained lower deposit levels and to maintain a highly liquid balance sheet, Silvergate sold $5.2 billion of debt securities for cash proceeds during the fourth quarter of 2022. The sale resulted in a loss on the sale of securities of $751.4 million during the fourth quarter of 2022. In addition, the Company recorded a $134.5 million impairment charge related to an estimated $1.7 billion of securities it expects to sell in the first quarter of 2023 to reduce borrowings. As of December 31, 2022, all securities which were previously classified as held-to-maturity had been transferred to available-for-sale.
Capital Ratios
At December 31, 2022, the Company’s ratio of common equity to total assets was 3.61%, compared with 7.36% at September 30, 2022, and 8.84% at December 31, 2021. At December 31, 2022, the Company’s book value per common share was $12.93, compared to $35.94 at September 30, 2022, and $46.55 at December 31, 2021. The decrease in the Company’s book value per common share from September 30, 2022 was primarily due to the mark-to-market impact of reclassifying securities from held-to-maturity to available-for-sale, the valuation allowance on deferred tax assets and the impairment charge on intangible assets.
At December 31, 2022, the Company had a tier 1 leverage ratio of 5.36%, common equity tier 1 capital ratio of 42.48%, tier 1 risk-based capital ratio of 57.07% and total risk-based capital ratio of 57.26%.
At December 31, 2022, the Bank had a tier 1 leverage ratio of 5.12%, common equity tier 1 capital ratio of 53.89%, tier 1 risk-based capital ratio of 53.89% and total risk-based capital ratio of 54.07%. These capital ratios each exceeded the “well capitalized” standards defined by federal banking regulations of 5.00% for tier 1 leverage ratio, 6.5% for common equity tier 1 capital ratio, 8.00% for tier 1 risk-based capital ratio and 10.00% for total risk-based capital ratio.
| Capital Ratios(1) | December 31, 2022 | September 30, 2022 | December 31, 2021 | ||||||
| The Company | |||||||||
| Tier 1 leverage ratio | 5.36 | % | 10.71 | % | 11.07 | % | |||
| Common equity tier 1 capital ratio | 42.48 | % | 40.72 | % | 49.53 | % | |||
| Tier 1 risk-based capital ratio | 57.07 | % | 46.54 | % | 56.82 | % | |||
| Total risk-based capital ratio | 57.26 | % | 46.63 | % | 57.08 | % | |||
| Common equity to total assets | 3.61 | % | 7.36 | % | 8.84 | % | |||
| The Bank | |||||||||
| Tier 1 leverage ratio | 5.12 | % | 10.45 | % | 10.49 | % | |||
| Common equity tier 1 capital ratio | 53.89 | % | 45.45 | % | 53.89 | % | |||
| Tier 1 risk-based capital ratio | 53.89 | % | 45.45 | % | 53.89 | % | |||
| Total risk-based capital ratio | 54.07 | % | 45.53 | % | 54.15 | % | |||
| ________________________ | ||
| (1) | December 31, 2022 capital ratios are preliminary. | |
Subsequent Events
In 2022, the Company increased employee headcount at a rapid rate in an effort to keep up with its growing digital asset business and serve its customers. The Company has reduced headcount by approximately 200 employees, or 40%, in order to account for the economic realities facing the business and industry today. Reducing headcount will enable Silvergate to continue to offer a tailored customer experience, while prudently managing expenses in a more challenging macro environment. Impacted employees were notified on January 4, 2023, and the Company has provided these individuals with severance packages and job placement resources. The Company estimates aggregate costs associated with the reduction in force of approximately $8.1 million, including approximately $6.2 million in severance payments and $1.2 million in employee benefits. The majority of these costs will be incurred in the first quarter of 2023.
Subsequent to December 31, 2022 and through January 17, 2023 the Company received $1.5 billion in proceeds and recognized approximately $11.4 million of losses and $5.0 million of gains on sales of available-for-sale securities.
Conference Call and Webcast
The Company will host a conference call on Tuesday, January 17, 2023 at 11:00 a.m. (Eastern Time) to present and discuss fourth quarter 2022 financial results. The conference call can be accessed live by dialing 1-844-200-6205 or for international callers, 1-929-526-1599, entering the access code 308427. A replay will be available starting at 1:00 p.m. (Eastern Time) on January 17, 2023 and can be accessed by dialing 1-866-813-9403, or for international callers +44-204-525-0658. The passcode for the replay is 949184. The replay will be available until 11:59 p.m. (Eastern Time) on January 31, 2023.
Interested investors and other parties may also listen to a simultaneous webcast of the conference call by logging onto the investor relations section of the Company’s website at https://ir.silvergate.com. The online replay will remain available for a limited time beginning immediately following the call.
About Silvergate
Silvergate Capital Corporation (NYSE: SI) is the leading provider of innovative financial infrastructure solutions and services for the digital asset industry. The Company’s real-time payments platform, known as the Silvergate Exchange Network, is at the heart of its customer-centric suite of payments, lending and funding solutions serving digital asset companies and investors around the world. Silvergate is enabling digital asset markets and reshaping global commerce for a digital asset future.
Forward Looking Statements
Statements in this earnings release may constitute forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “projection,” “forecast,” “goal,” “target,” “would,” “aim” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry and management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. The inclusion of these forward-looking statements should not be regarded as a representation by us or any other person that such expectations, estimates and projections will be achieved. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. For information about other important factors that could cause actual results to differ materially from those discussed in the forward-looking statements contained in this release, please refer to the Company’s public reports filed with the U.S. Securities and Exchange Commission.
While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ materially from those contained or implied in the forward-looking statements: changes in general economic, political, or industry conditions; geopolitical concerns, including the ongoing war in Ukraine; the magnitude and duration of the COVID-19 pandemic and related variants and mutations and their impact on the global economy and financial market conditions and our business, results of operations, and financial condition; uncertainty in U.S. fiscal and monetary policy, including the interest rate policies of the Board of Governors of the Federal Reserve System; inflation/deflation, interest rate, market, and monetary fluctuations; volatility and disruptions in global capital and credit markets; the transition away from USD LIBOR and uncertainty regarding potential alternative reference rates, including SOFR; competitive pressures on product pricing and services; success, impact, and timing of our business strategies, including market acceptance of any new products or services; the impact of changes in financial services policies, laws, and regulations, including those concerning taxes, banking, securities, digital currencies and insurance, and the application thereof by regulatory bodies; cybersecurity threats and the cost of defending against them, including the costs of compliance with potential legislation to combat cybersecurity at a state, national, or global level; and other factors that may affect our future results.
Any forward-looking statement speaks only as of the date of this earnings release, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether because of new information, future developments or otherwise, except as required by law. New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence. In addition, we cannot assess the impact of each risk and uncertainty on our business or the extent to which any risk or uncertainty, or combination of risks and uncertainties, may cause actual results to differ materially from those contained in any forward-looking statements.
| SILVERGATE CAPITAL CORPORATION | ||||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION | ||||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||
| December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 | December 31, 2021 | ||||||||||||||||
| ASSETS | ||||||||||||||||||||
| Cash and due from banks | $ | 555,581 | $ | 465,853 | $ | 256,378 | $ | 207,304 | $ | 208,193 | ||||||||||
| Interest earning deposits in other banks | 4,019,003 | 1,420,970 | 1,637,410 | 1,178,205 | 5,179,753 | |||||||||||||||
| Cash and cash equivalents | 4,574,584 | 1,886,823 | 1,893,788 | 1,385,509 | 5,387,946 | |||||||||||||||
| Securities available-for-sale, at fair value | 5,732,539 | 8,317,247 | 8,686,307 | 9,463,494 | 8,625,259 | |||||||||||||||
| Securities held-to-maturity, at amortized cost | — | 3,104,557 | 3,131,321 | 2,751,625 | — | |||||||||||||||
| Loans held-for-sale, at lower of cost or fair value | 181,846 | 924,644 | 872,056 | 937,140 | 893,194 | |||||||||||||||
| Loans held-for-investment, net of allowance for loan losses | 408,328 | 467,786 | 594,671 | 739,014 | 887,304 | |||||||||||||||
| Other investments | 169,190 | 60,428 | 63,456 | 61,719 | 34,010 | |||||||||||||||
| Accrued interest receivable | 42,944 | 78,799 | 72,463 | 62,573 | 40,370 | |||||||||||||||
| Premises and equipment, net | 3,866 | 3,518 | 3,328 | 1,678 | 3,008 | |||||||||||||||
| Intangible assets | — | 194,045 | 190,455 | 189,977 | — | |||||||||||||||
| Derivative assets | 39,998 | 153,990 | 104,995 | 46,415 | 34,056 | |||||||||||||||
| Safeguarding assets | — | — | 52,838 | 243,769 | — | |||||||||||||||
| Other assets | 202,258 | 275,503 | 234,816 | 158,869 | 100,348 | |||||||||||||||
| Total assets | $ | 11,355,553 | $ | 15,467,340 | $ | 15,900,494 | $ | 16,041,782 | $ | 16,005,495 | ||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
| Deposits: | ||||||||||||||||||||
| Noninterest bearing demand accounts | $ | 3,852,547 | $ | 12,005,719 | $ | 13,436,017 | $ | 13,323,535 | $ | 14,213,472 | ||||||||||
| Interest bearing accounts | 2,444,003 | 1,232,707 | 64,703 | 72,627 | 77,156 | |||||||||||||||
| Total deposits | 6,296,550 | 13,238,426 | 13,500,720 | 13,396,162 | 14,290,628 | |||||||||||||||
| Short-term borrowings | 4,300,000 | 700,000 | 800,000 | 800,000 | — | |||||||||||||||
| Subordinated debentures, net | 15,859 | 15,855 | 15,852 | 15,848 | 15,845 | |||||||||||||||
| Safeguarding liabilities | — | — | 52,838 | 243,769 | — | |||||||||||||||
| Accrued expenses and other liabilities | 139,923 | 181,714 | 107,865 | 39,507 | 90,186 | |||||||||||||||
| Total liabilities | 10,752,332 | 14,135,995 | 14,477,275 | 14,495,286 | 14,396,659 | |||||||||||||||
| Commitments and contingencies | ||||||||||||||||||||
| Preferred stock | 2 | 2 | 2 | 2 | 2 | |||||||||||||||
| Class A common stock | 317 | 317 | 316 | 316 | 304 | |||||||||||||||
| Class B non-voting common stock(1) | — | — | — | — | — | |||||||||||||||
| Additional paid-in capital | 1,557,033 | 1,555,996 | 1,554,627 | 1,553,547 | 1,421,592 | |||||||||||||||
| Retained (deficit) earnings | (754,802 | ) | 295,115 | 254,475 | 218,558 | 193,860 | ||||||||||||||
| Accumulated other comprehensive loss | (199,329 | ) | (520,085 | ) | (386,201 | ) | (225,927 | ) | (6,922 | ) | ||||||||||
| Total shareholders’ equity | 603,221 | 1,331,345 | 1,423,219 | 1,546,496 | 1,608,836 | |||||||||||||||
| Total liabilities and shareholders’ equity | $ | 11,355,553 | $ | 15,467,340 | $ | 15,900,494 | $ | 16,041,782 | $ | 16,005,495 | ||||||||||
| ________________________ | ||
| (1) | Effective June 14, 2022, Class B non-voting common stock was cancelled and its authorized shares reallocated to Class A common stock following a shareholder approved amendment to the Company’s articles of incorporation. | |
| SILVERGATE CAPITAL CORPORATION | ||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||
| (In Thousands, Except Per Share Data) | ||||||||||||||||||
| (Unaudited) | ||||||||||||||||||
| Three Months Ended | Year Ended | |||||||||||||||||
| December 31, 2022 | September 30, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | ||||||||||||||
| Interest income | ||||||||||||||||||
| Loans, including fees | $ | 21,046 | $ | 20,663 | $ | 17,892 | $ | 82,050 | $ | 68,619 | ||||||||
| Taxable securities | 52,363 | 47,401 | 10,178 | 148,529 | 36,094 | |||||||||||||
| Tax-exempt securities | 12,279 | 14,412 | 7,469 | 54,695 | 17,301 | |||||||||||||
| Other interest earning assets | 27,395 | 8,001 | 2,166 | 39,789 | 6,799 | |||||||||||||
| Dividends and other | 1,039 | 289 | 777 | 2,250 | 1,581 | |||||||||||||
| Total interest income | 114,122 | 90,766 | 38,482 | 327,313 | 130,394 | |||||||||||||
| Interest expense | ||||||||||||||||||
| Deposits | 18,290 | 5,221 | 27 | 23,534 | 134 | |||||||||||||
| Short-term borrowings | 41,862 | 4,399 | — | 47,127 | — | |||||||||||||
| Subordinated debentures | 281 | 258 | 249 | 1,034 | 993 | |||||||||||||
| Total interest expense | 60,433 | 9,878 | 276 | 71,695 | 1,127 | |||||||||||||
| Net interest income before provision for loan losses | 53,689 | 80,888 | 38,206 | 255,618 | 129,267 | |||||||||||||
| Reversal of provision for loan losses | (502 | ) | (601 | ) | — | (3,577 | ) | — | ||||||||||
| Net interest income after provision for loan losses | 54,191 | 81,489 | 38,206 | 259,195 | 129,267 | |||||||||||||
| Noninterest income | ||||||||||||||||||
| Deposit related fees | 6,623 | 7,953 | 9,378 | 32,352 | 35,981 | |||||||||||||
| Mortgage warehouse fee income | 167 | 482 | 684 | 1,855 | 3,056 | |||||||||||||
| (Loss) gain on securities, net | (885,807 | ) | — | 56 | (886,184 | ) | 5,238 | |||||||||||
| (Loss) gain on derivatives, net | (8,699 | ) | — | 928 | (8,699 | ) | 928 | |||||||||||
| Loss on sale of loans, net | (46 | ) | (329 | ) | — | (375 | ) | — | ||||||||||
| Other income | 495 | 348 | 9 | 902 | 53 | |||||||||||||
| Total noninterest (loss) income | (887,267 | ) | 8,454 | 11,055 | (860,149 | ) | 45,256 | |||||||||||
| Noninterest expense | ||||||||||||||||||
| Salaries and employee benefits | 26,707 | 19,632 | 13,815 | 78,239 | 45,794 | |||||||||||||
| Occupancy and equipment | 850 | 822 | 728 | 3,321 | 2,464 | |||||||||||||
| Impairment of intangible assets | 196,223 | — | — | 196,223 | — | |||||||||||||
| Communications and data processing | 3,306 | 3,210 | 1,862 | 12,245 | 7,072 | |||||||||||||
| Professional services | 6,112 | 4,314 | 2,994 | 19,660 | 9,776 | |||||||||||||
| Federal deposit insurance | 1,210 | 1,217 | 3,100 | 5,684 | 13,537 | |||||||||||||
| Correspondent bank charges | 286 | 902 | 634 | 2,817 | 2,515 | |||||||||||||
| Other loan expense | 528 | 529 | 364 | 2,123 | 1,117 | |||||||||||||
| Other general and administrative | 3,270 | 2,527 | 2,159 | 9,903 | 6,845 | |||||||||||||
| Total noninterest expense | 238,492 | 33,153 | 25,656 | 330,215 | 89,120 | |||||||||||||
| (Loss) income before income taxes | (1,071,568 | ) | 56,790 | 23,605 | (931,169 | ) | 85,403 | |||||||||||
| Income tax (benefit) expense | (24,339 | ) | 13,462 | 2,214 | 6,741 | 6,875 | ||||||||||||
| Net (loss) income | (1,047,229 | ) | 43,328 | 21,391 | (937,910 | ) | 78,528 | |||||||||||
| Dividends on preferred stock | 2,688 | 2,688 | 3,016 | 10,752 | 3,016 | |||||||||||||
| Net (loss) income attributable to common shareholders | $ | (1,049,917 | ) | $ | 40,640 | $ | 18,375 | $ | (948,662 | ) | $ | 75,512 | ||||||
| Basic (loss) earnings per common share | $ | (33.16 | ) | $ | 1.28 | $ | 0.67 | $ | (30.07 | ) | $ | 2.95 | ||||||
| Diluted (loss) earnings per common share | $ | (33.16 | ) | $ | 1.28 | $ | 0.66 | $ | (30.07 | ) | $ | 2.91 | ||||||
| Weighted average common shares outstanding: | ||||||||||||||||||
| Basic | 31,663 | 31,655 | 27,527 | 31,545 | 25,582 | |||||||||||||
| Diluted | 31,663 | 31,803 | 27,744 | 31,545 | 25,922 | |||||||||||||
Non-GAAP Financial Measures
(Unaudited)
The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for these adjusted measures, this presentation may not be comparable to other similarly titled adjusted measures reported by other companies.
This earnings release includes certain non-GAAP financial measures for the periods presented below in order to present our results of operations for that period on a basis consistent with our historical operations. Management believes that these non-GAAP financial measures provide useful information to investors that is supplementary to the Company’s financial condition, results of operations and cash flows computed in accordance with GAAP.
During the fourth quarter of 2022, the digital asset industry experienced a transformational shift, with significant over-leverage in the industry, leading to several high-profile bankruptcies. These dynamics led to a crisis of confidence across the ecosystem and led many industry participants to shift deposits away from digital asset trading platforms. The Company saw significant outflows of deposits during the quarter and took several actions to maintain cash liquidity, which included utilizing wholesale funding and subsequently sold debt securities to accommodate the sustained lower deposit levels and maintain its highly liquid balance sheet. This restructuring of the Company’s balance sheet led to the decision to reduce its expense base going forward by significantly reducing its workforce. The following adjustments represent the impact of these actions in response to the events that occurred in the fourth quarter of 2022 and are considered infrequent in nature. The likelihood that these charges will occur in subsequent periods may depend on deposit levels and customer behavior.
Loss on securities: The Company sold securities in order to manage liquidity and recognized net losses related to the declines in market values relative to amortized cost. In addition, an other than temporary impairment charge was recorded for securities that the Company will more likely than not be required to sell before recovery of its amortized cost basis.
Loss on derivatives: In conjunction with the securities sales the Company, de-designated and sold certain related derivatives hedging fair value of securities and realized net losses on the change in fair value on the derivative instruments related to the timing of the sales of derivatives.
Restructuring charges: Restructuring charges includes direct costs related to reduction in force efforts or other exit and disposal activities, such as decisions to no longer provide certain products. Costs related to reduction in force actions primarily consist of one-time termination benefits for affected employees including severance payments, employee benefit payments, accelerated stock-based compensation expense and other related costs, such as job placement services and legal costs.
Impairment of intangible assets: In January 2022, the Company purchased certain developed technology assets related to running a block-chain-based payment network. In the fourth quarter of 2022, the Company determined that based on recent changes in market conditions of the digital asset industry, the likelihood of the launch of a blockchain-based payment solution was no longer imminent. The Company performed an impairment analysis and took an impairment charge of $196.2 million.
Income taxes: The tax effect adjustment below was determined by calculating the estimated annual effective tax rate on adjusted income before income taxes and applying the rate to pre-tax income. The difference between the estimated income tax and the income tax expense or benefit as reported was included as a tax effect adjustment.
Adjusted diluted shares: Adjusted earnings per diluted share is calculated by dividing adjusted net income available to common shareholders by the weighted average common shares outstanding adjusted for the dilutive effects of all potential shares of common stock. In periods where a net loss attributable to common shareholders was reported, the diluted shares were the same as basic shares because the effects of potentially dilutive shares were anti-dilutive.
| Three Months Ended | Year Ended | ||||||||||||||||
| December 31, 2022 | September 30, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | |||||||||||||
| (In thousands, except per share data) | |||||||||||||||||
| Noninterest income | |||||||||||||||||
| Noninterest income (loss), as reported | $ | (887,267 | ) | $ | 8,454 | $ | 11,055 | $ | (860,149 | ) | $ | 45,256 | |||||
| Adjustments: | |||||||||||||||||
| Loss on securities, net | 885,807 | — | — | 885,807 | — | ||||||||||||
| Loss on derivatives, net | 8,699 | — | — | 8,699 | — | ||||||||||||
| Adjusted noninterest income | $ | 7,239 | $ | 8,454 | $ | 11,055 | $ | 34,357 | $ | 45,256 | |||||||
| Noninterest expense | |||||||||||||||||
| Noninterest expense, as reported | $ | 238,492 | $ | 33,153 | $ | 25,656 | $ | 330,215 | $ | 89,120 | |||||||
| Adjustments: | |||||||||||||||||
| Impairment of intangible assets | (196,223 | ) | — | — | (196,223 | ) | — | ||||||||||
| Restructuring charges | (3,704 | ) | — | — | (3,704 | ) | — | ||||||||||
| Adjusted noninterest expense | $ | 38,565 | $ | 33,153 | $ | 25,656 | $ | 130,288 | $ | 89,120 | |||||||
| Net income (loss) attributable to common shareholders | |||||||||||||||||
| Net (loss) income attributable to common shareholders, as reported | $ | (1,049,917 | ) | $ | 40,640 | $ | 18,375 | $ | (948,662 | ) | $ | 75,512 | |||||
| Adjustments: | |||||||||||||||||
| Loss on securities, net | 885,807 | — | — | 885,807 | — | ||||||||||||
| Loss on derivatives, net | 8,699 | — | — | 8,699 | — | ||||||||||||
| Impairment of intangible assets | 196,223 | — | — | 196,223 | — | ||||||||||||
| Restructuring charges | 3,704 | — | — | 3,704 | — | ||||||||||||
| Tax effect(1) | (29,392 | ) | — | — | (29,392 | ) | — | ||||||||||
| Adjusted net income available to common shareholders | $ | 15,124 | $ | 40,640 | $ | 18,375 | $ | 116,379 | $ | 75,512 | |||||||
| Earnings (loss) per diluted share | |||||||||||||||||
| (Loss) earnings per diluted share, as reported | $ | (33.16 | ) | $ | 1.28 | $ | 0.66 | $ | (30.07 | ) | $ | 2.91 | |||||
| Adjusted net income available to common shareholders | $ | 15,124 | $ | 40,640 | $ | 18,375 | $ | 116,379 | $ | 75,512 | |||||||
| Weighted average common shares outstanding: | |||||||||||||||||
| Diluted shares, as reported | 31,663 | 31,803 | 27,744 | 31,545 | 25,922 | ||||||||||||
| Add: Diluted effects of stock-based awards | 104 | — | — | 26 | — | ||||||||||||
| Adjusted fully diluted shares | 31,767 | 31,803 | 27,744 | 31,571 | 25,922 | ||||||||||||
| Adjusted earnings per diluted share | $ | 0.48 | $ | 1.28 | $ | 0.66 | $ | 3.69 | $ | 2.91 | |||||||
| ________________________ | ||
| (1) | Amount represents the total income tax adjustment needed to calculate an effective income tax rate on adjusted income before income taxes of 22.1%. | |
| Three Months Ended | Year Ended | |||||||||||||||||||
| December 31, 2022 | September 30, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Return on average assets (ROAA)(1) | ||||||||||||||||||||
| Adjusted net income available to common shareholders | $ | 15,124 | $ | 40,640 | $ | 18,375 | $ | 116,379 | $ | 75,512 | ||||||||||
| Average assets | 14,966,191 | 15,494,626 | 14,719,131 | 15,882,737 | 11,356,838 | |||||||||||||||
| Return on average assets (ROAA), as reported | (27.83 | ) % | 1.04 | % | 0.50 | % | (5.97 | ) % | 0.66 | % | ||||||||||
| Adjusted return on average assets | 0.40 | % | 1.04 | % | 0.50 | % | 0.73 | % | 0.66 | % | ||||||||||
| Return on average common equity (ROACE)(1) | ||||||||||||||||||||
| Adjusted net income available to common shareholders | $ | 15,124 | $ | 40,640 | $ | 18,375 | $ | 116,379 | $ | 75,512 | ||||||||||
| Average common equity | 1,018,395 | 1,241,285 | 1,005,491 | 1,255,880 | 809,963 | |||||||||||||||
| Return on average common equity (ROACE), as reported | (409.02 | ) % | 12.99 | % | 7.25 | % | (75.54 | ) % | 9.32 | % | ||||||||||
| Adjusted return on average common equity | 5.89 | % | 12.99 | % | 7.25 | % | 9.27 | % | 9.32 | % | ||||||||||
| Efficiency ratio | ||||||||||||||||||||
| Adjusted noninterest expense | $ | 38,565 | $ | 33,153 | $ | 25,656 | $ | 130,288 | $ | 89,120 | ||||||||||
| Net interest income | 53,689 | 80,888 | 38,206 | 255,618 | 129,267 | |||||||||||||||
| Adjusted noninterest income | 7,239 | 8,454 | 11,055 | 34,357 | 45,256 | |||||||||||||||
| Adjusted total net interest income and noninterest income | 60,928 | 89,342 | 49,261 | 289,975 | 174,523 | |||||||||||||||
| Efficiency ratio, as reported | (28.61 | ) % | 37.11 | % | 52.08 | % | (54.62 | ) % | 51.06 | % | ||||||||||
| Adjusted efficiency ratio | 63.30 | % | 37.11 | % | 52.08 | % | 44.93 | % | 51.06 | % | ||||||||||
| ________________________ | ||
| (1) | Data has been annualized. | |
View source version on businesswire.com: https://www.businesswire.com/news/home/20230116005542/en/
Investor Relations Contact:
Edelman Smithfield for Silvergate
858-200-3782
[email protected]
Source: Silvergate Capital Corporation
]]>LA JOLLA, Calif.–(BUSINESS WIRE)– Silvergate Capital Corporation (“Silvergate” or the “Company”) (NYSE: SI), the leading provider of innovative financial infrastructure solutions to the digital asset industry, today announced select unaudited and preliminary financial metrics for the three months ended December 31, 2022 and provided a business update. These metrics are subject to change in connection with conducting and completing normal closing procedures and an audit for the year ended December 31, 2022. The Company will also host a conference call at 8:00 a.m. (Eastern Time) today, January 5, 2023, to discuss certain recent developments.
The digital asset industry has undergone a transformational shift, with significant over-leverage in the industry leading to several high-profile bankruptcies. These dynamics have sparked a crisis of confidence across the ecosystem and led many industry participants to shift to a “risk off” position across digital asset trading platforms. In turn, Silvergate’s total deposits from digital asset customers declined to $3.8 billion at the end of the fourth quarter.
Alan Lane, chief executive officer of Silvergate, commented, “In response to the rapid changes in the digital asset industry during the fourth quarter, we took commensurate steps to ensure that we were maintaining cash liquidity in order to satisfy potential deposit outflows, and we currently maintain a cash position in excess of our digital asset related deposits.”
In line with this approach, as customers began to withdraw deposits during the fourth quarter of 2022, Silvergate utilized wholesale funding to satisfy outflows. Subsequently, in order to accommodate sustained lower deposit levels and maintain its highly liquid balance sheet, Silvergate sold debt securities for cash proceeds.
As Silvergate prepares for what it expects will be a sustained period of transformation, it is taking several actions to help ensure the business is resilient, including recalibrating its expense base and evaluating its product portfolio and customer relationships going forward. In addition, Silvergate has made the difficult decision to substantively reduce its workforce as further discussed below in order to account for the economic realities facing its business and the digital asset industry today.
While Silvergate is taking decisive action to navigate the current environment, its mission has not changed. Silvergate believes in the digital asset industry and remains focused on providing value-added services for its core institutional customers. The Company is committed to maintaining a highly liquid balance sheet with a strong capital position. Silvergate has purpose built its business to support customers not only during periods of growth but also in periods of volatility – that is, its business is designed to accommodate deposit inflows and outflows under a range of market conditions. Despite significant industry turmoil, Silvergate stands ready to support its digital asset customers.
Silvergate Exchange Network (“SEN”) Platform
- The SEN continues to operate 24/7 with average daily volume totaling $1.3 billion during the fourth quarter of 2022, compared to average daily volume of $1.2 billion in the third quarter of 2022.
- At December 31, 2022, SEN Leverage commitments declined to $1.1 billion, compared to $1.5 billion at September 30, 2022.
- The average fourth quarter 2022 outstanding balance of SEN Leverage loans was $328 million, compared to $308 million in the third quarter of 2022.
- All SEN Leverage loans continued to perform as expected with zero losses and no forced liquidations.
Select Preliminary Financial Metrics
Deposits
- Total deposits from digital asset customers declined to $3.8 billion at December 31, 2022, compared to $11.9 billion at September 30, 2022.
- Average deposits from digital asset customers declined to $7.3 billion during the fourth quarter of 2022, compared to $12.0 billion during the third quarter of 2022, with a high of $11.9 billion and a low of $3.5 billion during the fourth quarter.
- As of December 31, 2022, approximately $150 million of Silvergate’s deposits were from customers that have filed for bankruptcy.
Cash and Cash Equivalents
- As of December 31, 2022, Silvergate held total cash and cash equivalents of approximately $4.6 billion, which is in excess of deposits from digital asset customers.
Debt Securities
- In order to accommodate sustained lower deposit levels and to maintain a highly liquid balance sheet, Silvergate sold $5.2 billion of debt securities for cash proceeds during the fourth quarter of 2022.
- The sale resulted in a loss on the sale of securities and related derivatives of $718 million during the fourth quarter of 2022.
- During the quarter, Silvergate sold available for sale securities, as well as certain securities that were previously identified as held to maturity.
- At December 31, 2022, the Company held $5.6 billion of total debt securities at fair value, all of which are U.S. government or agency-backed and available for sale, and which include unrealized losses of approximately $0.3 billion. The Company anticipates selling a portion of these securities in early 2023 to reduce wholesale borrowings, which will result in the recognition of a fourth quarter impairment charge related to the unrealized loss on those securities expected to be sold.
Wholesale Funding
- At December 31, 2022, the Company held $2.4 billion of short-term brokered certificates of deposit.
- At December 31, 2022, the Company held $4.3 billion of short-term Federal Home Loan Bank advances.
Business Update
In response to recent industry turmoil and the corresponding impact on Silvergate’s balance sheet, the Company is taking several actions it believes are prudent to ensure the business is resilient and to manage its expense base going forward.
Reduction in Force
In 2022, Silvergate increased employee headcount at a rapid rate in an effort to keep up with its growing business and serve its customers. The Company is reducing headcount by approximately 200 employees, or 40%, in order to account for the economic realities facing the business and industry today. Reducing headcount will enable Silvergate to continue to offer a tailored customer experience, while prudently managing expenses in a more challenging macro environment.
Impacted employees were notified on January 4, 2023, and Silvergate is providing these individuals with severance packages and job placement resources. The Company estimates aggregate costs associated with this reduction in force of approximately $8 million, primarily consisting of severance payments, employee benefits and related costs, and expects to incur the majority of these charges in the first quarter of 2023.
Product and Customer Portfolio
Given the current macro environment, the rising interest rate environment and related reduction in mortgage volumes, Silvergate exited its mortgage warehouse lending product in the fourth quarter of 2022. As a result, the Company will incur a restructuring charge of approximately $4 million in the fourth quarter of 2022, primarily related to severance and employee benefits.
Silvergate is focusing its strategy to provide the most value-added solutions for its core digital asset customers. Over the coming weeks, the Company will be streamlining its product portfolio to reduce complexity while ensuring its institutional clients have the tools they need to continue operating efficiently.
Taken together, Silvergate believes these portfolio changes will enable Silvergate to continue to serve its core customers in a responsible and profitable manner. Given the current level of industry uncertainty, the Company remains committed to maintaining a highly liquid balance sheet with minimal credit exposure and a strong capital position, ensuring maximum flexibility for its customers.
Intangible Asset Impairment Charge
After performing an impairment analysis of the Company’s intangible assets, Silvergate will take an impairment charge of $196 million in the fourth quarter of 2022 related to developed technology assets purchased from the Diem Group. Given the significant changes in the digital asset industry landscape, this charge reflects the Company’s belief that the launch of a blockchain-based payment solution by Silvergate is no longer imminent. The Company will continue to seek opportunities to realize value from these technology assets.
Business Update Conference Call and Webcast Details
The Company will host a conference call at 8:00 a.m. (Eastern Time) today, January 5, 2023.
The conference call can be accessed live by dialing 1-844-200-6205, or for international callers 1-929-526-1599, and entering the access code 712040. A replay will be available starting at 10:00 a.m. (Eastern Time) on January 5, 2023 and can be accessed by dialing 1-866-813-9403, or for international callers +44-204-525-0658. The passcode for the replay is 535429. The replay will be available until 11:59 p.m. (Eastern Time) on January 19, 2023.
Interested investors and other parties may also listen to a simultaneous webcast of the conference call by logging onto the investor relations section of the Company’s website at https://ir.silvergate.com. The online replay will remain available for a limited time beginning immediately following the call.
Fourth Quarter and Full Year 2022 Earnings Conference Call and Webcast Details
The Company will release its fourth quarter and full year 2022 financial results before market open on Tuesday, January 17, 2023, with a conference call to follow at 11:00 a.m. (Eastern Time) the same day.
The conference call can be accessed live by dialing 1-844-200-6205, or for international callers 1-929-526-1599, and entering the access code 308427. A replay will be available starting at 1:00 p.m. (Eastern Time) on January 17, 2023 and can be accessed by dialing 1-866-813-9403, or for international callers +44-204-525-0658. The passcode for the replay is 949184. The replay will be available until 11:59 p.m. (Eastern Time) on January 31, 2023.
Interested investors and other parties may also listen to a simultaneous webcast of the conference call by logging onto the investor relations section of the Company’s website at https://ir.silvergate.com. The online replay will remain available for a limited time beginning immediately following the call.
About Silvergate
Silvergate Capital Corporation (NYSE: SI) is the leading provider of innovative financial infrastructure solutions and services for the digital asset industry. The Company’s real-time payments platform, known as the Silvergate Exchange Network, is at the heart of its customer-centric suite of payments, lending and funding solutions serving digital asset companies and investors around the world. Silvergate is enabling digital asset markets and reshaping global commerce for a digital asset future.
Disclaimer
The Company’s preliminary estimates of the financial metrics included in this press release are based solely on information available to it as of the date hereof and are inherently uncertain and subject to change. Accordingly, you should not place undue reliance on the preliminary financial metrics, which may differ materially from the actual results for the fourth quarter of 2022.
Statements in this press release may constitute forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “projection,” “forecast,” “goal,” “target,” “would,” “aim” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry and management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. The inclusion of these forward-looking statements should not be regarded as a representation by us or any other person that such expectations, estimates and projections will be achieved. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. For information about other important factors that could cause actual results to differ materially from those discussed in the forward-looking statements contained in this release, please refer to the Company’s public reports filed with the U.S. Securities and Exchange Commission.
View source version on businesswire.com: https://www.businesswire.com/news/home/20230104005963/en/
Investor Relations:
Edelman Smithfield for Silvergate
(858) 200-3782
[email protected]
Media:
Edelman Smithfield for Silvergate
[email protected]
Source: Silvergate Capital Corporation
]]>The conference call can be accessed live by dialing 1-844-200-6205, or for international callers 1-929-526-1599, and entering the access code 712040. A replay will be available starting at 10:00 a.m. (Eastern Time) on January 5, 2023 and can be accessed by dialing 1-866-813-9403, or for international callers +44-204-525-0658. The passcode for the replay is 535429. The replay will be available until 11:59 p.m. (Eastern Time) on January 19, 2023.
Interested investors and other parties may also listen to a simultaneous webcast of the conference call by logging onto the investor relations section of the Company’s website at https://ir.silvergate.com. The online replay will remain available for a limited time beginning immediately following the call.
About Silvergate
Silvergate Capital Corporation (NYSE: SI) is the leading provider of innovative financial infrastructure solutions and services for the growing digital asset industry. The Company’s real-time payments platform, known as the Silvergate Exchange Network, is at the heart of its customer-centric suite of payments, lending and funding solutions serving an expanding class of digital asset companies and investors around the world. Silvergate is enabling the rapid growth of digital asset markets and reshaping global commerce for a digital asset future.
View source version on businesswire.com: https://www.businesswire.com/news/home/20230103005787/en/
Investor Relations:
Edelman Smithfield for Silvergate
(858) 200-3782
[email protected]
Media:
Edelman Smithfield for Silvergate
[email protected]
Source: Silvergate Capital Corporation
]]>BlockFi is not a custodian for Silvergate’s bitcoin-collateralized SEN Leverage loans, which to date have continued to perform as expected with zero losses and no forced liquidations. Silvergate has no investments in BlockFi.
Silvergate maintains a first priority lien and security interest in a cash collateral account, which contains $10 million for the benefit of Silvergate to support ACH services provided to BlockFi.
“As the digital asset industry continues to transform, I want to reiterate that Silvergate’s platform was purpose-built to manage stress and volatility,” said Alan Lane, Chief Executive Officer of Silvergate. “The SEN continues to operate as designed, and our support teams are available 24 hours a day, 7 days a week to help our customers during this period of adversity.”
Recently, Silvergate has been the subject of false and misleading statements. For factual and accurate information, Silvergate directs persons to its recent press releases, which are available on the Company’s website at https://ir.silvergate.com in the Investor Relations section and Silvergate’s most recent Quarterly Report on Form 10-Q and other filings with the Securities and Exchange Commission.
About Silvergate
Silvergate Capital Corporation (NYSE: SI) is the leading provider of innovative financial infrastructure solutions and services for the growing digital asset industry. The Company’s real-time payments platform, known as the Silvergate Exchange Network, is at the heart of its customer-centric suite of payments, lending and funding solutions serving an expanding class of digital asset companies and investors around the world. Silvergate is enabling the rapid growth of digital asset markets and reshaping global commerce for a digital asset future.
View source version on businesswire.com: https://www.businesswire.com/news/home/20221128005747/en/
Investor Relations:
Hunter Stenback/Ashna Vasa
(858) 200-3782
[email protected]
Media:
Evann Berry
[email protected]
Source: Silvergate Capital Corporation
]]>