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Silvergate Capital Corp (SICP)·Q4 2022 Earnings Summary

Executive Summary

  • Q4 2022 was an inflection point: Silvergate reported a GAAP net loss attributable to common shareholders of $1.05B and diluted EPS of $(33.16) driven by a $885.8M loss on securities and $8.7M derivative losses tied to liquidity actions amid severe crypto-industry turmoil .
  • Deposits fell 52% sequentially to $6.30B; average digital asset deposits dropped to $7.3B (from $12.0B in Q3), forcing wholesale funding and the sale of $5.2B of securities; book value per share fell to $12.93 (from $35.94 in Q3) .
  • Adjusted diluted EPS was $0.48 excluding restructuring/impairment and securities/derivatives losses; net interest margin compressed to 1.54% (from 2.31% in Q3) as funding costs spiked on short-term borrowings and CDs .
  • Management announced a ~40% reduction in force (costs ~$8.1M in Q1’23) and elimination of non-core products to restore profitability; they guided to lower NII/fees in 2023 and targeted cost savings of $7–$8M per quarter .
  • SEN transfers were $117.1B, up 4% q/q, while digital asset customers declined to 1,620; SEN Leverage commitments fell to $1.1B; subsequent to year-end, ~$1.5B of securities were sold (additional small P&L impacts) .

What Went Well and What Went Wrong

What Went Well

  • SEN continued uninterrupted with $117.1B transfers (+4% q/q), demonstrating platform resilience despite industry stress .
  • Management acted decisively to preserve liquidity and capital, reclassifying HTM to AFS and selling $5.2B of debt securities to right-size balance sheet; risk-based capital ratios remained above “well-capitalized” thresholds (Company total risk-based 57.26%) .
  • Clear cost actions: ~200 employees (40%) reduction-in-force; estimated Q1’23 charges ~$8.1M with planned ongoing savings of $7–$8M per quarter .
  • CEO reiterated focus: “We believe in the digital asset industry, and we remain focused on providing value-added services for our core institutional customers” .

What Went Wrong

  • Catastrophic P&L: GAAP noninterest loss of $887.3M in Q4, driven by securities and derivative losses and a $196.2M impairment on developed technology assets (blockchain payments) .
  • Funding/cost squeeze: Net interest income fell to $53.7M as average interest-bearing liabilities surged (+$4.4B q/q) with rates rising to 3.87%; cost of deposits jumped to 0.77% (from 0.16%) .
  • Deposits collapsed: Total deposits fell to $6.30B (from $13.24B in Q3), with noninterest-bearing demand at $3.85B; digital asset exchange deposits dropped sharply ($2.88B vs. $7.58B Q3) .
  • Balance sheet equity erosion: Book value per share fell to $12.93 (from $35.94 in Q3) due to mark-to-market from HTM-to-AFS transfer, DTA valuation allowance, and impairments .

Financial Results

MetricQ2 2022Q3 2022Q4 2022
Diluted EPS (GAAP)$1.13 $1.28 $(33.16)
Adjusted Diluted EPS (Non-GAAP)$1.13 $1.28 $0.48
Net Interest Income (as reported, $M)$70.546 $80.888 $53.689
Net Interest Margin (%)1.96% 2.31% 1.54%
Noninterest Income (Loss, $M)$9.214 $8.454 $(887.267)
Digital Asset Customer Fee Income ($M)$8.808 $7.953 $6.623
Cost of Deposits (%)0.00% 0.16% 0.77%

Balance sheet and capital

MetricQ2 2022Q3 2022Q4 2022
Total Assets ($B)$15.85 $15.47 $11.36
Total Deposits ($B)$13.50 $13.24 $6.30
Noninterest-Bearing Deposits ($B)$13.44 $12.01 $3.85
Book Value per Share ($)$38.86 $35.94 $12.93
Tier 1 Leverage Ratio (%)10.10% 10.71% 5.36%
Common Equity to Total Assets (%)7.76% 7.36% 3.61%

KPIs and activity

KPIQ2 2022Q3 2022Q4 2022
SEN Transfers ($B)$191.3 $112.6 $117.1
Digital Asset Customers (Count)1,585 1,677 1,620
SEN Leverage Commitments ($B)$1.4 $1.5 $1.1
Avg. Digital Asset Deposits ($B)$13.8 $12.0 $7.3

Digital asset deposit mix

Category ($M)Q2 2022Q3 2022Q4 2022
Exchanges$8,133 $7,579 $2,882
Institutional Investors$3,293 $3,043 $539
Other Customers$1,879 $1,247 $410
Total$13,304 $11,869 $3,830

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance/OutcomeChange
Noninterest Expense (ex intangibles, FY)FY 2022~$130–$140M (Q3 guidance) Adjusted FY 2022: $130.3M Maintained/Inline
Workforce Reduction CostsQ1 2023N/A~$8.1M (severance/benefits) New disclosure
Ongoing Cost Savings2023 run-rateN/A~$7–$8M per quarter New guidance (raised efficiency focus)
NII and Fee Trajectory2023N/A2023 NII and fee income to trend below adjusted Q4 levels New (cautious)
SEN Leverage CommitmentsH1 2023N/AExpect commitments to shrink to ~$400M by end of Q2 2023 Lowered
Profitability OutlookH2 2023N/ATarget return to profitability in H2 2023 (management expectation) New long-term target

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2, Q3)Current Period (Q4 2022)Trend
Industry/MacroQ2/Q3: Challenging crypto backdrop; still investing and growing SEN; stable average deposits, low deposit cost “Crisis of confidence” post high-profile bankruptcies; deposit outflows; liquidity actions Deteriorated sharply
Liquidity ActionsQ2/Q3: FHLB advances; brokered CDs introduced Q3; HTM securities Sold $5.2B securities; moved HTM to AFS; subsequent $1.5B sales; funding costs up Aggressive balance sheet repositioning
Cost DisciplineQ2/Q3: Building strategic initiatives; NI expense ~$30–33M/quarter; FY22 guide $130–$140M 40% RIF; impairment $196.2M; ongoing savings $7–$8M/qtr Major reset (structural)
Product/PortfolioQ2/Q3: SEN Leverage growth; custody/infra roadmap Offboarding non-core customers; eliminating costly/complex products; commitments to shrink Refocus on core
Capital/RegulatoryQ2/Q3: Well-capitalized; strong CET1/TRC ratios Capital ratios remain above well-capitalized; equity-to-assets compressed Ratios resilient; equity base lower

Management Commentary

  • CEO (press release): “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.”
  • CFO (call, prepared remarks): “Silvergate reported a net loss attributable to common shareholders of $1 billion or a loss of $33.16 per common share… noninterest loss for the fourth quarter of 2022 was $887.3 million… losses on securities were $885.8 million and losses on derivatives were $8.7 million…” .
  • Liquidity posture: “Subsequent to the end of the year, we sold approximately $1.5 billion of securities… we will continue to evaluate our balance sheet and liquidity management needs, which will depend on deposit flows and customer behavior.” .
  • Strategic reset: “We are in the process of evaluating our product portfolio and customer relationships with a focus on profitability… will offboard certain customers and eliminate certain products like digital asset custody that have become ‘too costly or complex.’” .

Q&A Highlights

  • Funding and asset mix: Management highlighted a materially shortened securities portfolio duration (~1–1.5 years), with significant holdings at 0% or 20% risk weights post-repositioning, supporting elevated risk-based capital ratios .
  • SEN Leverage: All SEN Leverage loans performing; utilization maintained; commitments guided down to ~$400M by end Q2’23 to align with risk and market conditions .
  • Revenue trajectory: Clarified that 2023 NII and fee income would trend below adjusted Q4 levels given smaller balance sheet, higher funding costs, and narrower product scope .
  • Deposit dynamics: Management recapped Q4 average digital asset deposits ($7.3B; high $11.9B, low $3.5B) and steps taken to maintain cash liquidity in excess of digital-asset-related deposits .

Estimates Context

  • Analyst consensus via S&P Global could not be retrieved due to a CIQ mapping issue for ticker SICP; as a result, we cannot present comparisons versus Wall Street consensus for Q4 2022. We attempted retrieval and found consensus unavailable via the tool at this time [GetEstimates error].
  • Without validated S&P Global estimates, buyside models should anchor on reported GAAP and adjusted EPS, NII trends, deposit trajectories, and management’s qualitative guidance for 2023 .

Key Takeaways for Investors

  • Liquidity-preserving actions drove extreme Q4 GAAP losses; the balance sheet is now smaller, more liquid, and more rate-sensitive, but equity cushions are thinner and book value sharply reduced .
  • Funding costs will remain elevated near-term; expect depressed NII and fee income as management prioritizes capital and liquidity over growth in a risk-off crypto environment .
  • Strategic pruning (RIF, product elimination, smaller SEN Leverage) is material; track the $7–$8M per quarter cost savings and whether they offset weaker topline to achieve H2’23 profitability targets .
  • Watch deposit stability and mix (exchanges vs. institutions); stabilization of average digital asset deposits is the key leading indicator for funding, NII, and capital trajectory .
  • Capital remains above regulatory “well-capitalized” despite equity compression; monitor risk-weighted asset mix, securities duration, and any further AFS realizations .
  • SEN operational resilience (transfers up 4% q/q) is a positive signal; however, monetization via fees fell as volumes and customer activity declined—fee recovery requires improved crypto-market confidence .
  • Near-term trading: headlines around additional securities sales, customer offboarding, or regulatory developments will be stock catalysts; medium-term thesis hinges on deposit normalization, disciplined cost execution, and measured product focus .