Analysis of Silvergate Capital's Q4'22 Pre-Earnings Announcement

In response to the declining deposits and market conditions, Silvergate notified ~200 employees or ~40% of its FTEs, on January 4, 2023, of their subsequent termination. While the layoffs will result in ~$8mm of severance, benefits and related costs to be incurred in Q1'23, long-term projected reduction in expenses remain unclear. In addition to the layoffs, Silvergate exited its mortgage warehouse lending product – generating a ~$4mm restructuring charge for Q4'22 driven by severance and employee benefits. Silvergate noted that continued restructuring and changes would happen in the coming quarters as they attempt to simplify their business and operations. Further accounting changes include marking down the acquired Diem Group assets from Meta (fka Facebook). Given the current market conditions, Silvergate is reevaluating the launch of their blockchain payment system in conjunction with a $196mm impairment charge in Q4'22. 

"We had clients that were proprietary traders, market makers that had been doing business with each other for sometimes 6, 8 years, that just stop doing business with each other and pulled their -- essentially pulled all their deposits. We had some clients that moved -- these are crypto-native firms that moved almost completely into U.S. treasuries... We didn't have any clients that said that they were exiting the space altogether. Perhaps there will be some that do, but we didn't receive that feedback."