Silvergate Capital ( NYSE: SI ) stock tumbled 41% in Thursday premarket trading after the crypto-focused banks said it's cutting headcount by ~40% , will streamline its product portfolio, will reassess customer relationships, and is taking a $196M impairment charge as customers withdrew deposits in Q4. The company also said it started utilizing wholesale funding due to the customer withdrawals. Then, in order to accommodate sustained lower deposit levels and maintain a highly liquid balance sheet, the company sold debt securities for cash proceeds, it said. The crypto-focused bank made the moves after the collapse of cryptocurrency FTX exacerbated volatility in crypto markets and made investors more wary of the asset class. "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," said CEO Alan Lane. The company will cut ~200 jobs, or 40% of its headcount and estimates a charge of $8M for costs associated with the cuts. After conducting an impairment analysis of the company's intangible assets, Silvergate ( SI ) will take an impairment charge of $196M in Q4 related to developed technology assets purchased from the Diem Group The company now believes that the launch of a blockchain-based payment solution is no longer imminent, though it will continue to seek opportunities to realize value from the Diem technology assets. There's still people working on the project, Lane said in a conference call , though "there's significant headwinds to launching something in the near future, so we'll have to look at the expenses that we're incurring." The company exited its mortgage warehouse lending product in Q4 2022 and will take a restructuring charge of $4M in Q4 2022, primarily related to severance and employee benefits. It will also streamline its product portfolio in coming weeks. The Silvergate Exchange Network Platform (SEN) continues to operating 24/7 with average daily volume totaling $1.3B in Q4 vs. $1.2B in Q3. At Dec. 31, 2022, SEN Leverage commitments dropped to $1.1B vs. $1.5B at Sept. 30. The company reports zero losses and no forced liquidations for SEN Leverage loans. Average Q4 2022 outstanding balance of SEN Leverage loans was $328M vs. $308M in Q3. Silvergate ( SI ) total deposits from digital asset customers declined to $3.8B at Dec. 31, vs. $11.9B at Sept. 30, 2022. As of Dec. 31, ~$150M of Silvergate's deposits were from customers that have filed for bankruptcy. The 70% drawdown in digital asset customer deposits stemmed from "a much more widespread deleveraging of the [crypto] ecosystem that obviously culminated with the collapse of FTX ( FTT-USD )," Lane explained. Cash and cash equivalents as of Dec. 31, 2022 was ~$4.6B, in excess of deposits from digital asset customers. During Q4, Silvergate ( SI ) sold $5.2B of debt securities for cash proceeds, resulting in a loss on the sale of securities and related derivatives of $718M during Q4 2022. As of Dec. 31, 2022, the company held $5.6B 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 $0.3B. Silvergate ( SI ) expects to sell a portion of those securities in early 2023 to reduce wholesale borrowings, which will result in the recognition of a Q4 impairment charge related to the unrealized loss on those securities expected to be sold. In wholesale funding, the company held $2.4B of short-term brokered certificates of deposit and $4.3B of short-term Federal Home Loan Bank advances as of Dec. 31, 2022. With reporting by Max Gottlich Last month, S&P Global said increasing crypto deposit outflows at banks are a cause for concern.
