Silvergate Bank's shocking financial report, stock price drops 42% to IPO price

The U.S. cryptocurrency bank Silvergate announced yesterday its unaudited and preliminary financial results for the fourth quarter of last year. In response to the volatility in the cryptocurrency market and large withdrawals from customers, Silvergate sold $5.2 billion in bonds to generate cash flow, resulting in a loss of $718 million in the sale of securities and related derivatives in Q4. The stock price plummeted by 42% yesterday to around $12 per share, close to the IPO price when it went public in November 2019.

Background

Silvergate Bank is a licensed bank in California that has been serving digital asset users since its inception in 2013. FTX, Gemini, and Coinbase are among its clients. With a unique niche market, Silvergate swiftly rose in the industry over the past decade, transitioning from a regional bank to a publicly listed company. Acting as a deposit bank for FTX and Alameda Research, Silvergate processes related transfer transactions. It was significantly impacted by the FTX crash, having previously disclosed its exposure to FTX. As of September 30, 2022, Silvergate's total deposits from digital asset users amounted to $11.9 billion, with FTX accounting for less than 10%.

Significant Changes in Q4

Silvergate chose to disclose important data and metrics yesterday, causing a significant shock in the market as its stock price plummeted by 42% to around $12 per share, close to its IPO price in November 2019. The stock price had reached as high as $239 in November 2021.

The disclosed key data includes:

• Total deposits from digital asset users dropped from $11.9 billion on September 30, 2022, to $3.8 billion on December 31, 2022.
• As of December 31, 2022, Silvergate had approximately $150 million in deposits from users who had filed for bankruptcy.
• As of December 31, 2022, Silvergate held approximately $4.6 billion in cash and cash equivalents, exceeding the deposits from digital asset users.
• To address market volatility in the cryptocurrency market and significant user withdrawals, Silvergate sold $5.2 billion in bonds for cash flow, resulting in a loss of $718 million in Q4 from the sale of securities and related derivatives. The company still holds $5.6 billion in fair value bonds and plans to sell some bonds in early 2023.

Other Business Updates

• Silvergate is preparing to lay off around 200 employees, approximately 40% of its total workforce, and is providing severance pay and job placement resources. The costs associated with these layoffs are estimated to be $8 million, primarily covering severance pay, employee benefits, and related expenses, with most costs expected to be recognized in Q1 2023.
• Due to the current macro environment, rising interest rates, and a decrease in mortgage volumes, Silvergate exited the mortgage loan product in the fourth quarter of 2022 and incurred a restructuring cost of $4 million in Q4, mainly related to severance pay and employee benefits.
• Silvergate had previously acquired the stablecoin assets originally planned for release by Meta's Diem, a project that is currently on hold. The company recognized a write-down expense of $196 million in Q4 2022.

2022 Full-Year Outlook

According to Silvergate's Q3 financial report, the accumulated earnings as of September 2022 amounted to $109 million. Including the bond sale loss of $718 million and the Diem write-down expense of $196 million, the company's losses for 2022 could reach $800 million. Silvergate is expected to release the full financial report on January 17.