Silvergate Capital Corp. has decided to end its relationship with certain noncore customers in the coming weeks, while prioritizing customers who routinely transact on its blockchain payment network.
The impact of the customer exits will not exceed 10% of the company's digital asset-related deposits, CEO and board member Alan Lane said on a fourth-quarter 2022 earnings call. As of Dec. 31, 2022, total deposits from digital asset customers had declined to $3.8 billion from $11.9 billion at Sept. 30. The drop was triggered by what Silvergate called a crisis of confidence during the quarter following the collapse of cryptocurrency exchange FTX Trading Ltd.
Silvergate will also be eliminating products that have become too costly or complex, such as digital asset custody and certain cash management services, Lane said. The services cannot be offered profitably because they tend to require significant resources to operate and are used by a minority of customers, he said.
With its cost-cutting moves, Silvergate aims to be profitable in the second half of 2023, Lane said. The La Jolla, Calif.-based bank recently said it would cut its workforce by 40%, or about 200 employees.
Trimming noncore customers and products is Silvergate's choice based on its profitability analysis and is not being required by regulators, Benjamin Reynolds, the bank's president, said on the call.
"There are significant compliance and operational costs associated with every customer that we serve. So now more than ever, we want to be deliberate and working with clients that are adding value to the platform," Reynolds said.
To satisfy the drastic fourth-quarter 2022 deposit runoff, Silvergate initially used wholesale funding and subsequently sold securities to accommodate sustained lower deposit levels, Lane said. As a result, its Tier 1 leverage ratio dropped to 5.36% as of Dec. 31, 2022, from 10.71% in the third quarter and 11.07% at the end of 2021.
Silvergate will be working to improve the Tier 1 ratio over time, starting with reducing wholesale funding, CFO Tony Martino said on the call.
For full year 2022, Silvergate recorded $948.67 million in net loss attributable to common shareholders. Transactions on its Silvergate Exchange Network totaled $563.3 billion, versus $787.4 billion in 2021. The company's total number of digital asset customers increased to 1,620 as of Dec. 31, 2022, from 1,381 at Dec. 31, 2021.
