Hello and welcome to today's Silvergate Capital Corporation fourth quarter 2022 earnings conference call. My name is Bailey, and I'll be the operator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference to our host, Hunter Stenback from Silvergate Capital Investor Relations. Please go ahead. Thank you, operator. Good morning, everyone. We appreciate your participation in the Silvergate Capital Corporation fourth quarter 2022 earnings call. With me here today are Alan Lane, our Chief Executive Officer, Tony Martino, our Chief Financial Officer, and Ben Reynolds, our President. As a reminder, a telephonic replay of this call will be available through 11:59 P.M. Eastern Time on January 31st, 2023. Access to the replay is also available on the investor relations section of our website. The slide deck to complement today's discussion is available on the IR section of our website. Before we begin, let me remind everyone that this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about management's future expectations, beliefs, estimates, plans, and prospects. Such statements are subject to a variety of risks, uncertainties and other factors, including the COVID-19 pandemic that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in our periodic and current reports filed with the Securities and Exchange Commission. We do not undertake any duty to update such forward-looking statements. Now, I would like to turn the call over to Alan. Thank you, Hunter, and good morning, everyone. As many of you know, we provided select preliminary and unaudited fourth quarter financial metrics on January fifth. Before I dive into our full year results, I want to provide a recap of what happened in the digital asset industry in recent months and its impact on Silvergate. Significant over-leverage in the industry has led to several high-profile bankruptcies and sparked a crisis of confidence and lack of trust across the entire digital asset ecosystem. As a result, many industry participants have shifted to a risk-off position across digital asset trading platforms. To that end, we saw a modest decline in Silvergate's digital asset customers in the fourth quarter. A trend that we expect to continue in 2023 as the digital asset industry undergoes further transformation. In turn, total deposits from digital asset customers declined to $3.8 billion December 31, 2022, compared to $11.9 billion at September 30, 2022. Average deposits were $7.3 billion with a high of $11.9 billion and a low of $5.5 billion during the fourth quarter. As of December 31, 2022, approximately $150 million of Silvergate's deposits were from customers that had filed for bankruptcy. In order to satisfy these deposit outflows, we took commensurate steps to ensure that we were maintaining cash liquidity in excess of digital asset related deposits. We initially utilized wholesale funding to satisfy outflows and subsequently, we sold debt securities to accommodate sustained lower deposit levels and maintain our highly liquid balance sheet. Importantly, we currently maintain a cash position in excess of our digital asset related deposits, and customers know they can access 100% of their deposits. Tony will provide more color on the security sales and balance sheet management strategy in a few minutes. Turning to our core offering, the Silvergate Exchange Network or SEN, despite the significant decline in deposits, transfer volume on the SEN was $117 billion, an increase of 4% on a sequential basis, demonstrating that our platform continues to serve as critical market infrastructure for the digital asset industry. The SEN has operated uninterrupted 24 hours a day, seven days a week. Turning to SEN Leverage. Total approved commitments declined 23% to $1.1 billion compared to $1.5 billion at the end of the third quarter. We experienced a range of outstanding SEN Leverage balances during the quarter between $282 million and $377 million with an average outstanding balance of $328 million. All of our SEN Leverage loans continued to perform as expected with no loss to forced liquidations. Looking ahead, we expect to maintain existing utilization for SEN Leverage in 2023 and expect commitments to shrink to approximately $400 million by the end of the second quarter of 2023. As we discussed on our business update call, we are taking several decisive actions to ensure our business remains resilient during a sustained period of lower deposit levels. To that end, we are in the process of evaluating our product portfolio and customer relationships with a focus on profitability. As it relates to our customer base, after a thorough analysis, we have made the difficult but deliberate decision to off-board certain non-core customers in the coming weeks. Importantly, we are prioritizing and remain committed to our core customers who routinely transact on the SEN. While our evaluation is still being conducted, we believe the impact of these customer exits will not exceed 10% of our digital asset-related deposits. We will also be eliminating certain products that have become too costly or complex. We have concluded that products such as digital asset custody and certain cash management services, which are used by a minority of our customers and require significant resources to operate, can no longer be offered profitably. While we remain focused on providing innovative solutions, reducing our product portfolio will allow us to better serve our core institutional digital asset customers. Moving forward, our product offerings consist of our most value-added solutions and reflect what we do best with solutions like the SEN, wires via our proprietary API, and deposit accounts. In addition, we made the difficult decision to reduce our workforce by approximately 200 people or 40%. We estimate aggregate costs associated with the reduction in force of approximately $8 million, primarily consisting of severance payments, employee benefits, and related costs. We expect to incur the majority of these charges in the first quarter of 2023. Taken together, we believe that focusing on providing a streamlined offering to our core customers and managing expenses will help Silvergate return to profitability in the second half of 2023. While we are narrowing our focus, I want to emphasize that Silvergate's mission has not changed. I recognize that we've made some difficult decisions recently. We are confident that these changes will enable us to serve our core customers in a responsible and profitable manner. We are committed to maintaining a highly liquid balance sheet with minimal credit exposure and a strong capital position, ensuring maximum flexibility for our customers. We continue to believe in the digital asset industry and stand ready to support our customers. I'll now turn the call over to Tony to review our financial results in more detail before we take your questions. Tony. Thank you, Alan. Good morning, everyone. Starting on slide 3 with our key financial results, Silvergate reported a net loss attributable to common shareholders of $1 billion or a loss of $33.16 per common share. Excluding securities and derivatives, impairment charges, and restructuring charges, adjusted net income available to common shareholders was $15.1 million, or $0.48 per adjusted diluted share. Tier 1 leverage ratio was 5.36% based on average assets of approximately $15 billion and continues to exceed the well-capitalized standards as defined by federal banking regulations. We expect our Tier 1 leverage ratio to improve over time as we reduce wholesale funding and the resultant size of our balance sheet. In addition, book value per common share was $12.93. Moving on to slide 5. As we disclosed earlier this month, total deposits from digital asset customers declined to $3.8 billion during the quarter compared to $11.9 billion in the third quarter and $14.1 billion in the fourth quarter of 2021. Average digital asset customer deposits were $7.3 billion in the quarter, down 40% compared to last quarter. As a result of the crisis of confidence the industry experienced, we saw higher volatility in our deposit base as the range of deposits during the quarter widened within a high of $11.9 billion to a low of $3.5 billion. Our weighted average cost of deposits for the quarter increased to 77 basis points compared to 16 basis points during the third quarter. As Alan mentioned, we initially utilized wholesale funding to satisfy outflows. The annualized cost of digital asset deposits remained at 0, reflecting our low-cost digital asset deposit strategy. As we have said before, deposits with Silvergate have been and continue to be safely held. At the end of the fourth quarter, we held total cash and cash equivalents of $4.6 billion, which is in excess of deposits from digital asset customers. Our business is designed to accommodate deposit inflows and outflows under a range of market conditions. Turning to slide 6, net interest income was $53.7 million in the fourth quarter, a decrease of $27.2 million compared to the third quarter and an increase of $15.5 million compared to the fourth quarter of 2021. Net interest margin was 1.54% for the fourth quarter compared to 2.21% in the third quarter and 1.11% in the fourth quarter of last year. As we outlined in our business update earlier this month, we sold debt securities for cash proceeds in order to accommodate sustained lower deposit levels and maintain our highly liquid balance sheet. We sold $5.2 billion of debt securities during the quarter, resulting in a loss on the sale of securities of $751.4 million. This sale included Available-for-sale securities as well as certain securities that were previously identified as Held-to-maturity. Our securities portfolio had an average outstanding balance of $9.8 billion with a corresponding yield of 2.61% for the fourth quarter, down from an average balance of $11.8 billion at the end of the third quarter with a corresponding yield of 2.09%. As of quarter end, our securities portfolio had a balance of $5.7 billion. As part of our risk management strategy, we hedged approximately 35% of our interest earning assets to protect against downside interest rate risk. Looking ahead, we expect to sell a portion of these securities estimated to be $1.7 billion in early 2023 to reduce wholesale borrowings, which resulted in the recognition of impairment charge of $134.5 million in the fourth quarter related to the unrealized loss on those securities expected to be sold. Subsequent to the end of the year, we sold approximately $1.5 billion of securities. As always, we will continue to evaluate our balance sheet and liquidity management needs, which will depend on deposit flows and customer behavior. Turning to slide 7. Non-interest loss for the fourth quarter of 2022 was $887.3 million compared to non-interest income of $8.5 million in the prior quarter and $11.1 million in the fourth quarter of 2021. Losses on securities were $885.8 million and losses on derivatives were $8.7 million, resulting from the sale of debt securities and related derivatives and impairment charge during the quarter. Excluding these losses on security derivatives, adjusted non-interest income for the quarter was $7.2 million. As a result of the strategic actions Alan outlined earlier, we expect quarterly net interest income and fee income in 2023 to trend lower than adjusted fourth quarter 2022 levels. Slide 8 shows non-interest expense for the quarter of $238.5 million compared to $33.2 million in the prior quarter and $25.7 million in the same quarter of last year. The increase sequentially and year- over- year primarily resulted from a $196.2 million impairment charge on developed technology assets we acquired earlier in the year, as well as increases in salaries and employee benefits attributable to a $3.7 million restructuring charge related to exiting the mortgage lending product during the fourth quarter of 2022. Excluding the impairment on intangible assets and restructuring charges, adjusted non-interest expense for the quarter was $38.6 million. As Alan discussed earlier this month, we announced a reduction in force of approximately 200 employees or 40% in order to account for the economic realities facing the business and industry today. We estimate the aggregate cost associated with the reduction in force of approximately $8.1 million, primarily consisting of severance payments, employee benefits, and related costs, and expect to incur the majority of these charges in the first quarter. Cost savings associated with the reduction in force are expected to be $7 million-$8 million per quarter. Our expense base in the first half of the year will continue to be assessed as we evaluate individual vendor contracts and other costs as a result of the strategic actions that Alan mentioned. We expect expenses in the second half of the year to be lower compared to the first half of the year. We recognize a tax benefit of $24.3 million for the fourth quarter of 2022, reflecting an effective tax recovery rate of 2.3% compared to an expense of $13.5 million for the third quarter of 2022, with a corresponding effective tax rate of 23.7%. The income tax benefit recorded in the fourth quarter of 2022 was driven by the loss recognized during the quarter and the resulting reversal of prior period income tax expense incurred during the first three quarters of the year, partially offset by a charge from the transition to a 100% valuation allowance on deferred tax assets. As a result of losses incurred during the quarter, we have established a deferred tax asset balance of $342 million and applied a 100% valuation allowance against this asset. The Deferred tax asset balance associated with Net operating losses will carry forward indefinitely and can be utilized against 80% of future taxable income. While this was a tough quarter in light of significant challenges in the broader digital asset industry and difficult decisions we had to make as a company, we remain committed to serving our core customers. We look forward to providing further updates on our business throughout 2023. With that, I would like to ask the operator to open up the line for any questions. Operator? Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star followed by one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We politely request that you keep to one question and one follow-up. Thank you. Our first question today comes from the line of Michael Perito from KBW. Please go ahead. Your line is now open. Hey, good morning, guys. Thanks for taking my questions. I have a few things I wanna get to, but I'll let some of my colleagues ask some of the others. The one I wanted to start on was kind of your comment about deposit flows and customer behavior driving decisions around selling securities. I guess I'm curious, you know, what the recent update is on both. You know, I mean, it seems like you sold some but not all of the securities that you earmarked for sale when you pre-released earlier this month. I'm just curious if there's any update to deposit flows and customer behavior that you're willing to provide at this point. Yeah. I'll touch on the on the on the deposit question and turn it over to Tony for the securities question. On the deposit question, Mike, we are not, you know, we're gonna stick with our standard approach here, which is to not provide any guidance whatsoever. As I think abundantly clear in the fourth quarter, any guidance in this initiative is speculation. In similar fashion, quote, you know, reporting on deposit movement in a two-week period is not indicative of, you know, what we might expect for the entire quarter. We don't want to provide any update at this point, you know, that would cause people to think that, you know, deposits are gonna be surging higher or that they're gonna be lower. You know, the SEN continues to operate 24/7. We continue to maintain cash on balance sheet in excess of all of our deposits in this initiative, so our customers know that they can access their deposits 24 hours a day, seven days a week. If they bring additional deposits on, as some customers have, we're gonna continue to hold those in cash on our balance sheet. If customers choose to withdraw, as some have, they know Well, they can have access to move those 24/7 over the SEN, or they can withdraw them via wire transfer during normal banking hours. We stand ready, willing, and able to, assist our customers with their liquidity needs, which is the primary function that Silvergate has provided to this ecosystem since we got into this business nine years ago. With that, Tony, would you like to touch on the security sales? Yeah, sure. Thanks, Alan. Mike, as we disclosed, we anticipated selling approximately $1.7 billion of securities and had recorded an impairment charge for that sale, which is part of a loss. As Alan said, we're only two weeks into the year, but we did execute on that plan. We've sold $1.5 billion of the $1.7 billion that we had earmarked. You know, that's transpired in the first two weeks of the year. Beyond that, as Alan said, you know, it's early. It's too early in the quarter to guide further. As we said, you know, we have earmarked those securities for sale. The purpose was primarily to reduce borrowings. That's what we've done as of this point in time. Thanks. Got it. Helpful. Just for my second question, you know, I appreciate all the commentary, Alan, around how you're kind of refocusing the business and trying to right-size the OpEx side for the new kind of lower deposit level. I'm just curious, though, you know, the kind of focusing and removing some functionality that's more expensive and non-core is an element, but then the other element, right, is making sure you're getting paid for what you're providing appropriately. I'm just curious, when you think about the SEN, when you think about SEN Leverage, when you think about everything that you still are conducting, you know, how are you thinking about the ROI on those products? You know, I think, you know, maybe some of the risk factors around just taking deposits seem a little bit more amplified in this business than, you know, a typical commercial deposit. Just curious what your updated thought processes are there. Yeah. Mike, appreciate that question, and I think I'll ask Ben to address it. Thanks. Yeah. You know, as Alan mentioned in his prepared comments, you know, some of the products that we offer today have just become too costly or complex to continue offering. You know, as with any growing business, you make assumptions about customer adoption of new products, and when they don't scale the way that you anticipated, you know, sometimes you need to make course corrections. You know, digital asset custody is an example of that for us. You know, it's a very competitive space and difficult to differentiate yourself. Kind of switching gears to the cash management solutions that we mentioned, you know, we don't wanna provide more details at this time related to that because we wanna make sure that we notify some of our strategic partners and customers first. You know, what I can tell you is fee income's gonna be lower in 2023. When you peel back the onion, you know, you'd note that the margins on some of the products that we're not, you know, that we would need to continue to invest in, you know, we just won't continue to do that. We do expect a boost to profitability by discontinuing those products, despite an overall, you know, decline in fee income the next several quarters. The other thing, Mike, that's worth mentioning on this topic is that, you know, as we do offer the SEN and wires and other products that are critical to our core customer base, we do expect those products to generate, you know, significant fee income, but that is difficult to predict as you know, as it's often dependent on market conditions. You know, sort of everything's on the table in terms of how to, you know, monetize the platform. I'd say more work is probably needed in order to say exactly how we're gonna do that beyond, the way we do today, which is through deposits. Thanks for the question. Thank you, guys. Thank you. The next question today comes from the line of Joseph Duffy from Canaccord. Please go ahead. Your line is now open. Hey, guys. Good morning. thanks for the extra color here in your report. I just wanted to circle back maybe on to some of your comments you made a couple weeks ago on the pre-release. I know you're not providing guidance, but you know kind of a broad rule of thumb is to continue... A couple weeks ago, you said to look at, you know, where Silvergate's deposit base was, you know, perhaps, you know, six or eight quarters ago and kind of extrapolate out interest income today based on that same level of deposits then. Just wanted to make sure you think that that kind of rule of thumb still makes sense. Then I'll have a follow-up. Yeah. Joe, I really appreciate you asking for that clarity because I don't. That's not what I meant when I was referring back to, as you said, six or eight quarters ago. I wasn't at all focused on, like, the interest income, the net interest income side of things. It was more reflective, or my comments a couple of weeks ago in this regard were more reflective of the fact that it was only a little over two years ago that we were essentially this size in terms of deposits. Therefore, we have a pretty good idea as to, you know, what staffing level, you know, will be required in order to support this, you know, adjusted size. Also kind of embedded in that observation and tying this back to some of the comments that Ben was just making, it's also reflective of the fact that we expect to have fewer customers, and also a streamlined product set, which are all very similar to you know, to kind of where we were a couple of years ago. My comments that of a couple of weeks ago were really meant to just share with you all that we've been here before in terms of running a profitable company, you know, that it has fewer customers and lower deposits, but that still serves this ecosystem with the critical infrastructure that we provide. As to the interest rate environment, you know, we're in a very different interest rate environment today, versus where we were back then. You may recall that, you know, interest rates, you know, essentially went to zero, shortly, you know, shortly after that, like kind of eight quarters ago, when the pandemic hit. During most of our growth, throughout 2020 and 2021, we were in a zero interest rate environment, you know, with a, with a three-month Treasury, yielding less than 10 basis points. You know, today we're in a much different interest rate environment, and so we're not at this. You know, we never try to predict interest rates. We just try to understand, you know, how different interest rate environments might impact our business, and we're certainly going through that same analysis today with a lower balance sheet but a higher interest rate environment. Sure. Thanks for that color, Alan. Maybe a follow-up. You know what I mean? You know, obviously you're maintaining a super liquid balance sheet right now with cash in excess of deposits, which is not, you know, something historically that you've done. Is there, can you provide maybe some guideposts for us on to when you know that, you know, the balance sheet kinda may normalize over time here relative to have, you know, maybe shrinking down that overly liquid balance sheet, and cash in excess of deposits? Thanks. Yeah. It's a fair question, and I'll just go ahead and take this one too, and just say that, you know, I'll mention the same thing I always mention, which is, you know, we don't provide guidance, and it's really difficult to predict. Let's just focus on kind of why are we doing this right now? It really goes back to the thing that we've been saying for the last couple of weeks, which is this industry has experienced a significant crisis of confidence across the ecosystem because of all of the over-leverage in the system and, you know, some of the bad actors and the bankruptcies, et cetera. When market participants are looking in this ecosystem, and they're trying to determine who can we trust? We wanna make sure that our customers know that we are holding 100% of their deposits in cash on our balance sheet so that they can access that cash up to 100% of their deposits. It really is meant to instill confidence. The other part of that confidence is to communicate to our customers that we are still committed to this ecosystem. Many of the customers that we service today are customers that we onboarded in 2014, in 2015, in 2016. Many other banks have come into the space during our nine-year tenure. Some have left, some have expanded their operations and then contracted. You know, what we're trying to communicate is that we are here. We are here for the long haul. We are here to serve our core customers with the core products that they utilize every day, and they can have confidence that we have 100% cash on balance sheet. When, you know, when will that change? You know, not for the foreseeable future. I don't know if that's one quarter, two quarter, all year long. We want to instill confidence in the ecosystem and especially with our customers. I really appreciate you asking the question so we could drill down on that a little bit more. Great. Thanks, Alan. Thank you. The next question today comes from the line of Steven Alexopoulos from JPMorgan. Please go ahead. Your line is now open. Hey, good morning, everyone. I want to start on tangible book value, which was $1,293 in the quarter. In terms of a new baseline, I just wanted to confirm that we shouldn't expect any additional charges or impairments in the first quarter beyond the $8 million restructuring charge you called out, which could further reduce tangible book value. Yeah, Steve, I'll go ahead and kick that question over to Tony. Tony? Yeah. Hey, Steve. Thanks for the question. With respect to the tangible book value per share, as I indicated previously, you know, we recorded an impairment for $1.7 billion in security sales, and that's already embedded in there. There's puts and takes as always with tangible book value. As Alan's indicated a couple of times, we don't provide forward guidance, and, you know, it's early. It's early, really early in the quarter to, you know, to try to give a guide path there. There are puts and takes. You know, another example is the deferred tax carry forward of $342 million that we disclosed. That's not built into the tangible book value because we've taken a valuation allowance for it, but it's certainly there in terms of tax losses that are available to offset future income. Again, it's early. We don't provide guidance, appreciate the question. Okay. Thanks. Thanks, Tony. For my follow-up, I don't know if you guys heard the Signature call this morning, in the Q&A session, they had a question on AML/BSA. They indicated that for FTX, it was more of a Madoff situation. They specifically said not an AML/BSA issue. Do you guys see this the same way as it relates to Silvergate, not an AML/BSA concern? Yeah. Steve, unfortunately, I did not get a chance to listen to the Signature call, so, I don't have the context, for how they referenced it. You know, we're just not gonna comment at all, on any, you know, kind of FTX related matters. You know, from my perspective, you know, we should just focus on our core business and, you know, and all of the things that we're doing to help this ecosystem and, you know, let all that other stuff, you know, kinda, you know, kinda work its way out. Okay. Fair enough. Thanks for taking my questions. You bet. Thank you. The next question today comes from the line of David Rochester from Compass Point. Please go ahead. Your line is now open. Hey, good morning, guys. You guys had a lot of moving parts on the balance sheet in the fourth quarter that would impact the margin moving forward. I know you don't wanna give any guidance on the NIM, but can you just give some of the spot yields and costs at the end of 4Q '22 for the major average balance sheet lines? I think that would be helpful. If you happen to have the yield on the securities that, you know, you're selling in the first quarter that you've already sold, that would be great as well. Yeah. Good morning, Dave. I'll kick this question over to Tony. Thanks for the question, Dave. Again, I think, you know, if you, if you look at the balance sheet, broadly speaking, you know, given the disclosures that we made, you know, the, the cash and securities are the overwhelmingly large components of the balance sheet. The securities, the, the cash yields are, you know, are, are in line with federal funds rate. With, with the securities, what I'll say is, you know, as of, as of year-end, we were close to about 80% of the securities portfolio being floating rate, floating rate securities. You know, in the first two weeks, as I indicated, we sold about $1.5 billion of what was left in the book. I think the 80%, I mean, will trend a little bit higher. For a portfolio that's government-issued or all agency-backed, and primarily mortgage-backed and other types of securities, you know, you probably could figure out what the yield is there, in relation to the federal funds rate. As we said, the bulk of our earning assets are adjustable rate. As we've also said, you know, the makeup of the balance sheet going forward, you know, subject to change, as the year evolves. Sorry I can't be a little bit more clear, but, you know, that's about as much as we could provide at this point in time early in the quarter. Okay. I appreciate that. Just one follow-up. Can you just talk about, you know, bigger picture, the implications of this 100% valuation allowance on the DTA? You know, are you guys basically saying that the outlook, at least near term, for profitability is more negligible or maybe you're predicting a loss? How far out does that analysis go? How far out do you guys need to look on that valuation test? Thanks. You wanna just keep going, Tony? Thanks, Alan. Dave, as far as that valuation allowance goes, in the near term, I mean, it's a. You know, as I said earlier, we've got a deferred tax allowance, or a Deferred tax asset balance of $342 million driven by both, you know, the losses that we've incurred in the fourth quarter and, you know, some of the accrued losses that we anticipate in 2023. From a tax perspective, with some of those accrued losses that will be realized in 2023, the allowance is one of those things that's done on a year-by-year basis. At this point in time, you know, we've assessed a 100% allowance, implying that, you know, there's probably not taxable income in 2023. Beyond that, you know, you shouldn't read too much into it because it's an allowance that could be reevaluated every year-end. That valuation allowance could change every year-end. It's not set in stone at a 100% going forward. From a tax perspective, as we've disclosed, those losses are have an indefinite carry forward for federal tax purposes. There's future value there to the extent that there's future taxable income. Got it. Thanks, guys. Thank you. The next question today comes from the line of Manan Gosalia from Morgan Stanley. Please go ahead. Your line is now open. Hey, good morning. Appreciate all the incremental color this morning. I know you also mentioned in the slide deck that the headcount reduction will drive a $7 million-$8 million reduction in comp. I guess as we think about the core expense number going into the back half of the year, given that you also mentioned you're exiting from the custody and cash management businesses, how should we think about the core expense number as we exit, you know, the one-time expenses that you're making over the next couple of quarters? Yeah. Manan, thanks. Thanks for the question. I'm gonna turn it over to Tony in just a second, but I just want to clarify one thing. We are not exiting all of the cash management services, but just certain cash management services. We have not yet disclosed which services those are. You could go back and, you know, contemplate Ben's comments around some of the products. You know that when you, when you launch certain products, you make some assumption as to, you know, the customer adoption of those products, et cetera. Then as you move through time, you know, you have to reassess those. I wouldn't want anybody to think that we're no longer gonna provide cash management services. That is core to what we do. The SEN, the 24/7 API-enabled SEN that our customers have come to rely on, will still be operational with API wires, et cetera. We'll be able to provide more color, as Ben mentioned, once we notify some of our key partners and our customers. We don't wanna get ahead of being able to have individual conversations with all the appropriate folks. Back to the expense question. Tony, you wanna take that? Yeah, sure. Thanks for the question, Manan. Yes, as you indicated, you know, the guidance that we provided was a $7 million-$8 million per quarter save related to the headcount reduction. As it relates to other core expenses, as we indicated in our prepared remarks, I mean, we were intentional about saying the second half of the year. You know, as you can appreciate, you know, there are a lot of, you know, embedded costs and overhang coming into the new year. A lot of the challenges, you know, in the ecosystem were towards the back end of the quarter. You know, as Alan had said, you know, We're evaluating different products and services. We're evaluating vendor contracts. We're evaluating, you know, all of those items that would drive core expenses. You know, at this point in time we're not in a position yet to give further guidance. As you indicated, you know, we do intend to evaluate all categories, and look to, you know, look to get to a good core expense base for the second half of the year. Thanks. Is it fair to take the $33 million expense base from three Q, remove the $78 million, and then assume that you would move lower from there? Is that fair? It's not so straightforward because as you may or may not know, I mean, we were increasing headcount, you know, throughout the year. Some of those headcount increases were in flight at the beginning of the quarter, at the beginning of the fourth quarter. It's like most things, it's not that straightforward and, you know, there are many moving parts, and there are a lot of puts and takes as always. Appreciate the question, but at this time, that's about all the guidance we can give. Got it. Just a quick question on the, on the deposit side. In the past you've mentioned, that about 45% of your deposits come from the top 10 clients. I would assume that concentration number has gone down, meaningfully. Would you have that number as of, the end of the fourth quarter? Yeah, let me jump back in and kick this over to Ben. You know, we'll certainly disclose more detail in our 10-K as we always do when it's filed. I'm not sure we're ready to disclose deposit concentrations today. Ben can probably provide a little bit of color on our customer base. Ben, do you have anything to add? Yeah, that's right, Alan. I'm not sure if we're planning on disclosing that number going forward, but when you do look at the table that shows the number of customers by category and the corresponding deposits, you can see that they've gone down in every category. We're certainly mindful of concentrations. What we've seen is really, you know, as we've said many times before, kind of a crisis of confidence and risk off across the entire industry. I think from that table you can probably see that deposits across the board in every segment are down. Not much more we can add beyond that at this point. Great. Thank you. Thank you. The next question today comes from the line of Will Nance from Goldman Sachs. Please go ahead. Your line is now open. Hey, guys. good morning. Thanks for taking the question. I'm looking at the end of period balance sheet, and even if I take into account the security sales in the first quarter, it looks like you'll still have around $5.3 billion in wholesale funding or around 50% of the balance sheet. I know you don't want to provide guidance on deposit flows, but, you know, it seems from the outside looking in that, you know, either you're managing the balance sheet towards a sharp rebound in deposits in the near term, or you need to sell substantially more securities than you have done or earmarked so far in order to bring the funding profile back in line. you know, assuming that 50% wholesale funding is higher than you or the regulators are comfortable with, and maybe you can correct me if I'm wrong there, you know, are there any guardrails that you could provide about how you plan to work that down and to what level? Yeah. Well, it's a fair observation, and I think I've said, if I didn't say it on the in the Q&A session of the last call a couple of weeks ago, I certainly, you know, addressed this question, you know, in follow-up calls, which is that your observation is correct. If you just zoom out and the way I frame it is, you know, let's not make it specific to Silvergate, but let's just talk about the fact that in general, banks like to have their core deposits in excess of their non-core funding, which is you've alluded to, you know, wholesale funding, whether that be short-term borrowings or brokered CDs. So, you know, at this point, we're not providing any further guidance. The comments that you made about how you might interpret us, managing our balance sheet, is you know, is an opinion that you're expressing, but it's not necessarily indicative of how we're thinking about it. I would just go back to everything I've said already, and I don't want to repeat it all for everybody. We're managing the balance sheet to make sure that our customers know that they have access to 100% of their deposits. We're gonna do that for the foreseeable future. As Tony mentioned, our securities portfolio, what remains of our securities portfolio is overwhelmingly adjustable rate, and it is all government agency, either government-issued or government agency-sponsored investment securities. We feel very good about our current balance sheet position. Got it. Appreciate that. Maybe, you know, kind of dovetailing off of the last comment you made on the securities portfolio on the balance sheet. You know, you guys have been profitable at this level of non-interest-bearing deposits in the past, but I think one thing that's different now is you've sold a lot of the duration in the balance sheet and the, you know, looking ahead, it seems like the strategy of maintaining a lot of digital currency deposits or all in cash, you know, presents a lot of downside interest rate risk if we see rates kind of normalize back to, you know, a well, something approximating what, you know, what we see in the current forward curve today. How, how are you guys thinking about mitigating downside interest rate exposure, with a significantly higher cash position, which, you know, I, you know, Tony, maybe you could talk about your ability to hedge kind of like fed funds rate type of cash? Yeah. Tony, do you? Yeah. Do you wanna answer the question? Yeah. Yeah. Well, yeah, no, that's an appropriate observation. You know, first thing I'll say is, yes, we do, you know, we do have and we've disclosed that we've got derivatives in place to mitigate downward moves in interest rates. That's obviously part of it. That becomes an important component of balance sheet management strategy as it relates to NIM going forward. Also, as Alan said, you know, for the foreseeable future, you know, we wanna make sure that we've got cash in place for customers. You know, I kind of want to reinforce the point that, you know, with all of our securities being government-issued or government agency-backed, you know, they also continue to be fully pledgeable for liquidity. You know, all those things that we've put in place that we've talked about for several years, you know, continue to be in place. Perhaps the proportions change, but we're mindful of managing interest rate risk. As Alan said, we don't, you know, we don't predict rates, but we try to plan for all the outcomes. The size of the derivatives that we've got is part of that strategy. Understood. Appreciate you taking my questions. Thank you. The next question today comes from the line of Jared Shaw from Wells Fargo. Please go ahead. Your line is now open. Good morning. I guess looking at capital, especially Tier 1 leverage, took a obviously a big move down. You commented in the opening comments about rebuilding that organically. Is that organic growth rate going to be enough to satisfy your expectations or need for Tier 1 leverage in terms of trying to get closer to a double-digit Tier 1 leverage ratio? Should we think that there may have to be some additional capital raising or other alternatives looking at? Yeah. Jared, appreciate the question. I'm gonna ask Tony to comment in just a minute. The one thing that I would point out is, you know, and again, of course, you know, we're not gonna provide guidance on if and when we might, you know, quote-unquote, "raise capital." I think Tony will touch on this. It's important to recognize that number one, our risk-based capital ratios continue to be extremely robust, which is, you know, is reflective of the very low credit risk on our balance sheet. Importantly, that Tier One ratio is based on average assets. It's really important to think about that as we move into, you know, the first quarter here. Without stealing any more of Tony's thunder, Tony, do you wanna address that in a little bit more detail? Thanks, Alan. Thanks for the question, Jared. As Alan mentioned, you know, the Tier One leverage ratio that we disclosed, 5.36%, it's based on average assets of approximately $15 billion, as I mentioned in my prepared remarks. But the balance sheet ended at $11.3 billion. On a pro forma basis with the Tier One capital that we had at year-end, that would imply an entry point above 7%. And then with the further guidance or subsequent event disclosure that we've sold down $1.5 billion in securities to reduce wholesale funding, that implies a further reduction. You know, that's kind of step one in terms of the organic path of rebuilding the Tier One leverage ratio. Okay, thanks. My follow-up, I guess, just on the securities portfolio. After the sale, what's the expected cash flow quarterly from that and the remaining duration? Tony? Yeah. I don't have the expected cash flow handy. In terms of expected duration, I mean, we had disclosed approximately four years as an effective duration in the third quarter. That's substantially reduced. It's closer to one at present, one to 1.5. You know, in reference to, again, you know, what Alan was mentioning in terms of risk-based capital ratios, a significant amount of those securities are now at zero risk weight or 20% risk weight. You know, significant change between the third and fourth quarter end. Thanks. Thank you. Our next question today comes from the line of George Sutton from Craig-Hallum. Please go ahead. Your line is now open. Thank you. Also on the call, you did not hear from Signature. They suggested a bit of a de-emphasis of the digital landscape, and you are clearly trying to indicate a continued importance relative to how you are doing your business. I just wanted to think about that in the context of the off-boarding of clients that you mentioned. Can you just give us a sense, I assume this is a relatively small number, and can you give us any sense of the additional scrutiny that's been taken to make this decision? Yeah, George, I'm gonna pass it over to Ben for that first part of your question. As to additional scrutiny, let's just dispel that right now. You know, and let's just frame it in the context of we've been doing this business, you know, with the full, you know, focused on regulation and risk management for nine years. You know, we went into this business very intentionally in 2014. We engaged with our regulators that year to say this is. You know, and at the time, as I've said many times before, it was Bitcoin only. We were, you know, essentially describing to our regulators at the time, this is what Bitcoin is. These are the types of institutional market participants that are coming into this space to invest in Bitcoin. Obviously, that has expanded now to other digital assets such as Ethereum, stablecoins, et cetera. For the entire tenure of this business, we have been operating with a fully regulated offering and with you know, with the requisite regulatory scrutiny, if you will, in terms of you know, looking at our program every single year. Any decisions that we're making to trim products and/or customers are really business decisions and not related to any specific scrutiny as you said. Ben, do you would you like to comment further? Yeah. Yeah. Thanks for the question, George. You know, it was a difficult decision to off-board some of our non-core customers. It was our choice, though, and I think it's an example of our focus on operating a profitable business in 2023. You know, as with any business, over time, you end up accumulating customer relationships that simply aren't profitable because, you know, even they end up being smaller than what they had originally expected, or they don't end up using your core products. You know, consistent with the comments Alan was just making, you know, it, you know, probably isn't a surprise to anyone that there are significant compliance and operational costs associated with every customer that we serve. Now more than ever, we wanna be deliberate in working with clients that are adding value to the platform. Maybe the last thing I'll say is that, you know, and I think it is important to highlight that while we expect to off-board some of our non-core customers, we do expect that, you know, if there's a negative impact to deposits, fee income, and SEN metrics, that it'll be less significant than you might expect because these are smaller relationships overall, and tend not to use our core products. Thanks for the question. My follow-up is related to the broader market. Obviously, none of us are smart enough to know the future per se, but very quickly, Bitcoin and the broader crypto markets have turned higher. I'm just curious if we could talk about your flexibility to grow again, potentially aggressively, if that is the environment in front of us. Not saying that is. Just curious if you have the flexibility that you've had in the past to move forward. Yeah, George. It's a fair question. You know, I might, you know, tie the answer to, you know, to one of the earlier questions that, where one of your colleagues was commenting on the composition of our balance sheet, at year-end. You know, clearly, as we work to reduce the wholesale funding, you know, that by definition then, makes room for deposits to grow. That, you know, that's, you know, we... Again, and I know you're not asking us to predict the future. I agree with your comments. It's impossible to predict. You know, as Ben mentioned, you know, we are focused on, you know, making sure that we are providing the critical services to our core customers, and that we do in fact have room for them to grow their deposits when this turns around. I do believe it's when, not if. I'm also not predicting when that will happen. You know, if past is prologue, you know, this industry tends to go in four-year cycles, and 2023 might continue to be, you know, a kind of a sideways market for this overall ecosystem. That will give us the time we need to retool the business and we will be leaner and meaner and ready to go. Perfect. Thanks, guys. Thank you. This concludes today's question and answer session. I'd like to pass the call back over to Alan Lane for any closing remarks. Please go ahead. All right. Thank you very much, Bailey. Well, I just wanna thank everybody for joining today and just want to again, express our appreciation for all of the support that we get from our great customers. We look forward to providing additional updates as we move through 2023. Thank you, everybody. Have a great day. This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.