UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ending March 31, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________  to  __________________

Commission file number 001-39123

SILVERGATE CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)

Maryland	33-0227337
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4250 Executive Square, Suite 300, La Jolla, CA 92037

(Address of principal executive offices, including zip code)

(858) 362-6300

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.01 per share	SI	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐	Emerging growth company	☒
Non-accelerated Filer	☒	Smaller reporting company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of May 5, 2020, the registrant had 18,371,294 shares of Class A voting common stock and 296,836 shares of Class B non-voting common stock outstanding.

SILVERGATE CAPITAL CORPORATION

FORM 10-Q

TABLE OF CONTENTS

	Page
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)	3
Consolidated Statements of Financial Condition	3
Consolidated Statements of Operations	4
Consolidated Statements of Comprehensive Income	5
Consolidated Statements of Shareholders’ Equity	6
Condensed Consolidated Statements of Cash Flows	7
Notes to Unaudited Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3. Quantitative and Qualitative Disclosures About Market Risk	51
Item 4. Controls and Procedures	53
PART II—OTHER INFORMATION
Item 1. Legal Proceedings	54
Item 1A. Risk Factors	54
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3. Defaults Upon Senior Securities	55
Item 4. Mine Safety Disclosures	55
Item 5. Other Information	55
Item 6. Exhibits	56
SIGNATURES	57

2

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

SILVERGATE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In Thousands, Except Par Value Amounts)

(Unaudited) 

	March 31, 2020		December 31, 2019
ASSETS
Cash and due from banks	$	2,778	$	1,579
Interest earning deposits in other banks	163,422		132,025
Cash and cash equivalents	166,200		133,604
Securities available-for-sale, at fair value	964,317		897,766
Loans held-for-sale, at lower of cost or fair value	435,023		375,922
Loans held-for-investment, net of allowance for loan losses of $6,558 and $6,191 at March 31, 2020 and December 31, 2019, respectively	679,416		664,622
Federal home loan and federal reserve bank stock, at cost	10,269		10,264
Accrued interest receivable	6,344		5,950
Other real estate owned, net	—		128
Premises and equipment, net	3,406		3,259
Operating lease right-of-use assets	4,210		4,571
Derivative assets	33,506		23,440
Low income housing tax credit investment	927		954
Other assets	7,090		7,647
Total assets	$	2,310,708	$	2,128,127
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest bearing demand accounts	$	1,745,219	$	1,343,667
Interest bearing accounts	257,738		470,987
Total deposits	2,002,957		1,814,654
Federal home loan bank advances	30,000		49,000
Notes payable	—		3,714
Subordinated debentures, net	15,820		15,816
Operating lease liabilities	4,515		4,881
Accrued expenses and other liabilities	12,664		9,026
Total liabilities	2,065,956		1,897,091
Commitments and contingencies
Preferred stock, $0.01 par value—authorized 10,000 shares; no shares issued or outstanding at March 31, 2020 and December 31, 2019	—		—
Class A common stock, $0.01 par value—authorized 125,000 shares; 18,371 and 17,775 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively	184		178
Class B non-voting common stock, $0.01 par value—authorized 25,000 shares; 297 and 893 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively	3		9
Additional paid-in capital	132,336		132,138
Retained earnings	96,703		92,310
Accumulated other comprehensive income	15,526		6,401
Total shareholders’ equity	244,752		231,036
Total liabilities and shareholders’ equity	$	2,310,708	$	2,128,127

See accompanying notes to unaudited consolidated financial statements

3

SILVERGATE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Data)

(Unaudited) 

	Three Months Ended March 31,
	2020		2019
Interest income
Loans, including fees	$	13,121	$	13,111
Taxable securities	6,048		3,033
Tax-exempt securities	48		—
Other interest earning assets	724		3,797
Dividends and other	121		122
Total interest income	20,062		20,063
Interest expense
Deposits	4,051		341
Federal home loan bank advances	227		—
Notes payable and other	36		142
Subordinated debentures	270		264
Total interest expense	4,584		747
Net interest income before provision for loan losses	15,478		19,316
Provision for loan losses	367		267
Net interest income after provision for loan losses	15,111		19,049
Noninterest income
Mortgage warehouse fee income	382		366
Service fees related to off-balance sheet deposits	70		759
Deposit related fees	1,766		987
Gain on sale of securities, net	1,197		—
Gain on sale of loans, net	506		189
Gain on sale of branch, net	—		5,509
Gain on extinguishment of debt	925		—
Other income	85		61
Total noninterest income	4,931		7,871
Noninterest expense
Salaries and employee benefits	8,955		8,765
Occupancy and equipment	907		873
Communications and data processing	1,261		1,037
Professional services	985		1,445
Federal deposit insurance	123		175
Correspondent bank charges	373		279
Other loan expense	122		125
Other general and administrative	1,149		787
Total noninterest expense	13,875		13,486
Income before income taxes	6,167		13,434
Income tax expense	1,774		3,998
Net income	$	4,393	$	9,436
Basic earnings per share	$	0.24	$	0.53
Diluted earnings per share	$	0.23	$	0.52
Weighted average shares outstanding:
Basic	18,668		17,818
Diluted	19,117		18,258

See accompanying notes to unaudited consolidated financial statements

4

SILVERGATE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

(Unaudited)

	Three Months Ended March 31,
	2020			2019
Net income	$	4,393		$	9,436
Other comprehensive income (loss):
Change in net unrealized (loss) gain on available-for-sale securities	(9,313		)	663
Less: Reclassification adjustment for net gains included in net income	(1,197		)	—
Income tax effect	3,007			(200		)
Unrealized (loss) gain on available-for-sale securities, net of tax	(7,503		)	463
Change in net unrealized gain (loss) on derivative assets	23,466			(46		)
Less: Reclassification adjustment for net gains included in net income	(171		)	—
Income tax effect	(6,667		)	19
Unrealized gain (loss) on derivative instruments, net of tax	16,628			(27		)
Other comprehensive income	9,125			436
Total comprehensive income	$	13,518		$	9,872

See accompanying notes to unaudited consolidated financial statements

5

SILVERGATE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In Thousands, Except Share Data)

(Unaudited) 

	Class A Common Stock			Class B Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
	Shares	Amount		Shares	Amount
Balance at January 1, 2019	16,628,941	$	166	1,189,548	$	12	$	125,665	$	67,464	$	(2,061	)	$	191,246
Total comprehensive income, net of tax	—	—		—	—		—		9,436		436			9,872
Stock-based compensation	—	—		—	—		19		—		—			19
Balance at March 31, 2019	16,628,941	166		1,189,548	12		125,684		76,900		(1,625		)	201,137

	Class A Common Stock			Class B Common Stock					Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
	Shares	Amount		Shares		Amount
Balance at January 1, 2020	17,775,160	$	178	892,836		$	9		$	132,138		$	92,310	$	6,401	$	231,036
Total comprehensive income, net of tax	—	—		—		—			—			4,393		9,125		13,518
Conversion of Class B common stock to Class A common stock	596,000	6		(596,000	)	(6		)	—			—		—		—
Stock-based compensation	—	—		—		—			199			—		—		199
Exercise of stock options, net of shares withheld for employee taxes	134	—		—		—			(1		)	—		—		(1		)
Balance at March 31, 2020	18,371,294	184		296,836		3			132,336			96,703		15,526		244,752

See accompanying notes to unaudited consolidated financial statements

6

SILVERGATE CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

	Three Months Ended March 31,
	2020			2019
Cash flows from operating activities
Net income	$	4,393		$	9,436
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	830			255
Amortization of securities premiums and discounts, net	679			130
Amortization of loan premiums and discounts and deferred loan origination fees and costs, net	399			(102		)
Stock-based compensation	199			19
Deferred income tax expense (benefit)	487			(6		)
Provision for loan losses	367			267
Gain on sale of loans, net	(506		)	(189		)
Gain on sale of securities, net	(1,197		)	—
Originations/purchases of loans held-for-sale	(1,222,816		)	(622,318		)
Proceeds from sales of loans held-for-sale	1,153,515			606,240
Gain on sale of branch, net	—			(5,509		)
Gain on extinguishment of debt	(925		)	—
Other, net	(168		)	354
Changes in operating assets and liabilities:
Accrued interest receivable and other assets	(520		)	(142		)
Accrued expenses and other liabilities	87			398
Net cash used in operating activities	(65,176		)	(11,167		)
Cash flows from investing activities
Purchases of securities available-for-sale	(98,986		)	(110,319		)
Proceeds from paydowns and maturities of securities available-for-sale	7,936			5,498
Proceeds from sale of securities available-for-sale	14,016			—
Loan originations/purchases and payments, net	(41,254		)	(12,790		)
Proceeds from sale of loans held-for-sale previously classified as held-for-investment	36,400			11,622
Purchase of federal home loan and federal reserve bank stock, net	(5		)	(603		)
Proceeds from sale of other real estate owned	128			—
Purchase of premises and equipment	(391		)	(435		)
Proceeds from sale of branch, net of cash	—			32,555
Proceeds from (purchases of) derivative contracts, net	13,370			(2,555		)
Other, net	—			2
Net cash used in investing activities	(68,786		)	(77,025		)
Cash flows from financing activities
Net change in noninterest bearing deposits	401,552			(86,897		)
Net change in interest bearing deposits	(213,250		)	(22,893		)
Net change in federal home loan bank advances	(18,075		)	—
Net change in other borrowings	—			57,135
Payments made on notes payable	(3,714		)	(571		)
Taxes paid related to net share settlement of equity awards	(1		)	—
Other, net	46			22
Net cash provided by (used in) financing activities	166,558			(53,204		)
Net increase (decrease) in cash and cash equivalents	32,596			(141,396		)
Cash and cash equivalents, beginning of year	133,604			674,420
Cash and cash equivalents, end of year	$	166,200		$	533,024

See accompanying notes to unaudited consolidated financial statements

7

SILVERGATE CAPITAL CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Nature of Business and Summary of Significant Accounting Policies

Nature of Business

The accompanying consolidated financial statements include the accounts of Silvergate Capital Corporation, a Maryland corporation and its wholly-owned subsidiary, Silvergate Bank (the “Bank”), collectively referred to as (the “Company” or “Silvergate”).

The Bank was incorporated in 1987 and commenced business in 1988 under the California Financial Code as an industrial bank. In February 2009 the Bank converted its charter to a California commercial bank, which gave it the added authority to accept demand deposits. At the same time, the Company also became a registered bank holding company under the federal Bank Holding Company Act. The Bank became a member of the Federal Reserve System in December 2012. The Bank is subject to regulation by the California Department of Business Oversight (“DBO”), and the Federal Reserve Bank of San Francisco (“FRB”), and its deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to applicable legal limits.

On November 15, 2018, the Company and the Bank entered into a purchase and assumption agreement to sell the Bank’s retail branch located in San Marcos, California and business loan portfolio to HomeStreet Bank. The Company completed the sale in March 2019, which included the reduction of $115.4 million in loans and $74.5 million in deposits and resulted in a pre-tax gain on sale of $5.5 million.

Financial Statement Preparation and Presentation

The accompanying interim consolidated financial statements have been prepared by the Company, without audit, in accordance with the instructions to the Quarterly Report on Form 10-Q, and Rule 10-01 of Regulation S-X promulgated by the United States Securities and Exchange Commission (the “SEC”) and, therefore, do not include all information and footnotes necessary for a fair presentation of its consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”).

In the opinion of management, the unaudited financial information for the interim periods presented reflects all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the Company’s consolidated financial statements as of March 31, 2020, however uncertainty over the ultimate impact that the novel coronavirus disease, (or “COVID-19”) will have on the economy generally, and on the Company’s business in particular, makes any estimates and assumptions as of March 31, 2020 inherently less certain than they would be absent the current and potential impacts of COVID-19.

These consolidated statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2019, included in the Company’s Annual Report on Form 10-K dated March 10, 2020. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year.

The consolidated financial statements include the accounts of the Company and all other entities in which it has a controlling financial interest. All significant intercompany accounts and transactions have been eliminated in consolidation. Unless the context requires otherwise, all references to the Company include its wholly owned subsidiaries. The accounting and reporting policies of the Company are based upon GAAP and conform to predominant practices within the financial services industry.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in the Company’s financial statements and the accompanying notes. Actual results could materially differ from those estimates.

Recently issued accounting pronouncements not yet effective

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (or “ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326) to replace the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (or “CECL”) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables, held to maturity debt securities, and reinsurance receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor. These amendments were initially effective for fiscal years beginning after December 15, 2019 for SEC registrants and after December 15, 2020, for Public Business Entities, or PBEs. In November 2019, the FASB issued ASU 2019-10, Financial Instruments-Credit Losses (Topic326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which finalized the delay of the effective date for smaller reporting companies, such as the Company to apply the standards related to

8

CECL, until fiscal years beginning after December 15, 2022. For debt securities with other than temporary impairment (OTTI), the guidance will be applied prospectively and for existing purchased credit impaired (PCI) assets will be grandfathered and classified as purchased credit deteriorated (PCD) assets at the date of adoption. The asset will be grossed up for the allowance for expected credit losses for all PCD assets at the date of adoption and will continue to recognize the noncredit discount in interest income based on the yield such assets as of the adoption date. Subsequent changes in expected credit losses will be recorded through the allowance. For all other assets with the scope of CECL, the cumulative effect adjustment will be recognized in retained earnings as of the beginning of the first reporting period in which the guidance is effective. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which clarify that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. The Company formed a CECL implementation committee in 2018 which prepared a project plan to migrate towards the adoption date. As part of the project plan, the Company contracted a third-party vendor to assist in the application and analysis of ASU 2016-13 as well as a third party vendor to perform an independent model validation. As part of this process, the Company has determined preliminary loan pool segmentation under CECL, as well as evaluated the key economic loss drivers for each segment. The Company operationalized an initial CECL model during the second quarter of 2019, and is running this preliminary CECL model alongside the existing incurred loss methodology. The Company intends to continue to refine and run the model until the date of adoption. The Company continues to evaluate the effects of ASU 2016-13 on its financial statements and disclosures and whether or not to early adopt the guidance.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (or “ASU 2020-04”), which provides temporary, optional guidance to ease the potential burden in accounting for, or recognizing the effects of, the transition away from the London Interbank Offered Rate (or “LIBOR”) or other interbank offered rate (reference rates) on financial reporting, which currently is expected to be discontinued by the end of 2021. To help with the transition to new reference rates, the ASU provides optional expedients and exceptions for applying GAAP to affected contract modifications and hedge accounting relationships. The guidance is applicable only to contracts or hedge accounting relationships that reference LIBOR or another reference rate expected to be discontinued. The expedients and exceptions in this update are available to all entities starting March 12, 2020 through December 31, 2022. The Company is evaluating the impact that ASU 2020-04 will have on those financial assets where LIBOR is used as an index rate.

With the exception of the updated standards discussed above, there have been no new accounting pronouncements not yet effective that have significance, or potential significance, to the Company’s consolidated financial statements.

Note 2—Securities

The fair value of available-for-sale securities and their related gross unrealized gains and losses at the dates indicated are as follows:

	Available-for-sale securities
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
March 31, 2020
Residential mortgage-backed securities:
Government agency mortgage-backed securities	$	682	$	34	$	—		$	716
Government agency collateralized mortgage obligation	236,334		709		(863		)	236,180
Private-label collateralized mortgage obligation	25,844		—		(3,462		)	22,382
Commercial mortgage-backed securities:
Private-label collateralized mortgage obligation	364,543		10,913		(806		)	374,650
Municipal bonds	85,268		7,388		—			92,656
Asset backed securities:
Government sponsored student loan pools	256,449		—		(18,716		)	237,733
	$	969,120	$	19,044	$	(23,847	)	$	964,317

9

	Available-for-sale securities
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
December 31, 2019
Residential mortgage-backed securities:
Government agency mortgage-backed securities	$	769	$	32	$	—		$	801
Government agency collateralized mortgage obligation	242,203		552		(837		)	241,918
Private-label collateralized mortgage obligation	26,346		352		(198		)	26,500
Commercial mortgage-backed securities:
Private-label collateralized mortgage obligation	364,719		12,474		(177		)	377,016
Asset backed securities:
Government sponsored student loan pools	258,022		—		(6,491		)	251,531
	$	892,059	$	13,410	$	(7,703	)	$	897,766

There were no investment securities pledged for borrowings or for other purposes as required or permitted by law as of March 31, 2020 and December 31, 2019.

At March 31, 2020, the total fair value of securities issued by six individual issuers, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity was $343.0 million.

Securities with unrealized losses as of the dates indicated, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

	Available-for-sale securities
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
March 31, 2020
Residential mortgage-backed securities:
Government agency collateralized mortgage obligation	134,490		(820		)	4,530		(43		)	139,020		(863		)
Private-label collateralized mortgage obligation	10,325		(481		)	12,057		(2,981		)	22,382		(3,462		)
Commercial mortgage-backed securities:
Private-label collateralized mortgage obligation	41,720		(806		)	—		—			41,720		(806		)
Asset backed securities:
Government sponsored student loan pools	22,615		(1,772		)	215,117		(16,944		)	237,732		(18,716		)
	$	209,150	$	(3,879	)	$	231,704	$	(19,968	)	$	440,854	$	(23,847	)

10

	Available-for-sale securities
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
December 31, 2019
Residential mortgage-backed securities:
Government agency collateralized mortgage obligation	$	143,633	$	(785	)	$	15,794	$	(52	)	$	159,427	$	(837	)
Private-label collateralized mortgage obligation	59		(1		)	15,168		(197		)	15,227		(198		)
Commercial mortgage-backed securities:
Private-label collateralized mortgage obligation	13,142		(177		)	—		—			13,142		(177		)
Asset backed securities:
Government sponsored student loan pools	62,938		(1,317		)	188,593		(5,174		)	251,531		(6,491		)
	$	219,772	$	(2,280	)	$	219,555	$	(5,423	)	$	439,327	$	(7,703	)

As indicated in the tables above, as of March 31, 2020, the Company’s investment securities had gross unrealized losses totaling approximately $23.8 million, compared to approximately $7.7 million at December 31, 2019. The Company analyzed all of its securities with an unrealized loss position. For each security, the Company analyzed the credit quality and performed a projected cash flow analysis. In analyzing the credit quality, management may consider whether the securities are issued by the federal government, its agencies or its sponsored entities, or non-governmental entities, whether downgrades by bond rating agencies have occurred, and if credit quality has deteriorated. When performing a cash flow analysis the Company uses models that project prepayments, default rates, and loss severities on the collateral supporting the security, based on underlying loan level borrower and loan characteristics and interest rate assumptions. In addition, the Company has contracted with third party companies to perform independent cash flow analyses of its securities portfolio as needed. Based on these analyses and reviews conducted by the Company, and assisted by independent third parties, the Company determined that none of its securities required an other-than-temporary impairment charge at March 31, 2020 or December 31, 2019. Management continues to expect to recover the adjusted amortized cost basis of these bonds.

As of March 31, 2020, the Company had 33 securities whose estimated fair value declined 5.13% from the Company’s amortized cost; at December 31, 2019, the Company had 33 securities whose estimated fair value declined 1.72% from the Company’s amortized cost. The increase in percentage of unrealized losses is related to market liquidity concerns associated with COVID-19 during the first quarter which widened credit spreads on securities and changes in market interest rates since the purchase dates. Unrecognized losses associated with liquidity concerns as a result of COVID-19 are not expected to remain constant in the future, however, unrecognized losses will continue to vary with general market interest rate fluctuations. Fair values are expected to recover as the securities approach their respective maturity dates and management believes it is not more likely than not it will be required to sell before recovery of the amortized cost basis.

For the three months ended March 31, 2020 the Company received $14.0 million in proceeds and recognized a $1.2 million gain on sales of available-for-sale securities. There were no sales and calls of securities for the three months ended March 31, 2019.

There were no credit losses recognized in earnings for the three months ended March 31, 2020 and 2019.

Note 3—Loans

The following disclosure reports the Company’s loan portfolio segments and classes. Segments are groupings of similar loans at a level in which the Company has adopted systematic methods of documentation for determining its allowance for loan and credit losses. Classes are a disaggregation of the portfolio segments. The Company’s loan portfolio segments are:

Real estate loans. Real estate includes loans for which the Company holds one-to-four family, multi-family, commercial and construction real property as collateral. Commercial real estate lending activity is typically restricted to owner-occupied properties or to investor properties that are owned by customers with a current banking relationship. The primary risks of real estate mortgage loans include the borrower’s inability to pay, material decreases in the value of the real estate that is being held as collateral and significant increases in interest rates, which may make the real estate mortgage loan unprofitable. Real estate loans also may be adversely affected by conditions in the real estate markets or in the general economy.

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Commercial and industrial. Commercial and industrial loans consist of loans and lines of credit to small and medium-sized businesses in a wide variety of industries, including distributors, manufacturers, software developers business services companies and independent finance companies. Commercial and industrial loans are generally collateralized by accounts receivable, inventory, equipment, loan and lease receivables, and other commercial assets, and may be supported by other credit enhancements such as personal guarantees. Risk may arise from differences between expected and actual cash flows and/or liquidity levels of the borrowers, as well as the type of collateral securing these loans and the reliability of the conversion thereof to cash. Since the March 2019 sale of the business loan portfolio, commercial and industrial loans consist primarily of asset based loans. In 2020, the Company began offering a new pilot product called SEN Leverage, which will allow Silvergate customers to obtain U.S. dollar loans collateralized by bitcoin held at select digital currency exchanges that are also Silvergate customers. The product uses the Silvergate Exchange Network (“SEN”) to fund loans and process repayments in real-time 24 hours per day, 7 days per week. The Company plans to expand this offering in the latter part of 2020. The outstanding loan balance of SEN Leverage loans was immaterial as of March 31, 2020.

Consumer and other. Consumer loans consist of consumer loans and other loans secured by personal property.

Reverse mortgage. From 2012 to 2014, the Company purchased home equity conversion mortgage (“HECM”) loans (also known as reverse mortgage loans) which are a special type of home loan, for homeowners aged 62 years or older, that requires no monthly mortgage payments. Reverse mortgage loan insurance is provided by the U.S. Federal Housing Administration through the HECM program which protects lenders from losses due to non-repayment of the loans. In mid-2014, the Company ceased purchases of reverse mortgage loans and, began selling its remaining loans in the secondary market.

Mortgage warehouse. The Company’s warehouse lending division provides short-term interim funding for single-family residential mortgage loans originated by mortgage bankers or other lenders pending the sale of such loans in the secondary market. The Company’s risk is mitigated by comprehensive policies, procedures, and controls governing this activity, partial loan funding by the originating lender, guaranties or additional monies pledged to the Company as security, and the short holding period of funded loans on the Company’s balance sheet. In addition, the loss rates of this portfolio have historically been minimal, and these loans are all subject to written purchase commitments from takeout investors or are hedged. The Company’s mortgage warehouse loans may either be held-for-investment or held-for-sale depending on the underlying contract. The Company sold approximately $21.7 million and $63.9 million of loans to participants during the three months ended March 31, 2020 and 2019, respectively. At March 31, 2020 and December 31, 2019, gross warehouse loans were approximately $486.6 million and $405.0 million, respectively.

A summary of loans as of the periods presented are as follows:

	March 31, 2020			December 31, 2019
	(Dollars in thousands)
Real estate loans:
One-to-four family	$	202,214		$	193,367
Multi-family	76,721			81,233
Commercial	325,116			331,052
Construction	10,034			7,213
Commercial and industrial	15,948			14,440
Consumer and other	154			122
Reverse mortgage	1,431			1,415
Mortgage warehouse	51,596			39,247
Total gross loans held-for-investment	683,214			668,089
Deferred fees, net	2,760			2,724
Total loans held-for-investment	685,974			670,813
Allowance for loan losses	(6,558		)	(6,191		)
Total loans held-for-investment, net	$	679,416		$	664,622
Total loans held-for-sale(1)	$	435,023		$	375,922

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(1) Loans held-for-sale included $435.0 million and $365.8 million of mortgage warehouse loans at March 31, 2020 and December 31, 2019, respectively.

At March 31, 2020 and December 31, 2019, approximately $615.5 million and $614.3 million, respectively, of the Company’s loan portfolio were collateralized by various forms of real estate. A significant percentage of such loans are collateralized by properties located in California (74.4% and 64.8% as of March 31, 2020 and December 31, 2019, respectively) and Arizona (6.6% and 10.2% as of