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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, 2021

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 every Interactive Data File required to be submitted 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 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 4, 2021, the registrant had 25,337,473 shares of Class A voting common stock outstanding.

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SILVERGATE CAPITAL CORPORATION

FORM 10-Q

TABLE OF CONTENTS

	Page
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)	2
Consolidated Statements of Financial Condition	2
Consolidated Statements of Operations	3
Consolidated Statements of Comprehensive Income (Loss)	4
Consolidated Statements of Shareholders’ Equity	5
Consolidated Statements of Cash Flows	6
Notes to Unaudited Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3. Quantitative and Qualitative Disclosures About Market Risk	53
Item 4. Controls and Procedures	56
PART II—OTHER INFORMATION
Item 1. Legal Proceedings	57
Item 1A. Risk Factors	57
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3. Defaults Upon Senior Securities	57
Item 4. Mine Safety Disclosures	57
Item 5. Other Information	57
Item 6. Exhibits	58
SIGNATURES	59

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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, 2021		December 31, 2020
ASSETS
Cash and due from banks	$	16,422	$	16,405
Interest earning deposits in other banks	4,315,100		2,945,682
Cash and cash equivalents	4,331,522		2,962,087
Trading securities	1,990		—
Securities available-for-sale, at fair value	1,717,418		939,015
Loans held-for-sale, at lower of cost or fair value	897,227		865,961
Loans held-for-investment, net of allowance for loan losses of $6,916 at March 31, 2021 and December 31, 2020	728,390		746,751
Federal home loan and federal reserve bank stock, at cost	14,851		14,851
Accrued interest receivable	9,432		8,698
Premises and equipment, net	1,758		2,072
Derivative assets	34,442		31,104
Other assets	20,122		15,696
Total assets	$	7,757,152	$	5,586,235
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest bearing demand accounts	$	6,889,281	$	5,133,579
Interest bearing accounts	113,090		114,447
Total deposits	7,002,371		5,248,026
Subordinated debentures, net	15,834		15,831
Accrued expenses and other liabilities	25,326		28,079
Total liabilities	7,043,531		5,291,936
Commitments and contingencies
Preferred stock, $0.01 par value—authorized 10,000 shares; no shares issued or outstanding at March 31, 2021 and December 31, 2020	—		—
Class A common stock, $0.01 par value—authorized 125,000 shares; 24,820 and 18,770 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively	248		188
Class B non-voting common stock, $0.01 par value—authorized 25,000 shares; 0 and 64 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively	—		1
Additional paid-in capital	551,798		129,726
Retained earnings	131,058		118,348
Accumulated other comprehensive income	30,517		46,036
Total shareholders’ equity	713,621		294,299
Total liabilities and shareholders’ equity	$	7,757,152	$	5,586,235

See accompanying notes to unaudited consolidated financial statements

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SILVERGATE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Data)

(Unaudited) 

	Three Months Ended March 31,
	2021		2020
Interest income
Loans, including fees	$	16,597	$	13,121
Taxable securities	3,592		6,048
Tax-exempt securities	1,695		48
Other interest earning assets	1,279		724
Dividends and other	143		121
Total interest income	23,306		20,062
Interest expense
Deposits	46		4,051
Federal home loan bank advances	—		227
Subordinated debentures and other	245		306
Total interest expense	291		4,584
Net interest income before provision for loan losses	23,015		15,478
Provision for loan losses	—		367
Net interest income after provision for loan losses	23,015		15,111
Noninterest income
Mortgage warehouse fee income	954		382
Service fees related to off-balance sheet deposits	—		70
Deposit related fees	7,124		1,766
Gain on sale of securities, net	—		1,197
Gain on sale of loans, net	—		506
Gain on extinguishment of debt	—		925
Other income	12		85
Total noninterest income	8,090		4,931
Noninterest expense
Salaries and employee benefits	10,990		8,955
Occupancy and equipment	614		907
Communications and data processing	1,621		1,261
Professional services	1,717		985
Federal deposit insurance	2,296		123
Correspondent bank charges	497		373
Other loan expense	174		122
Other general and administrative	1,697		1,149
Total noninterest expense	19,606		13,875
Income before income taxes	11,499		6,167
Income tax (benefit) expense	(1,211)		1,774
Net income	$	12,710	$	4,393
Basic earnings per share	$	0.56	$	0.24
Diluted earnings per share	$	0.55	$	0.23
Weighted average shares outstanding:
Basic	22,504		18,668
Diluted	23,010		19,117

See accompanying notes to unaudited consolidated financial statements

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SILVERGATE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands)

(Unaudited)

	Three Months Ended March 31,
	2021		2020
Net income	$	12,710	$	4,393
Other comprehensive income (loss):
Change in net unrealized loss on available-for-sale securities	(13,434)		(9,313)
Less: Reclassification adjustment for net gain included in net income	—		(1,197)
Income tax effect	3,690		3,007
Unrealized loss on available-for-sale securities, net of tax	(9,744)		(7,503)
Change in net unrealized (loss) gain on derivative assets	(7,460)		23,466
Less: Reclassification adjustment for net gain included in net income	(504)		(171)
Income tax effect	2,189		(6,667)
Unrealized (loss) gain on derivative instruments, net of tax	(5,775)		16,628
Other comprehensive (loss) income	(15,519)		9,125
Total comprehensive (loss) income	$	(2,809)	$	13,518

See accompanying notes to unaudited consolidated financial statements

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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, 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

	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, 2021	18,769,771	$	188	64,197	$	1	$	129,726	$	118,348	$	46,036	$	294,299
Total comprehensive income (loss), net of tax	—	—		—	—		—		12,710		(15,519)		(2,809)
Net proceeds from stock issuance	5,860,858	58		—	—		423,482		—		—		423,540
Conversion of Class B common stock to Class A common stock	64,197	1		(64,197)	(1)		—		—		—		—
Stock-based compensation	—	—		—	—		290		—		—		290
Exercise of stock options and issuance of share-based awards, net of shares withheld for employee taxes	125,142	1		—	—		(1,700)		—		—		(1,699)
Balance at March 31, 2021	24,819,968	$	248	—	$	—	$	551,798	$	131,058	$	30,517	$	713,621

See accompanying notes to unaudited consolidated financial statements

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SILVERGATE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities
Net income	$	12,710	$	4,393
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	644		830
Amortization of securities premiums and discounts, net	1,212		679
Amortization of loan premiums and discounts and deferred loan origination fees and costs, net	250		399
Stock-based compensation	290		199
Provision for loan losses	—		367
Originations/purchases of loans held-for-sale	(3,384,431)		(1,222,816)
Proceeds from sales of loans held-for-sale	3,353,164		1,153,515
Other gains, net	(1,141)		(2,885)
Other, net	891		576
Changes in operating assets and liabilities:
Accrued interest receivable and other assets	(4,119)		(520)
Accrued expenses and other liabilities	469		87
Net cash used in operating activities	(20,061)		(65,176)
Cash flows from investing activities
Purchases of securities available-for-sale	(817,734)		(98,986)
Proceeds from sale of securities available-for-sale	—		14,016
Proceeds from paydowns and maturities of securities available-for-sale	21,403		7,936
Loan originations/purchases and payments, net	18,112		(41,254)
Proceeds from sale of loans held-for-sale previously classified as held-for-investment	—		36,400
Purchase of federal home loan and federal reserve bank stock, net	—		(5)
Purchase of premises and equipment	(32)		(391)
(Payments for) proceeds from derivative contracts, net	(8,439)		13,370
Other, net	—		128
Net cash used in investing activities	(786,690)		(68,786)
Cash flows from financing activities
Net change in noninterest bearing deposits	1,755,702		401,552
Net change in interest bearing deposits	(1,357)		(213,250)
Net change in federal home loan bank advances	—		(18,075)
Payments made on notes payable	—		(3,714)
Proceeds from common stock issuance, net	423,540		—
Proceeds from stock option exercise	261		—
Taxes paid related to net share settlement of equity awards	(1,960)		(1)
Other, net	—		46
Net cash provided by financing activities	2,176,186		166,558
Net increase in cash and cash equivalents	1,369,435		32,596
Cash and cash equivalents, beginning of period	2,962,087		133,604
Cash and cash equivalents, end of period	$	4,331,522	$	166,200
Supplemental cash flow information:
Cash paid for interest	$	444	$	4,928
Income taxes paid (refunded), net	(6)		(22)
Supplemental noncash disclosures:
Loans held-for-investment transferred to loans held-for-sale	$	—	$	30,792
Loans held-for-sale transferred to loans held-for-investment	—		5,098
Right-of-use assets obtained in exchange for new operating lease liabilities	71		—

See accompanying notes to unaudited consolidated financial statements

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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 Company’s assets consist primarily of its investment in the Bank and its primary activities are conducted through the Bank. 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. The Company is a registered bank holding company that is subject to supervision by the Board of Governors of the Federal Reserve (“Federal Reserve”). The Bank is subject to regulation by the California Department of Financial Protection and Innovation, Division of Financial Institutions (“DFPI”), and, as a Federal Reserve member bank since 2012, the Federal Reserve Bank of San Francisco (“FRB”). The Bank’s deposits are insured up to legal limits by the Federal Deposit Insurance Corporation (“FDIC”).

On January 26, 2021, the Company completed its underwritten public offering of 4,563,493 shares of Class A common stock at a price of $63.00 per share, including 595,238 shares of Class A common stock upon the exercise in full by the underwriters of their option to purchase additional shares. The aggregate gross proceeds of the offering were approximately $287.5 million and net proceeds to the Company were $272.4 million after deducting underwriting discounts and offering expenses.

On March 9, 2021, the Company entered into an equity distribution agreement pursuant to which the Company may issue and sell, from time to time, up to an aggregate gross sales price of $300.0 million of the Company’s shares of Class A common stock through an “at-the-market” offering program, or ATM Program. As of March 31, 2021, the Company had sold 1,297,365 shares of Class A common stock at an average price of $118.39 under the ATM Program. The transactions resulted in gross proceeds of $153.6 million and net proceeds to the Company of $151.1 million after deducting commissions and expenses.

Financial Statement Preparation and Presentation

The accompanying interim consolidated financial statements have been prepared by the Company, without an 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 statement of the Company’s consolidated financial statements. These consolidated statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K dated March 8, 2021. 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. We evaluate estimates on an ongoing basis including the economic impact of Coronavirus Disease 2019 (or “COVID-19”). 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

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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 (Topic 326), 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 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 expected adoption date on January 1, 2023. The Company continues to evaluate the effects of ASU 2016-13 on its financial statements and disclosures.

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. In the fourth quarter of 2020 the Office of the Comptroller of the Currency, amongst others, announced that the overnight and one, three, six and twelve month USD LIBOR will be discontinued on June 30, 2023. It was originally expected that LIBOR would 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. In January 2020, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which clarifies the scope of Topic 848 to include derivative instruments impacted by discounting transition. The Company has created a subcommittee of the Asset Liability Management Committee to address the LIBOR transition and phase-out issues. The Company has identified its LIBOR-based contracts that will be impacted by the transition away from of LIBOR, and is incorporating fallback language in negotiated contracts and incorporating non-LIBOR reference rate and/or fallback language in new contracts to prepare for these changes. The Company is evaluating the impact that ASU 2020-04 will have on those financial assets where LIBOR is used as an index rate.

Except for 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

Trading

The Company engages in trading activities for its own account. Securities that are held principally for resale in the near term are recorded at fair value with changes in fair value included in earnings. Trading securities consists of U.S. Treasury Bills which had a fair value of $2.0 million at March 31, 2021. The carrying values of trading securities included an immaterial amount of net unrealized losses at March 31, 2021.

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Available-for-sale

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, 2021
Residential mortgage-backed securities:
Government agency mortgage-backed securities	$	152,253	$	167	$	(1,202)	$	151,218
Government agency collateralized mortgage obligation	686,030		194		(2,844)		683,380
Private-label collateralized mortgage obligation	18,688		530		(170)		19,048
Commercial mortgage-backed securities:
Government agency mortgage-backed securities	49,135		2		(24)		49,113
Government agency collateralized mortgage obligation	42,435		—		(35)		42,400
Private-label collateralized mortgage obligation	163,993		10,504		—		174,497
Municipal bonds:
Tax-exempt	318,132		18,801		(13)		336,920
Taxable	14,206		1,485		(48)		15,643
Asset backed securities:
Government sponsored student loan pools	245,716		298		(815)		245,199
	$	1,690,588	$	31,981	$	(5,151)	$	1,717,418

	Available-for-sale securities
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(Dollars in thousands)
December 31, 2020
Residential mortgage-backed securities:
Government agency mortgage-backed securities	$	5,701	$	18	$	(55)	$	5,664
Government agency collateralized mortgage obligation	197,978		371		(298)		198,051
Private-label collateralized mortgage obligation	20,544		399		(256)		20,687
Commercial mortgage-backed securities:
Private-label collateralized mortgage obligation	164,214		18,322		—		182,536
Municipal bonds:
Tax-exempt	246,159		24,200		—		270,359
Taxable	15,307		695		—		16,002
Asset backed securities:
Government sponsored student loan pools	248,848		17		(3,149)		245,716
	$	898,751	$	44,022	$	(3,758)	$	939,015

There were no investment securities pledged for borrowings or for other purposes as required or permitted by law as of March 31, 2021 and December 31, 2020.

At March 31, 2021, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.

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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, 2021
Residential mortgage-backed securities:
Government agency mortgage-backed securities	$	102,614	$	(1,202)	$	—	$	—	$	102,614	$	(1,202)
Government agency collateralized mortgage obligation	478,392		(2,699)		52,294		(145)		530,686		(2,844)
Private-label collateralized mortgage obligation	—		—		8,609		(170)		8,609		(170)
Commercial mortgage-backed securities:
Government agency mortgage-backed securities	18,203		(24)		—		—		18,203		(24)
Government agency collateralized mortgage obligation	30,900		(35)		—		—		30,900		(35)
Municipal bonds:
Tax-exempt	23,800		(13)		—		—		23,800		(13)
Taxable	5,767		(48)		—		—		5,767		(48)
Asset backed securities:
Government sponsored student loan pools	44,065		(80)		120,704		(735)		164,769		(815)
	$	703,741	$	(4,101)	$	181,607	$	(1,050)	$	885,348	$	(5,151)

	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, 2020
Residential mortgage-backed securities:
Government agency mortgage-backed securities	$	5,165	$	(55)	$	—	$	—	$	5,165	$	(55)
Government agency collateralized mortgage obligation	120,912		(172)		56,976		(126)		177,888		(298)
Private-label collateralized mortgage obligation	290		(7)		9,950		(249)		10,240		(256)
Asset backed securities:
Government sponsored student loan pools	—		—		240,825		(3,149)		240,825		(3,149)
	$	126,367	$	(234)	$	307,751	$	(3,524)	$	434,118	$	(3,758)

As indicated in the tables above, as of March 31, 2021, the Company’s investment securities had gross unrealized losses totaling approximately $5.2 million, compared to approximately $3.8 million at December 31, 2020. The Company analyzes 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. The unrealized losses on government sponsored student

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loan pools are due primarily to increased credit spreads since purchase. The Company believes it has an adequate amount of credit enhancement and government assurance to cover any expected losses at this time. 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, 2021. Management continues to expect to recover the adjusted amortized cost basis of these bonds.

As of March 31, 2021, the Company had 51 securities whose estimated fair value declined 0.58% from the Company’s amortized cost; at December 31, 2020, the Company had 30 securities whose estimated fair value declined 0.86% from the Company’s amortized cost. The Company’s securities that have unrealized losses are due to widened credit spreads and changes in market interest rates since their purchase dates. Current unrealized losses are expected to recover as the securities approach their respective maturity dates. Management believes it will more than likely not be required to sell before recovery of the amortized cost basis.

There were no sales or calls of available-for-sale securities for the three months ended March 31, 2021. For the three months ended March 31, 2020 the Company received $14.0 million in proceeds and recognized a $1.2 million gain and no loss on sales and calls of securities.

There were no credit losses associated with our securities portfolio recognized in earnings for the three months ended March 31, 2021 and 2020.

The amortized cost and estimated fair value of investment securities as of the periods presented by contractual maturity are shown below. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. For purposes of the following table, the entire outstanding balance of residential and commercial mortgage-backed securities is categorized based on the final maturity date.

	March 31, 2021				December 31, 2020
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Available-for-sale securities
Within one year	$	—	$	—	$	—	$	—
After one year through five years	—		—		—		—
After five years through ten years	56,363		57,091		14,021		15,694
After ten years	1,634,225		1,660,327		884,730		923,321
Total	$	1,690,588	$	1,717,418	$	898,751	$	939,015

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. Real estate loans 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.

Commercial and industrial. Commercial and industrial loans consist of loans and lines of credit to businesses that are generally collateralized by accounts receivable, inventory, equipment, loan and lease receivables, digital currency assets such as bitcoin and other commercial assets, and may be supported by other credit enhancements such as personal guarantees. Risks 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. Currently, commercial and industrial loans consist primarily of asset based loans. In January 2020, the Company began offering a new lending product called SEN Leverage, which allows Silvergate customers to obtain U.S. dollar loans collateralized by bitcoin held at select digital currency exchanges and other custodians that are also customers of the Bank. The outstanding balance of SEN Leverage loans was $117.3 million and $77.2 million at March 31, 2021 and December 31, 2020, respectively.

Reverse mortgage and other. 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 and allows the borrower to receive payments from the lender. Reverse mortgage

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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 when the outstanding loan balance exceeds collateral value at the time the loan is required to be repaid. Other loans consist of consumer loans and loans secured by personal property.

Mortgage warehouse. The Company’s mortgage 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 $0.8 million and $21.7 million of loans to participants during the three months ended March 31, 2021 and 2020, respectively. At March 31, 2021 and December 31, 2020, gross mortgage warehouse loans were approximately $973.2 million and $963.9 million, respectively.