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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 June 30, 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 classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.01 per shareSINew York Stock Exchange
Depositary Shares, Each Representing a 1/40th Interest in a Share of 5.375% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series ASIPrANew 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 August 3, 2021, the registrant had 26,520,621 shares of Class A voting common stock outstanding.

SILVERGATE CAPITAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS
Page

1
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)

SILVERGATE CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands, Except Par Value Amounts)
(Unaudited) 
 June 30,
2021		December 31,
2020
ASSETS
Cash and due from banks$52,859 $16,405 
Interest earning deposits in other banks4,415,458 2,945,682 
Cash and cash equivalents4,468,317 2,962,087 
Trading securities, at fair value26,998 — 
Securities available-for-sale, at fair value6,176,778 939,015 
Loans held-for-sale, at lower of cost or fair value748,577 865,961 
Loans held-for-investment, net of allowance for loan losses of $6,916 at June 30, 2021 and December 31, 2020
740,155 746,751 
Federal home loan and federal reserve bank stock, at cost29,460 14,851 
Accrued interest receivable24,505 8,698 
Premises and equipment, net1,604 2,072 
Derivative assets39,454 31,104 
Other assets33,628 15,696 
Total assets$12,289,476 $5,586,235 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest bearing demand accounts$11,290,638 $5,133,579 
Interest bearing accounts80,918 114,447 
Total deposits11,371,556 5,248,026 
Subordinated debentures, net15,838 15,831 
Accrued expenses and other liabilities31,575 28,079 
Total liabilities11,418,969 5,291,936 
Commitments and contingencies
Preferred stock, $0.01 par value—authorized 10,000 shares; no shares issued or outstanding at June 30, 2021 and December 31, 2020
— — 
Class A common stock, $0.01 par value—authorized 125,000 shares; 26,508 and 18,770 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively
265 188 
Class B non-voting common stock, $0.01 par value—authorized 25,000 shares; 0 and 64 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively
— 1 
Additional paid-in capital697,070 129,726 
Retained earnings151,993 118,348 
Accumulated other comprehensive income21,179 46,036 
Total shareholders’ equity870,507 294,299 
Total liabilities and shareholders’ equity$12,289,476 $5,586,235 
See accompanying notes to unaudited consolidated financial statements
2
SILVERGATE CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited) 
Three Months Ended
June 30,		Six Months Ended
June 30,
 2021202020212020
Interest income
Loans, including fees$17,158 $11,710 $33,755 $24,831 
Taxable securities8,324 4,123 11,916 10,171 
Tax-exempt securities3,123 1,577 4,818 1,625 
Other interest earning assets1,599 405 2,878 1,129 
Dividends and other466 200 609 321 
Total interest income30,670 18,015 53,976 38,077 
Interest expense
Deposits35 1,652 81 5,703 
Federal home loan bank advances— 44 — 271 
Subordinated debentures and other252 267 497 573 
Total interest expense287 1,963 578 6,547 
Net interest income before provision for loan losses30,383 16,052 53,398 31,530 
Provision for loan losses— 222 — 589 
Net interest income after provision for loan losses30,383 15,830 53,398 30,941 
Noninterest income
Mortgage warehouse fee income753 450 1,707 832 
Service fees related to off-balance sheet deposits— 7 — 77 
Deposit related fees11,308 2,438 18,432 4,204 
Gain on sale of securities, net— 2,556 — 3,753 
(Loss) gain on sale of loans, net— (56)— 450 
Gain on extinguishment of debt— — — 925 
Other income8 39 20 124 
Total noninterest income12,069 5,434 20,159 10,365 
Noninterest expense
Salaries and employee benefits10,260 9,002 21,250 17,957 
Occupancy and equipment599 894 1,213 1,801 
Communications and data processing1,796 1,313 3,417 2,574 
Professional services2,594 1,105 4,311 2,090 
Federal deposit insurance3,844 182 6,140 305 
Correspondent bank charges812 347 1,309 720 
Other loan expense280 99 454 221 
Other general and administrative1,334 1,030 3,031 2,179 
Total noninterest expense21,519 13,972 41,125 27,847 
Income before income taxes20,933 7,292 32,432 13,459 
Income tax (benefit) expense(2)1,826 (1,213)3,600 
Net income$20,935 $5,466 $33,645 $9,859 
Basic earnings per share$0.81 $0.29 $1.40 $0.53 
Diluted earnings per share$0.80 $0.29 $1.37 $0.52 
Weighted average shares outstanding:
Basic25,707 18,672 24,114 18,670 
Diluted26,102 19,106 24,565 19,112 
See accompanying notes to unaudited consolidated financial statements
3
SILVERGATE CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)
Three Months Ended
June 30,		Six Months Ended
June 30,
 2021202020212020
Net income$20,935 $5,466 $33,645 $9,859 
Other comprehensive income (loss):
Change in net unrealized (loss) gain on available-for-sale securities(4,438)25,190 (17,872)15,877 
Less: Reclassification adjustment for net gain included in net income— (2,556)— (3,753)
Income tax effect1,251 (6,475)4,941 (3,468)
Unrealized (loss) gain on available-for-sale securities, net of tax(3,187)16,159 (12,931)8,656 
Change in net unrealized (loss) gain on derivative assets(8,074)2,731 (15,534)26,197 
Less: Reclassification adjustment for net gain included in net income(510)(510)(1,014)(681)
Income tax effect2,433 (636)4,622 (7,303)
Unrealized (loss) gain on derivative instruments, net of tax(6,151)1,585 (11,926)18,213 
Other comprehensive (loss) income (9,338)17,744 (24,857)26,869 
Total comprehensive income$11,597 $23,210 $8,788 $36,728 
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 StockClass B Common StockAdditional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Total
Shareholders’
Equity
SharesAmountSharesAmount
Balance at January 1, 202017,775,160 $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 stock596,000 6 (596,000)(6)— — — — 
Stock-based compensation— — — — 199 — — 199 
Exercise of stock options, net of shares withheld for employee taxes134 — — — (1)— — (1)
Balance at March 31, 202018,371,294 184 296,836 3 132,336 96,703 15,526 244,752 
Total comprehensive income, net of tax— — — — — 5,466 17,744 23,210 
Stock-based compensation— — — — 201 — — 201 
Exercise of stock options, net of shares withheld for employee taxes7,569 — — — (58)— — (58)
Balance at June 30, 202018,378,863 $184 296,836 $3 $132,479 $102,169 $33,270 $268,105 


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SILVERGATE CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Continued)
(In Thousands, Except Share Data)
(Unaudited) 
Class A Common StockClass B Common StockAdditional
Paid-In
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Total
Shareholders’
Equity
SharesAmountSharesAmount
Balance at January 1, 202118,769,771 $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 issuance5,860,858 58 — — 423,482 — — 423,540 
Conversion of Class B common stock to Class A common stock64,197 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 taxes125,142 1 — — (1,700)— — (1,699)
Balance at March 31, 202124,819,968 248 — — 551,798 131,058 30,517 713,621 
Total comprehensive income, net of tax— — — — — 20,935 (9,338)11,597 
Net proceeds from stock issuance1,496,461 15 — — 143,990 — — 144,005 
Stock-based compensation— — — — 496 — — 496 
Exercise of stock options and issuance of share-based awards, net of shares withheld for employee taxes191,226 2 — — 786 — — 788 
Balance at June 30, 202126,507,655 $265 — $— $697,070 $151,993 $21,179 $870,507 
See accompanying notes to unaudited consolidated financial statements
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SILVERGATE CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended June 30,
 20212020
Cash flows from operating activities
Net income$33,645 $9,859 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization1,277 1,570 
Amortization of securities premiums and discounts, net9,668 1,969 
Amortization of loan premiums and discounts and deferred loan origination fees and costs, net310 517 
Stock-based compensation786 400 
Provision for loan losses— 589 
Originations/purchases of loans held-for-sale(6,424,745)(2,265,109)
Proceeds from sales of loans held-for-sale6,542,129 2,308,940 
Other gains, net(1,892)(6,383)
Other, net882 734 
Changes in operating assets and liabilities:
Accrued interest receivable and other assets(45,838)(2,402)
Accrued expenses and other liabilities7,179 384 
Net cash provided by operating activities123,401 51,068 
Cash flows from investing activities
Purchases of securities available-for-sale(5,363,805)(278,641)
Proceeds from sale of securities available-for-sale— 216,355 
Proceeds from paydowns and maturities of securities available-for-sale87,583 21,482 
Loan originations/purchases and payments, net6,286 (155,778)
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(14,610)(3,235)
Purchase of premises and equipment(176)(665)
(Payments for) proceeds from derivative contracts, net(22,613)14,260 
Other, net— 109 
Net cash used in investing activities(5,307,335)(149,713)
Cash flows from financing activities
Net change in noninterest bearing deposits6,157,059 219,469 
Net change in interest bearing deposits(33,529)(363,215)
Net change in federal home loan bank advances— 311,925 
Payments made on notes payable— (3,714)
Proceeds from common stock issuance, net567,545 — 
Proceeds from stock option exercise1,232 — 
Taxes paid related to net share settlement of equity awards(2,143)(59)
Other, net— 79 
Net cash provided by financing activities6,690,164 164,485 
Net increase in cash and cash equivalents1,506,230 65,840 
Cash and cash equivalents, beginning of period2,962,087 133,604 
Cash and cash equivalents, end of period$4,468,317 $199,444 
Supplemental cash flow information:
Cash paid for interest$593 $6,785 
Income taxes paid, net3,347 3,076 
Supplemental noncash disclosures:
Loans held-for-investment transferred to loans held-for-sale$— $30,792 
Loans held-for-sale transferred to loans held-for-investment— 5,098 
Loans transferred to other real estate owned— 51 
Right-of-use assets obtained in exchange for new operating lease liabilities77 — 
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 $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 could 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” equity offering program, or ATM Offering. As of June 30, 2021, the Company had completed the ATM Offering with a total of 2,793,826 shares of Class A common stock sold at an average price of $107.38. The transactions resulted in net proceeds to the Company of $295.1 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 lessor. These amendments were initially effective for fiscal years beginning after December 15, 2019 for SEC registrants and
8
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 $27.0 million at June 30, 2021. The carrying values of trading securities included an immaterial amount of net unrealized losses at June 30, 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 CostGross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
 (Dollars in thousands)
June 30, 2021
U.S. Treasuries$331,154 $59 $(118)$331,095 
U.S. agency securities - excluding mortgage-backed securities578,524 4,210 (3,448)579,286 
Residential mortgage-backed securities:
Government agency mortgage-backed securities1,327,557 180 (7,921)1,319,816 
Government agency collateralized mortgage obligation1,620,012 875 (7,225)1,613,662 
Private-label collateralized mortgage obligation1,721 23 (22)1,722 
Commercial mortgage-backed securities:
Government agency mortgage-backed securities291,814 430 (1,306)290,938 
Government agency collateralized mortgage obligation192,930 159 (168)192,921 
Private-label collateralized mortgage obligation233,145 12,997 (423)245,719 
Municipal bonds:
Tax-exempt979,706 26,097 (2,064)1,003,739 
Taxable356,291 1,901 (1,703)356,489 
Asset backed securities:
Government sponsored student loan pools241,532 402 (543)241,391 
$6,154,386 $47,333 $(24,941)$6,176,778 
 Available-for-sale securities
 Amortized CostGross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
 (Dollars in thousands)
December 31, 2020
Residential mortgage-backed securities:
Government agency mortgage-backed securities$5,701