si-20210930

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 September 30, 2021


☐			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
Depositary Shares, Each Representing a 1/40th Interest in a Share of 5.375% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A	SI PRA	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 November 2, 2021, the registrant had 26,578,499 shares of Class A voting common stock outstanding.

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						4
Consolidated Statements of Shareholders’ Equity						5
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						33
Item 3. Quantitative and Qualitative Disclosures About Market Risk						58
Item 4. Controls and Procedures						61

PART II—OTHER INFORMATION

Item 1. Legal Proceedings						62
Item 1A. Risk Factors						62
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						62
Item 3. Defaults Upon Senior Securities						62
Item 4. Mine Safety Disclosures						62
Item 5. Other Information						62
Item 6. Exhibits						63

SIGNATURES						64

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

SILVERGATE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In Thousands, Except Par Value and Per Share Amounts)

(Unaudited)


	September 30, 2021		December 31, 2020
ASSETS
Cash and due from banks	$	168,628	$	16,405
Interest earning deposits in other banks	3,615,860		2,945,682
Cash and cash equivalents	3,784,488		2,962,087

Securities available-for-sale, at fair value	7,234,216		939,015

Loans held-for-sale, at lower of cost or fair value	818,447		865,961
Loans held-for-investment, net of allowance for loan losses of $6,916 at September 30, 2021 and December 31, 2020	809,745		746,751
Federal home loan and federal reserve bank stock, at cost	34,010		14,851
Accrued interest receivable	32,154		8,698
Premises and equipment, net	1,483		2,072
Derivative assets	37,210		31,104
Other assets	24,868		15,696
Total assets	$	12,776,621	$	5,586,235
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest bearing demand accounts	$	11,586,318	$	5,133,579
Interest bearing accounts	76,202		114,447

Total deposits	11,662,520		5,248,026


Subordinated debentures, net	15,841		15,831
Accrued expenses and other liabilities	26,179		28,079
Total liabilities	11,704,540		5,291,936
Commitments and contingencies
Preferred stock, $0.01 par value—authorized 10,000 shares; $1,000 per share liquidation preference, 200 and 0 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively	2		—
Class A common stock, $0.01 par value—authorized 125,000 shares; 26,536 and 18,770 shares issued and outstanding at September 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 September 30, 2021 and December 31, 2020, respectively	—		1
Additional paid-in capital	891,611		129,726
Retained earnings	175,485		118,348
Accumulated other comprehensive income	4,718		46,036
Total shareholders’ equity	1,072,081		294,299
Total liabilities and shareholders’ equity	$	12,776,621	$	5,586,235

See accompanying notes to unaudited consolidated financial statements

Table of Contents

SILVERGATE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Data)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Interest income
Loans, including fees	$	16,972	$	13,527	$	50,727	$	38,358
Taxable securities	14,000		3,746		25,916		13,917
Tax-exempt securities	5,014		1,720		9,832		3,345
Other interest earning assets	1,755		196		4,633		1,325
Dividends and other	195		116		804		437
Total interest income	37,936		19,305		91,912		57,382
Interest expense
Deposits	26		57		107		5,760
Federal home loan bank advances	—		65		—		336
Subordinated debentures and other	247		257		744		830
Total interest expense	273		379		851		6,926
Net interest income before provision for loan losses	37,663		18,926		91,061		50,456
Provision for loan losses	—		—		—		589
Net interest income after provision for loan losses	37,663		18,926		91,061		49,867
Noninterest income
Mortgage warehouse fee income	665		758		2,372		1,590
Service fees related to off-balance sheet deposits	—		1		—		78
Deposit related fees	8,171		3,293		26,603		7,497
Gain on sale of securities, net	5,182		—		5,182		3,753
(Loss) gain on sale of loans, net	—		(96)		—		354
Gain on extinguishment of debt	—		—		—		925
Other income	24		8		44		132
Total noninterest income	14,042		3,964		34,201		14,329
Noninterest expense
Salaries and employee benefits	10,729		8,899		31,979		26,856
Occupancy and equipment	523		845		1,736		2,646
Communications and data processing	1,793		1,389		5,210		3,963
Professional services	2,471		1,207		6,782		3,297
Federal deposit insurance	4,297		209		10,437		514
Correspondent bank charges	572		403		1,881		1,123
Other loan expense	299		60		753		281
Other general and administrative	1,655		1,121		4,686		3,300
Total noninterest expense	22,339		14,133		63,464		41,980
Income before income taxes	29,366		8,757		61,798		22,216
Income tax expense	5,874		1,697		4,661		5,297
Net income	23,492		7,060		57,137		16,919
Dividends on preferred stock	—		—		—		—
Net income available to common shareholders	$	23,492	$	7,060	$	57,137	$	16,919
Basic earnings per common share	$	0.89	$	0.38	$	2.29	$	0.91
Diluted earnings per common share	$	0.88	$	0.37	$	2.26	$	0.88
Weighted average common shares outstanding:
Basic	26,525		18,682		24,927		18,674
Diluted	26,766		19,134		25,308		19,119

See accompanying notes to unaudited consolidated financial statements

Table of Contents

SILVERGATE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net income	$	23,492	$	7,060	$	57,137	$	16,919
Other comprehensive income (loss):
Change in net unrealized (loss) gain on available-for-sale securities	(16,019)		13,557		(33,891)		29,434
Less: Reclassification adjustment for net gain included in net income	(5,182)		—		(5,182)		(3,753)
Income tax effect	6,019		(3,898)		10,960		(7,366)
Unrealized (loss) gain on available-for-sale securities, net of tax	(15,182)		9,659		(28,113)		18,315
Change in net unrealized (loss) gain on derivative assets	(1,234)		(1,187)		(16,768)		25,010
Less: Reclassification adjustment for net gain included in net income	(516)		(516)		(1,530)		(1,197)
Income tax effect	471		472		5,093		(6,831)
Unrealized (loss) gain on derivative instruments, net of tax	(1,279)		(1,231)		(13,205)		16,982
Other comprehensive (loss) income	(16,461)		8,428		(41,318)		35,297
Total comprehensive income	$	7,031	$	15,488	$	15,819	$	52,216

See accompanying notes to unaudited consolidated financial statements

Table of Contents

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
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 taxes		7,569	—		—	—		(58)		—		—			(58)

Balance at June 30, 2020		18,378,863	184		296,836	3		132,479		102,169		33,270			268,105
Total comprehensive income, net of tax		—	—		—	—		—		7,060		8,428			15,488





Conversion of Class B common stock to Class A common stock		232,639	2		(232,639)	(2)		—		—		—			—
Stock-based compensation		—	—		—	—		259		—		—			259
Exercise of stock options, net of shares withheld for employee taxes		15,290	—		—	—		(91)		—		—			(91)

Balance at September 30, 2020		18,626,792	$	186	64,197	$	1	$	132,647	$	109,229	$	41,698		$	283,761

Table of Contents

SILVERGATE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Continued)

(In Thousands, Except Share Data)

(Unaudited)


	Preferred Stock			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		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
Total comprehensive income, net of tax	—	—		—	—		—	—		—		20,935		(9,338)		11,597



Net proceeds from stock issuance	—	—		1,496,461	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 taxes	—	—		191,226	2		—	—		786		—		—		788

Balance at June 30, 2021	—	—		26,507,655	265		—	—		697,070		151,993		21,179		870,507
Total comprehensive income, net of tax	—	—		—	—		—	—		—		23,492		(16,461)		7,031



Net proceeds from stock issuance	200,000	2		—	—		—	—		193,627		—		—		193,629


Stock-based compensation	—	—		—	—		—	—		587		—		—		587
Exercise of stock options and issuance of share-based awards, net of shares withheld for employee taxes	—	—		27,956	—		—	—		327		—		—		327

Balance at September 30, 2021	200,000	$	2	26,535,611	$	265	—	$	—	$	891,611	$	175,485	$	4,718	$	1,072,081

See accompanying notes to unaudited consolidated financial statements

Table of Contents

SILVERGATE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)


	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities
Net income	$	57,137	$	16,919
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	1,900		2,535
Amortization of securities premiums and discounts, net	28,069		2,941
Amortization of loan premiums and discounts and deferred loan origination fees and costs, net	422		689
Stock-based compensation	1,373		659
Provision for loan losses	—		589
Originations of loans held-for-sale	(9,440,843)		(4,516,366)
Proceeds from sales of loans held-for-sale	9,488,357		4,216,094

Other gains, net	(7,650)		(7,432)
Other, net	(655)		428
Changes in operating assets and liabilities:
Accrued interest receivable and other assets	(24,216)		(7,242)
Accrued expenses and other liabilities	15,238		2,634
Net cash provided by (used in) operating activities	119,132		(287,552)
Cash flows from investing activities
Purchases of securities available-for-sale	(6,921,562)		(278,641)
Proceeds from sale of securities available-for-sale	338,851		216,355
Proceeds from paydowns and maturities of securities available-for-sale	215,278		40,915
Loan originations/purchases and payments, net	(63,415)		(98,259)
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	(19,160)		(4,575)
Purchase of premises and equipment	(267)		(788)

(Payments for) proceeds from derivative contracts, net	(21,540)		15,311
Other, net	—		109
Net cash used in investing activities	(6,471,815)		(73,173)
Cash flows from financing activities
Net change in noninterest bearing deposits	6,452,739		820,659
Net change in interest bearing deposits	(38,245)		(354,206)
Net change in federal home loan bank advances	—		(38,075)


Payments made on notes payable	—		(3,714)
Proceeds from common stock issuance, net	567,521		—

Proceeds from preferred stock issuance, net	193,653		—

Proceeds from stock option exercise	1,559		—
Taxes paid related to net share settlement of equity awards	(2,143)		(150)
Other, net	—		89
Net cash provided by financing activities	7,175,084		424,603
Net increase in cash and cash equivalents	822,401		63,878
Cash and cash equivalents, beginning of period	2,962,087		133,604
Cash and cash equivalents, end of period	$	3,784,488	$	197,482
Supplemental cash flow information:
Cash paid for interest	$	1,004	$	7,366
Income taxes paid, net	3,702		3,945
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 liabilities	77		—

See accompanying notes to unaudited consolidated financial statements

Table of Contents