si-20220930

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, 2022


☐			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 October 31, 2022, the registrant had 31,658,603 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						37
Item 3. Quantitative and Qualitative Disclosures About Market Risk						60
Item 4. Controls and Procedures						62

PART II—OTHER INFORMATION

Item 1. Legal Proceedings						63
Item 1A. Risk Factors						63
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						63
Item 3. Defaults Upon Senior Securities						63
Item 4. Mine Safety Disclosures						63
Item 5. Other Information						63
Item 6. Exhibits						64

SIGNATURES						65

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, 2022		December 31, 2021
ASSETS
Cash and due from banks	$	465,853	$	208,193
Interest earning deposits in other banks	1,420,970		5,179,753
Cash and cash equivalents	1,886,823		5,387,946

Securities available-for-sale, at fair value	8,317,247		8,625,259
Securities held-to-maturity, at amortized cost (fair value of $2,677,834 at September 30, 2022)	3,104,557		—
Loans held-for-sale, at lower of cost or fair value	924,644		893,194
Loans held-for-investment, net of allowance for loan losses of $3,176 and $6,916 at September 30, 2022 and December 31, 2021, respectively	467,786		887,304
Other investments	60,428		34,010
Accrued interest receivable	78,799		40,370
Premises and equipment, net	3,518		3,008
Intangible assets	194,045		—
Derivative assets	153,990		34,056

Other assets	275,503		100,348
Total assets	$	15,467,340	$	16,005,495
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest bearing demand accounts	$	12,005,719	$	14,213,472
Interest bearing accounts	1,232,707		77,156

Total deposits	13,238,426		14,290,628
Federal home loan bank advances	700,000		—

Subordinated debentures, net	15,855		15,845

Accrued expenses and other liabilities	181,714		90,186
Total liabilities	14,135,995		14,396,659
Commitments and contingencies
Preferred stock, $0.01 par value—authorized 10,000 shares; $1,000 per share liquidation preference, 200 shares issued and outstanding at September 30, 2022 and December 31, 2021	2		2
Class A common stock, $0.01 par value—150,000 shares authorized and 31,659 shares issued and outstanding at September 30, 2022; 125,000 shares authorized and 30,403 shares issued and outstanding at December 31, 2021	317		304
Class B non-voting common stock, $0.01 par value—no shares authorized and no shares issued and outstanding at September 30, 2022; 25,000 shares authorized and no shares issued and outstanding at December 31, 2021	—		—
Additional paid-in capital	1,555,996		1,421,592
Retained earnings	295,115		193,860
Accumulated other comprehensive loss	(520,085)		(6,922)
Total shareholders’ equity	1,331,345		1,608,836
Total liabilities and shareholders’ equity	$	15,467,340	$	16,005,495

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,
	2022		2021		2022		2021
Interest income
Loans, including fees	$	20,663	$	16,972	$	61,004	$	50,727
Taxable securities	47,401		14,000		96,166		25,916
Tax-exempt securities	14,412		5,014		42,416		9,832
Other interest earning assets	8,001		1,755		12,394		4,633
Dividends and other	289		195		1,211		804
Total interest income	90,766		37,936		213,191		91,912
Interest expense
Deposits	5,221		26		5,244		107
Federal home loan bank advances and other	4,399		—		5,265		—
Subordinated debentures	258		247		753		744
Total interest expense	9,878		273		11,262		851
Net interest income before provision for loan losses	80,888		37,663		201,929		91,061
Reversal of provision for loan losses	(601)		—		(3,075)		—
Net interest income after provision for loan losses	81,489		37,663		205,004		91,061
Noninterest income
Deposit related fees	7,953		8,171		25,729		26,603
Mortgage warehouse fee income	482		665		1,688		2,372

Gain (loss) on sale of securities, net	—		5,182		(804)		5,182
Loss on sale of loans, net	(329)		—		(329)		—

Other income	348		24		834		44
Total noninterest income	8,454		14,042		27,118		34,201
Noninterest expense
Salaries and employee benefits	19,632		10,729		51,532		31,979
Occupancy and equipment	822		523		2,471		1,736

Communications and data processing	3,210		1,793		8,939		5,210
Professional services	4,314		2,471		13,548		6,782
Federal deposit insurance	1,217		4,297		4,474		10,437
Correspondent bank charges	902		572		2,531		1,881
Other loan expense	529		299		1,595		753
Other general and administrative	2,527		1,655		6,633		4,686
Total noninterest expense	33,153		22,339		91,723		63,464
Income before income taxes	56,790		29,366		140,399		61,798
Income tax expense	13,462		5,874		31,080		4,661
Net income	43,328		23,492		109,319		57,137
Dividends on preferred stock	2,688		—		8,064		—
Net income available to common shareholders	$	40,640	$	23,492	$	101,255	$	57,137
Basic earnings per common share	$	1.28	$	0.89	$	3.21	$	2.29
Diluted earnings per common share	$	1.28	$	0.88	$	3.20	$	2.26
Weighted average common shares outstanding:
Basic	31,655		26,525		31,505		24,927
Diluted	31,803		26,766		31,669		25,308

See accompanying notes to unaudited consolidated financial statements

Table of Contents

SILVERGATE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In Thousands)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	43,328	$	23,492	$	109,319	$	57,137
Other comprehensive income (loss):
Change in net unrealized loss on available-for-sale securities	(113,762)		(16,019)		(635,385)		(33,891)
Less: Reclassification adjustment for net (gain) loss included in net income	—		(5,182)		804		(5,182)
Less: Amortization of net unrealized losses on securities transferred from available-for-sale to held-to-maturity	1,611		—		4,042		—
Income tax effect	33,383		6,019		184,244		10,960
Unrealized loss on available-for-sale securities, net of tax	(78,768)		(15,182)		(446,295)		(28,113)
Change in net unrealized loss on derivative assets	(76,494)		(1,234)		(92,562)		(16,768)
Less: Reclassification adjustment for net gain included in net income	(516)		(516)		(1,977)		(1,530)
Income tax effect	21,894		471		27,671		5,093
Unrealized loss on derivative instruments, net of tax	(55,116)		(1,279)		(66,868)		(13,205)
Other comprehensive loss	(133,884)		(16,461)		(513,163)		(41,318)
Total comprehensive (loss) income	$	(90,556)	$	7,031	$	(403,844)	$	15,819

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)


	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)



Issuance of stock, net	—	—		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, net of shares withheld for employee taxes	—	—		124,848	1		—	—		(1,700)		—		—		(1,699)
Issuance of share-based awards, net of shares withheld for employee taxes	—	—		294	—		—	—		—		—		—		—

Balance at March 31, 2021	—	—		24,819,968	248		—	—		551,798		131,058		30,517		713,621
Total comprehensive income (loss), net of tax	—	—		—	—		—	—		—		20,935		(9,338)		11,597



Issuance of stock, net	—	—		1,496,461	15		—	—		143,990		—		—		144,005


Stock-based compensation	—	—		—	—		—	—		496		—		—		496
Exercise of stock options	—	—		176,834	2		—	—		786		—		—		788
Issuance of share-based awards, net of shares withheld for employee taxes	—	—		14,392	—		—	—		—		—		—		—

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



Issuance of stock, net	200,000	2		—	—		—	—		193,627		—		—		193,629


Stock-based compensation	—	—		—	—		—	—		587		—		—		587
Exercise of stock options	—	—		25,996	—		—	—		327		—		—		327
Issuance of share-based awards, net of shares withheld for employee taxes	—	—		1,960	—		—	—		—		—		—		—

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

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, 2022	200,000	$	2	30,402,706	$	304	—	$	—	$	1,421,592	$	193,860	$	(6,922)	$	1,608,836
Total comprehensive income (loss), net of tax	—	—		—	—		—	—		—		27,386		(219,005)		(191,619)


Dividends on preferred stock	—	—		—	—		—	—		—		(2,688)		—		(2,688)
Issuance of stock, net	—	—		1,221,217	12		—	—		131,505		—		—		131,517


Stock-based compensation	—	—		—	—		—	—		729		—		—		729
Exercise of stock options	—	—		1,840	—		—	—		30		—		—		30
Issuance of share-based awards, net of shares withheld for employee taxes	—	—		4,552	—		—	—		(309)		—		—		(309)

Balance at March 31, 2022	200,000	2		31,630,315	316		—	—		1,553,547		218,558		(225,927)		1,546,496
Total comprehensive income (loss), net of tax	—	—		—	—		—	—		—		38,605		(160,274)		(121,669)


Dividends on preferred stock	—	—		—	—		—	—		—		(2,688)		—		(2,688)



Stock-based compensation	—	—		—	—		—	—		1,019		—		—		1,019
Exercise of stock options	—	—		5,260	—		—	—		61		—		—		61
Issuance of share-based awards, net of shares withheld for employee taxes	—	—		5,392	—		—	—		—		—		—		—

Balance at June 30, 2022	200,000	2		31,640,967	316		—	—		1,554,627		254,475		(386,201)		1,423,219
Total comprehensive income (loss), net of tax	—	—		—	—		—	—		—		43,328		(133,884)		(90,556)


Dividends on preferred stock	—	—		—	—		—	—		—		(2,688)		—		(2,688)



Stock-based compensation	—	—		—	—		—	—		1,083		—		—		1,083
Exercise of stock options	—	—		17,636	1		—	—		286		—		—		287


Balance at September 30, 2022	200,000	$	2	31,658,603	$	317	—	$	—	$	1,555,996	$	295,115	$	(520,085)	$	1,331,345

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,
	2022		2021
Cash flows from operating activities
Net income	$	109,319	$	57,137
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,531		1,900
Amortization of securities premiums and discounts, net	126,247		28,069
Amortization of loan premiums and discounts and deferred loan origination fees and costs, net	(1,854)		422
Stock-based compensation	2,831		1,373
Reversal of provision for loan losses	(3,075)		—
Originations of loans held-for-sale	(7,776,631)		(9,440,843)
Proceeds from sales of loans held-for-sale	7,776,994		9,488,357

Other gains, net	(2,321)		(7,650)
Other, net	(1,844)		(655)
Changes in operating assets and liabilities:
Accrued interest receivable and other assets	5,268		(24,216)
Accrued expenses and other liabilities	31,680