Table of Contents

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, 2020March 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)
Maryland33-0227337
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
4250 Executive Square,, Suite 300,, La Jolla,, CA92037
(Address of principal executive offices, including zip code)
(858) (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
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 5, 2020,May 4, 2021, the registrant had 18,612,47525,337,473 shares of Class A voting common stock and 64,197 sharesoutstanding.

Table of Class B non-voting common stock outstanding.Contents

SILVERGATE CAPITAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS
Page
PART I—FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited)
32
Consolidated Statements of Financial Condition
32
Consolidated Statements of Operations
43
Consolidated Statements of Comprehensive Income (Loss)
54
Consolidated Statements of Shareholders’ Equity
65
Condensed Consolidated Statements of Cash Flows
76
Notes to Unaudited Consolidated Financial Statements
87
3230
6053
6256
PART II—OTHER INFORMATION
6357
6357
6557
6557
6557
6557
6758
6859


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

SILVERGATE CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands, Except Par Value Amounts)
(Unaudited) 
 June 30,
2020		 December 31,
2019		 March 31,
2021		December 31,
2020
ASSETS    ASSETS
Cash and due from banks $13,777
 $1,579
Cash and due from banks$16,422 $16,405 
Interest earning deposits in other banks 185,667
 132,025
Interest earning deposits in other banks4,315,100 2,945,682 
Cash and cash equivalents 199,444
 133,604
Cash and cash equivalents4,331,522 2,962,087 
Trading securitiesTrading securities1,990 0 
Securities available-for-sale, at fair value 951,094
 897,766
Securities available-for-sale, at fair value1,717,418 939,015 
Loans held-for-sale, at lower of cost or fair value 321,835
 375,922
Loans held-for-sale, at lower of cost or fair value897,227 865,961 
Loans held-for-investment, net of allowance for loan losses of $6,763 and $6,191 at June 30, 2020 and December 31, 2019, respectively 793,548
 664,622
Loans held-for-investment, net of allowance for loan losses of $6,916 at March 31, 2021 and December 31, 2020Loans held-for-investment, net of allowance for loan losses of $6,916 at March 31, 2021 and December 31, 2020728,390 746,751 
Federal home loan and federal reserve bank stock, at cost 13,499
 10,264
Federal home loan and federal reserve bank stock, at cost14,851 14,851 
Accrued interest receivable 7,700
 5,950
Accrued interest receivable9,432 8,698 
Other real estate owned, net 51
 128
Premises and equipment, net 3,326
 3,259
Premises and equipment, net1,758 2,072 
Operating lease right-of-use assets 3,846
 4,571
Derivative assets 35,770
 23,440
Derivative assets34,442 31,104 
Low income housing tax credit investment 917
 954
Other assets 9,683
 7,647
Other assets20,122 15,696 
Total assets $2,340,713
 $2,128,127
Total assets$7,757,152 $5,586,235 
LIABILITIES AND SHAREHOLDERS’ EQUITY    LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:    Deposits:
Noninterest bearing demand accounts $1,563,136
 $1,343,667
Noninterest bearing demand accounts$6,889,281 $5,133,579 
Interest bearing accounts 107,773
 470,987
Interest bearing accounts113,090 114,447 
Total deposits 1,670,909
 1,814,654
Total deposits7,002,371 5,248,026 
Federal home loan bank advances 360,000
 49,000
Notes payable —
 3,714
Subordinated debentures, net 15,823
 15,816
Subordinated debentures, net15,834 15,831 
Operating lease liabilities 4,146
 4,881
Accrued expenses and other liabilities 21,730
 9,026
Accrued expenses and other liabilities25,326 28,079 
Total liabilities 2,072,608
 1,897,091
Total liabilities7,043,531 5,291,936 
Commitments and contingencies 

 

Commitments and contingencies00
Preferred stock, $0.01 par value—authorized 10,000 shares; no shares issued or outstanding at June 30, 2020 and December 31, 2019 —
 —
Class A common stock, $0.01 par value—authorized 125,000 shares; 18,379 and 17,775 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively 184
 178
Class B non-voting common stock, $0.01 par value—authorized 25,000 shares; 297 and 893 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively 3
 9
Preferred stock, $0.01 par value—authorized 10,000 shares; 0 shares issued or outstanding at March 31, 2021 and December 31, 2020Preferred stock, $0.01 par value—authorized 10,000 shares; 0 shares issued or outstanding at March 31, 2021 and December 31, 20200 0 
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, respectivelyClass 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, respectively248 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, respectivelyClass 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, respectively0 1 
Additional paid-in capital 132,479
 132,138
Additional paid-in capital551,798 129,726 
Retained earnings 102,169
 92,310
Retained earnings131,058 118,348 
Accumulated other comprehensive income 33,270
 6,401
Accumulated other comprehensive income30,517 46,036 
Total shareholders’ equity 268,105
 231,036
Total shareholders’ equity713,621 294,299 
Total liabilities and shareholders’ equity $2,340,713
 $2,128,127
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
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited) 
 Three Months Ended
June 30,		 Six Months Ended
June 30,		Three Months Ended
March 31,
 2020 2019 2020 2019 20212020
Interest income        Interest income
Loans, including fees $11,710
 $11,684
 $24,831
 $24,795
Loans, including fees$16,597 $13,121 
Taxable securities 4,123
 4,501
 10,171
 7,534
Taxable securities3,592 6,048 
Tax-exempt securities 1,577
 —
 1,625
 —
Tax-exempt securities1,695 48 
Other interest earning assets 405
 3,058
 1,129
 6,855
Other interest earning assets1,279 724 
Dividends and other 200
 229
 321
 351
Dividends and other143 121 
Total interest income 18,015
 19,472
 38,077
 39,535
Total interest income23,306 20,062 
Interest expense        Interest expense
Deposits 1,652
 1,194
 5,703
 1,535
Deposits46 4,051 
Federal home loan bank advances 44
 —
 271
 —
Federal home loan bank advances0 227 
Notes payable and other —
 443
 36
 585
Subordinated debentures 267
 267
 537
 531
Subordinated debentures and otherSubordinated debentures and other245 306 
Total interest expense 1,963
 1,904
 6,547
 2,651
Total interest expense291 4,584 
Net interest income before provision for loan losses 16,052
 17,568
 31,530
 36,884
Net interest income before provision for loan losses23,015 15,478 
Provision for loan losses 222
 152
 589
 419
Provision for loan losses0 367 
Net interest income after provision for loan losses 15,830
 17,416
 30,941
 36,465
Net interest income after provision for loan losses23,015 15,111 
Noninterest income        Noninterest income
Mortgage warehouse fee income 450
 346
 832
 712
Mortgage warehouse fee income954 382 
Service fees related to off-balance sheet deposits 7
 412
 77
 1,171
Service fees related to off-balance sheet deposits0 70 
Deposit related fees 2,438
 1,171
 4,204
 2,158
Deposit related fees7,124 1,766 
Gain on sale of securities, net 2,556
 —
 3,753
 —
Gain on sale of securities, net0 1,197 
(Loss) gain on sale of loans, net (56) 156
 450
 345
Gain on sale of branch, net —
 —
 —
 5,509
Gain on sale of loans, netGain on sale of loans, net0 506 
Gain on extinguishment of debt —
 —
 925
 —
Gain on extinguishment of debt0 925 
Other income 39
 69
 124
 130
Other income12 85 
Total noninterest income 5,434
 2,154
 10,365
 10,025
Total noninterest income8,090 4,931 
Noninterest expense        Noninterest expense
Salaries and employee benefits 9,002
 8,082
 17,957
 16,847
Salaries and employee benefits10,990 8,955 
Occupancy and equipment 894
 1,012
 1,801
 1,885
Occupancy and equipment614 907 
Communications and data processing 1,313
 1,123
 2,574
 2,160
Communications and data processing1,621 1,261 
Professional services 1,105
 1,073
 2,090
 2,518
Professional services1,717 985 
Federal deposit insurance 182
 168
 305
 343
Federal deposit insurance2,296 123 
Correspondent bank charges 347
 301
 720
 580
Correspondent bank charges497 373 
Other loan expense 99
 118
 221
 243
Other loan expense174 122 
Other real estate owned expense —
 5
 —
 5
Other general and administrative 1,030
 839
 2,179
 1,626
Other general and administrative1,697 1,149 
Total noninterest expense 13,972
 12,721
 27,847
 26,207
Total noninterest expense19,606 13,875 
Income before income taxes 7,292
 6,849
 13,459
 20,283
Income before income taxes11,499 6,167 
Income tax expense 1,826
 1,693
 3,600
 5,691
Income tax (benefit) expenseIncome tax (benefit) expense(1,211)1,774 
Net income $5,466
 $5,156
 $9,859
 $14,592
Net income$12,710 $4,393 
Basic earnings per share $0.29
 $0.29
 $0.53
 $0.82
Basic earnings per share$0.56 $0.24 
Diluted earnings per share $0.29
 $0.28
 $0.52
 $0.80
Diluted earnings per share$0.55 $0.23 
Weighted average shares outstanding:        Weighted average shares outstanding:
Basic 18,672
 17,836
 18,670
 17,837
Basic22,504 18,668 
Diluted 19,106
 18,257
 19,112
 18,267
Diluted23,010 19,117 
See accompanying notes to unaudited consolidated financial statements

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SILVERGATE CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands)
(Unaudited)
  Three Months Ended
June 30,		 Six Months Ended
June 30,
  2020 2019 2020 2019
Net income $5,466
 $5,156
 $9,859
 $14,592
Other comprehensive income (loss):        
Change in net unrealized gain on available-for-sale securities 25,190
 7,506
 15,877
 8,169
Less: Reclassification adjustment for net gains included in net income (2,556) —
 (3,753) —
Income tax effect (6,475) (2,135) (3,468) (2,335)
Unrealized gain on available-for-sale securities, net of tax 16,159
 5,371
 8,656
 5,834
Change in net unrealized gain on derivative assets 2,731
 4,444
 26,197
 4,398
Less: Reclassification adjustment for net gains included in net income (510) —
 (681) —
Income tax effect (636) (1,275) (7,303) (1,256)
Unrealized gain on derivative instruments, net of tax 1,585
 3,169
 18,213
 3,142
Other comprehensive income 17,744
 8,540
 26,869
 8,976
Total comprehensive income $23,210
 $13,696
 $36,728
 $23,568
Three Months Ended
March 31,
 20212020
Net income$12,710 $4,393 
Other comprehensive income (loss):
Change in net unrealized loss on available-for-sale securities(13,434)(9,313)
Less: Reclassification adjustment for net gain included in net income0 (1,197)
Income tax effect3,690 3,007 
Unrealized loss on available-for-sale securities, net of tax(9,744)(7,503)
Change in net unrealized (loss) gain on derivative assets(7,460)23,466 
Less: Reclassification adjustment for net gain included in net income(504)(171)
Income tax effect2,189 (6,667)
Unrealized (loss) gain on derivative instruments, net of tax(5,775)16,628 
Other comprehensive (loss) income(15,519)9,125 
Total comprehensive (loss) income$(2,809)$13,518 
See accompanying notes to unaudited consolidated financial statements

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SILVERGATE CAPITAL CORPORATION
CONDENSED 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)— — — 0 
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 
  Class A Common Stock Class B Common Stock Additional
Paid-In
Capital		 Retained
Earnings		 Accumulated
Other
Comprehensive
Income (Loss)		 Total
Shareholders’
Equity
  Shares     Amount     Shares     Amount     
Balance at January 1, 2019 16,628,941
 $166
 1,189,548
 $12
 $125,665
 $67,464
 $(2,061) $191,246
Total comprehensive income, net of tax —
 —
 —
 —
 —
 9,436
 436
 9,872
Stock-based compensation —
 —
 —
 —
 19
 —
 —
 19
Balance at March 31, 2019 16,628,941
 166
 1,189,548
 12
 125,684
 76,900
 (1,625) 201,137
Total comprehensive income, net of tax —
 —
 —
 —
 —
 5,156
 8,540
 13,696
Stock-based compensation —
 —
 —
 —
 30
 —
 —
 30
Exercise of stock options, net of shares withheld for employee taxes 18,099
 —
 —
 —
 (115) —
 —
 (115)
Balance at June 30, 2019 16,647,040
 $166
 1,189,548
 $12
 $125,599
 $82,056
 $6,915
 $214,748


  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
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)— — — 0 
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 0 $0 $551,798 $131,058 $30,517 $713,621 
See accompanying notes to unaudited consolidated financial statements

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SILVERGATE CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 Six Months Ended June 30,Three Months Ended March 31,
 2020 2019 20212020
Cash flows from operating activities    Cash flows from operating activities
Net income $9,859
 $14,592
Net income$12,710 $4,393 
Adjustments to reconcile net income to net cash provided by operating activities:    
Adjustments to reconcile net income to net cash used in operating activities:Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 1,570
 496
Depreciation and amortization644 830 
Amortization of securities premiums and discounts, net 1,969
 549
Amortization of securities premiums and discounts, net1,212 679 
Amortization of loan premiums and discounts and deferred loan origination fees and costs, net 517
 (364)Amortization of loan premiums and discounts and deferred loan origination fees and costs, net250 399 
Stock-based compensation 400
 49
Stock-based compensation290 199 
Deferred income tax expense 619
 162
Provision for loan losses 589
 419
Provision for loan losses0 367 
Gain on sale of loans, net (450) (345)
Gain on sale of securities, net (3,753) —
Originations/purchases of loans held-for-sale (2,265,109) (1,321,014)Originations/purchases of loans held-for-sale(3,384,431)(1,222,816)
Proceeds from sales of loans held-for-sale 2,308,940
 1,315,212
Proceeds from sales of loans held-for-sale3,353,164 1,153,515 
Gain on sale of branch, net —
 (5,509)
Gain on extinguishment of debt (925) —
Other gains, netOther gains, net(1,141)(2,885)
Other, net (1,140) 903
Other, net891 576 
Changes in operating assets and liabilities:    Changes in operating assets and liabilities:
Accrued interest receivable and other assets (2,402) (1,794)Accrued interest receivable and other assets(4,119)(520)
Accrued expenses and other liabilities 384
 (1,834)Accrued expenses and other liabilities469 87 
Net cash provided by operating activities 51,068
 1,522
Net cash used in operating activitiesNet cash used in operating activities(20,061)(65,176)
Cash flows from investing activities    Cash flows from investing activities
Purchases of securities available-for-sale (278,641) (568,889)Purchases of securities available-for-sale(817,734)(98,986)
Proceeds from sale of securities available-for-saleProceeds from sale of securities available-for-sale0 14,016 
Proceeds from paydowns and maturities of securities available-for-sale 21,482
 12,453
Proceeds from paydowns and maturities of securities available-for-sale21,403 7,936 
Proceeds from sale of securities available-for-sale 216,355
 —
Loan originations/purchases and payments, net (155,778) (108,269)Loan originations/purchases and payments, net18,112 (41,254)
Proceeds from sale of loans held-for-sale previously classified as held-for-investment 36,400
 21,948
Proceeds from sale of loans held-for-sale previously classified as held-for-investment0 36,400 
Purchase of federal home loan and federal reserve bank stock, net (3,235) (603)Purchase of federal home loan and federal reserve bank stock, net0 (5)
Proceeds from sale of other real estate owned 109
 62
Purchase of premises and equipment (665) (757)Purchase of premises and equipment(32)(391)
Proceeds from sale of branch, net of cash —
 47,390
Proceeds from (purchases of) derivative contracts, net 14,260
 (20,800)
(Payments for) proceeds from derivative contracts, net(Payments for) proceeds from derivative contracts, net(8,439)13,370 
Other, net —
 9
Other, net0 128 
Net cash used in investing activities (149,713) (617,456)Net cash used in investing activities(786,690)(68,786)
Cash flows from financing activities    Cash flows from financing activities
Net change in noninterest bearing deposits 219,469
 10,798
Net change in noninterest bearing deposits1,755,702 401,552 
Net change in interest bearing deposits (363,215) 219,298
Net change in interest bearing deposits(1,357)(213,250)
Net change in federal home loan bank advances 311,925
 —
Net change in federal home loan bank advances0 (18,075)
Net change in other borrowings —
 53,545
Payments made on notes payable (3,714) (571)Payments made on notes payable0 (3,714)
Proceeds from common stock issuance, netProceeds from common stock issuance, net423,540 0 
Proceeds from stock option exerciseProceeds from stock option exercise261 0 
Taxes paid related to net share settlement of equity awards (59) (115)Taxes paid related to net share settlement of equity awards(1,960)(1)
Other, net 79
 (80)Other, net0 46 
Net cash provided by financing activities 164,485
 282,875
Net cash provided by financing activities2,176,186 166,558 
Net increase (decrease) in cash and cash equivalents 65,840
 (333,059)
Net increase in cash and cash equivalentsNet increase in cash and cash equivalents1,369,435 32,596 
Cash and cash equivalents, beginning of period 133,604
 674,420
Cash and cash equivalents, beginning of period2,962,087 133,604 
Cash and cash equivalents, end of period $199,444
 $341,361
Cash and cash equivalents, end of period$4,331,522 $166,200 
Supplemental cash flow information:Supplemental cash flow information:
Cash paid for interestCash paid for interest$444 $4,928 
Income taxes paid (refunded), netIncome taxes paid (refunded), net(6)(22)
Supplemental noncash disclosures:Supplemental noncash disclosures:
Loans held-for-investment transferred to loans held-for-saleLoans held-for-investment transferred to loans held-for-sale$0 $30,792 
Loans held-for-sale transferred to loans held-for-investmentLoans held-for-sale transferred to loans held-for-investment0 5,098 
Right-of-use assets obtained in exchange for new operating lease liabilitiesRight-of-use assets obtained in exchange for new operating lease liabilities71 0 
See accompanying notes to unaudited consolidated financial statements

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SILVERGATE CAPITAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1—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. At the same time, theThe Company also becameis a registered bank holding company underthat is subject to supervision by the federal Bank Holding Company Act. The Bank became a memberBoard of Governors of the Federal Reserve System in December 2012.(“Federal Reserve”). The Bank is subject to regulation by the California Department of Business OversightFinancial Protection and Innovation, Division of Financial Institutions (“DBO”DFPI”), and, as a Federal Reserve member bank since 2012, the Federal Reserve Bank of San Francisco (“FRB”), and its. 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 applicable legal limits.
On November 15, 2018,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 andhad sold 1,297,365 shares of Class A common stock at an average price of $118.39 under the Bank entered into a purchase and assumption agreement to sell the Bank’s retail branch located in San Marcos, California and business loan portfolio to HomeStreet Bank.ATM Program. The Company completed the sale in March 2019, which included the reduction of $115.4 million in loans and $74.5 million in deposits andtransactions resulted in a pre-tax gain on salegross proceeds of $5.5 million.$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 condensed 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 condensed 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, 2019,2020, included in the Company’s Annual Report on Form 10-K dated March 10, 2020.8, 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-CreditInstruments—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-CreditInstruments—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-partythird 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 of adoption.on January 1, 2023. The Company continues to evaluate the effects of ASU 2016-13 on its financial statements and disclosures and whether to early adopt the guidance.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, which currently isreporting. 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 tothat 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 CostGross
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 obligation686,030 194 (2,844)683,380 
Private-label collateralized mortgage obligation18,688 530 (170)19,048 
Commercial mortgage-backed securities:
Government agency mortgage-backed securities49,135 2 (24)49,113 
Government agency collateralized mortgage obligation42,435 0 (35)42,400 
Private-label collateralized mortgage obligation163,993 10,504 0 174,497 
Municipal bonds:
Tax-exempt318,132 18,801 (13)336,920 
Taxable14,206 1,485 (48)15,643 
Asset backed securities:
Government sponsored student loan pools245,716 298 (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)
June 30, 2020        
Residential mortgage-backed securities:        
Government agency mortgage-backed securities $674
 $16
 $(1) $689
Government agency collateralized mortgage obligation 227,772
 523
 (311) 227,984
Private-label collateralized mortgage obligation 22,945
 313
 (3,450) 19,808
Commercial mortgage-backed securities:        
Private-label collateralized mortgage obligation 164,653
 15,614
 —
 180,267
Municipal bonds: 

 

 

 

Tax-exempt 247,532
 17,469
 —
 265,001
Taxable 15,727
 402
 —
 16,129
Asset backed securities:        
Government sponsored student loan pools 253,960
 —
 (12,744) 241,216
  $933,263
 $34,337
 $(16,506) $951,094

Available-for-sale securities
 Available-for-sale securities Amortized CostGross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
 Amortized Cost Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair Value
         (Dollars in thousands)
 (Dollars in thousands)
December 31, 2019        
December 31, 2020December 31, 2020
Residential mortgage-backed securities:        Residential mortgage-backed securities:
Government agency mortgage-backed securities $769
 $32
 $—
 $801
Government agency mortgage-backed securities$5,701 $18 $(55)$5,664 
Government agency collateralized mortgage obligation 242,203
 552
 (837) 241,918
Government agency collateralized mortgage obligation197,978 371 (298)198,051 
Private-label collateralized mortgage obligation 26,346
 352
 (198) 26,500
Private-label collateralized mortgage obligation20,544 399 (256)20,687 
Commercial mortgage-backed securities:        Commercial mortgage-backed securities:
Private-label collateralized mortgage obligation 364,719
 12,474
 (177) 377,016
Private-label collateralized mortgage obligation164,214 18,322 0 182,536 
Municipal bonds:Municipal bonds:
Tax-exemptTax-exempt246,159 24,200 0 270,359 
TaxableTaxable15,307 695 0 16,002 
Asset backed securities:        Asset backed securities:
Government sponsored student loan pools 258,022
 —
 (6,491) 251,531
Government sponsored student loan pools248,848 17 (3,149)245,716 
 $892,059
 $13,410
 $(7,703) $897,766
$898,751 $44,022 $(3,758)$939,015 
There were 0 investment securities pledged for borrowings or for other purposes as required or permitted by law as of June 30, 2020March 31, 2021 and December 31, 2019.2020.
At June 30, 2020, the total fair valueMarch 31, 2021, there were 0 holdings of securities issued by 4 individual issuers,of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity was $158.6 million.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 Months12 Months or MoreTotal
 Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses
 (Dollars in thousands)
March 31, 2021
Residential mortgage-backed securities:
Government agency mortgage-backed securities$102,614 $(1,202)$0 $0 $102,614 $(1,202)
Government agency collateralized mortgage obligation478,392 (2,699)52,294 (145)530,686 (2,844)
Private-label collateralized mortgage obligation0 0 8,609 (170)8,609 (170)
Commercial mortgage-backed securities:
Government agency mortgage-backed securities18,203 (24)0 0 18,203 (24)
Government agency collateralized mortgage obligation30,900 (35)0 0 30,900 (35)
Municipal bonds:
Tax-exempt23,800 (13)0 0 23,800 (13)
Taxable5,767 (48)0 0 5,767 (48)
Asset backed securities:
Government sponsored student loan pools44,065 (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)
June 30, 2020            
Residential mortgage-backed securities:            
Government agency mortgage-backed securities $409
 $(1) $—
 $—
 $409
 $(1)
Government agency collateralized mortgage obligation 139,254
 (174) 62,559
 (137) 201,813
 (311)
Private-label collateralized mortgage obligation 1,744
 (43) 8,890
 (3,407) 10,634
 (3,450)
Asset backed securities:            
Government sponsored student loan pools —
 —
 241,216
 (12,744) 241,216
 (12,744)
  $141,407
 $(218) $312,665
 $(16,288) $454,072
 $(16,506)

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

 Available-for-sale securities
 Less than 12 Months12 Months or MoreTotal
 Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses
 (Dollars in thousands)
December 31, 2020
Residential mortgage-backed securities:
Government agency mortgage-backed securities$5,165 $(55)$0 $0 $5,165 $(55)
Government agency collateralized mortgage obligation120,912 (172)56,976 (126)177,888 (298)
Private-label collateralized mortgage obligation290 (7)9,950 (249)10,240 (256)
Asset backed securities:
Government sponsored student loan pools0 0 240,825 (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 June 30, 2020,March 31, 2021, the Company’s investment securities had gross unrealized losses totaling approximately $16.5$5.2 million, compared to approximately $7.7$3.8 million at December 31, 2019.2020. The Company analyzedanalyzes all of its securities with an unrealized loss position. For each security, the Company analyzed the credit quality and performed a projected cash flow analysis. In analyzing the credit quality, management may consider whether the securities are issued by the federal government, its agencies or its sponsored entities, or non-governmental entities, whether downgrades by bond rating agencies have occurred, and if credit quality has deteriorated. When performing a cash flow analysis, the Company uses models that project prepayments, default rates, and loss severities on the collateral supporting the security, based on underlying loan level borrower and loan characteristics and interest rate assumptions. In addition, the Company has contracted with third party companies to perform independent cash flow analyses of its securities portfolio as needed. The unrealized losses on private-label collateralized mortgage obligationsgovernment sponsored student
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loan pools are due primarily to increased credit spreads as of June 30, 2020.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 June 30, 2020 or DecemberMarch 31, 2019.2021. Management continues to expect to recover the adjusted amortized cost basis of these bonds.
As of June 30, 2020,March 31, 2021, the Company had 3351 securities whose estimated fair value declined 3.51%0.58% from the Company’s amortized cost; at December 31, 2019,2020, the Company had 3330 securities whose estimated fair value declined 1.72%0.86% from the Company’s amortized cost. The increase in percentage ofCompany’s securities that have unrealized losses is relatedare due to market liquidity concerns associated with COVID-19, which persisted though the second quarter of 2020, and widened credit spreads on securities and changes in market interest rates since thetheir purchase dates. UnrecognizedCurrent unrealized losses associated with liquidity concerns as a result of COVID-19 are not expected to remain constant in the future, however, unrecognized losses will continue to vary with general market interest rate fluctuations. Fair values are expected to recover as the securities approach their respective maturity dates and managementdates. Management believes it iswill more than likely not more likely than not it will be required to sell before recovery of the amortized cost basis.
There were 0 sales or calls of available-for-sale securities for the three months ended March 31, 2021. For the three months ended June 30,March 31, 2020 the Company received $202.3$14.0 million in proceeds and recognized a $3.5$1.2 million gain and $0.9 million0 loss on sales of available-for-sale securities. For the six months ended June 30, 2020 the Company received $216.4 million in proceeds and recognized a $4.7 million gain and $0.9 million loss on sales of available-for-sale securities. There were 0 sales and calls of securities for the three and six months ended June 30, 2019.securities.
There were 0 credit losses associated with our securities portfolio recognized in earnings for the three and six months ended June 30, 2020March 31, 2021 and 2019.2020.
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$0 $0 $0 $0 
After one year through five years0 0 0 0 
After five years through ten years56,363 57,091 14,021 15,694 
After ten years1,634,225 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 loans.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 small and medium-sized businesses in a wide variety of industries, including distributors, manufacturers, software developers, business services companies and independent finance companies. Commercial and industrial loansthat 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. RiskRisks may arise from differences between expected and actual cash flows and/or liquidity levels of the borrowers, as well as the type of collateral securing these loans and the reliability of the conversion thereof to cash. Since the March 2019 sale of the business loan portfolio,Currently, commercial and industrial loans consist primarily of asset based loans. In the first quarter ofJanuary 2020, the Company began offering a new pilotlending product called SEN Leverage, which will allowallows Silvergate customers to obtain U.S. dollar loans collateralized by bitcoin held at select digital currency exchanges orand other custodians that are also Silvergate customers. The Company plans to expand this offering incustomers of the latter part of 2020.Bank. The outstanding balance of SEN Leverage loans was $20.0$117.3 million as of June 30, 2020.
Consumer and other. Consumer loans consist of consumer loans$77.2 million at March 31, 2021 and other loans secured by personal property.December 31, 2020, respectively.
Reverse mortgage.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.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. In mid-2014,loans when the Company ceased purchasesoutstanding loan balance exceeds collateral value at the time the loan is required to be repaid. Other loans consist of reverse mortgageconsumer loans and began selling its remaining loans in the secondary market.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 $20.2$0.8 million and $36.8$21.7 million of loans to participants during the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively. The Company sold approximately $41.9 million and $100.6 million of loans to participants during the six months ended June 30, 2020 and 2019, respectively. At June 30, 2020March 31, 2021 and December 31, 2019,2020, gross mortgage warehouse loans were approximately $477.1$973.2 million and $405.0$963.9 million, respectively.
A summary of loans as of the periods presented are as follows:
 June 30,
2020		 December 31,
2019		March 31,
2021		December 31,
2020
    
 (Dollars in thousands) (Dollars in thousands)
Real estate loans:    Real estate loans:
One-to-four family $216,038
 $193,367
One-to-four family$171,045 $187,855 
Multi-family 72,007
 81,233
Multi-family74,003 77,126 
Commercial 316,815
 331,052
Commercial287,411 301,901 
Construction 10,822
 7,213
Construction5,172 6,272 
Commercial and industrial 24,707
 14,440
Commercial and industrial118,598 78,909 
Consumer and other 243
 122
Reverse mortgage 1,309
 1,415
Reverse mortgage and otherReverse mortgage and other1,346 1,495 
Mortgage warehouse 155,308
 39,247
Mortgage warehouse76,014 97,903 
Total gross loans held-for-investment 797,249
 668,089
Total gross loans held-for-investment733,589 751,461 
Deferred fees, net 3,062
 2,724
Deferred fees, net1,717 2,206 
Total loans held-for-investment 800,311
 670,813
Total loans held-for-investment735,306 753,667 
Allowance for loan losses (6,763) (6,191)Allowance for loan losses(6,916)(6,916)
Total loans held-for-investment, net $793,548
 $664,622
Total loans held-for-investment, net$728,390 $746,751 
Total loans held-for-sale(1)
 $321,835
 $375,922
Total loans held-for-sale(1)
$897,227 $865,961 
________________________
(1)Loans held-for-sale included $321.8 million and $365.8 million of mortgage warehouse loans at June 30, 2020 and December 31, 2019, respectively.

(1)Loans held-for-sale are comprised entirely of mortgage warehouse loans for all periods presented.
At June 30, 2020March 31, 2021 and December 31, 2019,2020, approximately $617.0$539.0 million and $614.3$574.5 million, respectively, of the Company’s loan portfolio werewas collateralized by various forms of real estate. A significant percentage of such loans are collateralized by properties located in California (74.1%(64.7% and 64.8%68.8% as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively) and Arizona (6.5%(4.4% and 10.2%5.9% as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively) with no other state greater than 5%. The Company attempts to address and mitigate concentrations of credit risk by making loans that are diversified by collateral type, placing limits on the amounts of various categories of loans relative to total Company capital, and conducting quarterly reviews of its portfolio by collateral type, geography, and other characteristics. While management believes that the collateral presently securing its portfolio and the recorded allowance for loan losses are adequate to absorb potential losses, there can be no assurances that significant deterioration in the California and Arizona real estate markets would not expose the Company to significantly greater credit risk.
Recorded investment in loans excludes accrued interest receivable, loan origination fees, net and unamortized premium or discount, net due to immateriality. Accrued interest on loans held-for-investment totaled approximately $2.6$3.1 million and $2.2$2.7 million and deferred fees totaled approximately $3.1$1.7 million and $2.7$2.2 million at June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.
Allowance for Loan Losses
DuringAt March 31, 2021, the three and six months ended June 30, 2020, the Company recorded a provision for loan losses of $0.2 million and $0.6 million, respectively, and the ratio of theCompany’s total allowance for loan losses remained flat at $6.9 million, compared to gross loans held-for-investment at June 30, 2020 was 0.85%.December 31, 2020. The overall level of the allowance was based on modest increases in loan portfolio balances, Silvergate’s historically strong credit quality and minimal loan charge-offs, and the lowloan-to-value ratios in the low- to moderate loan-to-value marginsmid-50% range, based on last required appraisal value, in the Company's commercial, multi-family and one-to-four family real estate loans as evidenced by weighted average loan-to-value ratios, based on last required appraisal value, inof March 31, 2021. In addition, during the low- to mid-50% range as
12
Table of June 30, 2020. Although there is significant uncertainty in the current economic environment due to the impact of the COVID-19 pandemic,Contents
three months ended March 31, 2021, the Company believes the relatively low to moderate loan-to-value ratios provides a lower probability of loss in the event of defaults in the Company’s loan portfolio. The Company will continue to monitor trends in its portfolio segments for any known or probable adverse conditions with an emphasis on retail and hospitality loans within the commercial real estate loan portfolio.
As of June 30, 2020, the Company enhanced its qualitative adjustment framework within the calculation ofupdated the allowance for loan lossesloss model to ensure consistency inremove no longer relevant historical loss data for the calculation. The change providedcommercial and industrial loan segment, reflecting the growth of digital collateralized loans that are now the majority of the loan segment balance. In addition, the Company added a structured framework using Company and peer historical data covering a full credit cycle to determine the range of potential loss for eachCOVID-19 loan modification qualitative adjustment. The overall change was not materialfactor adjustment to the overall allowance, however withincommercial and one-to-four family real estate loan segments to recognize the allowance was reallocated based onmodifications granted over the weighted qualitative adjustment specific for eachprevious twelve months and additional risks of default in these loan segment.segments.
The following tables present the allocation of the allowance for loan losses, as well as the activity in the allowance by loan class, and recorded investment in loans held-for-investment as of and for the periods presented:
 Three Months Ended March 31, 2021
 One-to
-Four
Family		Multi-
Family		Commercial
Real Estate		ConstructionCommercial
and
Industrial		Reverse
Mortgage
and Other		Mortgage
Warehouse		Total
 (Dollars in thousands)
Balance, December 31, 2020$1,245 $878 $1,810 $590 $1,931 $39 $423 $6,916 
Charge-offs0 0 0 0 0 0 0 0 
Recoveries0 0 0 0 0 0 0 0 
Provision for loan losses389 (50)1,441 (97)(1,571)(21)(91)0 
Balance, March 31, 2021$1,634 $828 $3,251 $493 $360 $18 $332 $6,916 
Three Months Ended March 31, 2020
 Three Months Ended June 30, 2020 One-to
-Four
Family		Multi-
Family		Commercial
Real Estate		ConstructionCommercial and 
Industrial		Reverse
Mortgage
and Other		Mortgage
Warehouse		Total
 One-to
-Four
Family		 Multi-
Family		 Commercial
Real Estate		 Construction Commercial
and Industrial		 Consumer
and Other		 Reverse
Mortgage		 Mortgage
Warehouse		 Total
                   (Dollars in thousands)
 (Dollars in thousands)
Balance, March 31, 2020 $1,971
 $689
 $2,957
 $258
 $426
 $1
 $38
 $218
 $6,558
Balance, December 31, 2019Balance, December 31, 2019$2,051 $653 $2,791 $96 $312 $38 $250 $6,191 
Charge-offs (17) —
 —
 —
 —
 —
 —
 —
 (17)Charge-offs0 0 0 0 0 0 0 0 
Recoveries —
 —
 —
 —
 —
 —
 —
 —
 —
Recoveries0 0 0 0 0 0 0 0 
Provision for loan losses (440) 133
 (1,010) 760
 337
 —
 1
 441
 222
Provision for loan losses(80)36 166 162 114 1 (32)367 
Balance, June 30, 2020 $1,514
 $822
 $1,947
 $1,018
 $763
 $1
 $39
 $659
 $6,763
Balance, March 31, 2020Balance, March 31, 2020$1,971 $689 $2,957 $258 $426 $39 $218 $6,558 
 March 31, 2021
 One-to
-Four
Family		Multi-
Family		Commercial
Real Estate		ConstructionCommercial
and
Industrial		Reverse
Mortgage
and Other		Mortgage
Warehouse		Total
 (Dollars in thousands)
Amount of allowance attributed to:
Specifically evaluated impaired loans$12 $0 $0 $0 $0 $7 $0 $19 
General portfolio allocation1,622 828 3,251 493 360 11 332 6,897 
Total allowance for loan losses$1,634 $828 $3,251 $493 $360 $18 $332 $6,916 
Loans evaluated for impairment:
Specifically evaluated$5,141 $0 $9,830 $0 $237 $876 $0 $16,084 
Collectively evaluated165,904 74,003 277,581 5,172 118,361 470 76,014 717,505 
Total gross loans held-for-investment$171,045 $74,003 $287,411 $5,172 $118,598 $1,346 $76,014 $733,589 
 December 31, 2020
 One-to
-Four
Family		Multi-
Family		Commercial
Real Estate		ConstructionCommercial
and
Industrial		Reverse
Mortgage
and Other		Mortgage
Warehouse		Total
 (Dollars in thousands)
Amount of allowance attributed to:
Specifically evaluated impaired loans$11 $0 $0 $0 $0 $29 $0 $40 
General portfolio allocation1,234 878 1,810 590 1,931 10 423 6,876 
Total allowance for loan losses$1,245 $878 $1,810 $590 $1,931 $39 $423 $6,916 
Loans evaluated for impairment:
Specifically evaluated$5,780 $0 $9,722 $0 $274 $869 $0 $16,645 
Collectively evaluated182,075 77,126 292,179 6,272 78,635 626 97,903 734,816 
Total gross loans held-for-investment$187,855 $77,126 $301,901 $6,272 $78,909 $1,495 $97,903 $751,461 
13
  Three Months Ended June 30, 2019
  One-to
-Four
Family		 Multi-
Family		 Commercial
Real Estate		 Construction Commercial
and Industrial		 Consumer
and Other		 Reverse
Mortgage		 Mortgage
Warehouse		 Total
                   
  (Dollars in thousands)
Balance, March 31, 2019 $1,889
 $511
 $3,937
 $108
 $256
 $—
 $54
 $235
 $6,990
Charge-offs (93) —
 —
 —
 —
 —
 —
 —
 (93)
Recoveries —
 —
 —
 —
 —
 —
 —
 —
 —
Provision for loan losses (27) 368
 (176) (29) (19) 1
 (18) 52
 152
Balance, June 30, 2019 $1,769
 $879
 $3,761
 $79
 $237
 $1
 $36
 $287
 $7,049

  Six Months Ended June 30, 2020
  One-to
-Four
Family		 Multi-
Family		 Commercial
Real Estate		 Construction Commercial
and Industrial		 Consumer
and Other		 Reverse
Mortgage		 Mortgage
Warehouse		 Total
                   
  (Dollars in thousands)
Balance, December 31, 2019 $2,051
 $653
 $2,791
 $96
 $312
 $1
 $37
 $250
 $6,191
Charge-offs (17) —
 —
 —
 —
 —
 —
 —
 (17)
Recoveries —
 —
 —
 —
 —
 —
 —
 —
 —
Provision for loan losses (520) 169
 (844) 922
 451
 —
 2
 409
 589
Balance, June 30, 2020 $1,514
 $822
 $1,947
 $1,018
 $763
 $1
 $39
 $659
 $6,763
  Six Months Ended June 30, 2019
  One-to
-Four
Family		 Multi-
Family		 Commercial
Real Estate		 Construction Commercial
and Industrial		 Consumer
and Other		 Reverse
Mortgage		 Mortgage
Warehouse		 Total
                   
  (Dollars in thousands)
Balance, December 31, 2018 $1,848
 $483
 $3,854
 $98
 $156
 $1
 $54
 $229
 $6,723
Charge-offs (93) —
 —
 —
 —
 —
 —
 —
 (93)
Recoveries —
 —
 —
 —
 —
 —
 —
 —
 —
Provision for loan losses 14
 396
 (93) (19) 81
 —
 (18) 58
 419
Balance, June 30, 2019 $1,769
 $879
 $3,761
 $79
 $237
 $1
 $36
 $287
 $7,049
  June 30, 2020
  One-to
-Four
Family		 Multi-
Family		 Commercial
Real Estate		 Construction Commercial
and Industrial		 Consumer
and Other		 Reverse
Mortgage		 Mortgage
Warehouse		 Total
                   
  (Dollars in thousands)
Amount of allowance attributed to:                  
Specifically evaluated impaired loans $10
 $—
 $—
 $—
 $—
 $—
 $29
 $—
 $39
General portfolio allocation 1,504
 822
 1,947
 1,018
 763
 1
 10
 659
 6,724
Total allowance for loan losses $1,514
 $822
 $1,947
 $1,018
 $763
 $1
 $39
 $659
 $6,763
Loans evaluated for impairment:                  
Specifically evaluated $3,412
 $—
 $1,941
 $—
 $1,870
 $—
 $857
 $—
 $8,080
Collectively evaluated 212,626
 72,007
 314,874
 10,822
 22,837
 243
 452
 155,308
 789,169
Total gross loans held-for-investment $216,038
 $72,007
 $316,815
 $10,822
 $24,707
 $243
 $1,309
 $155,308
 $797,249
  December 31, 2019
  One-to
-Four
Family		 Multi-
Family		 Commercial
Real Estate		 Construction Commercial
and Industrial		 Consumer
and Other		 Reverse
Mortgage		 Mortgage
Warehouse		 Total
                   
  (Dollars in thousands)
Amount of allowance attributed to:                  
Specifically evaluated impaired loans $10
 $—
 $—
 $—
 $—
 $—
 $29
 $—
 $39
General portfolio allocation 2,041
 653
 2,791
 96
 312
 1
 8
 250
 6,152
Total allowance for loan losses $2,051
 $653
 $2,791
 $96
 $312
 $1
 $37
 $250
 $6,191
Loans evaluated for impairment:                  
Specifically evaluated $4,222
 $—
 $7,353
 $—
 $2,714
 $—
 $848
 $—
 $15,137
Collectively evaluated 189,145
 81,233
 323,699
 7,213
 11,726
 122
 567
 39,247
 652,952
Total gross loans held-for-investment $193,367
 $81,233
 $331,052
 $7,213
 $14,440
 $122
 $1,415
 $39,247
 $668,089

Table of Contents

Impaired Loans
The following tables provide a summary of the Company’s investment in impaired loans as of and for the periods presented:
 March 31, 2021
 Unpaid
Principal
Balance		Recorded
Investment		Related
Allowance
 (Dollars in thousands)
With no related allowance recorded:
Real estate loans:
One-to-four family$5,742 $5,077 $— 
Commercial9,830 9,830 — 
Commercial and industrial237 237 — 
Reverse mortgage and other801 800 — 
16,610 15,944 — 
With an allowance recorded:
Real estate loans:
One-to-four family64 64 12 
Reverse mortgage and other76 76 7 
140 140 19 
Total impaired loans$16,750 $16,084 $19 
December 31, 2020
 Unpaid
Principal
Balance		Recorded
Investment		Related
Allowance
 (Dollars in thousands)
With no related allowance recorded:
Real estate loans:
One-to-four family$6,432 $5,716 $— 
Commercial9,723 9,722 — 
Commercial and industrial274 274 — 
Reverse mortgage and other523 523 — 
16,952 16,235 — 
With an allowance recorded:
Real estate loans:
One-to-four family64 64 11 
Reverse mortgage and other346 346 29 
410 410 40 
Total impaired loans$17,362 $16,645 $40 
14
Table of Contents
  June 30, 2020
  Unpaid
Principal
Balance		 Recorded
Investment		 Related
Allowance
       
  (Dollars in thousands)
With no related allowance recorded:      
Real estate loans:      
One-to-four family $4,044
 $3,347
 $—
Commercial 1,941
 1,941
 —
Commercial and industrial 2,117
 1,870
 —
Reverse mortgage 517
 517
 —
  8,619
 7,675
 —
With an allowance recorded:      
Real estate loans:      
One-to-four family 65
 65
 10
Reverse mortgage 340
 340
 29
  405
 405
 39
Total impaired loans $9,024
 $8,080
 $39
  December 31, 2019
  Unpaid
Principal
Balance		 Recorded
Investment		 Related
Allowance
       
  (Dollars in thousands)
With no related allowance recorded:      
Real estate loans:      
One-to-four family $4,792
 $4,156
 $—
Commercial 7,632
 7,353
 —
Commercial and industrial 2,929
 2,714
 —
Reverse mortgage 510
 511
 —
  15,863
 14,734
 —
With an allowance recorded:      
Real estate loans:      
One-to-four family 66
 66
 10
Reverse mortgage 337
 337
 29
  403
 403
 39
Total impaired loans $16,266
 $15,137
 $39

  Three Months Ended June 30,
  2020 2019
  Average
Recorded
Investment		 Interest
Income
Recognized		 Average
Recorded
Investment		 Interest
Income
Recognized
         
  (Dollars in thousands)
With no related allowance recorded:        
Real estate loans:        
One-to-four family $3,390
 $71
 $4,133
 $81
Commercial 1,941
 22
 7,836
 99
Commercial and industrial 2,043
 31
 1,926
 17
Reverse mortgage 515
 —
 807
 —
  7,889
 124
 14,702
 197
With an allowance recorded:        
Real estate loans:        
One-to-four family 65
 2
 —
 —
Reverse mortgage 340
 —
 363
 —
  405
 2
 363
 —
Total impaired loans $8,294
 $126
 $15,065
 $197

  Six Months Ended June 30,
  2020 2019
  Average
Recorded
Investment		 Interest
Income
Recognized		 Average
Recorded
Investment		 Interest
Income
Recognized
         
  (Dollars in thousands)
With no related allowance recorded:        
Real estate loans:        
One-to-four family $3,560
 $97
 $3,836
 $129
Commercial 1,941
 43
 7,857
 196
Commercial and industrial 2,186
 72
 2,407
 70
Reverse mortgage 513
 —
 802
 —
  8,200
 212
 14,902
 395
With an allowance recorded:        
Real estate loans:        
One-to-four family 65
 3
 4
 —
Reverse mortgage 340
 —
 397
 —
  405
 3
 401
 —
Total impaired loans $8,605
 $215
 $15,303
 $395

Three Months Ended March 31,
 20212020
 Average
Recorded
Investment		Interest
Income
Recognized		Average
Recorded
Investment		Interest
Income
Recognized
 (Dollars in thousands)
With no related allowance recorded:
Real estate loans:
One-to-four family$4,979 $77 $3,731 $26 
Commercial9,795 128 1,941 21 
Commercial and industrial249 5 2,329 42 
Reverse mortgage and other616 0 511 0 
15,639 210 8,512 89 
With an allowance recorded:
Real estate loans:
One-to-four family64 1 66 1 
Reverse mortgage and other258 0 338 0 
322 1 404 1 
Total impaired loans$15,961 $211 $8,916 $90 
For purposes of this disclosure, the unpaid principal balance is not reduced for partial charge-offs. Cash basis interest income is not materially different than interest income recognized.
Nonaccrual and Past Due Loans
Nonperforming loans include individually evaluated impaired loans. Nonperforming loans, consist of loans on nonaccrual status for which the accrual of interest has been discontinued and loans 90 days or more past due and still accruing interest.

The following tables present by loan class the aging analysis based on contractual terms, nonaccrual loans, and the Company’s recorded investment in loans held-for-investment as of the periods presented:
 March 31, 2021
30-59
Days
Past Due		60-89
Days
Past Due		Greater
than 89
Days
Past Due		Total
Past Due		CurrentTotalNonaccruingLoans
Receivable > 89
Days and
Accruing
 (Dollars in thousands)
Real estate loans:
One-to-four family$2,773 $2,187 $2,834 $7,794 $163,251 $171,045 $4,457 $0 
Multi-family0 0 0 0 74,003 74,003 0 0 
Commercial0 0 0 0 287,411 287,411 0 0 
Construction0 0 0 0 5,172 5,172 0 0 
Commercial and industrial0 0 0 0 118,598 118,598 0 0 
Reverse mortgage and other0 0 0 0 1,346 1,346 876 0 
Mortgage warehouse0 0 0 0 76,014 76,014 0 0 
Total gross loans held-for-investment$2,773 $2,187 $2,834 $7,794 $725,795 $733,589 $5,333 $0 
15
Table of Contents
  June 30, 2020
  30-59
Days
Past Due		 60-89
Days
Past Due		 Greater
than 89
Days
Past Due		 Total
Past Due		 Current Total Nonaccruing Loans
Receivable > 89
Days and
Accruing
                 
  (Dollars in thousands)
Real estate loans:                
One-to-four family $2,639
 $1,462
 $1,523
 $5,624
 $210,414
 $216,038
 $3,174
 $—
Multi-family —
 —
 —
 —
 72,007
 72,007
 —
 —
Commercial —
 —
 —
 —
 316,815
 316,815
 —
 —
Construction —
 —
 —
 —
 10,822
 10,822
 —
 —
Commercial and industrial —
 —
 —
 —
 24,707
 24,707
 498
 —
Consumer and other —
 —
 —
 —
 243
 243
 —
 —
Reverse mortgage —
 —
 —
 —
 1,309
 1,309
 856
 —
Mortgage warehouse —
 —
 —
 —
 155,308
 155,308
 —
 —
Total gross loans held-for-investment $2,639
 $1,462
 $1,523
 $5,624
 $791,625
 $797,249
 $4,528
 $—
  December 31, 2019
  30-59
Days
Past Due		 60-89
Days
Past Due		 Greater
than 89
Days
Past Due		 Total
Past Due		 Current Total Nonaccruing Loans
Receivable > 89
Days and
Accruing
                 
  (Dollars in thousands)
Real estate loans:                
One-to-four family $3,573
 $96
 $3,302
 $6,971
 $186,396
 $193,367
 $3,963
 $—
Multi-family —
 —
 —
 —
 81,233
 81,233
 —
 —
Commercial —
 —
 —
 —
 331,052
 331,052
 —
 —
Construction —
 —
 —
 —
 7,213
 7,213
 —
 —
Commercial and industrial —
 —
 —
 —
 14,440
 14,440
 1,098
 —
Consumer and other —
 —
 —
 —
 122
 122
 —
 —
Reverse mortgage —
 —
 —
 —
 1,415
 1,415
 848
 —
Mortgage warehouse —
 —
 —
 —
 39,247
 39,247
 —
 —
Total gross loans held-for-investment $3,573
 $96
 $3,302
 $6,971
 $661,118
 $668,089
 $5,909
 $—

 December 31, 2020
 30-59
Days
Past Due		60-89
Days
Past Due		Greater
than 89
Days
Past Due		Total
Past Due		CurrentTotalNonaccruingLoans
Receivable > 89
Days and
Accruing
 (Dollars in thousands)
Real estate loans:
One-to-four family$992 $85 $3,820 $4,897 $182,958 $187,855 $4,113 $0 
Multi-family206 0 0 206 76,920 77,126 0 0 
Commercial0 0 0 0 301,901 301,901 0 0 
Construction0 0 0 0 6,272 6,272 0 0 
Commercial and industrial0 0 0 0 78,909 78,909 0 0 
Reverse mortgage and other0 0 0 0 1,495 1,495 869 0 
Mortgage warehouse0 0 0 0 97,903 97,903 0 0 
Total gross loans held-for-investment$1,198 $85 $3,820 $5,103 $746,358 $751,461 $4,982 $0 
Troubled Debt Restructurings
A loan is identified as a troubled debt restructuring (“TDR”) when a borrower is experiencing financial difficulties and, for economic or legal reasons related to these difficulties, the Company grants a concession to the borrower in the restructuring that it would not otherwise consider. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. The Company has granted a concession when, as a result of the restructuring, it does not expect to collect all amounts due or within the time periods originally due under the original contract, including one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a temporary forbearance with regard to the payment of principal or interest. All troubled debt restructurings are reviewed for potential impairment. Generally, a nonaccrual loan that is restructured remains on nonaccrual status for a minimum period of six months to demonstrate that the borrower can perform under the restructured terms. If the borrower’s performance under the new terms is not reasonably assured, the loan remains classified as a nonaccrual loan. Loans classified as TDRs are reported as impaired loans.
As of June 30, 2020March 31, 2021 and December 31, 2019,2020, the Company had a recorded investment in TDR’sTDRs of $1.6$1.5 million and $1.8$1.5 million, respectively. The Company has not allocated any amount$11,000 of specific allowance for those loans at June 30, 2020March 31, 2021 and

$11,000 December 31, 2019.2020. The Company has not committed to lend additional amounts to these TDRs. NaN loans were modified as TDRs during the three and six months ended June 30,March 31, 2021 or 2020.
Modifications of loans classified as TDRs during the periods presented, are as follows:
  Three and Six Months Ended June 30, 2019
  Number of
Loans		 Pre-
Modifications
Outstanding
Recorded
Investment		 Post-
Modifications
Outstanding
Recorded
Investment
       
  (Dollars in thousands)
Troubled debt restructurings:  
Real estate loans:      
One-to-four family 2 $1,018
 $1,114
Commercial and industrial 1 494
 494
  3 1,512
 1,608

The TDR’s described above had no impact the allowance for loan losses and charge-offs during the three and six months ended June 30, 2019.
A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. There were 0 loans modified as TDRs for which there was a payment default within twelve months during the three and six months ended June 30, 2020March 31, 2021 or 2019.2020. There was 0 provision for loan loss or charge-offs for TDR’s that subsequently defaulted during the three and six months ended June 30, 2020March 31, 2021 or 2019.2020.
COVID-19 Related Modifications
In March 2020, various regulatory agencies, including the BoardSection 4013 of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, (“the agencies”) issued an interagency statement on loan modifications for financial institutions working with customers affected by the Coronavirus. The interagency statement was effective immediately and impacted accounting for loan modifications. Under Accounting Standards Codification 310-40, “Receivables—Troubled Debt Restructurings by Creditors” a restructuring of debt constitutes a TDR if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Loans qualifying for these modifications will not be required to be reported as delinquent, nonaccrual, impaired or criticized solely as a result of a COVID-19 loan modification for the months of payment deferrals. Borrowers considered current are those that are less than 30 days past due on their modified contractual payments. A revised statement issued in April 2020, further clarified the interaction between the interagency statement and the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) addressed COVID-19 related modifications and specified that such modifications made on loans that were current as of December 31, 2019 are not TDRs. In December 2020, CARES Act was signed into lawextended to allow eligible loan modifications until the earlier of January 1, 2022 or the date that is 60 days after the termination date of the national emergency. In accordance with interagency guidance issued in March 2020.April 2020, short-term modifications made to a borrower affected by the COVID-19 pandemic and governmental shutdown orders, such as payment deferrals, fee waivers and extensions of repayment terms, do not need to be identified as TDRs if the loans were current at the time a modification plan was implemented. The Company elected to adopt thesethe provisions of the CARES Act for modifications that meet the temporary modificationsrequirements described above.
In April 2020, the Company implemented a short-term loan modification program for customers impacted financially by the COVID-19 pandemic to provide temporary relief to certain borrowers who meet the program’s qualifications. The program was offered to borrowers to modify their existing loans to temporarily defer principal and/or interest payments for a specified period of time, extend loan maturity dates and/or waive certain loan covenants. Deferred payments may be extended for continued hardship, but are noton a case by case basis, where COVID-19 related issues continue to exceed a totalpersist. Due to the fluid nature of six months.COVID-19, this program has been evolving in order to provide maximum relief to bank borrowers. The majority of short-term loan modifications for commercial real estate loan borrowers consist of deferred payments which may include principal, interest
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and escrow. Deferred interest is capitalized to the loan balance and deferred principal is added to the maturity or payoff date. For one-to-four family residential real estate loans, the majority of short-term modifications consist of deferring full monthly payment of principal, interest and escrow, with deferred payments due at maturity or payoff of the loan.
During the six months ended June 30, 2020, the Company modified 49 loans representing $136.8 million in loan balances, or 17%, of total gross loans held-for-investment as of June 30, 2020. All loans modified under these programs are maintained on full accrual status during the deferral period. No specific loan loss reserve allocation was deemed necessary Loans qualifying for these modifications are not required to be reported as a TDR, delinquent, nonaccrual, impaired or criticized solely as a result of a COVID-19 loan modification for the months of payment deferrals. Borrowers considered current are those that are less than 30 days past due on their modified loans.contractual payments. None of the modified loans met the criteria of a TDR under the CARES Act or the related interagency statement.

Loans modified thatAs of March 31, 2021, loans representing $65.3 million in loan balances, or 8.9% of total gross loans held-for-investment, with the majority of the balance consisting of $40.0 million of commercial real estate loans in the hospitality sector, were not classified as TDRs duringstill under modification, deferring a portion or all of the period presented, are as follows:
  Six Months Ended June 30, 2020
  Number of
Loans		 
Loan Balance
At Period End
     
  (Dollars in thousands)
COVID-19 related modifications:  
Real estate loans:    
One-to-four family 19 $11,970
Commercial 28 123,499
Commercial and industrial 2 1,373
Total COVID-19 related modifications 49 $136,842
contractual payments.
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. This analysis typically includes larger, nonhomogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings:
Pass:
Loans in all classes that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan agreement. Management believes that there is a low likelihood of loss related to those loans that are considered pass.
Special mention:
Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard:
Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful:
Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loss:
Credits rated as loss are charged-off. Management has no expectation of the recovery of any payments in respect of credits rated as loss.

The following tables present by portfolio class the Company’s internal risk grading system as well as certain other information concerning the credit quality of the Company’s recorded investment in loans held-for-investment as of the periods presented. No assets were classified as loss or doubtful during the periods presented.
 Credit Risk Grades
 PassSpecial MentionSubstandardDoubtfulTotal
 (Dollars in thousands)
March 31, 2021
Real estate loans:
One-to-four family$163,313 $3,275 $4,457 $0 $171,045 
Multi-family74,003 0 0 0 74,003 
Commercial265,135 14,402 7,874 0 287,411 
Construction5,172 0 0 0 5,172 
Commercial and industrial118,361 0 237 0 118,598 
Reverse mortgage and other470 0 876 0 1,346 
Mortgage warehouse76,014 0 0 0 76,014 
Total gross loans held-for-investment$702,468 $17,677 $13,444 $0 $733,589 
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  Credit Risk Grades
  Pass Special Mention Substandard Doubtful Total
           
  (Dollars in thousands)
June 30, 2020          
Real estate loans:          
One-to-four family $212,864
 $—
 $3,174
 $—
 $216,038
Multi-family 72,007
 —
 —
 —
 72,007
Commercial 309,358
 7,457
 —
 —
 316,815
Construction 10,822
 —
 —
 —
 10,822
Commercial and industrial 22,837
 —
 1,870
 —
 24,707
Consumer and other 243
 —
 —
 —
 243
Reverse mortgage 453
 —
 856
 —
 1,309
Mortgage warehouse 155,308
 —
 —
 —
 155,308
Total gross loans held-for-investment $783,892
 $7,457
 $5,900
 $—
 $797,249

  Credit Risk Grades
  Pass Special Mention Substandard Doubtful Total
           
  (Dollars in thousands)
December 31, 2019          
Real estate loans:          
One-to-four family $189,405
 $—
 $3,962
 $—
 $193,367
Multi-family 81,233
 —
 —
 —
 81,233
Commercial 322,671
 8,381
 —
 —
 331,052
Construction 7,213
 —
 —
 —
 7,213
Commercial and industrial 11,726
 —
 2,714
 —
 14,440
Consumer and other 122
 —
 —
 —
 122
Reverse mortgage 435
 132
 848
 —
 1,415
Mortgage warehouse 39,247
 —
 —
 —
 39,247
Total gross loans held-for-investment $652,052
 $8,513
 $7,524
 $—
 $668,089

 Credit Risk Grades
 PassSpecial MentionSubstandardDoubtfulTotal
 (Dollars in thousands)
December 31, 2020
Real estate loans:
One-to-four family$180,458 $3,284 $4,113 $0 $187,855 
Multi-family77,126 0 0 0 77,126 
Commercial288,309 5,825 7,767 0 301,901 
Construction6,272 0 0 0 6,272 
Commercial and industrial78,635 0 274 0 78,909 
Reverse mortgage and other626 0 869 0 1,495 
Mortgage warehouse97,903 0 0 0 97,903 
Total gross loans held-for-investment$729,329 $9,109 $13,023 $0 $751,461 
Related Party Loans
The Company had related party loans with an outstanding balance of $4.6$5.5 million and $5.0 million as of June 30, 2020March 31, 2021 and December 31, 2019.2020, respectively. During the sixthree months ended June 30, 2020,March 31, 2021, the balanceCompany advanced $2.0 million of related party loans decreased by $40,000 due toand received $1.5 million in principal payments.
Note 4—FHLB Advances and Other Borrowings
Federal Home Loan Bank (“FHLB”) Advances
The following table sets forth certain information on our FHLB advances during the period presented:
  Six Months Ended
June 30, 2020		 Year Ended
December 31, 2019
     
  (Dollars in thousands)
Amount outstanding at period-end $360,000
 $49,000
Weighted average interest rate at period-end 0.23% 1.66%
Maximum month-end balance during the period $360,000
 $218,000
Average balance outstanding during the period $78,263
 $28,205
Weighted average interest rate during the period 0.22% 1.94%

Three Months Ended
March 31, 2021		Year Ended
December 31, 2020
 (Dollars in thousands)
Amount outstanding at period-end0 0 
Weighted average interest rate at period-end0 0 
Maximum month-end balance during the period0 $360,000 
Average balance outstanding during the period0 $68,522 
Weighted average interest rate during the period0 0.50 %
FHLB advances are secured with eligible collateral consisting of certain real estate loans. Advances from the FHLB are subject to the FHLB’s collateral and underwriting requirements, and as of June 30, 2020March 31, 2021 and December 31, 2019,2020, were limited in the aggregate to 35% of the Company’s total assets. Loans with carrying values of approximately $1.0$1.4 billion and $875.9 million$1.5 billion were pledged to the FHLB as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. Unused borrowing capacity based on the lesser of the percentage of total assets and pledged collateral was approximately $193.3$866.7 million and $893.0 million as of June 30, 2020. During the three months ended March 31, 2021 and December 31, 2020, the Company initiated and settled a $64.0 million FHLB five-year term advance. Due to an increase in FHLB advance rates after settlement, the Company repaid the advance and recorded a gain on extinguishment of debt of $0.9 million.respectively.
FRB Advances
The Company is also approved to borrow through the Discount Window of the Federal Reserve Bank of San Francisco on a collateralized basis without any fixed dollar limit. Loans with a carrying value of approximately $6.4$6.2 million and $10.1$6.3 million were pledged to the FRB at June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. The Company’s borrowing capacity under the Federal Reserve’s discount window program was $4.5approximately $5.1 million and $4.8 million as of June 30, 2020. At June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. At March 31, 2021 and December 31, 2020, there were 0 borrowings outstanding under any of these lines.
Federal Funds Purchased
The Company may borrow up to an aggregate $68.0 million, overnight on an unsecured basis, from 3 of its correspondent banks. Access to these funds is subject to liquidity availability, market conditions and any negative material

change in the Company’s credit profile. As of June 30, 2020March 31, 2021 and December 31, 2019,2020, the Company had 0 outstanding balance of federal funds purchased.
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Note 5—Notes Payable
On January 29, 2016, the Company entered into a term loan with a commercial bank for a single principal advance of $8.0 million due to mature on January 29, 2021. Loan interest and principal was payable quarterly commencing April 2016 and accrued interest at an annual rate equal to 2.60% plus the greater of 0 percent and the one-month LIBOR rate. The proceeds were used to redeem preferred stock and could be prepaid at any time. During the three months ended March 31, 2020, the Company paid off the note in full. The outstanding principal balance at December 31, 2019 was $3.7 million.
Note 6—Subordinated Debentures, Net
A trust formed by the Company issued $12.5 million of floating rate trust preferred securities in July 2001 as part of a pooled offering of such securities. The Company issued subordinated debentures to the trust in exchange for its proceeds from the offering. The debentures and related accrued interest represent substantially all of the assets of the trust. The subordinated debentures bear interest at six-month LIBOR plus 375 basis points, which adjusts every six months in January and July of each year. Interest is payable semiannually. At June 30, 2020,March 31, 2021, the interest rate for the Company’s next scheduled payment was 5.51%3.98%, based on six-month LIBOR of 1.76%0.23%. On any January 25 or July 25 the Company may redeem the 2001 subordinated debentures at 100% of principal amount plus accrued interest. The 2001 subordinated debentures mature on July 25, 2031.
A second trust formed by the Company issued $3.0 million of trust preferred securities in January 2005 as part of a pooled offering of such securities. The Company issued subordinated debentures to the trust in exchange for its proceeds from the offering. The debentures and related accrued interest represent substantially all of the assets of the trust. The subordinated debentures bear interest at three-month LIBOR plus 185 basis points, which adjusts every three months. Interest is payable quarterly. At June 30, 2020,March 31, 2021, the interest rate for the Company’s next scheduled payment was 2.16%2.03%, based on three-month LIBOR of 0.31%0.18%. On the 15th day of any March, June, September, or December, the Company may redeem the 2005 subordinated debentures at 100% of principal amount plus accrued interest. The 2005 subordinated debentures mature on March 15, 2035.
The Company also retained a 3% minority interest in each of these trusts which is included in subordinated debentures. The balance of the equity in the trusts is comprised of mandatorily redeemable preferred securities. The subordinated debentures may be included in Tier I capital (with certain limitations applicable) under current regulatory guidelines and interpretations. The Company has the right to defer interest payments on the subordinated debentures from time to time for a period not to exceed five years.
The outstanding balance of the subordinated debentures was $15.8 million, net of $0.1 million unamortized debt issuance cost as of March 31, 2021 and $15.8 million, net of $0.1 million unamortized debt issuance costs as of December 31, 2020.
Note 7—6—Derivative and Hedging Activities
The Company is exposed to certain risks relating to its ongoing business operations. The Company utilizes interest rate derivatives as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the derivative does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual derivative agreements. In accordance with accounting guidance, changes in the fair value of derivatives designated and that qualify as cash flow hedges are initially recorded in other comprehensive income (“OCI”), reclassified into earnings in the same period or periods during which the hedged transaction affects earnings and is presented in the same income statement line item as the earnings effect of the hedged item. The Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged transactions. TheFor cash flow and fair value hedges, the initial fair value of hedge components excluded from the assessment of effectiveness is recognized in the statement of financial conditionearnings under a systematic and rational method over the life of the hedging instrument and is presented in the same income statement line item as the earnings effect of the hedged item. Any difference between the change in the fair value of the hedge components excluded from the assessment of effectiveness and the amounts recognized in earnings is recorded as a component of other comprehensive income. For a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item, are recognized in current earnings as fair values change. The changes in fair value of the hedged item is recorded as a basis adjustment to the hedged assets or liabilities. The amount included as basis adjustments would be reclassified to current earnings on a straight-line basis over the original life of the hedged item should the hedges no longer be considered effective.
Interest rate swap.swaps. In 2020, the Company entered into 2 pay-fixed/receive floating rate interest rate swaps (the “Swap Agreements”) for a notional amount of $14.3 million that were designated as fair value hedges of certain available-for-sale securities. The Swap Agreements were determined to be fully effective during the periods presented and therefore no amount of ineffectiveness has been included in net income. The Swap Agreements are based on three-month LIBOR and expire in 2030 and 2031. The Company expects the Swap Agreements to remain effective during the remaining term of the Swap Agreements. The Company may receive collateral or may be required to post collateral based upon the market valuation. As of March 31, 2021, the Company held $0.3 million in cash collateral posted by the counterparty.

Interest rate floor.floors. In 2019, the Company entered into 20 interest rate floor agreements (the "Floor Agreements"“Floor Agreements”) for a total notional amount of $400.0 million to hedge cash flow receipts on cash and securities or loans, if needed. The original Floor Agreements expire on various dates in April 2024 and July 2029. The Company utilizes one-month LIBOR and three-month LIBOR interest rate floors as hedges against adverse changes in cash flows on the designated cash, securities or loans attributable to fluctuations in the federal funds rate or three-month LIBOR below 2.50% or 2.25%, as applicable. The Floor Agreements were determined to be fully effective during all periods presented and, as such, no amount of ineffectiveness has
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been included in net income. The upfront fee paid to the counterparty in entering into these Floor Agreements was approximately $20.8 million. During the three months ended March 31, 2020, the Company sold $200.0 million of its total $400.0 million notional amount of interest rate floors for $13.0 million, which resulted in a net gain of $8.4 million, to be recognized over the weighted average remaining term of 4.1 years. The remaining agreements are one-month LIBOR floors with a strike price of 2.25% and expire in July 2029.
Interest rate cap.caps. In March 2021, the Company entered into 13 interest rate cap agreements with a total notional amount of $205.0 million (“Federal Funds Rate Cap Agreements”). The Federal Funds Rate Cap Agreements are designated as fair value hedges against changes in the fair value of certain fixed rate tax-exempt municipal bonds. The Company utilizes the interest rate caps as hedges against adverse changes in interest rates on the designated securities attributable to fluctuations in the federal funds rate above 2.00%, as applicable. An increase in the benchmark interest rate hedged reduces the fair value of these assets. The Federal Funds Rate Cap Agreements expire on various dates from 2027 to 2032. The upfront fee paid to the counterparties was approximately $9.5 million. The Company expects the Federal Funds Rate Cap Agreements to remain effective during the remaining term of the respective agreements.
In 2012, the Company entered into a $12.5 million and a $3.0 million notional forward interest rate cap agreement (the “Cap“LIBOR Cap Agreements”) to hedge its variable rate subordinated debentures. The LIBOR Cap Agreements expire July 25, 2022 and March 15, 2022, respectively. The Company utilizes interest rate caps as hedges against adverse changes in cash flows on the designated preferred trusts attributable to fluctuations in three-month LIBOR beyond 0.50% for the $3.0 million subordinated debenture and six-month LIBOR beyond 0.75% for the $12.5 million subordinated debenture. The Cap Agreements were determined to be fully effective during all periods presented and, as such, no amount of ineffectiveness has been included in net income. The upfront fee paid to the counterparty in entering into these LIBOR Cap Agreements was approximately $2.5 million.
The table below presents the fair value of the Company’s derivative financial instruments as well as the classification within the consolidated statements of financial condition.
  June 30,
2020		 December 31,
2019
  Balance Sheet
Location		 Fair Value Balance Sheet
Location		 Fair Value
         
  (Dollars in thousands)
Derivatives designated as hedging instruments:  
Cash flow hedge interest rate floor Derivative assets $35,740
 Derivative assets $23,054
Cash flow hedge interest rate cap Derivative assets 14
 Derivative assets 386
Fair value hedge interest rate swap Derivative assets 16
 Derivative assets —
Fair value hedge interest rate swap Other liabilities (42) Other liabilities —

 March 31,
2021		December 31,
2020
 Balance Sheet
Location		Fair ValueBalance Sheet
Location		Fair Value
(Dollars in thousands)
Derivatives designated as hedging instruments:
Cash flow hedge interest rate floorDerivative assets$22,451 Derivative assets$30,766 
Cash flow hedge interest rate capDerivative assets0 Derivative assets0 
Fair value hedge interest rate swapDerivative assets1,410 Derivative assets338 
Fair value hedge interest rate capDerivative assets10,581 Derivative assets0 
The following table presents the cumulative basis adjustments on hedged items designated as fair value hedges and the related amortized cost of those items as of the periods presented.
Carrying Amount
of the Hedged
Asset (Liability)		Cumulative Amount of Fair
Value Hedging Adjustments
Included in the Carrying
Amount of Hedged
Assets/(Liabilities)
March 31,
2021		December 31,
2020		March 31,
2021		December 31,
2020
(Dollars in thousands)
Line Item in the Statement of Financial Condition of Hedged Item:
Securities available-for-sale$204,627 $15,367 $(2,153)$(278)
  Carrying Amount
of the Hedged
Asset (Liability)		 Cumulative Amount of Fair
Value Hedging Adjustments
Included in the Carrying
Amount of Hedged
Assets/(Liabilities)
  June 30,
2020		 December 31,
2019		 June 30,
2020		 December 31,
2019
         
Line Item in the Statement of Financial Condition of Hedged Item: (Dollars in thousands)
Securities available-for-sale $15,727
 $—
 $26
 $—
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The following table summarizes the effects of derivatives in cash flow and fair value hedging relationships designated as hedging instruments on the Company’s OCI and consolidated statements of operations for the periods presented.
Amount of Gain (Loss)
Recognized in OCI		Location of Gain (Loss)
Reclassified from Accumulated
OCI into Income		Amount of Gain (Loss)
Reclassified from Accumulated
OCI into Income
Three Months Ended
March 31,		Three Months Ended
March 31,
2021202020212020
(Dollars in thousands)
Derivatives designated as hedging instruments:
Cash flow hedge interest rate floor$(1,450)$6,096 Interest income - Other interest earning assets$136 $125 
Cash flow hedge interest rate floor(5,800)17,666 Interest income - Taxable securities1,052 117 
Cash flow hedge interest rate cap0 (280)Interest expense - Subordinated debentures(99)(55)
Fair value hedge interest rate cap(1)
375 0 
________________________
  Amount of Gain (Loss) Recognized in OCI Location of Gain (Loss) Reclassified from Accumulated OCI into Income Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
  Three Months Ended
June 30,		   Three Months Ended
June 30,
  2020 2019   2020 2019
           
  (Dollars in thousands)
Derivatives designated as hedging instruments:      
Cash flow hedge interest rate floor $638
 $2,500
 Interest income - Other interest earning assets $350
 $(180)
Cash flow hedge interest rate floor 2,552
 1,857
 Interest income - Securities 671
 (107)
Cash flow hedge interest rate cap (13) (280) Interest expense - Subordinated debentures (65) (80)

  Amount of Gain (Loss) Recognized in OCI Location of Gain (Loss) Reclassified from Accumulated OCI into Income Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
  Six Months Ended
June 30,		   Six Months Ended
June 30,
  2020 2019   2020 2019
           
  (Dollars in thousands)
Derivatives designated as hedging instruments:      
Cash flow hedge interest rate floor $6,734
 $2,516
 Interest income - Other interest earning assets $475
 $(191)
Cash flow hedge interest rate floor 20,218
 1,871
 Interest income - Securities 788
 (117)
Cash flow hedge interest rate cap (293) (393) Interest expense - Subordinated debentures (120) (96)

(1)Represents amounts excluded from the assessment of effectiveness for which the difference between changes in fair value and periodic amortization is recorded in other comprehensive income.
The Company estimates that approximately $4.8 million of net derivative gain for cash flow hedges included in OCI will be reclassified into earnings within the next 12 months. No gain or loss was reclassified from OCI into earnings as a result of forecasted transactions that failed to occur during the periods presented.

The following table presents the effect of fair value hedge accounting on the Company’s consolidated statements of operations for the periods presented.
Location and Amount of Gain or (Loss)
Recognized in Income on Fair Value Hedging Relationships
Three Months Ended March 31,
20212020
Interest income - Taxable securitiesInterest income - Tax-exempt securitiesInterest income - Taxable securitiesInterest income - Tax-exempt securities
(Dollars in thousands)
Total interest income presented in the statement of operations in which the effects of fair value hedges are recorded$3,592 $1,695 $6,048 $48 
Effects of fair value hedging relationships
Interest rate contracts:
Hedged items$(1,072)$(743)$0 $0 
Derivatives designated as hedging instruments1,053 743 0 0 
Amount excluded from effectiveness testing recognized in earnings based on amortization approach— (25)— 0 
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Note 8—7—Income Taxes
Comparison of the federal statutory income tax rates to the Company’s effective income tax rates for the periods presented are as follows:
  Three Months Ended June 30,
  2020 2019
  Amount Rate Amount Rate
         
  (Dollars in thousands)
Statutory federal tax $1,531
 21.0 % $1,439
 21.0 %
State tax, net of federal benefit 613
 8.4 % 519
 7.6 %
Tax credits (67) (0.9)% (42) (0.6)%
Tax-exempt income (247) (3.4)% —
 —
Excess tax benefit from stock-based compensation (20) (0.3)% (86) (1.3)%
Other items, net 16
 0.2 % (137) (2.0)%
Actual tax expense $1,826
 25.0 % $1,693
 24.7 %
  Six Months Ended June 30,
  2020 2019
  Amount Rate Amount Rate
         
  (Dollars in thousands)
Statutory federal tax $2,826
 21.0 % $4,260
 21.0 %
State tax, net of federal benefit 1,107
 8.2 % 1,537
 7.6 %
Tax credits (123) (0.9)% (85) (0.4)%
Tax-exempt income (247) (1.8)% —
 —
Excess tax benefit from stock-based compensation (20) (0.2)% (86) (0.4)%
Other items, net 57
 0.4 % 65
 0.3 %
Actual tax expense $3,600
 26.7 % $5,691
 28.1 %

Three Months Ended March 31,
 20212020
 AmountRateAmountRate
 (Dollars in thousands)
Statutory federal tax$2,415 21.0 %$1,295 21.0 %
State tax, net of federal benefit(451)(3.9)%494 8.0 %
Tax credits(41)(0.4)%(56)(0.9)%
Tax-exempt income(347)(3.0)%0 0 
Excess tax benefit from stock-based compensation(3,003)(26.1)%0 0 
Other items, net216 1.9 %41 0.7 %
Actual tax (benefit) expense$(1,211)(10.5)%$1,774 28.8 %
Income tax benefit was $1.2 million for the three months ended March 31, 2021 compared to an expense wasof $1.8 million for the three months ended June 30, 2020 compared to $1.7 million for the three months ended June 30, 2019. The increase was primarily related to higher net income.March 31, 2020. The effective tax rates for the three months ended June 30,March 31, 2021 and 2020 were (10.5)% and 2019 were 25.0% and 24.7%, respectively. The Company’s effective tax rate for the three months ended June 30, 2020 benefited from tax-exempt income earned on certain municipal bonds that were purchased beginning in late March 2020. The effective tax rate for the three months ended June 30, 2019 benefited from the recognition of tax benefits, including excess benefit from stock-based compensation.
Income tax expense was $3.6 million for the six months ended June 30, 2020 compared to $5.7 million for the six months ended June 30, 2019. The decrease was primarily related to reduced pre-tax income for the six months ended June 30, 2020 when compared to the six months ended June 30, 2019. The effective tax rates for the six months ended June 30, 2020 and 2019 were 26.7% and 28.1%28.8%, respectively. The decrease in the income tax expense and the Company’s effective tax rate was primarily related to excess tax benefit from stock-based compensation and tax-exempt income earned on certain municipal bonds.
The deferred tax liability balance as of June 30, 2020March 31, 2021 was $11.8$10.2 million compared to $0.4$15.4 million as of December 31, 2019.2020. The primary change in balance was due to the increasedecrease in unrealized gains on derivative assets and available-for-sale securities portfolio.portfolio and derivative assets.
Note 98 —Commitments and Contingencies
Off-Balance Sheet Items
In the normal course of business, the Company enters into various transactions, which, in accordance with GAAP, are not included in the consolidated statements of financial condition. The Company enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and issue letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk exceeding the amounts recognized on the consolidated statements of financial condition. The Company’s exposure to credit loss is represented by the contractual amounts of these commitments. The same credit policies and procedures are used in making these commitments as for on-balance sheet instruments. The Company is not aware of any accounting loss to be incurred by funding these commitments, however, an allowance for off-balance sheet credit risk is recorded in other liabilities on the statements of financial condition. The allowance for these commitments amounted to approximately $0.3 million and $0.1 million as of June 30, 2020at March 31, 2021 and December 31, 2019,2020, respectively.

The Company’s commitments associated with outstanding letters of credit and commitments to extend credit expiring by period as of the date indicated are summarized below. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements.
  June 30,
2020		 December 31,
2019
     
  (Dollars in thousands)
Unfunded lines of credit $45,458
 $47,433
Letters of credit 540
 655
Total credit extension commitments $45,998
 $48,088

March 31,
2021		December 31,
2020
 (Dollars in thousands)
Unfunded lines of credit$119,931 $49,487 
Letters of credit133 133 
Total credit extension commitments$120,064 $49,620 
Unfunded lines of credit represent unused credit facilities to the Company’s current borrowers that represent no change in credit risk that exist in the Company’s portfolio. Lines of credit generally have variable interest rates. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. In the event of nonperformance by the customer in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, the Company would be entitled to seek recovery from the client from the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, bitcoin, cash and/or marketable securities. The Company’s policies generally require that letter
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of credit arrangements contain security and debt covenants like those contained in loan agreements and our credit risk associated with issuing letters of credit is essentially the same as the risk involved in extending loan facilities to customers.
The Company minimizes its exposure to loss under letters of credit and credit commitments by subjecting them to the same credit approval and monitoring procedures used for on-balance sheet instruments. The effect on the Company’s revenue, expenses, cash flows and liquidity of the unused portions of these letters of credit commitments cannot be precisely predicted because there is no guarantee that the lines of credit will be used.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract, for a specific purpose. Commitments generally have variable interest rates, fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts disclosed above do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company is based on management’s credit evaluation of the customer.
Litigation
The Company is involved in various matters of litigation which have arisen in the ordinary course of its business. In the opinion of management, the disposition of such pending litigation will not have a material adverse effect on the Company’s financial statements.
Note 10—9—Stock-based Compensation
In June 2018, the Company adopted the 2018 Equity Compensation Plan, or 2018 Plan, that permits the Compensation Committee, in its sole discretion, to grant various forms of incentive awards. Under the 2018 Plan, the Compensation Committee has the power to grant stock options, stock appreciation rights, or SARs, restricted stock and restricted stock units. The number of shares that may be issued pursuant to awards under the 2018 Plan is 1,596,753.
In 2010, the Company adopted an equity compensation plan, or 2010 Plan, that provides for the grant of stock options to employees, directors, and other persons referred to in Rule 701 under the U.S. Securities Act of 1933. The number of shares that may be issued pursuant to awards under the 2010 Plan is 730,784. The Compensation Committee of the Company’s Board of Directors is responsible for administrating the 2010 Plan and determining the terms of all awards under it, including their vesting, except that in the case of a change in control of the Company all options granted under the 2010 Plan shall become 100% vested. As of June 30, 2020, there are 0 shares available for issuance under the 2010 Plan.
In accordance with authoritative guidance for stock-based compensation, compensation expense is recognized only for those shares expected to vest, based on the Company’s historical experience and future expectations. The Company has elected a policy of estimating expected forfeitures.
Total stock-based compensation expense was $0.2$0.3 million and $30,000$0.2 million for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively. Total stock-based compensation expense was $0.4 million and $49,000 for the six months ended June 30, 2020 and 2019, respectively.

A summary of stock option activity as of June 30, 2020March 31, 2021 and changes during the sixthree months ended June 30, 2020March 31, 2021 is presented below:
  Number of
Options		 Weighted
Average Exercise
Price		 
Weighted
Average
Remaining
Contractual Life
(in years)
 
Aggregate
Intrinsic Value
(in thousands)
Outstanding at January 1, 2020 917,857
 $7.54
    
Granted 3,456
 14.89
    
Exercised (26,250) 8.23
    
Forfeited/Expired (30,647) 13.08
    
Outstanding at June 30, 2020 864,416
 $7.35
 3.7 years $6,094
Exercisable at June 30, 2020 677,534
 $5.06
 2.2 years $6,054
Vested or Expected to Vest at June 30, 2020 840,563
 $7.11
 3.5 years $6,091

Number of
Options		Weighted
Average Exercise
Price
Weighted
Average
Remaining
Contractual Life
(in years)
Aggregate
Intrinsic Value
(in thousands)
Outstanding at January 1, 2021595,303 $8.01 
Granted18,585 127.56 
Exercised(159,122)4.76 
Forfeited or expired(2,272)16.09 
Outstanding at March 31, 2021452,494 $14.03 4.6 years$57,984 
Exercisable at March 31, 2021292,311 $6.10 2.4 years$39,775 
Vested or Expected to Vest at March 31, 2021436,078 $13.49 4.5 years$56,113 
As of June 30, 2020,March 31, 2021, there was $0.7$1.4 million of total unrecognized compensation cost related to non-vestednonvested stock options which is expected to be recognized over a weighted-average period of 3.22.8 years.
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Restricted Stock Units
A summary of the status of the Company’s nonvested restricted stock unit awards as of June 30, 2020,March 31, 2021, and changes during the sixthree months ended June 30, 2020,March 31, 2021, is presented below:
  Number of Shares Weighted-Average
Grant Date Fair Value
Per Share
Nonvested at January 1, 2020 82,627
 $16.09
Granted 15,567
 14.61
Canceled or Forfeited (7,014) 16.09
Nonvested at June 30, 2020 91,180
 $15.82

Number of SharesWeighted-Average
 Grant Date Fair Value
Per Share
Nonvested at January 1, 202158,690 $15.61 
Granted25,722 $127.56 
Vested(294)$14.89 
Forfeited(849)$26.33 
Nonvested at March 31, 202183,269 $50.08 
At June 30, 2020,March 31, 2021, there was approximately $1.0$3.2 million of total unrecognized compensation expense related to nonvested restricted stock unit awards, which is expected to be recognized over a weighted-average period of 2.53.0 years.
Note 11—10—Regulatory Capital
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Under the Basel III rules, the Company must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. As of January 1, 2019, the capital conservation buffer had fully phased in to 2.50%. Inclusive of the fully phased-in capital conservation buffer, the common equity tier 1 capital ratio, tier 1 risk-based capital ratio and total risk-based capital ratio minimums are 7.00%, 8.50% and 10.50%, respectively. The net unrealized gain or loss on available for sale securities and derivatives are not included in computing regulatory capital. Management believes, as of June 30, 2020,March 31, 2021, the Company and the Bank meetmet all capital adequacy requirements to which they arewere subject.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. For the periods presented, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

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Actual capital amounts and ratios for the Company (assuming minimum capital adequacy ratios were applicable to the Company) and the Bank as of June 30, 2020March 31, 2021 and December 31, 2019,2020, are presented in the following tables:
 Actual
Minimum capital
adequacy(1)
To be well
capitalized
 AmountRatioAmountRatioAmountRatio
 (Dollars in thousands)
March 31, 2021
The Company
Tier 1 leverage ratio$698,604 9.68 %$288,754 4.00 %N/AN/A
Common equity tier 1 capital ratio683,104 53.03 %57,967 4.50 %N/AN/A
Tier 1 risk-based capital ratio698,604 54.23 %77,289 6.00 %N/AN/A
Total risk-based capital ratio705,820 54.79 %103,052 8.00 %N/AN/A
The Bank
Tier 1 leverage ratio685,463 9.50 %288,744 4.00 %$360,930 5.00 %
Common equity tier 1 capital ratio685,463 53.24 %57,934 4.50 %83,682 6.50 %
Tier 1 risk-based capital ratio685,463 53.24 %77,245 6.00 %102,994 8.00 %
Total risk-based capital ratio692,679 53.80 %102,994 8.00 %128,742 10.00 %
Actual
Minimum capital
adequacy(1)
To be well
capitalized
 Actual Minimum capital
adequacy		 To be well
capitalized		 AmountRatioAmountRatioAmountRatio
 Amount Ratio Amount Ratio Amount Ratio
             (Dollars in thousands)
 (Dollars in thousands)
June 30, 2020            
December 31, 2020December 31, 2020
The Company            The Company
Tier 1 leverage ratio $250,335
 11.57% $86,543
 4.00% N/A
 N/A
Tier 1 leverage ratio$263,763 8.29 %$127,338 4.00 %N/AN/A
Common equity tier 1 capital ratio 234,835
 23.32% 45,317
 4.50% N/A
 N/A
Common equity tier 1 capital ratio248,263 21.53 %51,882 4.50 %N/AN/A
Tier 1 risk-based capital ratio 250,335
 24.86% 60,423
 6.00% N/A
 N/A
Tier 1 risk-based capital ratio263,763 22.88 %69,176 6.00 %N/AN/A
Total risk-based capital ratio 257,213
 25.54% 80,564
 8.00% N/A
 N/A
Total risk-based capital ratio270,803 23.49 %92,234 8.00 %N/AN/A
The Bank            The Bank
Tier 1 leverage ratio 236,281
 10.92% 86,519
 4.00% $108,149
 5.00%Tier 1 leverage ratio261,791 8.22 %127,344 4.00 %$159,180 5.00 %
Common equity tier 1 capital ratio 236,281
 23.48% 45,279
 4.50% 65,404
 6.50%Common equity tier 1 capital ratio261,791 22.71 %51,869 4.50 %74,923 6.50 %
Tier 1 risk-based capital ratio 236,281
 23.48% 60,373
 6.00% 80,497
 8.00%Tier 1 risk-based capital ratio261,791 22.71 %69,159 6.00 %92,212 8.00 %
Total risk-based capital ratio 243,159
 24.17% 80,497
 8.00% 100,621
 10.00%Total risk-based capital ratio268,831 23.32 %92,212 8.00 %115,265 10.00 %
________________________
  Actual Minimum capital
adequacy		 To be well
capitalized
  Amount Ratio Amount Ratio Amount Ratio
             
  (Dollars in thousands)
December 31, 2019            
The Company            
Tier 1 leverage ratio $240,135
 11.23% $85,501
 4.00% N/A
 N/A
Common equity tier 1 capital ratio 224,635
 24.52% 41,233
 4.50% N/A
 N/A
Tier 1 risk-based capital ratio 240,135
 26.21% 54,978
 6.00% N/A
 N/A
Total risk-based capital ratio 246,447
 26.90% 73,304
 8.00% N/A
 N/A
The Bank            
Tier 1 leverage ratio 224,605
 10.52% 85,399
 4.00% $106,749
 5.00%
Common equity tier 1 capital ratio 224,605
 24.55% 41,163
 4.50% 59,458
 6.50%
Tier 1 risk-based capital ratio 224,605
 24.55% 54,884
 6.00% 73,179
 8.00%
Total risk-based capital ratio 230,917
 25.24% 73,179
 8.00% 91,474
 10.00%

(1)Minimum capital adequacy for common equity tier 1 capital ratio, tier 1 risk-based capital ratio and total risk-based capital ratio excludes the capital conservation buffer.
The Bank is restricted as to the amount of dividends that it can pay to the Company. Dividends declared in excess of the lesser of the Bank’s undivided profits or the Bank’s net income for its last three fiscal years less the amount of any distribution made to the Bank’s shareholdersshareholder during the same period must be approved by the California DBO.DFPI. Also, the Bank may not pay dividends that would result in capital levels being reduced below the minimum requirements shown above.
Note 12—11—Fair Value
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This standard’s fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1—Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
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Level 2—Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3—Significant unobservable inputs that reflect a Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Financial Instruments Required To Be Carried At Fair Value
The following is a description of valuation methodologies used for assets and liabilities recorded at fair value:
Securities available-for-sale. The fair values of securities available-for-sale and trading securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1) or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2).
Derivatives. The Company’s derivative assets and liabilities are carried at fair value as required by GAAP. The estimated fair values of the derivative assets and liabilities are based on current market prices for similar instruments. Given the meaningful level of secondary market activity for derivative contracts, active pricing is available for similar assets and accordingly, the Company classifies its derivative assets and liabilities as Level 2.
Impaired loans (collateral-dependent). The Company does not record impaired loans at fair value on a recurring basis. However, from time to time, fair value adjustments are recorded on these loans to reflect (1) partial write-downs, through charge-offs or specific allowances, that are based on the current appraised or market-quoted value of the underlying collateral or (2) the full charge-off of the loan carrying value. In some cases, the properties for which market quotes or appraised values have been obtained are located in areas where comparable sales data is limited, outdated, or unavailable. Fair value estimates for collateral-dependent impaired loans are obtained from real estate brokers or other third-party consultants. These appraisals may utilize a single valuation approach or a combination of approaches, which generally include various Level 3 inputs. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available and such adjustments are typically significant. Appraisals may be adjusted by management for qualitative factors such as economic factors and estimated liquidation expenses. The range of these possible adjustments may vary. Impaired loans presented in the table below as of the periods presented include impaired loans with specific allowances as well as impaired loans that have been partially charged-off.
Other real estate owned. Fair value estimates for foreclosed real estate are obtained from real estate brokers or other third-party consultants (Level 3). When a current appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value as a result of known changes in the market or the collateral and there is no observable market price, such valuation inputs result in a fair value measurement that is categorized as a Level 3 measurement. To the extent a negotiated sales price or reduced listing price represents a significant discount to an observable market price, such valuation input would result in a fair value measurement that is also considered a Level 3 measurement.
The following tables provide the hierarchy and fair value for each class of assets and liabilities measured at fair value at June 30, 2020March 31, 2021 and December 31, 2019.2020.
As of June 30, 2020March 31, 2021 and December 31, 2019,2020, assets and liabilities measured at fair value on a recurring basis are as follows:
 Fair Value Measurements Using
 Quoted Prices
in Active
Markets for
Identical Assets		Significant Other
Observable
Inputs		Significant
Unobservable
Inputs		 
 Level 1Level 2Level 3Total
 (Dollars in thousands)
March 31, 2021
Assets
Trading securities$1,990 $0 $0 $1,990 
Securities available-for-sale0 1,717,418 0 1,717,418 
Derivative assets0 34,442 0 34,442 
$1,990 $1,751,860 $0 $1,753,850 
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  Fair Value Measurements Using
  Quoted Prices
in Active
Markets for
Identical Assets		 Significant Other
Observable
Inputs		 Significant
Unobservable
Inputs		  
  Level 1 Level 2 Level 3 Total
         
  (Dollars in thousands)
June 30, 2020        
Assets        
Securities available-for-sale $—
 $951,094
 $—
 $951,094
Derivative assets —
 35,770
 —
 35,770
  $—
 $986,864
 $—
 $986,864

  Fair Value Measurements Using
  Quoted Prices
in Active
Markets for
Identical Assets		 Significant Other
Observable
Inputs		 Significant
Unobservable
Inputs		  
  Level 1 Level 2 Level 3 Total
         
  (Dollars in thousands)
December 31, 2019        
Assets        
Securities available-for-sale $—
 $897,766
 $—
 $897,766
Derivative assets —
 23,440
 —
 23,440
  $—
 $921,206
 $—
 $921,206

 Fair Value Measurements Using
 Quoted Prices
in Active
Markets for
Identical Assets		Significant Other
Observable
Inputs		Significant
Unobservable
Inputs		 
 Level 1Level 2Level 3Total
 (Dollars in thousands)
December 31, 2020
Assets
Securities available-for-sale$0 $939,015 $0 $939,015 
Derivative assets0 31,104 0 31,104 
$0 $970,119 $0 $970,119 
As of June 30, 2020March 31, 2021 and December 31, 2019,2020, assets measured at fair value on a non-recurring basis are summarized as follows:
 Fair Value Measurements Using
 Quoted Prices
in Active
Markets for
Identical Assets		Significant Other
Observable
Inputs		Significant
Unobservable
Inputs		 
 Level 1Level 2Level 3Total
 (Dollars in thousands)
March 31, 2021
Assets
Impaired loans:
Reverse mortgage$0 $0 $69 $69 
  Fair Value Measurements Using
  Quoted Prices
in Active
Markets for
Identical Assets		��Significant Other
Observable
Inputs		 Significant
Unobservable
Inputs		  
  Level 1 Level 2 Level 3 Total
         
  (Dollars in thousands)
June 30, 2020        
Assets        
Impaired loans:        
Reverse mortgage $—
 $—
 $311
 $311
Other real estate owned —
 —
 51
 51
  $—
 $—
 $362
 $362
  Fair Value Measurements Using
  Quoted Prices
in Active
Markets for
Identical Assets		 Significant Other
Observable
Inputs		 Significant
Unobservable
Inputs		  
  Level 1 Level 2 Level 3 Total
         
  (Dollars in thousands)
December 31, 2019        
Assets        
Impaired loans:        
Real estate:        
One-to-four family $—
 $—
 $56
 $56
Reverse mortgage —
 —
 308
 308
Other real estate owned —
 —
 128
 128
  $—
 $—
 $492
 $492


December 31, 2020
Assets
Impaired loans:
Reverse mortgage$0 $0 $317 $317 
Quantitative Information about Level 3 Fair Value Measurements
The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a nonrecurring basis as of the date indicated:
 Fair ValueValuation Technique(s)Significant
Unobservable
Inputs		Range
Weighted Average(1)
 (Dollars in thousands)
March 31, 2021
Collateral-dependent impaired loans$69 Market comparable propertiesMarketability discount10.0 %10.0 %
Selling cost8.0 %8.0 %
December 31, 2020
Collateral-dependent impaired loans$317 Market comparable propertiesMarketability discount10.0 %10.0 %
Selling cost8.0 %8.0 %
________________________
(1)Unobservable inputs were weighted by the relative fair value of the instruments.
27
  Fair Value Valuation Technique(s) Significant
Unobservable
Inputs		 Range 
Weighted Average(1)
           
  (Dollars in thousands)
June 30, 2020          
Collateral-dependent impaired loans $311
 Market comparable properties Marketability discount 10.0% 10.0%
      Selling cost 8.0% 8.0%
Other real estate owned 51
 Market comparable properties Sales commission 6.0% 6.0%
      Other selling costs 2.0% 2.0%
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________________________
(1)Unobservable inputs were weighted by the relative fair value of the instruments.
Financial Instruments Not Required To Be Carried At Fair Value
FASB ASC Topic 825, Financial Instruments, requires the disclosure of the estimated fair value of financial instruments. The Company’s estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to develop the estimates of fair value. Accordingly, the estimates are not necessarily indicative of the amounts the Company could have realized in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
The following tables present information about the Company’s assets and liabilities that are not measured at fair value in the consolidated statements of financial condition as of the dates presented:
 Carrying
Amount		Fair Value Measurements Using
 Level 1Level 2Level 3Total
 (Dollars in thousands)
March 31, 2021
Financial assets:
Cash and due from banks$16,422 $16,422 $0 $0 $16,422 
Interest earning deposits4,315,100 4,315,100 0 0 4,315,100 
Loans held-for-sale897,227 0 897,227 0 897,227 
Loans held-for-investment, net728,390 0 0 732,754 732,754 
Accrued interest receivable9,432 119 2,797 6,516 9,432 
Financial liabilities:
Deposits$7,002,371 $0 $7,269,900 $0 $7,269,900 
Subordinated debentures, net15,834 0 15,333 0 15,333 
Accrued interest payable107 0 107 0 107 
 Carrying
Amount		Fair Value Measurements Using
 Level 1Level 2Level 3Total
 (Dollars in thousands)
December 31, 2020
Financial assets:
Cash and due from banks$16,405 $16,405 $0 $0 $16,405 
Interest earning deposits2,945,682 2,945,682 0 0 2,945,682 
Loans held-for-sale865,961 0 865,961 0 865,961 
Loans held-for-investment, net746,751 0 0 751,165 751,165 
Accrued interest receivable8,698 8 2,630 6,060 8,698 
Financial liabilities:
Deposits$5,248,026 $0 $5,458,900 $0 $5,458,900 
Subordinated debentures, net15,831 0 15,231 0 15,231 
Accrued interest payable260 0 260 0 260 
28
  Carrying
Amount		 Fair Value Measurements Using
  Level 1 Level 2 Level 3 Total
           
  (Dollars in thousands)
June 30, 2020          
Financial assets:          
Cash and due from banks $13,777
 $13,777
 $—
 $—
 $13,777
Interest earning deposits 185,667
 185,667
 —
 —
 185,667
Loans held-for-sale 321,835
 —
 321,835
 —
 321,835
Loans held-for-investment, net 793,548
 —
 —
 795,748
 795,748
Accrued interest receivable 7,700
 3
 2,063
 5,634
 7,700
Financial liabilities:          
Deposits $1,670,909
 $—
 $1,769,100
 $—
 $1,769,100
FHLB advances 360,000
 —
 360,000
 —
 360,000
Subordinated debentures 15,823
 —
 15,038
 —
 15,038
Accrued interest payable 322
 —
 322
 —
 322

  Carrying
Amount		 Fair Value Measurements Using
  Level 1 Level 2 Level 3 Total
           
  (Dollars in thousands)
December 31, 2019          
Financial assets:          
Cash and due from banks $1,579
 $1,579
 $—
 $—
 $1,579
Interest earning deposits 132,025
 132,025
 —
 —
 132,025
Loans held-for-sale 375,922
 —
 376,126
 —
 376,126
Loans held-for-investment, net 664,622
 —
 —
 666,272
 666,272
Accrued interest receivable 5,950
 86
 3,643
 2,221
 5,950
Financial liabilities:          
Deposits $1,814,654
 $—
 $1,826,100
 $—
 $1,826,100
Notes payable 3,714
 —
 3,714
 —
 3,714
Subordinated debentures 15,816
 —
 15,203
 —
 15,203
Accrued interest payable 559
 —
 559
 —
 559

Table of Contents
Note 13—12—Earnings Per Share
The computation of basic and diluted earnings per share is shown below.
  Three Months Ended
June 30,		 Six Months Ended
June 30,
  2020 2019 2020 2019
         
  (In thousands, except per share data)
Basic        
Net income $5,466
 $5,156
 $9,859
 $14,592
Weighted average common shares outstanding 18,672
 17,836
 18,670
 17,837
Basic earnings per common share $0.29
 $0.29
 $0.53
 $0.82
Diluted        
Net income $5,466
 $5,156
 $9,859
 $14,592
Weighted average common shares outstanding for basic earnings per common share 18,672
 17,836
 18,670
 17,837
Add: Dilutive effects of stock-based awards 434
 421
 442
 430
Average shares and dilutive potential common shares 19,106
 18,257
 19,112
 18,267
Dilutive earnings per common share $0.29
 $0.28
 $0.52
 $0.80

Three Months Ended
March 31,
20212020
(In thousands, except per share data)
Basic
Net income$12,710 $4,393 
Weighted average common shares outstanding22,504 18,668 
Basic earnings per common share$0.56 $0.24 
Diluted
Net income$12,710 $4,393 
Weighted average common shares outstanding for basic earnings per common share22,504 18,668 
Add: Dilutive effects of stock-based awards506 449 
Average shares and dilutive potential common shares23,010 19,117 
Dilutive earnings per common share$0.55 $0.23 
Stock optionsStock-based awards for 238,00044,000 and 110,000235,000 shares of common stock for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, and 237,000 and 110,000 shares of common stock for the six months ended June 30, 2020 and 2019, respectively, were excluded from the computation of diluted earnings per share, because they were anti-dilutive.

Note 13—Subsequent Events
As of May 11, 2021, the Company sold 515,239 shares of Class A common stock at an average price of $118.10 under the ATM Program that resulted in gross proceeds of $60.8 million.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is intended as a review of significant factors affecting the Company’s financial condition and results of operations for the periods indicated. This discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and the related notes and the Company’s Annual Report on Form 10-K, which contains audited financial statements of the Company as of and for the year ended December 31, 2019,2020, previously filed with the Securities and Exchange Commission (“SEC”). Results for the three and six months ended June 30, 2020March 31, 2021 are not necessarily indicative of results for the year ending December 31, 20202021 or any future period.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “projection,” “forecast,” “goal,” “target,” “would,” “aim” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry and management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. The inclusion of these forward-looking statements should not be regarded as a representation by us or any other person that such expectations, estimates and projections will be achieved. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence. In addition, we cannot assess the impact of each risk and uncertainty on our business or the extent to which any risk or uncertainty, or combination of risks and uncertainties, may cause actual results to differ materially from those contained in any forward-looking statements. Further, given its ongoing and dynamic nature, it is difficult to predict the full impact of the Coronavirus Disease 2019 (or “COVID-19”) outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be fully reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline, making it difficult to grow assets and income; if the economy is unable to fully reopen as planned, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; our allowance for loan losses may increase if borrowers experience financial difficulties, which will adversely affect our net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; as the result of the decline in the Federal Reserve Board’s (“Federal Reserve”) target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; our cybersecurity risks are increased as the result of an increase in the number of employees working remotely; and FDIC premiums may increase if the agency experiences additional resolution costs.
If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Quarterly Report on Form 10-Q and other reports and registration statements filed by us with the SEC. For information on the factors that could cause actual results to differ from the expectations stated in the forward- looking statements, see “Risk Factors” under Part I, Item 1A of our 20192020 Form 10-K in addition to Part II, Item 1A - Risk Factors of this Quarterly Report on Form 10-Q and other reports as filed with the SEC.
Any forward-looking statement speaks only as of the date of this report, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether because of new information, future developments or otherwise, except as required by law.
COVID-19 Pandemic Update
In March 2020, the World Health Organization categorized the current coronavirus disease COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. COVID-19 continues to spread throughout the United States and other countries across the world, and the duration and severity of its effects are currently unknown. In an emergency measure aimed at blunting the economic impact of COVID-19, the Federal Reserve lowered the target for the federal funds rate to a range of between zero to 0.25% on March 16, 2020. The following is a summary of some of the actions that we have taken in response to COVID-19 as well as the current and potential effects of COVID-19 on the Company’s financial condition and results of operations.

Employees
The majority of our employees continue to work remotely which has had minimal to no impact to maintaining our operations. The Company has adopted preventative measures to protect employees including social distancing policies for those few employees still working in the office, reduced branch hours, restricting non-essential business travel, enhanced cleaning services and continually provides guidelines to employees to promote healthy habits and ways to stay connected while working remotely.
Loan Portfolio
In April 2020, we implemented a short-term loan modification program for customers impacted financially by the COVID-19 pandemic to provide temporary relief to certain borrowers who meet the program’s qualifications. The program was offered to borrowers to modify their existing loans to temporarily defer principal and/or interest payments for a specified period of time, extend loan maturity dates and/or waive certain loan covenants. Deferred payments may be extended for continued hardship but are not to exceed a total of six months. The majority of short-term loan modifications for commercial real estate loan borrowers consist of deferred payments which may include principal, interest and escrow. Deferred interest is capitalized to the loan balance and deferred principal is added to the maturity or payoff date. For one-to-four family loans, the majority of short-term modifications consist of deferring full monthly payment of principal, interest and escrow, with deferred payments due at maturity or payoff of the loan. Loans qualifying for these modifications will not be required to be reported as delinquent, nonaccrual, impaired or criticized solely as a result of a COVID-19 loan modification for the months of payment deferrals. Borrowers considered current are those that are less than 30 days past due on their modified contractual payments.
During the three months ended June 30, 2020, we modified 49 loans representing $136.8 million in loan balances, or 17%, of total gross loans held-for-investment as of June 30, 2020. The two sectors within our commercial real estate loan portfolio that are expected to be most heavily impacted by COVID-19, retail and hospitality, made up $91.7 million of these modifications. All loans modified under these programs are maintained on full accrual status during the deferral period. Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) addressed COVID-19 related modifications and specified that such modifications made on loans that were current as of December 31, 2019 are not troubled debt restructurings (“TDRs”). In accordance with interagency guidance issued in April 2020, these short-term modifications made to a borrower affected by the COVID-19 pandemic and governmental shutdown orders, such as payment deferrals, fee waivers and extensions of repayment terms, do not need to be identified as TDRs if the loans were current at the time a modification plan was implemented. The Company elected to adopt these provisions of the CARES Act for the temporary modifications described above. None of the modified loans met the criteria of a TDR under the CARES Act or the related interagency statement. The Company has worked closely with its borrowers throughout the pandemic and borrowers representing 27% of loan balances who initially were granted loan deferrals have resumed payments on their borrowings as of July 15, 2020.
Loans modified due to COVID-19 during the period presented are as follows:
  Six Months Ended June 30, 2020
  Number of
Loans		 

Loan Balance
At Period End
 
Percentage of
Loan Portfolio
Balance
       
  (Dollars in thousands)
COVID-19 related modifications:    
Real estate loans:      
One-to-four family 19 $11,970
 6%
Commercial industry sectors:      
Retail 13 52,207
 63%
Hospitality 8 39,466
 85%
Office 4 21,282
 37%
Industrial 1 4,835
 6%
Other 2 5,710
 13%
Total Commercial 28 123,500
 39%
Commercial and industrial 2 1,373
 6%
Total COVID-19 related modifications 49 $136,843
 17%

At June 30, 2020, our gross loans held-for-investment portfolio was $797.2 million, with its largest segments consisting of commercial real estate and one-to-four-family real estate loans. Within the commercial real estate loan portfolio, we had $82.7 million of retail loans and $46.2 million of hospitality loans at such date. Although there is significant uncertainty in the current economic environment due to the impact of the COVID-19 pandemic, our relatively low to moderate loan-to-value ratios provide a lower probability of loss in the event of defaults in our loan portfolio. We will continue to monitor trends in our loan portfolio segments for any known or probable adverse conditions with an emphasis on our retail and hospitality loans within our commercial real estate loan portfolio.
Additional information at June 30, 2020 related to our loan segments, including the weighted average loan-to-values, is set forth below. Weighted average loan-to-value ratios are based on current loan balance and appraisal data performed either at origination date of the loan or based on a more current updated appraisal.
  June 30, 2020
  Number of
Loans		 

Loan Balance
At Period End
 
Weighted
Average
Loan-to-Value
 
Percentage of
Loan Portfolio
Balance
         
  (Dollars in thousands)
Loan Segment:      
Real estate loans:        
One-to-four family 505 $216,038
 55% 27%
Multi-family 58 72,007
 50% 9%
Commercial industry sectors:        
Retail 33 82,720
 54% 10%
Hospitality 13 46,228
 44% 6%
Office 13 57,565
 63% 7%
Industrial 23 86,834
 60% 11%
Other 20 43,468
 47% 5%
Total Commercial 102 316,815
 55% 40%
Construction 6 10,822
 51% 1%
Commercial and industrial 14 24,707
 58% 3%
Reverse mortgage and other 15 1,552
 88% 0%
Mortgage warehouse N/A 155,308
 N/A 19%
  700 $797,249
 N/A 100%
Overview
Silvergate Capital Corporation is the holding company for our wholly-owned subsidiary, Silvergate Bank, which we believe is the leading provider of innovative financial infrastructure solutions and services to participants in the nascent and expanding digital currency industry. InstrumentalKey to our leadership position and growth strategy is the Silvergate Exchange Network (“SEN”) our proprietary, virtually instantaneous payment network for participants in the digital currency industry which serves as a platform for the development of additional products and services. The SEN has a powerful network effect that makes it more valuable as participants and utilization increase. The SEN has enabled us to focus on significantly growinggrow our noninterest bearing deposit product fordeposits from digital currency industry participants, which has provided the majority of our funding over the last twothree years. This unique source of funding is a distinctive advantage over most traditional financial institutions and allows us to generate
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Table of Contents
revenue from a conservative portfolio of investments in cash, short term securities and certain types of loans that we believe generate attractive risk-adjusted returns. In addition, use of the SEN has resulted in an increase in noninterest income that we believe will become a valuable source of additional revenue as we develop and deploy fee-based solutions in connection with our digital currency initiative. We are also evaluating additional products or product enhancements specifically targeted at providing further financial infrastructure solutions to our customers and strengthening SEN network effects.
The Company is a Maryland corporation that is the parent company of Silvergate Bank. The Company’swhose assets consist primarily of its investment in the Bank and its primary activities are conducted through the Bank. The Company is a registered bank holding company that is subject to supervision by the Board of Governors of the Federal Reserve.Reserve (“Federal Reserve”). The Bank is subject to supervision by the California Department of Business Oversight,Financial Protection and Innovation, Division of Financial Institutions (“DBO”DFPI”) and, as a Federal Reserve member

bank since 2012, the Federal Reserve Bank of San Francisco or FRB.(“FRB”). The Bank’s deposits are insured up to legal limits by the Federal Deposit Insurance Corporation or FDIC.(“FDIC”).
The Bank provides financial services that include commercial banking, commercial and residential real estate lending, mortgage warehouse lending and commercial business lending. Our client base is diverse and consists of business and individual clients in California and other states and includes digital currency-related customers in the United States and internationally. Following the Bank’s 2009 conversion from an industrial bank to a commercial bank we began introducing an expanded array of relationship-oriented business products and services, which in the past five years has been significantly augmented by our digital currency initiative. While our commercial real estate lending activities are concentrated in California, we have a broader, nationwide focus on deposit and cash management services for digital currency-relatedcurrency related businesses, as well as mortgage warehouse and correspondent residential lending. Beginning in July 2020, we ceased issuing purchasespurchase commitments for residential real estate loans through our former correspondent lending unit, but will continue to service existing loans currently on our balance sheet.
In March 2019, the Company and the Bank completed the sale of the Bank’s retail branch located in San Marcos, California and business loan portfolio to HomeStreet Bank. This transaction generated a pre-tax gain on sale of $5.5 million and reduced total loans by $115.4 million and total deposits by $74.5 million. Further, on June 28, 2019, the Company consolidated its La Mesa Business Banking Center into its La Jolla headquarters branch office, resulting in the Company having only one branch location.
Digital Currency Initiative
We leverage the SEN and our management team’s expertise in the digital currency industry to develop, implement and maintain critical financial infrastructure solutions and services for many of the largest U.S. digital currency exchanges and global investors, as well as other digital currency infrastructure providers that utilize the Company as a foundational layer for their products. The SEN is a central element of the operations of our digital currency related customers, which enables us to grow with our existing customers and to attract new customers who can benefit from our innovative solutions and services. We believe that our vision and advanced approach to compliance complement the SEN and empower us to extend our leadership position in the industry by developing additional infrastructure solutions and services that will facilitate growth in our business.
We began exploring the digital currency industry in 2013 based on market dynamics which we believed were highly attractive:
•
•Significant and Growing Industry: Digital currency presented a revolutionary model for executing financial transactions with substantial potential for growth.
•Infrastructure Needs: In order to become widely adopted, digital currency would need to rely on many traditional elements of financial services, including those services that support funds transfers, customer account controls and other security measures.
• Digital currency presented a revolutionary model for executing financial transactions with substantial potential for growth.
•
Infrastructure Needs: In order to become widely adopted, digital currency would need to rely on many traditional elements of financial services, including those services that support funds transfers, customer account controls and other security measures.
•
Regulatory Complexity as a Barrier to Entry: Providing infrastructure solutions and services to the digital currency industry would require specialized compliance capabilities and a management team with a deep understanding of both the digital currency and the financial services industries.
These insights have been proven correct and we believe they remain true today. In fact, we believe that the market opportunity for digital currencies, the need for infrastructure solutions and services and the regulatory complexity have all expanded significantly since 2013. Our ability to address these market dynamics over the past sixseven years has provided us with a first-mover advantage within the digital currency industry that is the cornerstone of our leadership position today.
Digital Currency Customers
Our customer base has grown rapidly, as many customers proactively approach us due to our reputation as the leading provider of innovative financial infrastructure solutions and services to participants in the digital currency industry, which includes our unique technology solutions. As of June 30, 2020,March 31, 2021, we had over 200 prospective digital currency customer leads in various stages of our customer onboarding process and pipeline, which includes extensive regulatory compliance diligence and integrating of the customer’s technology stack for those new digital currency customers interested in using our API.proprietary, cloud-based application programming interface (“API”).
The following list sets forth summary information regarding the types of market participants whothat are our primary customers:
•
Digital Currency Exchanges: Exchanges through which digital currencies are bought and sold; includes over-the-counter, or OTC, trading desks.
•
Institutional Investors: Hedge funds, venture capital funds, private equity funds, family offices and traditional asset managers, which are investing in digital currencies as an asset class.

•
Other Customers: Digital Currency Exchanges: Exchanges through which digital currencies are bought and sold; includes over-the-counter, or OTC, trading desks.
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•Institutional Investors: Hedge funds, venture capital funds, private equity funds, family offices and traditional asset managers, that are investing in digital currencies as an asset class.
•Other Customers:Companies developing new protocols, platforms and applications; mining operations; and providers of other services.
Our customers include some of the largest U.S. exchanges and global investors in the digital currency industry. These market participants generally hold either or both of two distinct types of funds: (i) those funds that market participants use for digital currency investment activities, which we refer to as investor funds, and (ii) those funds that market participants use for business operations, which we refer to as operating funds.
Our customer ecosystem also includes software developers, digital currency miners, custodians and general industry participants that need our solutions and services.
Silvergate Exchange Network
The following table presents the number of transactions and the U.S. dollar volume of transactions that occurred on the SEN for the periods presented:
Three Months Ended
March 31,
20212020
(Dollars in millions)
# of SEN Transactions166,772 31,405 
$ of Volume of SEN Transfers$166,506 $17,372 

32
  Three Months Ended
June 30,		 Six Months Ended
June 30,
  2020 2019 2020 2019
         
  (Dollars in millions)
# of SEN Transactions 40,286
 12,254
 71,691
 19,351
$ of Volume of SEN Transfers $22,423
 $8,625
 $39,795
 $12,702
Table of Contents


Financial Results
The following table presents the components of results of operations, performance ratios and share data for the periods indicated:
 Three Months Ended
June 30,		 Six Months Ended
June 30,		Three Months Ended
March 31,
 2020 2019 2020 201920212020
        
 (In thousands, except per share data)(In thousands, except per share data)
Statement of Operations Data:        Statement of Operations Data:
Interest income $18,015
 $19,472
 $38,077
 $39,535
Interest income$23,306 $20,062 
Interest expense 1,963
 1,904
 6,547
 2,651
Interest expense291 4,584 
Net interest income 16,052
 17,568
 31,530
 36,884
Net interest income23,015 15,478 
Provision for loan losses 222
 152
 589
 419
Provision for loan losses— 367 
Net interest income after provision 15,830
 17,416
 30,941
 36,465
Net interest income after provision23,015 15,111 
Noninterest income 5,434
 2,154
 10,365
 10,025
Noninterest income8,090 4,931 
Noninterest expense 13,972
 12,721
 27,847
 26,207
Noninterest expense19,606 13,875 
Income before income taxes 7,292
 6,849
 13,459
 20,283
Income before income taxes11,499 6,167 
Income tax expense 1,826
 1,693
 3,600
 5,691
Income tax (benefit) expenseIncome tax (benefit) expense(1,211)1,774 
Net income $5,466
 $5,156
 $9,859
 $14,592
Net income$12,710 $4,393 
Financial Ratios(1):
        
Financial Ratios(1):
Return on average assets (ROAA)(2)
 1.02% 1.03% 0.90% 1.48%
Return on average equity (ROAE)(2)
 8.72% 10.04% 7.94% 14.64%
Net interest margin(3)
 3.14% 3.56% 3.00% 3.78%
Noninterest income to average assets(2)
 1.01% 0.43% 0.95% 1.02%
Return on average assets (ROAA)Return on average assets (ROAA)0.71 %0.79 %
Return on average equity (ROAE)Return on average equity (ROAE)9.76 %7.14 %
Net interest margin(2)
Net interest margin(2)
1.33 %2.86 %
Noninterest income to average assetsNoninterest income to average assets0.45 %0.89 %
Noninterest expense to average assets 2.60% 2.54% 2.55% 2.65%Noninterest expense to average assets1.10 %2.50 %
Efficiency ratio(2)(4)
 65.03% 64.50% 66.47% 55.87%
Loan yield(5)
 4.67% 5.45% 4.91% 5.60%
Efficiency ratio(3)
Efficiency ratio(3)
63.03 %67.98 %
Loan yield(4)
Loan yield(4)
4.31 %5.15 %
Cost of deposits 0.37% 0.28% 0.62% 0.18%Cost of deposits0.00 %0.87 %
Cost of funds 0.42% 0.43% 0.68% 0.30%Cost of funds0.02 %0.94 %
Share Data:        Share Data:
Basic earnings per share $0.29
 $0.29
 $0.53
 $0.82
Basic earnings per share$0.56 $0.24 
Diluted earnings per share $0.29
 $0.28
 $0.52
 $0.80
Diluted earnings per share$0.55 $0.23 
Basic weighted average shares outstanding 18,672
 17,836
 18,670
 17,837
Basic weighted average shares outstanding22,504 18,668 
Diluted weighted average shares outstanding 19,106
 18,257
 19,112
 18,267
Diluted weighted average shares outstanding23,010 19,117 
________________________
(1)Data has been annualized except for efficiency ratio.
(2)Excluding the gain attributed to the branch sale, net income would have been $10.7 million and ROAA, ROAE, noninterest income to average assets and efficiency ratio would have been 1.08%, 10.69%, 0.46% and 63.30%, respectively, for the six months ended June 30, 2019. See “Non-GAAP Financial Measures” for a reconciliation of these metrics.
(3)Net interest margin is a ratio calculated as annualized net interest income, on a fully taxable equivalent basis for interest income on tax-exempt securities using the federal statutory tax rate of 21.0%, divided by average interest earning assets for the same period.
(4)Efficiency ratio is calculated by dividing noninterest expenses by net interest income plus noninterest income.
(5)Includes nonaccrual loans and loans 90 days and more past due.

(1)Data has been annualized except for efficiency ratio.

(2)Net interest margin is a ratio calculated as annualized net interest income, on a fully taxable equivalent basis for interest income on tax-exempt securities using the federal statutory tax rate of 21.0%, divided by average interest earning assets for the same period.
(3)Efficiency ratio is calculated by dividing noninterest expenses by net interest income plus noninterest income.
(4)Includes nonaccrual loans and loans 90 days and more past due.

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The following table presents the components of financial condition and ratios at the dates indicated:
 June 30,
2020		 December 31,
2019		March 31,
2021		December 31,
2020
    
 (Dollars in thousands) (Dollars in thousands, except per share data)
Statement of Financial Condition Data:    Statement of Financial Condition Data:
Cash and cash equivalents $199,444
 $133,604
Cash and cash equivalents$4,331,522 $2,962,087 
Securities 951,094
 897,766
Securities available-for-sale, at fair valueSecurities available-for-sale, at fair value1,717,418 939,015 
Loans held-for-sale 321,835
 375,922
Loans held-for-sale897,227 865,961 
Loans held-for-investment, net 793,548
 664,622
Loans held-for-investment, net728,390 746,751 
Other assets 74,792
 56,213
OtherOther82,595 72,421 
Total assets $2,340,713
 $2,128,127
Total assets$7,757,152 $5,586,235 
Deposits $1,670,909
 $1,814,654
Deposits$7,002,371 $5,248,026 
Borrowings 375,823
 68,530
Borrowings15,834 15,831 
Other liabilities 25,876
 13,907
Other liabilities25,326 28,079 
Total liabilities 2,072,608
 1,897,091
Total liabilities7,043,531 5,291,936 
Total shareholders’ equity 268,105
 231,036
Total shareholders’ equity713,621 294,299 
Total liabilities and shareholders' equity $2,340,713
 $2,128,127
Total liabilities and shareholders' equity$7,757,152 $5,586,235 
Nonperforming Assets:    Nonperforming Assets:
Nonperforming loans $4,528
 $5,909
Nonperforming loans$5,333 $4,982 
Troubled debt restructurings $1,620
 $1,791
Troubled debt restructurings$1,484 $1,525 
Other real estate owned, net $51
 $128
Other real estate owned, net— — 
Nonperforming assets $4,579
 $6,037
Nonperforming assets$5,333 $4,982 
Asset Quality Ratios:    Asset Quality Ratios:
Nonperforming assets to total assets 0.20% 0.28%Nonperforming assets to total assets0.07 %0.09 %
Nonperforming loans to gross loans(1)
 0.57% 0.88%
Nonperforming loans to gross loans(1)
0.73 %0.66 %
Nonperforming assets to gross loans and other real estate owned(1)
 0.57% 0.90%
Nonperforming assets to gross loans and other real estate owned(1)
0.73 %0.66 %
Net charge-offs to average total loans(1)
 0.00% 0.01%
Net charge-offs to average total loans(1)
0.00 %0.00 %
Allowance for loan losses to gross loans(1)
 0.85% 0.93%
Allowance for loan losses to gross loans(1)
0.94 %0.92 %
Allowance for loan losses to nonperforming loans 149.36% 104.77%Allowance for loan losses to nonperforming loans129.68 %138.82 %
Company Capital Ratios:    Company Capital Ratios:
Tier 1 leverage ratio 11.57% 11.23%Tier 1 leverage ratio9.68 %8.29 %
Common equity tier 1 capital ratio 23.32% 24.52%Common equity tier 1 capital ratio53.03 %21.53 %
Tier 1 risk-based capital ratio 24.86% 26.21%Tier 1 risk-based capital ratio54.23 %22.88 %
Total risk-based capital ratio 25.54% 26.90%Total risk-based capital ratio54.79 %23.49 %
Total shareholders’ equity to total assets 11.45% 10.86%Total shareholders’ equity to total assets9.20 %5.27 %
Book value per share $14.36
 $12.38
Book value per share$28.75 $15.63 
Bank Capital Ratios:    Bank Capital Ratios:
Tier 1 leverage ratio 10.92% 10.52%Tier 1 leverage ratio9.50 %8.22 %
Common equity tier 1 capital ratio 23.48% 24.55%Common equity tier 1 capital ratio53.24 %22.71 %
Tier 1 risk-based capital ratio 23.48% 24.55%Tier 1 risk-based capital ratio53.24 %22.71 %
Total risk-based capital ratio 24.17% 25.24%Total risk-based capital ratio53.80 %23.32 %
Other:    Other:
Total headcount 213
 215
Total headcount222 218 
________________________
(1)Loans exclude loans held-for-sale at each of the dates presented.

(1)Loans exclude loans held-for-sale at each of the dates presented.
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Critical Accounting Policies and Estimates
The accompanying management’s discussion and analysis of results of operations and financial condition is based upon our unaudited interim consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements in accordance with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under current circumstances, results of which form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily available from other sources. We evaluate our estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. Other than ongoing uncertainty related to COVID-19, there have been no significant changes during the sixthree months ended June 30, 2020March 31, 2021 to the items that we disclosed as our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K filed with the SEC on March 10, 2020.8, 2021.
Accounting policies, as described in detail in the notes to our consolidated financial statements, included in the Company’s Annual Report on Form 10-K, are an integral part of our financial statements. A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial position. We believe that those critical accounting policies and estimates require us to make difficult, subjective or complex judgments about matters that are inherently uncertain. Changes in these estimates, which are likely to occur from period to period, or use of different estimates that we could have reasonably used in the current period, would have a material impact on our financial position, results of operations or liquidity.
Results of Operations
Net Income
The following table sets forth the principal components of net income for the periods indicated.
Three Months Ended
March 31,
20212020
% Increase/
(Decrease)
(Dollars in thousands)
Interest income$23,306 $20,062 16.2 %
Interest expense291 4,584 (93.7)%
Net interest income23,015 15,478 48.7 %
Provision for loan losses— 367 N/M
Net interest income after provision23,015 15,111 52.3 %
Noninterest income8,090 4,931 64.1 %
Noninterest expense19,606 13,875 41.3 %
Income before income taxes11,499 6,167 86.5 %
Income tax (benefit) expense(1,211)1,774 (168.3)%
Net income$12,710 $4,393 189.3 %
________________________
  Three Months Ended
June 30,		 Six Months Ended
June 30,
  2020 2019 % Increase/
(Decrease)		 2020 2019 
% Increase/
(Decrease)
             
  (Dollars in thousands)
Interest income $18,015
 $19,472
 (7.5)% $38,077
 $39,535
 (3.7)%
Interest expense 1,963
 1,904
 3.1 % 6,547
 2,651
 147.0 %
Net interest income 16,052
 17,568
 (8.6)% 31,530
 36,884
 (14.5)%
Provision for loan losses 222
 152
 46.1 % 589
 419
 40.6 %
Net interest income after provision 15,830
 17,416
 (9.1)% 30,941
 36,465
 (15.1)%
Noninterest income 5,434
 2,154
 152.3 % 10,365
 10,025
 3.4 %
Noninterest expense 13,972
 12,721
 9.8 % 27,847
 26,207
 6.3 %
Net income before income taxes 7,292
 6,849
 6.5 % 13,459
 20,283
 (33.6)%
Income tax expense 1,826
 1,693
 7.9 % 3,600
 5,691
 (36.7)%
Net income $5,466
 $5,156
 6.0 % $9,859
 $14,592
 (32.4)%
N/M—Not meaningful
Net income for the three months ended June 30, 2020March 31, 2021 was $5.5$12.7 million, an increase of $0.3$8.3 million or 6.0%189.3% from net income of $5.2$4.4 million for the three months ended June 30, 2019.March 31, 2020. The increase was primarily due to a $3.3$7.5 million increase in net interest income, a $3.2 million increase in noninterest income offset by a $1.5 million decrease in net interest income and a $1.3 million increase in noninterest expense.
Net income for the six months ended June 30, 2020 was $9.9 million, a decrease of $4.7 million or 32.4% from net income of $14.6 million for the six months ended June 30, 2019. The decrease was primarily due to a $5.4 million decrease in net interest income and a $1.6 million increase in noninterest expense, offset by a $2.1$3.0 million decrease in income tax expense, and $0.3offset by a $5.7 million increase in noninterest income,expense, all as described below.
Net Interest Income and Net Interest Margin Analysis (Taxable Equivalent Basis)
We analyze our ability to maximize income generated from interest earning assets and control the interest expenses of our liabilities, measured as net interest income, through our net interest margin and net interest spread. Net interest income is the difference between the interest and fees earned on interest earning assets, such as loans, interest earning deposits in other banks and securities, and the interest expense incurred on interest bearing liabilities, such as deposits and borrowings, which are used to fund those assets.

Changes in market interest rates and the interest rates we earn on interest earning assets or pay on interest bearing liabilities, as well as in the volume and types of interest earning assets, interest bearing and noninterest bearing liabilities and
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shareholders’ equity, are usually the largest drivers of periodic changes in net interest income, net interest margin and net interest spread. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in the Southern California region, developments affecting the real estate, technology, hospitality, tourism and financial services sectors within our target markets and throughout the Southern California region, the volume and availability of residential loan pools and non-qualified residential loans and mortgage banker relationships. Our ability to respond to changes in these factors by using effective asset-liability management techniques is critical to maintaining the stability of our net interest income and net interest margin as our primary sources of earnings.
The following tables show the average outstanding balance of each principal category of our assets, liabilities and shareholders’ equity, together with the average yields on our assets and the average costs of our liabilities for the periods indicated. Such yields and cost are calculated by dividing income or expense by the average daily balances of the associated assets or liabilities for the same period.
Tax-exempt income from securities is calculated on a taxable equivalent basis. Net interest income, net interest spread and net interest margin are presented on a taxable equivalent basis to consistently reflect income from taxable securities and tax-exempt securities based on the federal statutory tax rate of 21.0%.

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AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
 Three Months Ended June 30,Three Months Ended March 31,
 2020 201920212020
 Average
Outstanding
Balance		 Interest
Income/
Expense		 Average
Yield/
Rate		 Average
Outstanding
Balance		 Interest
Income/
Expense		 Average
Yield/
Rate		Average
Outstanding
Balance		Interest
Income/
Expense
Average
Yield/
Rate
Average
Outstanding
Balance		Interest
Income/
Expense		Average
Yield/
Rate
            
 (Dollars in thousands)(Dollars in thousands)
Assets            Assets
Interest earning assets:            Interest earning assets:
Interest earning deposits in other banks $168,297
 $405
 0.97% $530,325
 $3,058
 2.31%Interest earning deposits in other banks$4,450,110 $1,279 0.12 %$234,356 $724 1.24 %
Taxable securities 690,810
 4,123
 2.40% 579,464
 4,501
 3.12%Taxable securities850,558 3,592 1.71 %902,165 6,048 2.70 %
Tax-exempt securities(1)
 231,232
 1,996
 3.47% —
 —
 —
Tax-exempt securities(1)
270,711 2,146 3.21 %6,611 61 3.71 %
Loans(2)(3)
 1,008,242
 11,710
 4.67% 860,682
 11,684
 5.45%
Loans(2)(3)
1,559,989 16,597 4.31 %1,024,982 13,121 5.15 %
Other 13,224
 200
 6.08% 10,743
 229
 8.55%Other15,331 143 3.78 %10,746 121 4.53 %
Total interest earning assets 2,111,805
 18,434
 3.51% 1,981,214
 19,472
 3.94%Total interest earning assets7,146,699 23,757 1.35 %2,178,860 20,075 3.71 %
Noninterest earning assets 51,776
     28,440
    Noninterest earning assets72,155 49,307 
Total assets $2,163,581
     $2,009,654
    Total assets$7,218,854 $2,228,167 
Liabilities and Shareholders’ Equity            Liabilities and Shareholders’ Equity
Interest bearing liabilities:            Interest bearing liabilities:
Interest bearing deposits $190,394
 $1,652
 3.49% $270,360
 $1,194
 1.77%Interest bearing deposits$117,228 $46 0.16 %$441,682 $4,051 3.69 %
FHLB advances and other borrowings 78,266
 44
 0.23% 60,639
 443
 2.93%FHLB advances and other borrowings— — — 63,986 227 1.43 %
Subordinated debentures 15,821
 267
 6.79% 15,807
 267
 6.78%
Subordinated debentures and otherSubordinated debentures and other15,832 245 6.28 %19,061 306 6.46 %
Total interest bearing liabilities 284,481
 1,963
 2.78% 346,806
 1,904
 2.20%Total interest bearing liabilities133,060 291 0.89 %524,729 4,584 3.51 %
Noninterest bearing liabilities:            Noninterest bearing liabilities:
Noninterest bearing deposits 1,611,972
     1,445,529
    Noninterest bearing deposits6,526,555 1,436,062 
Other liabilities 15,070
     11,371
    Other liabilities30,911 19,900 
Shareholders’ equity 252,058
     205,948
    Shareholders’ equity528,328 247,476 
Total liabilities and shareholders’ equity $2,163,581
     $2,009,654
    Total liabilities and shareholders’ equity$7,218,854 $2,228,167 
Net interest spread(4)
     0.73%     1.74%
Net interest spread(4)
0.46 %0.20 %
Net interest income, taxable equivalent basis   $16,471
     $17,568
  Net interest income, taxable equivalent basis$23,466 $15,491 
Net interest margin(5)
     3.14%     3.56%
Net interest margin(5)
1.33 %2.86 %
Reconciliation to reported net interest income:            Reconciliation to reported net interest income:
Adjustments for taxable equivalent basis   (419)     —
  Adjustments for taxable equivalent basis(451)(13)
Net interest income, as reported   $16,052
     $17,568
  Net interest income, as reported$23,015 $15,478 
________________________
(1)Interest income on tax-exempt securities is presented on a taxable equivalent basis using the federal statutory tax rate of 21.0% for all periods presented.
(2)Loans include nonaccrual loans and loans held-for-sale, net of deferred fees and before allowance for loan losses.
(3)Interest income includes amortization of deferred loan fees, net of deferred loan costs.
(4)Net interest spread is the difference between interest rates earned on interest earning assets and interest rates paid on interest bearing liabilities.
(5)Net interest margin is a ratio calculated as annualized net interest income, on a taxable equivalent basis, divided by average interest earning assets for the same period.

(1)Interest income on tax-exempt securities is presented on a taxable equivalent basis using the federal statutory tax rate of 21.0% for all periods presented.

(2)Loans include nonaccrual loans and loans held-for-sale, net of deferred fees and before allowance for loan losses.
  Six Months Ended June 30,
  2020 2019
  Average
Outstanding
Balance		 Interest
Income/
Expense		 Average
Yield/
Rate		 Average
Outstanding
Balance		 Interest
Income/
Expense		 Average
Yield/
Rate
             
  (Dollars in thousands)
Assets            
Interest earning assets:            
Interest earning deposits in other banks $201,326
 $1,129
 1.13% $582,410
 $6,855
 2.37%
Taxable securities 796,487
 10,171
 2.57% 480,483
 7,534
 3.16%
Tax-exempt securities(1)
 118,922
 2,057
 3.48% —
 —
 —
Loans(2)(3)
 1,016,612
 24,831
 4.91% 892,856
 24,795
 5.60%
Other 11,985
 321
 5.39% 10,630
 351
 6.66%
Total interest earning assets 2,145,332
 38,509
 3.61% 1,966,379
 39,535
 4.05%
Noninterest earning assets 50,542
     24,792
    
Total assets $2,195,874
     $1,991,171
    
Liabilities and Shareholders’ Equity            
Interest bearing liabilities:            
Interest bearing deposits $316,038
 $5,703
 3.63% $235,968
 $1,535
 1.31%
FHLB advances and other borrowings 72,748
 307
 0.85% 38,901
 585
 3.03%
Subordinated debentures 15,819
 537
 6.83% 15,805
 531
 6.78%
Total interest bearing liabilities 404,605
 6,547
 3.25% 290,674
 2,651
 1.84%
Noninterest bearing liabilities:            
Noninterest bearing deposits 1,524,017
     1,488,465
    
Other liabilities 17,485
     11,036
    
Shareholders’ equity 249,767
     200,996
    
Total liabilities and shareholders’ equity $2,195,874
     $1,991,171
    
Net interest spread(4)
     0.36%     2.21%
Net interest income, taxable equivalent basis   $31,962
     $36,884
  
Net interest margin(5)
     3.00%     3.78%
Reconciliation to reported net interest income:            
Adjustments for taxable equivalent basis   (432)     —
  
Net interest income, as reported   $31,530
     $36,884
  
________________________(3)Interest income includes amortization of deferred loan fees, net of deferred loan costs.
(1)Interest income on tax-exempt securities is presented on a taxable equivalent basis using the federal statutory tax rate of 21.0% for all periods presented.
(2)Loans include nonaccrual loans and loans held-for-sale, net of deferred fees and before allowance for loan losses.
(3)Interest income includes amortization of deferred loan fees, net of deferred loan costs.
(4)Net interest spread is the difference between interest rates earned on interest earning assets and interest rates paid on interest bearing liabilities.
(5)Net interest margin is a ratio calculated as annualized net interest income, on a taxable equivalent basis, divided by average interest earning assets for the same period.
(4)Net interest spread is the difference between interest rates earned on interest earning assets and interest rates paid on interest bearing liabilities.
(5)Net interest margin is a ratio calculated as annualized net interest income, on a taxable equivalent basis, divided by average interest earning assets for the same period.
Information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest earning assets and interest bearing liabilities and distinguishes between the changes
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attributable to changes in volume and changes attributable to changes in interest rates. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been proportionately allocated to both volume and rate.


ANALYSIS OF CHANGES IN NET INTEREST INCOME
 For the Three Months Ended
March 31, 2021 Compared to 2020
 Change Due ToInterest
Variance
 VolumeRate
 (Dollars in thousands)
Interest Income:
Interest earning deposits in other banks$1,779 $(1,224)$555 
Taxable securities(329)(2,127)(2,456)
Tax-exempt securities(1)
2,095 (10)2,085 
Loans5,975 (2,499)3,476 
Other45 (23)22 
Total interest income9,565 (5,883)3,682 
Interest Expense:
Interest bearing deposits(3,854)(151)(4,005)
FHLB advances and other borrowings(227)— (227)
Subordinated debentures— (61)(61)
Total interest expense(4,081)(212)(4,293)
Net interest income, taxable equivalent basis$13,646 $(5,671)$7,975 
________________________
  For the Three Months Ended
June 30, 2020 Compared to 2019		 
For the Six Months Ended
June 30, 2020 Compared to 2019
  Change Due To         Interest
Variance    		 Change Due To         Interest
Variance    
  Volume     Rate      Volume     Rate     
             
  (Dollars in thousands)
Interest Income:            
Interest earning deposits in other banks $(1,431) $(1,222) $(2,653) $(3,181) $(2,545) $(5,726)
Taxable securities 774
 (1,152) (378) 4,238
 (1,601) 2,637
Tax-exempt securities(1)
 1,996
 —
 1,996
 2,057
 —
 2,057
Loans 1,846
 (1,820) 26
 3,215
 (3,179) 36
Other 46
 (75) (29) 41
 (71) (30)
Total interest income 3,231
 (4,269) (1,038) 6,370
 (7,396) (1,026)
Interest Expense:            
Interest bearing deposits (433) 891
 458
 669
 3,499
 4,168
FHLB advances and other borrowings 100
 (499) (399) 309
 (587) (278)
Subordinated debentures —
 —
 —
 —
 6
 6
Total interest expense (333) 392
 59
 978
 2,918
 3,896
Net interest income, taxable equivalent basis $3,564
 $(4,661) $(1,097) $5,392
 $(10,314) $(4,922)
(1)Interest income on tax-exempt securities is presented on a taxable equivalent basis using the federal statutory tax rate of 21.0% for all periods presented.
________________________
(1)Interest income on tax-exempt securities is presented on a taxable equivalent basis using the federal statutory tax rate of 21.0% for all periods presented.
Net interest income on a taxable equivalent basis decreased $1.1increased $8.0 million to $16.5$23.5 million for the three months ended June 30, 2020March 31, 2021, compared to $17.6$15.5 million for the three months ended June 30, 2019,March 31, 2020, due to a decrease of $1.0$4.3 million in interest incomeexpense and an increase of $0.1$3.7 million in interest expense.income.
Average total interest earning assets increased $130.6 million$5.0 billion or 6.6%,228.0% for the three months ended June 30, 2020 asMarch 31, 2021, compared to the same period in 20192020, primarily due to increases in securities and loans offset by decreasesan increase in interest earning deposits in other banks.banks and loans, with loan growth driving the increase in interest income. The average annualized yield on total interest earning assets decreased from 3.94%3.71% for the three months ended June 30, 2019March 31, 2020, to 3.51%1.35% for the three months ended June 30, 2020March 31, 2021, primarily due to lower yields on interest earning deposits in other banks securities and loans. The lower yields were due to declines in federal funds rate and London Interbank Offered Rate (“LIBOR”), which was partially offset by the impactbeing a greater percentage of interest rate floors which were put in place during 2019.
Average interest bearing liabilities decreased $62.3 million or 18.0% for the three months ended June 30, 2020 as compared to the same period in 2019 primarily due to calling the remaining balance of brokered certificates of deposit used in our hedging strategy, as discussed further below. The average annualized rate on total interest bearing liabilities increased to 2.78% for the three months ended June 30, 2020 compared to 2.20% for the same period in 2019, primarily due to the impact of calling the remaining outstanding balance of brokered certificates of deposits, and the acceleration of the related $1.2 million in premium expense.
For the three months ended June 30, 2020, the net interest spread was 0.73% and the net interest margin was 3.14% compared to 1.74% and 3.56%, respectively, for the comparable period in 2019. The net interest margin decrease from the three months ended June 30, 2019 was primarily due to the impact of lower federal funds rates and LIBOR on our interest earning assets, and $1.2 million of premium expense associated with calling our brokered certificates of deposit, partially mitigated by decreased Federal Home Loan Bank (“FHLB”) advances and other borrowing expense and the effects associated with the hedging strategy, which included the impacts of reducing the balance of the callable brokered certificates of deposit, along with the benefit derived from the interest rate floors.
Net interest income on a taxable equivalent basis decreased $4.9 million to $32.0 million for the six months ended June 30, 2020 compared to $36.9 million for the six months ended June 30, 2019, due to a decrease of $1.0 million in interest income and an increase of $3.9 million in interest expense.
Average total interest earning assets increased $179.0 million or 9.1%, for the six months ended June 30, 2020 as compared to the same period in 2019 primarily due to increases in securities and loans offset by decreases in interest earning

deposits in other banks. The average balance of securities increased from $480.5 million for the six months ended June 30, 2019 to $915.4 million for the six months ended June 30, 2020 while the average balance of interest bearing deposits in other banks decreased from $582.4 million to $201.3 million over the same time period. The movement in these asset classes was primarily due to the implementation of the Company’s hedging strategy, intended to protect earnings in a declining interest rate environment that was implemented starting in March 2019. The total balances of the original hedging strategy included the purchase of $400.0 million in notional amount of interest rate floors, $350.4 million in fixed-rate commercial mortgage-backed securities and issuing $325.0 million of callable brokered certificates of deposit. The average annualized yield on total interest earning assets decreased from 4.05% for the six months ended June 30, 2019 to 3.61% for the six months ended June 30, 2020 primarily due to lower yields being realized on interest earning deposits, in other banksloans and securities as well as loans.securities. The lower yields were due to declines in federal funds rate and LIBOR which was partially offset by the interest rate floors. In February 2020, the Company sold $200.0 million of its total $400.0 million notional amount of interest rate floors, which resulted in a net gain of $8.4 million, to bewhich is being recognized over the weighted average remaining term of 4.1 years. The sale of the floors secured the benefit of lower interest rates at the time of the sale.
Average interest bearing liabilities increased $113.9decreased $391.7 million or 39.2%74.6% for the sixthree months ended June 30, 2020 asMarch 31, 2021, compared to the same period in 20192020, primarily due to an increasecalling the remaining balance of brokered certificates of deposit in interest bearing deposits between periods, and an increase in FHLB advances and other borrowings.the second quarter of 2020. The average annualized rate on total interest bearing liabilities increaseddecreased to 3.25%0.89% for the sixthree months ended June 30, 2020March 31, 2021, compared to 1.84%3.51% for the same period in 2019,2020, primarily due to the callableimpact of calling a portion of brokered certificates of deposits associated with our hedging strategy. Duringin the sixfirst quarter of 2020, which included $2.1 million of accelerated premium expense in addition to $1.6 million of coupon interest expense for the first quarter of 2020.
For the three months ended June 30, 2020, the Company called the remaining balance of the callable brokered certificates of deposit, which resulted in the recognition of $3.4 million of premium amortization in interest expense. The accelerated impact of premium expense on brokered certificates of deposit was partially offset by lower rates which resulted from calling and reissuing in prior periods.
For the six months ended June 30, 2020,March 31, 2021, the net interest spread was 0.36%0.46% and the net interest margin was 3.00%1.33%, compared to 2.21%0.20% and 3.78%2.86%, respectively, for the comparable period in 2019.2020. The increase in the net interest spread in the three months ended March 31, 2021 was primarily due to calling the outstanding brokered certificates of deposits in the second quarter of 2020, partially offset by lower yields on interest earning deposits, loans and securities due to a declining interest rate environment. The decrease in the net interest spread and net interest margin incompared to the sixthree months ended June 30,March 31, 2020was primarily due to the impactlower yields on interest earning deposits, loans and securities due to a declining interest rate environment, and to a lesser extent due to a greater proportion of lower federal funds ratesyielding cash and LIBOR on ourcash equivalents as a percentage of total interest earning assets, $3.4 millionwhich was driven by the increase in noninterest bearing digital currency customer deposits.
38
Table of premium expense associated with calling our brokered certificates of deposit, partially mitigated by decreased FHLB advances and other borrowings expense and the combined effects associated with the hedging strategy, which included the impacts of calling and reissuing a portion of the brokered callable certificates of deposit, along with the benefit derived from the interest rate floors.Contents
Provision for Loan Losses
The provision for loan losses is a charge to income to bring our allowance for loan losses to a level deemed appropriate by management. For a description of the factors considered by our management in determining the allowance for loan losses see “—Financial Condition—Allowance for Loan Losses”.
We recorded ano additional provision for loan losses and an expense of $0.2$0.4 million for each of the three months ended June 30,March 31, 2021 and 2020, and 2019. We recorded a provision for loan losses of $0.6 million and $0.4 million for the six months ended June 30, 2020 and 2019, respectively. The allowance for loan losses to total gross loans held-for-investment was 0.85%0.94% at June 30, 2020March 31, 2021, compared to 1.02%0.96% at June 30, 2019. TheMarch 31, 2020. Management determined that no provision for the three and six months ended June 30, 2020March 31, 2021 was necessary based on modest increases in loans held-for-investment, our historically strong credit quality and minimal loan charge-offs, and the lowloan-to-value ratios in the low- to moderate loan-to-value marginsmid-50% range in our commercial, multi-family and one-to-four family residential real estate held-for-investment loan portfolios as evidenced by weighted average loan-to-value ratios in the low- to mid-50% range. Although there is significant uncertainty in the current economic environment due to the impact of the COVID-19 pandemic, we believe the relatively low to moderate loan-to-value ratios, along with only modest exposure to the retail and hospitality sectors, provides lower probability of loss in the event of defaults in our loan portfolio. The Company will continue to monitor trends in its portfolio segments for any known or probable adverse conditions.


March 31, 2021.
Noninterest Income
The following table presents, for the periods indicated, the major categories of noninterest income:

NONINTEREST INCOME
 Three Months Ended
June 30,		 Six Months Ended
June 30,		 Three Months Ended
March 31,
 2020 2019 % Increase/
(Decrease)		 2020 2019 
% Increase/
(Decrease)
 20212020
% Increase/
(Decrease)
            
 (Dollars in thousands) (Dollars in thousands)
Noninterest income:            Noninterest income:
Mortgage warehouse fee income $450
 $346
 30.1 % $832
 $712
 16.9 %Mortgage warehouse fee income$954 $382 149.7 %
Service fees related to off-balance sheet deposits 7
 412
 (98.3)% 77
 1,171
 (93.4)%Service fees related to off-balance sheet deposits— 70 N/M
Deposit related fees 2,438
 1,171
 108.2 % 4,204
 2,158
 94.8 %Deposit related fees7,124 1,766 303.4 %
Gain on sale of securities, net 2,556
 —
 N/M
 3,753
 —
 N/M
Gain on sale of securities, net— 1,197 N/M
(Loss) gain on sale of loans, net (56) 156
 (135.9)% 450
 345
 30.4 %
Gain on sale of branch, net —
 —
 —
 —
 5,509
 N/M
Gain on sale of loans, netGain on sale of loans, net— 506 N/M
Gain on extinguishment of debt —
 —
 —
 925
 —
 N/M
Gain on extinguishment of debt— 925 N/M
Other income 39
 69
 (43.5)% 124
 130
 (4.6)%Other income12 85 (85.9)%
Total noninterest income $5,434
 $2,154
 152.3 % $10,365
 $10,025
 3.4 %Total noninterest income$8,090 $4,931 64.1 %
________________________
N/M—Not meaningful
Noninterest income increased $3.3$3.2 million or 152.3%64.1% for the three months ended June 30, 2020March 31, 2021, compared to the three months ended June 30, 2019.March 31, 2020. This increase was primarily due to thean increase of $5.4 million in deposit related fees, substantially all of which are fees from our digital currency customers, and a $0.6 million increase in mortgage warehouse fee income, partially offset by a $1.2 million decrease in gain on sale of securities, of $2.6 million and a $1.3 million, or 108.2%, increase in deposit related fees, partially offset by a $0.4$0.9 million decrease in service fees related to off-balance sheet deposits. Deposit related fees from digital currency customers increased $1.3 million, or 118.8%, to $2.4 million compared to $1.1 million for the three months ended June 30, 2019 due to both an increase in the number of digital currency customers and the number of transactions.
Noninterest income increased $0.3 million or 3.4% for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. This increase was primarily due to the $3.8 million gain on sale of securities, an increase of $2.0 million in deposit related fees, and a $0.9 million gain on extinguishment of debt, offset byand a $1.1$0.5 million decrease in service fees related to off-balance sheet deposits. In addition, noninterest income for the 2019 period included a pre-tax gain on sale of $5.5 million forloans due to the exit of our San Marcos branch and business loan portfolio that was completedcorrespondent lending division in March 2019.2020. The $2.0$5.4 million increase in deposit related fees was primarily due to increases in cash management, foreign exchange, and SEN related fees associated with our digital currency initiative. Deposit related fees from digital currency customers increased $2.1 million, or 107.0%, to $4.1 million compared to $2.0 million for the six months ended June 30, 2019. During the six months ended June 30, 2020, the Company initiated and settled a $64.0 million FHLB five-year term advance. Due to an increase in FHLB advance rates after settlement, the Company repaid the advance and recorded a gain
39
Table of $0.9 million. The decline in service fees related to off-balance sheet deposits was due to a $97.8 million decline in average off-balance sheet deposit balances from $148.9 million for the six months ended June 30, 2019 to $51.1 million for the six months ended June 30, 2020 and a decline in the interest rate spread on these balances.Contents

Noninterest Expense
The following table presents, for the periods indicated, the major categories of noninterest expense:

NONINTEREST EXPENSE
 Three Months Ended
June 30,		 Six Months Ended
June 30,		 Three Months Ended
March 31,
 2020 2019 % Increase/
(Decrease)		 2020 2019 
% Increase/
(Decrease)
 20212020
% Increase/
(Decrease)
            
 (Dollars in thousands) (Dollars in thousands)
Noninterest expense:            Noninterest expense:
Salaries and employee benefits $9,002
 $8,082
 11.4 % $17,957
 $16,847
 6.6 %Salaries and employee benefits$10,990 $8,955 22.7 %
Occupancy and equipment 894
 1,012
 (11.7)% 1,801
 1,885
 (4.5)%Occupancy and equipment614 907 (32.3)%
Communications and data processing 1,313
 1,123
 16.9 % 2,574
 2,160
 19.2 %Communications and data processing1,621 1,261 28.5 %
Professional services 1,105
 1,073
 3.0 % 2,090
 2,518
 (17.0)%Professional services1,717 985 74.3 %
Federal deposit insurance 182
 168
 8.3 % 305
 343
 (11.1)%Federal deposit insurance2,296 123 N/M
Correspondent bank charges 347
 301
 15.3 % 720
 580
 24.1 %Correspondent bank charges497 373 33.2 %
Other loan expense 99
 118
 (16.1)% 221
 243
 (9.1)%Other loan expense174 122 42.6 %
Other real estate owned expense —
 5
 N/M
 —
 5
 N/M
Other general and administrative 1,030
 839
 22.8 % 2,179
 1,626
 34.0 %Other general and administrative1,697 1,149 47.7 %
Total noninterest expense $13,972
 $12,721
 9.8 % $27,847
 $26,207
 6.3 %Total noninterest expense$19,606 $13,875 41.3 %
________________________
N/M—Not meaningful
Noninterest expense increased $1.3$5.7 million or 9.8%41.3% for the three months ended June 30, 2020March 31, 2021, compared to the three months ended June 30, 2019March 31, 2020, primarily due to increases in salaries and employee benefits, communications and data processingprofessional services, federal deposit insurance and other general and administrative expense, partially offset by a decreases in occupancy and equipment.expense. The increase of $0.9$2.0 million or 11.4%22.7% in salaries and employee benefits was primarily due to increases in cost per full-time equivalent employee including an increase of $0.2 million in stock-based compensation expense.
Noninterest expense increased $1.6 million or 6.3% for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to increases in salaries and employee benefits, communications and data processing and other general and administrative expense, partially offset by decreases in professional services. The increase of $1.1 million or 6.6% in salaries and employee benefits was primarily due to a moderate increase in cost per full-time equivalent employee including an increase of $0.4employee. The Company’s average full-time equivalent employees increased from 210 for the three months ended March 31, 2020 to 219 for the three months ended March 31, 2021. Occupancy and equipment decreased $0.3 million or 32.3%, due to a reduction in stock-based compensation expense.costs related to our leased office space and fixed assets no longer in use that were written off during the three months ended December 31, 2020. Communications and data processing increased $0.4 million or 19.2%28.5% primarily due to amortization of previously capitalized foreigncontinued investment in compliance software to support our digital currency and payments platform enhancementsrelated customer base and additional expenses relatedcore processing expense due to monitoring, data and security software.higher transaction volumes. We continue to invest in cloud based scalable technology and are committed to expandingexpand our banking platform with a cloud-based API-enabled payment hubsolutions to complement our API-enabled SEN. While we continue to invest in projects to strengthen our ability to operate efficiently and effectively while leveraging existing and new technology, professionalProfessional services expense has decreased by $0.4increased $0.7 million or 17.0%74.3% due primarily to decreased consulting expensefees for projects related to our foreign exchange platformstrategic growth initiatives. Federal deposit insurance expense increased $2.2 million due to a rate increase driven by the significant growth in deposits. Other general and decreased recruiting expense.administrative expense increased $0.5 million or 47.7% due to a legal settlement, increases for expanded coverage in insurance and an increase in the provision for unfunded commitments related to the increase in SEN Leverage loans total lines of credit, partially offset by a decrease in travel related expenses due to the impact of the COVID-19 pandemic.
Income Tax Expense (Benefit)
Income tax benefit was $1.2 million for the three months ended March 31, 2021, compared to an expense wasof $1.8 million for the three months ended June 30, 2020 compared to $1.7 million for the three months ended June 30, 2019.March 31, 2020. Our effective tax rates for the three months ended June 30,March 31, 2021 and 2020 were (10.5)% and 2019 were 25.0% and 24.7%, respectively.
Income tax expense was $3.6 million for the six months ended June 30, 2020 compared to $5.7 million for the six months ended June 30, 2019. Our effective tax rates for the six months ended June 30, 2020 and 2019 were 26.7% and 28.1%28.8%, respectively. The decrease in income tax expense and our effective tax rate was primarily related to significant tax benefits recognized on the exercise of stock options and the impact of tax-exempt income earned on certain municipal bonds.income.
Financial Condition
As of June 30, 2020,March 31, 2021, our total assets increased to $2.3$7.8 billion compared to $2.1$5.6 billion as of December 31, 2019.2020. Shareholders’ equity increased $37.1$419.3 million, or 16.0%142.5%, to $268.1$713.6 million at June 30, 2020March 31, 2021, compared to $231.0$294.3 million at December 31, 2019.2020. A summary of the individual components driving the changes in total assets, total liabilities and shareholders' equity is discussedset forth below.

Interest Earning Deposits in Other Banks
Interest earning deposits in other banks increased from $132.0 million$2.9 billion at December 31, 20192020 to $185.7 million$4.3 billion at June 30, 2020.March 31, 2021. The majority of the Company’s interest earning deposits in other banks is cash held at the Federal Reserve Bank earning 0.10% at June 30, 2020 compared to 1.55% atMarch 31, 2021 and December 31, 2019.2020. The increase in interest earning deposits is due to growth in total deposits exceeding growth in total loans and securities.
40
Table of Contents
Securities Available-for-sale
We use our securities portfolio to provide a source of liquidity, provide an appropriate return on funds invested, manage interest rate risk, meet collateral requirements and meet regulatory capital requirements.
Management classifies investment securities as either held-to-maturity or available-for-sale based on our intentions and the Company’s ability to hold such securities until maturity. In determining such classifications, securities that management has the positive intent and the Company has the ability to hold until maturity are classified as held to maturity and carried at amortized cost. All other securities are designated as available-for-sale and carried at estimated fair value with unrealized gains and losses included in shareholders’ equity on an after-tax basis. For the yearsperiods presented, substantially all securities were classified as available-for-sale.
Our securities available-for-sale increased $53.3$778.4 million, or 5.9%82.9%, from $897.8$939.0 million at December 31, 20192020 to $951.1 million$1.7 billion at June 30, 2020.March 31, 2021. To supplement interest income earned on our loan portfolio, we invest in high quality mortgage-backed securities, collateralized mortgage obligations, municipal bonds andother asset backed securities. Our securities portfolio has grown substantially due to the implementation of a hedging strategy and utilizing cash to purchase high quality available-for-sale securities.municipal bonds. During the sixthree months ended June 30, 2020,March 31, 2021, the Company sold $216.4purchased $817.7 million of fixed-ratesecurities, including $651.1 million of agency residential mortgage-backed securities, $92.4 million of agency commercial mortgage-backed securities, and realized a gain on sale of $3.8 million. These securities were originally purchased as part of the hedging strategy in 2019. The proceeds from these sales were reinvested in $249.6$74.2 million of highly rated fixed-rate tax-exempt municipal bonds at higher tax-equivalent yields than the commercial mortgage-backed securities that were sold. All municipal bonds purchased are general obligation, revenue or essential purpose bonds that have call dates or maturities in less than 11 years. The municipal bonds that were purchased have similar average lives as the commercial mortgage-backed securities that were sold. Such fixed rate investments help mitigate a decline in interest income in a declining rate environment and provide higher returns compared to lower yielding cash and cash alternatives. The Company also purchased $15.8 million of highly rated fixed-rate taxable municipal bonds and entered into a series of interest rate swaps, which are accounted for as fair value hedges, to convert the bonds from fixed to floating rate yields. In addition, the Company purchased $13.2 million of fixed-rate commercial mortgage-backed securities in March 2020.bonds.
The following tables summarize the contractual maturities and weighted-average yields of investment securities at June 30, 2020March 31, 2021 and the amortized cost and carrying value of those securities as of the indicated dates. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Residential and commercial mortgage-backed securities are classified below based on the final maturity date, however these are amortizing securities with expected average lives primarily less than ten years.

SECURITIES
One Year or
Less		More Than One
Year Through
Five Years		More Than Five
Years Through
10 Years		More Than
10 Years		Total
Amortized
Cost		Weighted
Average
Yield		Amortized
Cost		Weighted
Average
Yield		Amortized
Cost		Weighted
Average
Yield		Amortized
Cost		Weighted
Average
Yield		Amortized
Cost		Fair
Value		Weighted
Average
Yield
(Dollars in thousands)
March 31, 2021
Securities Available-for-Sale:
Residential mortgage-backed securities:
Government agency mortgage-backed securities$— — $— — $— — $152,253 1.62 %$152,253 $151,218 1.62 %
Government agency collateralized mortgage obligation— — — — 150 1.34 %685,880 0.71 %686,030 683,380 0.71 %
Private-label collateralized mortgage obligation— — — — — — 18,688 2.65 %18,688 19,048 2.65 %
Commercial mortgage-backed securities:
Government agency mortgage-backed securities— — — — — — 49,135 0.51 %49,135 49,113 0.51 %
Government agency collateralized mortgage obligation— — — — 42,435 0.22 %— — 42,435 42,400 0.22 %
Private-label collateralized mortgage obligation— — — — — — 163,993 3.21 %163,993 174,497 3.21 %
Municipal bonds:
Tax-exempt— — — — 13,778 3.15 %304,354 2.53 %318,132 336,920 2.56 %
Taxable— — — — — — 14,206 2.72 %14,206 15,643 2.72 %
Asset backed securities:
Government sponsored student loan pools— — — — — — 245,716 0.78 %245,716 245,199 0.78 %
Total securities$— — $— — $56,363 0.94 %$1,634,225 1.43 %$1,690,588 $1,717,418 1.41 %
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Table of Contents
 One Year or
Less		 More Than One
Year Through
Five Years		 More Than Five
Years Through
10 Years		 More Than
10 Years		 Total
 Amortized
Cost		 Weighted
Average
Yield		 Amortized
Cost		 Weighted
Average
Yield		 Amortized
Cost		 Weighted
Average
Yield		 Amortized
Cost		 Weighted
Average
Yield		 Amortized
Cost		 Fair
Value		 Weighted
Average
Yield
                      
 (Dollars in thousands)
June 30, 2020                     
Securities Available-for-Sale:                     
Residential mortgage-backed securities:
Government agency mortgage-backed securities$—
 —
 $—
 —
 $—
 —
 $674
 3.54% $674
 $689
 3.54%
Government agency collateralized mortgage obligation—
 —
 —
 —
 291
 1.32% 227,481
 0.90% 227,772
 227,984
 0.90%
Private-label collateralized mortgage obligation—
 —
 —
 —
 —
 —
 22,945
 2.61% 22,945
 19,808
 2.61%
Commercial mortgage-backed securities:
Private-label collateralized mortgage obligation—
 —
 —
 —
 —
 —
 164,653
 3.21% 164,653
 180,267
 3.21%
Municipal bonds:

 

 

 

 

 

 

 

 

 

 

Tax-exempt—
 —
 —
 —
 11,930
 3.30% 235,602
 2.75% 247,532
 265,001
 2.78%
Taxable—
 —
 —
 —
 —
 —
 15,727
 2.72% 15,727
 16,129
 2.72%
Asset backed securities:                     
Government sponsored student loan pools—
 —
 —
 —
 —
 —
 253,960
 1.56% 253,960
 241,216
 1.56%
Total securities$—
 —
 $—
 —
 $12,221
 3.25% $921,042
 2.05% $933,263
 $951,094
 2.06%

 June 30, 2020 December 31, 2019 March 31, 2021December 31, 2020
 Amortized
Cost		 Fair
Value		 Amortized
Cost		 Fair
Value		 Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
        
 (Dollars in thousands) (Dollars in thousands)
Securities Available-for-Sale:        Securities Available-for-Sale:
Residential mortgage-backed securities:        Residential mortgage-backed securities:
Government agency mortgage-backed securities $674
 $689
 $769
 $801
Government agency mortgage-backed securities$152,253 $151,218 $5,701 $5,664 
Government agency collateralized mortgage obligation 227,772
 227,984
 242,203
 241,918
Government agency collateralized mortgage obligation686,030 683,380 197,978 198,051 
Private-label collateralized mortgage obligation 22,945
 19,808
 26,346
 26,500
Private-label collateralized mortgage obligation18,688 19,048 20,544 20,687 
Commercial mortgage-backed securities:        Commercial mortgage-backed securities:
Government agency mortgage-backed securitiesGovernment agency mortgage-backed securities49,135 49,113 — — 
Government agency collateralized mortgage obligationGovernment agency collateralized mortgage obligation42,435 42,400 — — 
Private-label collateralized mortgage obligation 164,653
 180,267
 364,719
 377,016
Private-label collateralized mortgage obligation163,993 174,497 164,214 182,536 
Municipal bonds: 

 

 

 

Municipal bonds:
Tax-exempt 247,532
 265,001
 —
 —
Tax-exempt318,132 336,920 246,159 270,359 
Taxable 15,727
 16,129
 —
 —
Taxable14,206 15,643 15,307 16,002 
Asset backed securities:        Asset backed securities:
Government sponsored student loan pools 253,960
 241,216
 258,022
 251,531
Government sponsored student loan pools245,716 245,199 248,848 245,716 
Total securities $933,263
 $951,094
 $892,059
 $897,766
Total securities$1,690,588 $1,717,418 $898,751 $939,015 
Loan Portfolio
Our primary source of income is derived from interest earned on loans. Our loan portfolio consists primarily of loans secured by real estate and mortgage warehouse loans. Our loan customers primarily consist of small- to medium-sized businesses, professionals, real estate investors, small residential builders and individuals. Our owner-occupied and investment commercial real estate loans, multi-family loans and commercial and industrial loans provide us with higher risk-adjusted returns, relatively shorter maturities and more sensitivity to interest rate fluctuations, and are complemented by our relatively lower risk residential real estate loans to individuals. Our commercial real estate, multi-family real estate, construction and commercial and industrialconstruction lending activities are primarily directed to our market area of Southern California. Our one-to-four family residential loans and warehouse loans are sourced throughout the United States.
In the first quarter of 2020, we began offering a new pilotlending product called SEN Leverage, which will allowallows Silvergate customers to obtain U.S. dollar loans collateralized by bitcoin held at select digital currency exchanges orand other custodians that are also Silvergate customers.customers of the Bank. Our SEN Leverage product enables our digital currency customers to borrow U.S. dollars directly from the Bank to purchase bitcoin using bitcoin as the collateral for these loans, which we refer to as SEN Leverage direct lending. In the SEN Leverage direct lending structure, a Bank exchange customer, acting as custodian, holds the borrower’s bitcoin and the Bank uses the SEN to fund the loan directly to the borrower’s account at the exchange. In addition to providing SEN Leverage direct lending, the Bank also provides loans collateralized with bitcoin to certain third-party digital currency industry lenders for loans to their customers, which we refer to as SEN Leverage indirect lending. In the SEN Leverage indirect lending structure, the lender uses bitcoin to collateralize its loan with the Bank and the funding of the loan and liquidation of the collateral may or may not occur via the SEN. The Bank uses a custodian to custody the bitcoin collateral and a separate digital currency service provider to monitor the bitcoin collateral coverage ratio and, if necessary, to liquidate the bitcoin collateral. We plan to expand this offeringbelieve our SEN Leverage product is unique in the latter partdigital currency industry, creating both deeper relationships with our clients and an attractive source of 2020.potential future revenue growth. The outstanding balance of SEN Leverage loans was $20.0$117.3 million as of June 30,and $77.2 million at March 31, 2021 and December 31, 2020, respectively, and is included in the commercial and industrial loan segment.

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Table of Contents
The following table summarizes our loan portfolio by loan segment as of the dates indicated:

COMPOSITION OF LOAN PORTFOLIO
 March 31,
2021		December 31,
2020
 AmountPercentAmountPercent
 (Dollars in thousands)
Real estate:
One-to-four family$171,045 23.3 %$187,855 25.0 %
Multi-family74,003 10.1 %77,126 10.3 %
Commercial287,411 39.2 %301,901 40.2 %
Construction5,172 0.7 %6,272 0.8 %
Commercial and industrial118,598 16.2 %78,909 10.5 %
Reverse mortgage and other1,346 0.2 %1,495 0.2 %
Mortgage warehouse76,014 10.3 %97,903 13.0 %
Total gross loans held-for-investment733,589 100.0 %751,461 100.0 %
Deferred fees, net1,717 2,206 
Total loans held-for-investment735,306 753,667 
Allowance for loan losses(6,916)(6,916)
Total net loans held-for-investment$728,390 $746,751 
Loans held-for-sale(1)
$897,227 $865,961 
________________________
  June 30,
2020		 December 31,
2019
  Amount Percent Amount Percent
         
  (Dollars in thousands)
Real estate:        
One-to-four family $216,038
 27.1% $193,367
 28.9%
Multi-family 72,007
 9.0% 81,233
 12.2%
Commercial 316,815
 39.7% 331,052
 49.6%
Construction 10,822
 1.4% 7,213
 1.1%
Commercial and industrial 24,707
 3.1% 14,440
 2.1%
Consumer and other 243
 0.0% 122
 0.0%
Reverse mortgage 1,309
 0.2% 1,415
 0.2%
Mortgage warehouse 155,308
 19.5% 39,247
 5.9%
Total gross loans held-for-investment 797,249
 100.0% 668,089
 100.0%
Deferred fees, net 3,062
   2,724
  
Total loans held-for-investment 800,311
   670,813
  
Allowance for loan losses (6,763)   (6,191)  
Total net loans held-for-investment $793,548
   $664,622
  
Loans held-for-sale $321,835
   $375,922
  
(1)Loans held-for-sale are comprised entirely of mortgage warehouse loans for all periods presented.

The repayment of loans is a source of additional liquidity for us.the Bank. The following table details maturities and sensitivity to interest rate changes for our loans held-for-investment at June 30, 2020:March 31, 2021:

LOAN MATURITY AND SENSITIVITY TO CHANGES IN INTEREST RATES
 June 30, 2020 March 31, 2021
 Due in One Year
or Less		 Due in One to
Five Years		 Due After
Five Years		 Total Due in One Year
or Less		Due in One to
Five Years		Due After
Five Years		Total
        
 (Dollars in thousands) (Dollars in thousands)
Real estate:        Real estate:
One-to-four family $5
 $457
 $215,576
 $216,038
One-to-four family$18 $405 $170,622 $171,045 
Multi-family 426
 30,886
 40,695
 72,007
Multi-family2,503 41,585 29,915 74,003 
Commercial 35,235
 137,029
 144,551
 316,815
Commercial40,001 146,917 100,493 287,411 
Construction 7,800
 3,022
 —
 10,822
Construction1,261 3,911 — 5,172 
Commercial and industrial 22,015
 2,692
 —
 24,707
Commercial and industrial118,598 — — 118,598 
Consumer and other 243
 —
 —
 243
Reverse mortgage —
 —
 1,309
 1,309
Reverse mortgage and otherReverse mortgage and other— — 1,346 1,346 
Mortgage warehouse 155,308
 —
 —
 155,308
Mortgage warehouse76,014 — — 76,014 
Total gross loans held-for-investment $221,032
 $174,086
 $402,131
 $797,249
Total gross loans held-for-investment$238,395 $192,818 $302,376 $733,589 
Amounts with fixed rates $166,622
 $97,333
 $112,406
 $376,361
Amounts with fixed rates$201,739 $176,551 $47,991 $426,281 
Amounts with floating rates $54,410
 $76,753
 $289,725
 $420,888
Amounts with floating rates$36,656 $16,267 $254,385 $307,308 
Nonperforming Assets
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether such loans are actually past due. In general, we place loans on nonaccrual status when they become 90 days past due. We also place loans on nonaccrual status if they are less than 90 days past due if the collection
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of principal or interest is in doubt. When interest accrual is discontinued, all unpaid accrued interest is reversed from income.

Interest income is subsequently recognized only to the extent cash payments received exceed principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are, in management’s opinion, reasonably assured. Any loan which the Bank deems to be uncollectible, in whole or in part, is charged off to the extent of the anticipated loss. Loans that are past due for 180 days or more are charged off unless the loan is well secured and in the process of collection.
We believe our disciplined lending approach and focused management of nonperforming assets has resulted in sound asset quality and timely resolution of problem assets. We have several procedures in place to assist us in maintaining the overall quality of our loan portfolio. We have established underwriting guidelines to be followed by our loan officers, and we also monitor our delinquency levels for any negative or adverse trends. There can be no assurance, however, that our loan portfolio will not become subject to increasing pressures from deteriorating borrower credit due to general economic conditions.
Nonperforming loans decreasedincreased to $4.5$5.3 million, or 0.57%0.73% of total loans, at June 30, 2020March 31, 2021, compared to $5.9$5.0 million, or 0.88%0.66% of total loans, at December 31, 2019.2020. The decreaseincrease in nonperforming loans during the sixthree months ended June 30, 2020March 31, 2021 was due primarily to principal repayments on nonperforming commercial and industrial loans and payoffs onan increase in one-to-four family real estate loans.
Other real estate owned was $51,000 as of June 30, 2020 compared to $0.1 million at December 31, 2019.
Total nonperforming assets were $4.6$5.3 million and $6.0$5.0 million at June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively, or 0.20%0.07% and 0.28%0.09%, respectively, of total assets.
The following table presents information regarding nonperforming assets at the dates indicated:

NONPERFORMING ASSETS
 June 30,
2020		 December 31,
2019		 March 31,
2021		December 31,
2020
    
 (Dollars in thousands) (Dollars in thousands)
Nonaccrual loans    Nonaccrual loans
Real estate:    Real estate:
One-to-four family $3,174
 $3,963
One-to-four family$4,457 $4,113 
Commercial and industrial 498
 1,098
Reverse mortgage 856
 848
Reverse mortgage and otherReverse mortgage and other876 869 
Accruing loans 90 or more days past due —
 —
Accruing loans 90 or more days past due— — 
Total gross nonperforming loans 4,528
 5,909
Total gross nonperforming loans5,333 4,982 
Other real estate owned, net 51
 128
Other real estate owned, net— — 
Total nonperforming assets $4,579
 $6,037
Total nonperforming assets$5,333 $4,982 
Ratio of nonperforming loans to total loans(1)
 0.57% 0.88%
Ratio of nonperforming loans to total loans(1)
0.73 %0.66 %
Ratio of nonperforming assets to total assets 0.20% 0.28%Ratio of nonperforming assets to total assets0.07 %0.09 %
    
Troubled debt restructurings    Troubled debt restructurings
Restructured loans-nonaccrual $1,033
 $1,202
Restructured loans-nonaccrual$564 $564 
Restructured loans-accruing 587
 589
Restructured loans-accruing920 961 
Total troubled debt restructurings $1,620
 $1,791
Total troubled debt restructurings$1,484 $1,525 
________________________
(1)Total loans exclude loans held-for-sale at each of the dates presented.
(1)Total loans exclude loans held-for-sale at each of the dates presented.
COVID-19 Update
In March 2020, the World Health Organization declared the outbreak of the COVID-19 virus as a pandemic. The effects of the outbreak are still evolving, and the ultimate severity and duration of the pandemic and the implications on global economic conditions remains uncertain. The following is a summary of the impact and potential effects of COVID-19 on the Company’s loan portfolio.
At March 31, 2021, our gross loans held-for-investment portfolio was $733.6 million, with its largest segments consisting of commercial real estate and one-to-four-family residential real estate loans. Although there is significant uncertainty in the current economic environment due to the impact of the COVID-19 pandemic, our relatively low to moderate loan-to-value ratios provide a lower probability of loss in the event of defaults in our loan portfolio. We will continue to monitor trends in our loan portfolio segments for any known or probable adverse conditions with an emphasis on our retail and hospitality loans within our commercial real estate loan portfolio.
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Additional information at March 31, 2021 related to our loan segments, including the weighted average loan-to-values for our real estate portfolio, is set forth below. Weighted average loan-to-value ratios are based on current loan balances and appraised values obtained either at loan origination or based on a more current updated appraisal.
March 31, 2021

Loan Balance
At Period End		Weighted
Average
Loan-to-Value		Percentage of
Gross Loans Held-for-Investment
Loan Segment:(Dollars in thousands)
Real estate loans:
One-to-four family$171,045 54 %23.3 %
Multi-family74,003 51 %10.1 %
Commercial industry sectors:
Retail75,585 54 %10.3 %
Hospitality46,640 44 %6.4 %
Office47,823 64 %6.5 %
Industrial63,813 60 %8.7 %
Other53,550 43 %7.3 %
Total commercial287,411 53 %39.2 %
Construction5,172 56 %0.7 %
Other195,958 N/A26.7 %
Total gross loans held-for-investment$733,589 N/A100.0 %
In March 2020, Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) addressed COVID-19 related modifications and specified that such modifications made on loans that were current as of December 31, 2019 are not troubled debt restructurings (“TDRs”). In December 2020, CARES Act was extended to allow eligible loan modifications until the earlier of January 1, 2022 or the date that is 60 days after the termination date of the national emergency. In accordance with interagency guidance issued in April 2020, short-term modifications made to a borrower affected by the COVID-19 pandemic and governmental shutdown orders, such as payment deferrals, fee waivers and extensions of repayment terms, do not need to be identified as TDRs if the loans were current at the time a modification plan was implemented. The Company elected to adopt the provisions of the CARES Act for modifications that meet the requirements described above. None of the modified loans met the criteria of a TDR under the CARES Act or the related interagency statement.
In April 2020, the Company implemented a short-term loan modification program for customers impacted financially by the COVID-19 pandemic to provide temporary relief to certain borrowers who meet the program’s qualifications. Due to the fluid nature of COVID-19, this program has been evolving in order to provide maximum relief to bank borrowers. As of March 31, 2021, the remaining loans in deferral due to COVID-19 are as follows:
Loan Balance
At Period End		Percentage of
Gross Loans Held-for-Investment
(Dollars in thousands)
COVID-19 related modifications:
Real estate loans:
One-to-four family$6,928 0.9 %
Commercial industry sectors:
Retail10,492 1.4 %
Hospitality40,019 5.5 %
Office7,874 1.1 %
Total commercial58,385 8.0 %
Total modifications outstanding$65,313 8.9 %
Loans Grading
From a credit risk standpoint, we grade watchlist and problem loans into one of five categories: pass, special mention, substandard, doubtful or loss. The classifications of loans reflect a judgment about the risks of default and loss associated with the loan. We review the ratings on credits regularly. Ratings are adjusted regularly to reflect the degree of risk and loss that our
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management believes to be appropriate for each credit. Our methodology is structured so that specific reserve allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss). The Bank uses the following definitions for watch list risk ratings: 

•Pass. Loans in all classes that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan agreement. Management believes that there is a low likelihood of loss related to those loans that are considered pass.
•Special Mention. A special mention loan has potential weaknesses deserving of management’s close attention. If uncorrected, such weaknesses may result in deterioration of the repayment prospects for the asset or in our credit position at some future date.
•Substandard. A substandard loan is inadequately protected by the current financial condition and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if deficiencies are not corrected.
•
Pass. Loans in all classes that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan agreement. Management believes that there is a low likelihood of loss related to those loans that are considered pass.
•
Special Mention. A special mention loan has potential weaknesses deserving of management’s close attention. If uncorrected, such weaknesses may result in deterioration of the repayment prospects for the asset or in our credit position at some future date.
•
Substandard. A substandard loan is inadequately protected by the current financial condition and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if deficiencies are not corrected.
•
Doubtful. A doubtful loan has all weaknesses inherent in one classified as substandard, with the added characteristic that weaknesses make collection or liquidation in full, on the basis of existing facts, conditions, and values, highly questionable and improbable.
•Loss. A doubtful loan has all weaknesses inherent in one classified as substandard, with the added characteristic that weaknesses make collection or liquidation in full, on the basis of existing facts, conditions, and values, highly questionable and improbable.
•
Loss. Credits rated as loss are charged-off. We have no expectation of the recovery of any payments in respect of credits rated as loss.
The following table presents the loan balances by segment as well as risk rating. No assets were classified as loss during the periods presented.

LOAN CLASSIFICATION
Credit Risk Grades
 PassSpecial MentionSubstandardDoubtfulTotal
 (Dollars in thousands)
March 31, 2021
Real estate loans:
One-to-four family$163,313 $3,275 $4,457 $— $171,045 
Multi-family74,003 — — — 74,003 
Commercial265,135 14,402 7,874 — 287,411 
Construction5,172 — — — 5,172 
Commercial and industrial118,361 — 237 — 118,598 
Reverse mortgage and other470 — 876 — 1,346 
Mortgage warehouse76,014 — — — 76,014 
Total gross loans held-for-investment$702,468 $17,677 $13,444 $— $733,589 
Credit Risk Grades
PassSpecial MentionSubstandardDoubtfulTotal
(Dollars in thousands)
December 31, 2020December 31, 2020
Real estate loans:Real estate loans:
One-to-four familyOne-to-four family$180,458 $3,284 $4,113 $— $187,855 
Multi-familyMulti-family77,126 — — — 77,126 
CommercialCommercial288,309 5,825 7,767 — 301,901 
ConstructionConstruction6,272 — — — 6,272 
Commercial and industrialCommercial and industrial78,635 — 274 — 78,909 
Reverse mortgage and otherReverse mortgage and other626 — 869 — 1,495 
Mortgage warehouseMortgage warehouse97,903 — — — 97,903 
Total gross loans held-for-investmentTotal gross loans held-for-investment$729,329 $9,109 $13,023 $— $751,461 
 Credit Risk Grades
 Pass Special Mention Substandard Doubtful Total
          
 (Dollars in thousands)
June 30, 2020          
Real estate loans:          
One-to-four family $212,864
 $—
 $3,174
 $—
 $216,038
Multi-family 72,007
 —
 —
 —
 72,007
Commercial 309,358
 7,457
 —
 —
 316,815
Construction 10,822
 —
 —
 —
 10,822
Commercial and industrial 22,837
 —
 1,870
 —
 24,707
Consumer and other 243
 —
 —
 —
 243
Reverse mortgage 453
 —
 856
 —
 1,309
Mortgage warehouse 155,308
 —
 —
 —
 155,308
Total gross loans held-for-investment $783,892
 $7,457
 $5,900
 $—
 $797,249
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  Credit Risk Grades
  Pass Special Mention Substandard Doubtful Total
           
  (Dollars in thousands)
December 31, 2019          
Real estate loans:          
One-to-four family $189,405
 $—
 $3,962
 $—
 $193,367
Multi-family 81,233
 —
 —
 —
 81,233
Commercial 322,671
 8,381
 —
 —
 331,052
Construction 7,213
 —
 —
 —
 7,213
Commercial and industrial 11,726
 —
 2,714
 —
 14,440
Consumer and other 122
 —
 —
 —
 122
Reverse mortgage 435
 132
 848
 —
 1,415
Mortgage warehouse 39,247
 —
 —
 —
 39,247
Total gross loans held-for-investment $652,052
 $8,513
 $7,524
 $—
 $668,089
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Loan Reviews and Problem Loan Management
Our credit administration staff conducts meetings at least four times a year to review asset quality and loan delinquencies. The Bank’s LendingLoan Portfolio Management Procedure prescribes loan review frequency and Collection Policy requiresscope through a risk-based approach that we perform annual reviews of everyconsiders loan of $500,000 or more not rated special mention or adversely classified.amount, type, risk rating and payment status. Individual loan reviews encompass a loan’s payment status and history, current and projected paying capacity of the borrower and/or guarantor(s), current condition and estimated value of any collateral, sufficiency of credit and collateral documentation, and compliance with Bank and regulatory lending standards. Loan reviewers assign an overall loan risk rating from one of the Bank’s loan rating categories and prepare a written report summarizing the review.
Once a loan is identified as a problem loan or a loan requiring a workout, the Bank makes an evaluation and develops a plan for handling the loan. In developing such a plan, management reviews all relevant information from the loan file and any loan review reports. We have a conversation with the borrower and update current and projected financial information (including borrower global cash flows when possible) and collateral valuation estimates. Following analysis of all available relevant information, management adopts an action plan from the following alternatives: (a) continuation of loan collection efforts on their existing terms, (b) a restructure of the loan’s terms, (c) a sale of the loan, (d) a charge off or partial charge off, (e) foreclosure on pledged collateral, or (f) acceptance of a deed in lieu of foreclosure.
Impaired Loans and TDRs. Impaired loans also include certain loans that have been modified as TDRs. As of June 30, 2020,March 31, 2021, the Company held seven loans amounting to $1.6totaling $1.5 million whichthat were TDRs, compared to nineseven loans amountingtotaling to $1.8$1.5 million at December 31, 2019.2020.
A loan is identified as a TDR when a borrower is experiencing financial difficulties and, for economic or legal reasons related to these difficulties, the Company grants a concession to the borrower in the restructuring that it would not otherwise consider. The Company has granted a concession when, as a result of the restructuring, it does not expect to collect all amounts due or within the time periods originally due under the original contract, including one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a temporary forbearance with regard to the payment of principal or interest. All TDRs are reviewed for potential impairment. Generally, a nonaccrual loan that is restructured remains on nonaccrual status for a minimum period of six months to demonstrate that the borrower can perform under the restructured terms. If the borrower’s performance under the new terms is not reasonably assured, the loan remains classified as a nonaccrual loan. Loans classified as TDRs are reported as impaired loans.
Allowance for Loan Losses
We maintain an allowance for loan losses that represents management’s best estimate of the loan losses and risks inherent in our loan portfolio. The amount of the allowance for loan losses should not be interpreted as an indication that charge-offs in future periods will necessarily occur in those amounts, or at all. In determining the allowance for loan losses, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined. The balance of the allowance for loan losses is based on internally assigned risk classifications of loans, historical loan loss rates, changes in the nature of our loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loan loss rates.
In reviewing our loan portfolio, we consider risk elements attributable to particular loan types or categories in assessing the quality of individual loans. Some of the risk elements we consider include: 
•For residential mortgage loans, the borrower’s ability to repay the loan, including a consideration of the debt-to-income ratio and employment and income stability, the loan-to-value ratio, and the age, condition and marketability of the collateral;
•For commercial and multi-family mortgage loans, the debt service coverage ratio, operating results of the owner in the case of owner-occupied properties, the loan-to-value ratio, the age and condition of the collateral and the volatility of income, property value and future operating results typical of properties of that type;
•For construction loans, the perceived feasibility of the project including the ability to sell improvements constructed for resale, the quality and nature of contracts for presale, if any, experience and ability of the builder, loan-to-cost ratio and loan-to-value ratio;
•For commercial and industrial loans, the debt service coverage ratio (income from the business exceeding operating expenses compared to loan repayment requirements), the operating results of the commercial or professional enterprise, the borrower’s business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral, risks related to new product offerings such as loans secured by bitcoin and the volatility of this particular collateral type; and

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•For mortgage warehouse loans held-for-investment, despite our negligible loss history, we provide a loss allowance factor subject to quarterly adjustment. Mortgage warehouse loans held-for-sale are not subject to any loan loss allowance and are recorded at lower of cost or fair market value.
The following table presents a summary of changes in the allowance for loan losses for the periods and dates indicated:

ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
Three Months Ended
March 31,
20212020
(Dollars in thousands)
Allowance for loan losses at beginning of periodAllowance for loan losses at beginning of period$6,916 $6,191 
 Six Months Ended
June 30,
 2020 2019
    
 (Dollars in thousands)
Allowance for loan losses at beginning of period $6,191
 $6,723
Charge-offs:    
Real estate:    
One-to-four family 17
 93
Total charge-offs 17
 93
Total charge-offs— — 
Total recoveries —
 —
Total recoveries— — 
Net charge-offs 17
 93
Net charge-offs— — 
Provision for loan losses 589
 419
Provision for loan losses— 367 
Allowance for loan losses at period end $6,763
 $7,049
Allowance for loan losses at period end$6,916 $6,558 
    
Total gross loans outstanding (end of period) $797,249
 $688,602
Total gross loans outstanding (end of period)$733,589 $683,214 
Average loans outstanding $694,751
 $630,843
Average loans outstanding$744,557 $664,040 
    
Allowance for loan losses to period end loans 0.85% 1.02%Allowance for loan losses to period end loans0.94 %0.96 %
Net charge-offs to average loans 0.00% 0.01%Net charge-offs to average loans0.00 %0.00 %
Our allowance for loan losses at June 30,March 31, 2021 and March 31, 2020 and June 30, 2019 was $6.8$6.9 million and $7.0$6.6 million, respectively, or 0.85%0.94% and 1.02%0.96% of loans held-for-investment for each respective period-end. The decrease in the ratio of the allowance for loan losses to gross loans held-for-investment from June 30, 2019March 31, 2020 was due to the changechanges in mix in our loan portfolio.product and segment mix.
We had $17,000 inno charge-offs and no recoveries for the sixthree months ended June 30, 2020March 31, 2021 and 2019.March 31, 2020.
Although we believe that we have established our allowance for loan losses in accordance with GAAP and that the allowance for loan losses was adequate to provide for known and inherent losses in the portfolio at all times shown above, future provisions for loan losses will be subject to ongoing evaluations of the risks in our loan portfolio.

The following table shows the allocation of the allowance for loan losses among loan categories and certain other information as of the dates indicated. The total allowance is available to absorb losses from any loan category.

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
 June 30,
2020		 December 31,
2019		 March 31,
2021		December 31,
2020
 Amount 
Percent(1)
 Amount 
Percent(1)
 Amount
Percent(1)
Amount
Percent(1)
        
 (Dollars in thousands) (Dollars in thousands)
Real estate:        Real estate:
One-to-four family $1,514
 0.19% $2,051
 0.31%One-to-four family$1,634 0.22 %$1,245 0.17 %
Multi-family 822
 0.10% 653
 0.10%Multi-family828 0.11 %878 0.12 %
Commercial 1,947
 0.25% 2,791
 0.41%Commercial3,251 0.44 %1,810 0.24 %
Construction 1,018
 0.13% 96
 0.01%Construction493 0.07 %590 0.08 %
Commercial and industrial 763
 0.10% 312
 0.05%Commercial and industrial360 0.05 %1,931 0.24 %
Consumer and other 1
 0.00% 1
 0.00%
Reverse mortgage 39
 0.00% 37
 0.01%
Reverse mortgage and otherReverse mortgage and other18 0.00 %39 0.01 %
Mortgage warehouse 659
 0.08% 250
 0.04%Mortgage warehouse332 0.05 %423 0.06 %
Total allowance for loan losses $6,763
 0.85% $6,191
 0.93%Total allowance for loan losses$6,916 0.94 %$6,916 0.92 %
________________________
(1)Loan amount as a percentage of total gross loans.
(1)Loan amount as a percentage of total gross loans.
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Deposits
Deposits are the major source of funding for the Company. We offer a variety of deposit products including interest and noninterest bearing demand accounts, money market and savings accounts and certificates of deposit, all of which we market at competitive pricing. We generate deposits from our customers on a relationship basis and through the efforts of our commercial lending officers. Deposits decreasedincreased $1.8 billion, or 33.4% to $1.7$7.0 billion at June 30, 2020March 31, 2021, compared to $1.8$5.2 billion December 31, 2019.2020. Noninterest bearing deposits totaled $1.6$6.9 billion, (representingrepresenting approximately 93.6%98.4% of total deposits)deposits, at June 30, 2020,March 31, 2021, compared to $1.3$5.1 billion, (representingrepresenting approximately 74.0%97.8% of total deposits)deposits, at December 31, 2019. 2020.
At June 30, 2020,March 31, 2021, deposits by foreign depositors amounted to $650.4 million$2.8 billion or 32.5%39.7% of total deposits. The decreasedeposits, compared to $1.4 billion, or 27.6% of total deposits, at December 31, 2020.The increase in total deposits from December 31, 2019the prior year end was driven by a $322.4 million decrease in our callable brokered certificates of deposit which were called during the six months ended June 30, 2020, offset by an increase in deposits from digital currency exchanges, institutional investors in digital assets and other fintech related customers, with elevated client activity evidenced by the record volume of SEN transactions during the quarter. The Bank’s 10 largest depositors accounted for $2.8 billion in deposits, or approximately 40.6% of total deposits at March 31, 2021 compared to $2.5 billion in deposits, or approximately 47.5% of total deposits at December 31, 2020, substantially all of which are customers operating in the digital currency industry.
Our continued growth has been accompanied by significant fluctuations in the level of our deposits, in particular our deposits from customers in the digital currency industry, as our customers in this industry typically carry higher balances over the weekend to take advantage of the 24/7 availability of the SEN, and carry lower balances during the business week. The Bank’s average total digital currency deposits during the three months ended March 31, 2021 amounted to $6.4 billion, the high and low daily total digital currency deposit levels from our digital currency customers.during such time were $8.4 billion and $4.6 billion, respectively.
Demand for new deposit accounts is generated by the Company’s banking platform for innovators that includes the SEN, which is enabled through Silvergate’s proprietary API, and other cash management solutions. These tools enable Silvergate’s clients to grow their business and scale operations. The following table presents a breakdown of our digital currency customer base and the deposits held by such customers at the dates noted below:
 June 30,
2020		 December 31,
2019		March 31,
2021		December 31,
2020
 Number of Customers 
Total
Deposits(1)
 Number of Customers 
Total
Deposits(1)
Number of
Customers
Total
Deposits(1)
Number of
Customers
Total
Deposits(1)
        
 (Dollars in millions)(Dollars in millions)
Digital currency exchanges 64
 $601
 60
 $527
Digital currency exchanges85 $2,993 76 $2,479 
Institutional investors 566
 577
 509
 432
Institutional investors695 2,166 607 1,811 
Other customers 251
 331
 235
 286
Other customers324 1,634 286 749 
Total 881
 $1,509
 804
 $1,246
Total1,104 $6,793 969 $5,039 
________________________
(1)Total deposits may not foot due to rounding.
(1)Total deposits may not foot due to rounding.
Our cost of total deposits and our cost of funds was 0.62%0.00% and 0.68%0.02%, respectively, for the sixthree months ended June 30, 2020 asMarch 31, 2021, compared to 0.18%0.87% and 0.30%0.94%, respectively, for the sixthree months ended June 30, 2019.March 31, 2020. The increasedecrease in the weighted average cost of deposits compared to the prior period was driven by the additionabsence of new callableany interest expense associated with brokered certificates of deposit, associated with a hedging strategy andwhich were called in the accelerationsecond quarter of $3.4 million premium amortization expense recognized during the six months ended June 30, 2020 from calling the brokered certificates2020.
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Table of deposits, as discussed in “—Results of Operations—Net Interest Income and Net Interest Margin Analysis” above.Contents

The following table presents the average balances and average rates paid on deposits for the periods indicated:

COMPOSITION OF DEPOSITS
 Six Months Ended
June 30, 2020		 Year Ended
December 31, 2019		 Three Months Ended
March 31, 2021		Year Ended
December 31, 2020
 Average
Balance		 Average
Rate		 Average
Balance		 Average
Rate		Average
Balance		Average
Rate		Average
Balance		Average
Rate
        
 (Dollars in thousands)(Dollars in thousands)
Noninterest bearing demand accounts $1,524,017
 —
 $1,445,232
 —
Noninterest bearing demand accounts$6,526,555 — $1,931,310 — 
Interest bearing accounts:        Interest bearing accounts:
Interest bearing demand accounts 48,097
 0.14% 49,052
 0.14%Interest bearing demand accounts42,197 0.13 %44,991 0.14 %
Money market and savings accounts 74,134
 0.71% 90,551
 0.87%Money market and savings accounts74,318 0.16 %71,432 0.46 %
Certificates of deposit:        Certificates of deposit:
Brokered certificates of deposit 192,272
 5.65% 187,966
 3.54%Brokered certificates of deposit— — 95,611 5.65 %
Other 1,535
 0.92% 13,026
 1.49%Other713 0.57 %1,311 0.92 %
Total interest bearing deposits 316,038
 3.63% 340,595
 2.26%Total interest bearing deposits117,228 0.16 %213,345 2.72 %
Total deposits $1,840,055
 0.62% $1,785,827
 0.43%Total deposits$6,643,783 0.00 %$2,144,655 0.27 %
The following table presents the maturities of our certificates of deposit as of June 30, 2020:March 31, 2021:

MATURITIES OF CERTIFICATES OF DEPOSIT
 Three
Months
or Less		 Over
Three
Through
Six
Months		 Over Six
Through
Twelve
Months		 Over
Twelve
Months		 TotalThree
Months
or Less		Over
Three
Through
Six
Months		Over Six
Through
Twelve
Months		Over
Twelve
Months		Total
          
 (Dollars in thousands) (Dollars in thousands)
$100,000 or more $250
 $121
 $162
 $474
 $1,007
$100,000 or more$— $— $— $306 $306 
Less than $100,000 17
 —
 109
 247
 373
Less than $100,00067 53 100 111 331 
Total $267
 $121
 $271
 $721
 $1,380
Total$67 $53 $100 $417 $637 
Borrowings
We primarily utilize short-term and long-term borrowings to supplement deposits to fund our lending and investment activities, each of which is discussed below.
FHLB Advances. The FHLB allows us to borrow up to 35% of the Bank’s assets on a blanket floating lien status collateralized by certain securities and loans. As of June 30, 2020,At March 31, 2021, approximately $1.0$1.4 billion in real estate loans were pledged as collateral for our FHLB borrowings. We utilize these borrowings to meet liquidity needs and to fund certain fixed rate loans in our portfolio. At June 30, 2020,March 31, 2021, we had $360.0 million inno outstanding FHLB advances and had an additional $193.3$866.7 million in available borrowing capacity from the FHLB.
The following table sets forth certain information on our FHLB borrowings during the periods presented:

FHLB ADVANCES
  Six Months Ended
June 30, 2020		 Year Ended
December 31, 2019
     
  (Dollars in thousands)
Amount outstanding at period-end $360,000
 $49,000
Weighted average interest rate at period-end 0.23% 1.66%
Maximum month-end balance during the period $360,000
 $218,000
Average balance outstanding during the period $78,263
 $28,205
Weighted average interest rate during the period 0.22% 1.94%
Three Months Ended
March 31, 2021		Year Ended
December 31, 2020
(Dollars in thousands)
Amount outstanding at period-end— $— 
Weighted average interest rate at period-end— — 
Maximum month-end balance during the period— $360,000 
Average balance outstanding during the period— $68,522 
Weighted average interest rate during the period— 0.50 %
Federal Reserve Bank of San Francisco. The FRB has an available borrower in custody arrangement that allows us to borrow on a collateralized basis. The Company’s borrowing capacity under the Federal Reserve’s discount window program

was $4.5$5.1 million as of June 30, 2020.March 31, 2021. Certain commercial loans are pledged under this arrangement. We maintain this
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borrowing arrangement to meet liquidity needs pursuant to our contingency funding plan. No advances were outstanding under this facility as of June 30, 2020.March 31, 2021.
The Company has also issued subordinated debentures and has access to borrow federal funds or lines of credit with correspondent banks. At June 30, 2020,March 31, 2021, these borrowings amounted to $15.8 million.
Subordinated Debentures. A trust formed by the Company issued $12.5 million of floating rate trust preferred securities in July 2001 as part of a pooled offering of such securities. The Company issued subordinated debentures to the trust in exchange for its proceeds from the offering. The debentures and related accrued interest represent substantially all the assets of the trust. The subordinated debentures bear interest at six-month LIBOR plus 375 basis points, which adjusts every six months in January and July of each year. Interest is payable semiannually. At June 30, 2020,March 31, 2021, the interest rate for the Company’s next scheduled payment was 5.51%3.98%, based on six-month LIBOR of 1.76%0.23%. On any January 25 or July 25 the Company may redeem the 2001 subordinated debentures at 100% of principal amount plus accrued interest. The 2001 subordinated debentures mature on July 25, 2031.
A second trust formed by the Company issued $3.0 million of trust preferred securities in January 2005 as part of a pooled offering of such securities. The Company issued subordinated debentures to the trust in exchange for its proceeds from the offering. The debentures and related accrued interest represent substantially all the assets of the trust. The subordinated debentures bear interest at three-month LIBOR plus 185 basis points, which adjusts every three months. Interest is payable quarterly. At June 30, 2020,March 31, 2021, the interest rate for the Company’s next scheduled payment was 2.16%2.03%, based on three-month LIBOR of 0.31%0.18%. On the 15th day of any March, June, September, or December, the Company may redeem the 2005 subordinated debentures at 100% of principal amount plus accrued interest. The 2005 subordinated debentures mature on March 15, 2035.
The Company also retained a 3% minority interest in each of these trusts which is included in subordinated debentures. The balance of the equity in the trusts is comprised of mandatorily redeemable preferred securities. The subordinated debentures may be included in Tier I capital (with certain limitations applicable) under current regulatory guidelines and interpretations. The Company has the right to defer interest payments on the subordinated debentures from time to time for a period not to exceed five years.
Other Borrowings. At June 30, 2020,March 31, 2021, the Company had no outstanding balance of federal funds purchased and had available lines of credit of $68.0 million with other correspondent banks.
Liquidity and Capital Resources
Liquidity
Liquidity is defined as the Bank’s capacity to meet its cash and collateral obligations at a reasonable cost. Maintaining an adequate level of liquidity depends on the Bank’s ability to meet both expected and unexpected cash flows and collateral needs efficiently without adversely affecting either daily operations or the financial condition of the Bank. Liquidity risk is the risk that we will be unable to meet our obligations as they become due because of an inability to liquidate assets or obtain adequate funding. The Bank’s obligations, and the funding sources used to meet them, depend significantly on our business mix, balance sheet structure and the cash flow profiles of our on- and off-balance sheet obligations. In managing our cash flows, management regularly confronts situations that can give rise to increased liquidity risk. These include funding mismatches, market constraints on the ability to convert assets into cash or in accessing sources of funds (i.e., market liquidity) and contingent liquidity events. Changes in economic conditions or exposure to credit, market, operation, legal and reputational risks also could affect the Bank’s liquidity risk profile and are considered in the assessment of liquidity and asset/liability management.
We maintain high levels of liquidity for our customers who operate in the digital currency industry, as these deposits are subject to potentially dramatic fluctuations due to certain factors that may be outside of our control. As a result, our investment portfolio is comprised primarily of mortgage-backed securities backed by government-sponsored entities, collateralized mortgage obligations, municipal bonds and asset-backed securities.
Management has established a comprehensive management process for identifying, measuring, monitoring and controlling liquidity risk. Because of its critical importance to the viability of the Bank, liquidity risk management is fully integrated into our risk management processes. Critical elements of our liquidity risk management include: effective corporate governance consisting of oversight by the board of directors and active involvement by management; appropriate strategies, policies, procedures, and limits used to manage and mitigate liquidity risk; comprehensive liquidity risk measurement and monitoring systems (including assessments of the current and prospective cash flows or sources and uses of funds) that are commensurate with the complexity and business activities of the Bank; active management of intraday liquidity and collateral; an appropriately diverse mix of existing and potential future funding sources; adequate levels of highly liquid marketable securities free of legal, regulatory or operational impediments, that can be used to meet liquidity needs in stressful situations;

comprehensive contingency funding plans that sufficiently address potential adverse liquidity events and emergency cash flow
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requirements; and internal controls and internal audit processes sufficient to determine the adequacy of the institution’s liquidity risk management process.
The movement of funds on our balance sheet among different SEN deposit customers does not reduce the Bank’s deposits and thus does not presentresult in liquidity issues or require any borrowing by the Company or the Bank. In addition, to the extent that SEN participants fully withdraw funds from the Bank, no material liquidity issues or borrowing needs would be presentedarise since the majority of SEN deposit fundsparticipants deposits are held in cash or other liquid assets, such as available-for-sale securities.securities and cash, or used to fund short-term mortgage warehouse loans.
We expect funds to be available from basic banking activity sources, including the core deposit base, the repayment and maturity of loans and investment security cash flows. Other potential funding sources include borrowings from the FHLB, the FRB, other lines of credit and brokered certificates of deposit. At June 30, 2020,March 31, 2021, we had $360.0 million in outstanding FHLB advances. We did not have any borrowings outstanding with the FRB at June 30, 2020. As of June 30, 2020, we had an additional $193.3$866.7 million of available borrowing capacity from the FHLB, $4.5$5.1 million of available borrowing capacity from the FRB and available lines of credit of $68.0 million with other correspondent banks. Cash and cash equivalents at June 30, 2020March 31, 2021 were $199.4 million.$4.3 billion. Accordingly, our liquidity resources were at sufficient levels to fund loans and meet other cash needs as necessary.
Capital Resources
Shareholders’ equity increased $37.1$419.3 million to $268.1$713.6 million at June 30, 2020March 31, 2021, compared to $231.0$294.3 million at December 31, 2019.2020. The increase in shareholders’ equity was primarily due to two equity offerings, which resulted in the issuance of a total of 5,860,858 shares of Class A common stock for aggregate gross proceeds of $441.1 million and net proceeds of $423.5 million after deducting underwriting discounts and offering expenses, as applicable, in addition to net income for the sixthree months ended June 30, 2020,March 31, 2021, which amounted to $9.9$12.7 million, and an increasepartially offset by a decrease in accumulated other comprehensive income of $26.9$15.5 million. The increase in accumulated other comprehensive income was primarily due
On March 9, 2021, the Company entered into an equity distribution agreement pursuant to unrealized gains on derivatives purchased in connection with our hedging strategywhich the Company may issue and unrealized gains on our available-for-sale securities portfolio.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 May 11, 2021, the ATM program has a remaining availability of approximately $85.6 million.
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum ratios of common equity Tier 1, Tier 1, and total capital as a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 1,250%. The Bank is also required to maintain capital at a minimum level based on quarterly average assets, which is known as the leverage ratio.
In July 2013, federal bank regulatory agencies issued a final rule that revised their risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with certain standards that were developed by Basel III and certain provisions of the Dodd-Frank Act. The final rule currently applies to all depository institutions and bank holding companies and savings and loan holding companies with total consolidated assets of more than $3 billion. The Company has total consolidated assets of less than $3 billion and is currently exempt from the consolidated capital requirements.
As of June 30, 2020,March 31, 2021, the Bank was in compliance with all applicable regulatory capital requirements to which it was subject, and was classified as “well capitalized” for purposes of the prompt corrective action regulations. As we deploy our capital and continue to grow our operations, our regulatory capital levels may decrease depending on our level of earnings. However, we intend to monitor and control our growth to remain in compliance with all regulatory capital standards applicable to us.

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The following table presents the regulatory capital ratios for the Company (assuming minimum capital adequacy ratios were applicable to the Company) and the Bank as of the dates indicated:
 Actual
Minimum capital
adequacy(1)
To be well
capitalized
 AmountRatioAmountRatioAmountRatio
 (Dollars in thousands)
March 31, 2021
The Company
Tier 1 leverage ratio$698,604 9.68 %$288,754 4.00 %N/AN/A
Common equity tier 1 capital ratio683,104 53.03 %57,967 4.50 %N/AN/A
Tier 1 risk-based capital ratio698,604 54.23 %77,289 6.00 %N/AN/A
Total risk-based capital ratio705,820 54.79 %103,052 8.00 %N/AN/A
The Bank
Tier 1 leverage ratio685,463 9.50 %288,744 4.00 %$360,930 5.00 %
Common equity tier 1 capital ratio685,463 53.24 %57,934 4.50 %83,682 6.50 %
Tier 1 risk-based capital ratio685,463 53.24 %77,245 6.00 %102,994 8.00 %
Total risk-based capital ratio692,679 53.80 %102,994 8.00 %128,742 10.00 %
Actual
Minimum capital
adequacy(1)
To be well
capitalized
 Actual Minimum capital
adequacy		 To be well
capitalized		 AmountRatioAmountRatioAmountRatio
 Amount Ratio Amount Ratio Amount Ratio
             (Dollars in thousands)
 (Dollars in thousands)
June 30, 2020            
December 31, 2020December 31, 2020
The Company            The Company
Tier 1 leverage ratio $250,335
 11.57% $86,543
 4.00% N/A
 N/A
Tier 1 leverage ratio$263,763 8.29 %$127,338 4.00 %N/AN/A
Common equity tier 1 capital ratio 234,835
 23.32% 45,317
 4.50% N/A
 N/A
Common equity tier 1 capital ratio248,263 21.53 %51,882 4.50 %N/AN/A
Tier 1 risk-based capital ratio 250,335
 24.86% 60,423
 6.00% N/A
 N/A
Tier 1 risk-based capital ratio263,763 22.88 %69,176 6.00 %N/AN/A
Total risk-based capital ratio 257,213
 25.54% 80,564
 8.00% N/A
 N/A
Total risk-based capital ratio270,803 23.49 %92,234 8.00 %N/AN/A
The Bank            The Bank
Tier 1 leverage ratio 236,281
 10.92% 86,519
 4.00% $108,149
 5.00%Tier 1 leverage ratio261,791 8.22 %127,344 4.00 %$159,180 5.00 %
Common equity tier 1 capital ratio 236,281
 23.48% 45,279
 4.50% 65,404
 6.50%Common equity tier 1 capital ratio261,791 22.71 %51,869 4.50 %74,923 6.50 %
Tier 1 risk-based capital ratio 236,281
 23.48% 60,373
 6.00% 80,497
 8.00%Tier 1 risk-based capital ratio261,791 22.71 %69,159 6.00 %92,212 8.00 %
Total risk-based capital ratio 243,159
 24.17% 80,497
 8.00% 100,621
 10.00%Total risk-based capital ratio268,831 23.32 %92,212 8.00 %115,265 10.00 %
________________________
  Actual Minimum capital
adequacy		 To be well
capitalized
  Amount Ratio Amount Ratio Amount Ratio
             
  (Dollars in thousands)
December 31, 2019            
The Company            
Tier 1 leverage ratio $240,135
 11.23% $85,501
 4.00% N/A
 N/A
Common equity tier 1 capital ratio 224,635
 24.52% 41,233
 4.50% N/A
 N/A
Tier 1 risk-based capital ratio 240,135
 26.21% 54,978
 6.00% N/A
 N/A
Total risk-based capital ratio 246,447
 26.90% 73,304
 8.00% N/A
 N/A
The Bank            
Tier 1 leverage ratio 224,605
 10.52% 85,399
 4.00% $106,749
 5.00%
Common equity tier 1 capital ratio 224,605
 24.55% 41,163
 4.50% 59,458
 6.50%
Tier 1 risk-based capital ratio 224,605
 24.55% 54,884
 6.00% 73,179
 8.00%
Total risk-based capital ratio 230,917
 25.24% 73,179
 8.00% 91,474
 10.00%
(1)Minimum capital adequacy for common equity tier 1 capital ratio, tier 1 risk-based capital ratio and total risk-based capital ratio excludes the capital conservation buffer.
Off-Balance Sheet Items
In the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included in our consolidated statements of financial condition. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and issue letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk exceeding the amounts recognized in our consolidated statements of financial condition. Our exposure to credit loss is represented by the contractual amounts of these commitments. The same credit policies and procedures are used in making these commitments as for on-balance sheet instruments. We are not aware of any accounting loss to be incurred by funding these commitments; however, we maintain an allowance for off-balance sheet credit risk which is recorded in other liabilities on the consolidated statements of financial condition. For details of our commitments to extend credit, and commercial and standby letters of credit, please refer to “Note 9—8—Commitments and Contingencies—Off-Balance Sheet Items” of the “Notes to Unaudited Condensed Consolidated Financial Statements” under Part I, Item 1 of this Quarterly Report on Form 10-Q.
Non-GAAP Financial Measures
Our accounting and reporting policies conform to GAAP and the prevailing practices in the banking industry. However, we also evaluate our performance based on certain additional financial measures discussed in this Quarterly Report on Form 10-Q as being “non-GAAP financial measures.” We identify certain financial measures as non-GAAP financial measures if that financial measure excludes or includes amounts, that are not included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP in our statements of operations, financial condition or

cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios that are calculated using exclusively financial measures presented in accordance with GAAP.
This Quarterly Report on Form 10-Q includes certain non-GAAP financial measures for the six months ended June 30, 2020 and 2019 in order to present our results of operations for that period on a basis consistent with our historical operations. On November 15, 2018, the Company and the Bank entered into a purchase and assumption agreement with HomeStreet Bank to sell the Bank’s retail branch located in San Marcos, California and business loan portfolio to HomeStreet Bank. This transaction, which was completed in March 2019, generated a pre-tax gain on sale of $5.5 million. There were no non-GAAP adjustments for the three and six months ended June 30, 2020 or for the three months ended June 30, 2019.
We believe that these non-GAAP financial measures provide useful information to management and investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with GAAP. However, non-GAAP financial measures have a number of limitations, are not necessarily comparable to GAAP measures and should not be considered in isolation or viewed as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate non-GAAP financial measures may differ from that of other companies reporting non-GAAP measures with similar names. You should understand how such other companies calculate their financial measures that may be similar or have names that are similar to the non-GAAP financial measures discussed herein when comparing such non-GAAP financial measures. Our management uses the non-GAAP financial measures set forth below in its analysis of our performance.

  Six Months Ended
June 30,
  2020 2019
     
   
Net income    
Net income, as reported $9,859
 $14,592
Adjustments:    
Gain on sale of branch, net —
 (5,509)
Tax effect(1)
 —
 1,574
Adjusted net income $9,859
 $10,657
     
Noninterest income / average assets(2)
    
Noninterest income $10,365
 $10,025
Adjustments:    
Gain on sale of branch, net —
 (5,509)
Adjusted noninterest income 10,365
 4,516
Average assets 2,195,874
 1,991,171
Noninterest income / average assets, as reported 0.95% 1.02%
Adjusted noninterest income / average assets 0.95% 0.46%
     
Return on average assets (ROAA)(2)
    
Adjusted net income $9,859
 $10,657
Average assets 2,195,874
 1,991,171
Return on average assets (ROAA), as reported 0.90% 1.48%
Adjusted return on average assets 0.90% 1.08%
     
Return on average equity (ROAE)(2)
    
Adjusted net income $9,859
 $10,657
Average equity 249,767
 200,996
Return on average equity (ROAE), as reported 7.94% 14.64%
Adjusted return on average equity 7.94% 10.69%
     
Efficiency ratio    
Noninterest expense $27,847
 $26,207
Net interest income 31,530
 36,884
Noninterest income 10,365
 10,025
Total net interest income and noninterest income 41,895
 46,909
Adjustments:    
Gain on sale of branch, net —
 (5,509)
Adjusted total net interest income and noninterest income 41,895
 41,400
Efficiency ratio, as reported 66.47% 55.87%
Adjusted efficiency ratio 66.47% 63.30%
________________________
(1)Amount represents the total income tax effect of the adjustment, which is calculated based on the applicable marginal tax rate of 28.58%.
(2)Data has been annualized.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a financial institution, our primary component of market risk is interest rate volatility. Our Asset Liability Management Policy sets forth guidelines for effective funds management and establishes an approach for measuring and monitoring our net interest rate sensitivity.
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Interest rate risk is the probability of an increase or decline in the value of an asset or liability due to fluctuations in interest rates. These fluctuations have an impact on both the level of interest income and interest expense as well as the market value of all interest earning assets and liabilities. The objective is to measure the impact that different interest rate scenarios

have on net interest income and ensure that the results are within policy limits while maximizing income. The results can be reflected as an increase or decrease of future net interest income or an increase or decrease of current fair market value.
Exposure to interest rates is managed by structuring the balance sheet in a ‘business as usual’ or ‘base case’ scenario. We do not enter into instruments such as leveraged derivatives, financial options or financial future contracts for the purpose of reducing interest rate risk. We hedge interest rate risk by utilizing interest rate floors, interest rate caps and interest rate caps.swaps. The interest rate floors hedge our cash and securities, and the interest rate caps hedge our subordinated debentures.debentures and the interest rate swaps hedge our taxable municipal bonds. Based on the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.
Exposure to interest rate risk is managed by the Bank’s Asset Liability Management Committee in accordance with policies approved by the board of directors. The committee formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, the committee considers the impact on earnings and capital under the current interest rate outlook, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. The committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans, and the maturities of investments and borrowings. Additionally, the committee reviews liquidity, cash flow flexibility, maturities of deposits, and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk that include an analysis of relationships between interest earning assets and interest-bearing liabilities as well as utilizing an interest rate simulation model where various rate scenarios can be analyzed.
The following table indicates that, for periods less than one year, rate-sensitive assets exceed rate-sensitive liabilities, resulting in an asset-sensitive position. For a bank with an asset-sensitive position, or positive gap, rising interest rates would generally be expected to have a positive effect on net interest income, and falling interest rates would generally be expected to have the opposite effect. Due to our asset sensitive position, we have implemented a hedging strategy to reduce our interest rate risk exposure in a declining rate environment.
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INTEREST SENSITIVITY GAP 
Within One
Month		After One
Month
Through
Three
Months		After Three
Through
Twelve
Months		Within One
Year		Greater
Than One
Year or
Non
-Sensitive		Total
 
Within One
Month
 
After One
Month
Through
Three
Months
 
After Three
Through
Twelve
Months
 
Within One
Year
 
Greater
Than One
Year or
Non
-Sensitive
 Total
            (Dollars in thousands)
 (Dollars in thousands)
June 30, 2020            
March 31, 2021March 31, 2021
Assets            Assets
Interest earning assets            Interest earning assets
Loans(1)
 $547,989
 $53,974
 $172,883
 $774,846
 $347,300
 $1,122,146
Loans(1)
$1,136,583 $45,817 $185,535 $1,367,935 $264,598 $1,632,533 
Securities(2)
 467,012
 2,186
 17,843
 487,041
 477,552
 964,593
Securities(2)
935,858 4,517 25,921 966,296 767,963 1,734,259 
Interest earning deposits in other banks 183,183
 349
 2,135
 185,667
 —
 185,667
Interest earning deposits in other banks4,309,544 1,275 — 4,310,819 4,281 4,315,100 
Total earning assets $1,198,184
 $56,509
 $192,861
 $1,447,554
 $824,852
 $2,272,406
Total earning assets$6,381,985 $51,609 $211,456 $6,645,050 $1,036,842 $7,681,892 
Liabilities            Liabilities
Interest bearing liabilities            Interest bearing liabilities
Interest bearing deposits $106,125
 $—
 $—
 $106,125
 $268
 $106,393
Interest bearing deposits$112,071 $— $— $112,071 $382 $112,453 
Certificates of deposit —
 267
 392
 659
 721
 1,380
Certificates of deposit67 — 153 220 417 637 
Total interest bearing deposits 106,125
 267
 392
 106,784
 989
 107,773
Total interest bearing deposits112,138 — 153 112,291 799 113,090 
FHLB advances 350,000
 —
 10,000
 360,000
 —
 360,000
Total interest bearing liabilities $456,125
 $267
 $10,392
 $466,784
 $989
 $467,773
Total interest bearing liabilities$112,138 $— $153 $112,291 $799 $113,090 
Period gap $742,059
 $56,242
 $182,469
 $980,770
 $823,863
 $1,804,633
Period gap$6,269,847 $51,609 $211,303 $6,532,759 $1,036,043 $7,568,802 
Cumulative gap $742,059
 $798,301
 $980,770
 $980,770
 $1,804,633
  Cumulative gap$6,269,847 $6,321,456 $6,532,759 $6,532,759 $7,568,802 
Ratio of cumulative gap to total earning assets 32.66% 35.13% 43.16% 43.16% 79.42%  Ratio of cumulative gap to total earning assets81.62 %82.29 %85.04 %85.04 %98.53 %
________________________
(1)Includes loans held-for-sale.
(2)Includes FHLB and FRB stock.

(1)Includes loans held-for-sale.
(2)Includes trading and available-for-sale securities, FHLB and FRB stock.
We use quarterly Interest Rate Risk, or IRR, simulations to assess the impact of changing interest rates on our net interest income and net income under a variety of scenarios and time horizons. These simulations utilize both instantaneous and parallel changes in the level of interest rates, as well as non-parallel changes such as changing slopes and twists of the yield curve. Static simulation models are based on current exposures and assume a constant balance sheet with no new growth. Dynamic simulation models are also utilized that rely on detailed assumptions regarding changes in existing lines of business, new business, and changes in management and client behavior.
We also use economic value-based methodologies to measure the degree to which the economic values of the Bank’s positions change under different interest rate scenarios. The economic-value approach focuses on a longer-term time horizon and captures all future cash flows expected from existing assets and liabilities. The economic value model utilizes a static approach in that the analysis does not incorporate new business; rather, the analysis shows a snapshot in time of the risk inherent in the balance sheet.
Many assumptions are used to calculate the impact of interest rate fluctuations on our net interest income, such as asset prepayments, non-maturity deposit price sensitivity and decay rates, and key rate drivers. Because of the inherent use of these estimates and assumptions in the model, our actual results may, and most likely will, differ from our static IRR results. In addition, static IRR results do not include actions that our management may undertake to manage the risks in response to anticipated changes in interest rates or client behavior. For example, as part of our asset/liability management strategy, management can increase asset duration and decrease liability duration to reduce asset sensitivity, or to decrease asset duration and increase liability duration in order to increase asset sensitivity.
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The following table summarizes the results of our IRR analysis in simulating the change in net interest income and fair value of equity over a 12-month horizon as of June 30, 2020:March 31, 2021:

IMPACT ON NET INTEREST INCOME UNDER A STATIC BALANCE SHEET, PARALLEL INTEREST RATE SHOCK
Earnings at Risk as of: -100 bps Flat +100 bps +200 bps +300 bpsEarnings at Risk as of:-100 bpsFlat+100 bps+200 bps+300 bps
June 30, 2020 (2.41)% 0.00% 7.91% 14.84% 21.71%
March 31, 2021March 31, 2021(11.27)%0.00 %63.41 %126.46 %191.71 %
Utilizing an economic value of equity, or EVE, approach, we analyze the risk to capital from the effects of various interest rate scenarios through a long-term discounted cash flow model. This measures the difference between the economic value of our assets and the economic value of our liabilities, which is a proxy for our liquidation value. While this provides some value as a risk measurement tool, management believes IRR is more appropriate in accordance with the going concern principle.
The following table illustrates the results of our EVE analysis as of June 30, 2020.March 31, 2021.

ECONOMIC VALUE OF EQUITY ANALYSIS UNDER A STATIC BALANCE SHEET, PARALLEL INTEREST RATE SHOCK
As of:-100 bpsFlat+100 bps+200 bps+300 bps
March 31, 2021(20.26)%0.00 %17.39 %39.04 %61.12 %
As of: -100 bps Flat +100 bps +200 bps +300 bps
June 30, 2020 (5.25)% 0.00% 4.84% 6.15% 5.93%
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2020.March 31, 2021.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended June 30, 2020March 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


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Table of Contents
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently subject to any material legal proceedings. We are from time to time subject to claims and litigation arising in the ordinary course of business. These claims and litigation may include, among other things, allegations of violation of banking and other applicable regulations, competition law, labor laws and consumer protection laws, as well as claims or litigation relating to intellectual property, securities, breach of contract and tort. We intend to defend ourselves vigorously against any pending or future claims and litigation.
In the current opinion of management, the likelihood is remote that the impact of such proceedings, either individually or in the aggregate, would have a material adverse effect on our results of operations, financial condition or cash flows. However, one or more unfavorable outcomes in any claim or litigation against us could have a material adverse effect for the period in which they are resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are costly, divert management’s attention and may materially adversely affect our reputation, even if resolved in our favor.
Item 1A. Risk Factors
The section titled Risk Factors in Part I, Item 1A of our 2019 Form 10-K includes a discussion of the many risks and uncertainties we face, any one or more of which couldThere have abeen no material adverse effect on our business, results of operations, financial condition (including capital and liquidity), or prospects or the value of or return on an investment in the Company. The information presented below provides an updatechanges to and should be read in conjunction with, the risk factors and other information contained in our 2019 Form 10-K.
The recent COVID-19 pandemic has led to periods of significant volatility in financial, commodities and other markets and could harm our business and results of operations.
In December 2019, COVID-19 was first reported in Wuhan, Hubei Province, China. Since then, COVID-19 infections have spread to additional countries including the United States. In March 2020, the World Health Organization declared COVID-19 to be a pandemic. Given the ongoing and dynamic nature of the circumstances surrounding this pandemic, it is difficult to predict the impact of the pandemic on our business, and there is no guarantee that our efforts to address or mitigate the adverse impacts of the coronavirus pandemic will be effective. The impact to date has included periods of significant volatility in financial, commodities and other markets. This volatility has had and, if it continues, could continue to have an adverse impact on our customers and on our business, financial condition and results of operations as well as our growth strategy.
Our business is dependent upon the willingness and ability of our customers to conduct banking and other financial transactions. The spread of COVID-19 has caused and could continue to cause severe disruptionsdisclosed in the U.S. economy at large, and has resulted and may continue to result in disruptions to our customers’ businesses, and a decrease in consumer confidence and business generally. In addition, recent actions by U.S. federal, state and local governments to address the pandemic, including travel bans, stay-at-home orders and school, business and entertainment venue closures, has had and may continue to have a significant adverse effectCompany’s Annual Report on our customers and the markets in which we conduct our business. The extent of impacts resulting from the coronavirus pandemic and other events beyond our control will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus pandemic and actions taken to contain the coronavirus or its impact, among others.
Disruptions to our customers could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans. The escalation of the pandemic may also negatively impact regional economic conditions for a period of time, resulting in declines in local loan demand, liquidity of loan guarantors, loan collateral (particularly in real estate), loan originations and deposit availability. If the global response to contain COVID-19 escalates or is unsuccessful, we could experience a material adverse effect on our business, financial condition, results of operations and cash flows.
The spread of the COVID-19 outbreak and the governmental responses may disrupt banking and other financial activity in the areas in which we operate and could potentially create widespread business continuity issues for us.
The outbreak of COVID-19 and the U.S. federal, state and local governmental responses may result in a disruption in the services we provide. We rely on our third-party vendors to conduct business and to process, record, and monitor transactions. If any of these vendors are unable to continue to provide us with these services or experience interruptions in their ability to provide us with these services, it could negatively impact our ability to serve our customers. Furthermore, the coronavirus pandemic could negatively impact the ability of our employees and customers to engage in banking and other financial transactions in the geographic areas in which we operate and could create widespread business continuity issues

for us. We also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to infection, quarantine or other effects and restrictions of a COVID-19 outbreak in our market areas. Although we have business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective. If we are unable to promptly recover from such business disruptions, our business and financial conditions and results of operations would be adversely affected. We also may incur additional costs to remedy damages caused by such disruptions, which could adversely affect our financial condition and results of operations.
Interest rate volatility stemming from COVID-19 could negatively affect our net interest income, lending activities, deposits and profitability.
Our net interest income, lending activities, deposits and profitability could be negatively affected by volatility in interest rates caused by uncertainties stemming from COVID-19. In March 2020, the Federal Reserve lowered the target rangeForm 10-K for the federal funds rate to a range from 0 to 0.25 percent, citing concerns aboutyear ended December 31, 2020, as filed with the impact of COVID-19SEC on markets and stress in the energy sector. A prolonged period of extremely volatile and unstable market conditions may increase our funding costs and negatively affect market risk mitigation strategies. Higher income volatility from changes in interest rates and spreads to benchmark indices could cause a loss of future net interest income and a decrease in current fair market values of our assets. Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition.March 8, 2021.
We are subject to increasing credit risk as a result of the COVID-19 pandemic, which could adversely impact our profitability.
Our business depends on our ability to successfully measure and manage credit risk. As a commercial lender, we are exposed to the risk that the principal of, or interest on, a loan will not be paid timely or at all or that the value of any collateral supporting a loan will be insufficient to cover our outstanding exposure. In addition, we are exposed to risks with respect to the risks resulting from changes in economic and industry conditions and risks inherent in dealing with individual loans and borrowers. As the overall economic climate in the U.S., generally, and in our market areas specifically, experiences material disruption due to the COVID-19 pandemic, our borrowers may experience difficulties in repaying their loans and governmental actions may provide payment relief to borrowers affected by COVID-19 and preclude our ability to initiate foreclosure proceedings in certain circumstances and, as a result, the collateral we hold may decrease in value or become illiquid, and the level of our nonperforming loans, charge-offs and delinquencies could rise and require significant additional provisions for credit losses. Additional factors related to the credit quality of certain commercial real estate and multi-family residential loans include the duration of state and local moratoriums on evictions for non-payment of rent or other fees. The payment on these loans that are secured by income producing properties are typically dependent on the successful operation of the related real estate property and may subject us to risks from adverse conditions in the real estate market or the general economy.
We are actively working to support our borrowers to mitigate the impact of the COVID-19 pandemic on them and on our loan portfolio, including through loan modifications that defer payments for those who experienced a hardship as a result of the COVID-19 pandemic. Although recent regulatory guidance provides that such loan modifications are exempt from the calculation and reporting of TDRs and loan delinquencies, we cannot predict whether such loan modifications may ultimately have an adverse impact on our profitability in future periods. Our inability to successfully manage the increased credit risk caused by the COVID-19 pandemic could have a material adverse effect on our business, financial condition and results of operations.
Unpredictable future developments related to or resulting from the COVID-19 pandemic could materially and adversely affect our business and results of operations.
Because there have been no comparable recent global pandemics that resulted in a similar global impact, we do not yet know the full extent of the COVID-19 pandemic’s effects on our business, operations, or the global economy as a whole. Any future development will be highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the effectiveness of our work from home arrangements, third party providers’ ability to support our operation, and any actions taken by governmental authorities and other third parties in response to the pandemic. We are continuing to monitor the COVID-19 pandemic and related risks, although the rapid development and fluidity of the situation precludes any specific prediction as to its ultimate impact on us. However, if the pandemic continues to spread or otherwise results in a continuation or worsening of the current economic and commercial environments, our business, financial condition, results of operations and cash flows as well as our regulatory capital and liquidity ratios could be materially adversely affected and many of the risks described in our 2019 Form 10-K will be heightened.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Effective August 7, 2020, the Company entered into employment agreements with its three named executive officers, as described below. These employment agreements supersede and replace the prior employment agreementNone.
57
Table of Mr. Lane, dated as of January 1, 2018, and the change in control severance agreement of Mr. Eisele, dated as of September 29, 2005. Copies of these agreements appear as Exhibits to this Quarterly Report on Form 10-Q.
Executive Employment Agreement with Alan J. Lane
Effective August 7, 2020, the Company and the Bank entered into an employment agreement with Mr. Lane pursuant to which he serves as President and Chief Executive Officer of the Company and as Chief Executive Officer of the Bank. Under his employment agreement, Mr. Lane is entitled to an annual base salary of $492,003, subject to increase from time to time in the Company’s sole discretion. Mr. Lane is also eligible to receive an annual incentive bonus. The amount of the incentive bonus is based on the attainment of performance criteria established and evaluated by our board of directors, provided that the target annual bonus is equal to 75% of his annual base salary, which incentive bonus shall be paid in cash. In addition, Mr. Lane may be granted an annual long-term incentive benefit, comprised of restricted stock and options, subject to the terms and progressive vesting contained in the 2018 Equity Compensation Plan. Mr. Lane is eligible to receive benefits under any employee benefit plans made available to senior executives including, but not limited to, retirement plans, supplemental retirement plans, medical, dental, disability, life insurance plans, and any other employee benefit plan or arrangement made available by the Company or the Bank to its senior executives.
In the event of a termination of Mr. Lane’s employment (i) by the Bank without “cause” or (ii) within twelve (12) months following a “change of control,” by the Bank (or any successor in interest to the Bank that has assumed the Bank’s obligation under his employment agreement) without “cause” or by Mr. Lane for “good reason,” in each case as such terms are defined in his employment agreement, Mr. Lane would be entitled to receive (A) twenty-four (24) months of base salary; (B) payment in full of the prorated target bonus due for the year in which he was terminated and any bonus due for the previous completed performance period (if not previously paid), subject to such payroll deductions and withholdings as are required by law; and (C) twenty-four (24) months of any health insurance benefits that Mr. Lane was receiving at the time of termination of his employment under a Bank employee health insurance plan subject to COBRA.Contents
The payment of all such severance amounts and benefits is contingent upon Mr. Lane’s timely execution, and non- revocation of, a release of all claims in a form provided by the Company, and the continued observance of all post-termination obligations contained in the employment agreement.
The foregoing description of the employment agreement is qualified in its entirety by reference to the full and complete copy of the employment agreement attached as Exhibit 10.1 to this Quarterly Report on Form 10-Q.
Executive Employment Agreement with Derek J. Eisele
Effective August 7, 2020, the Company and the Bank entered into an employment agreement with Mr. Eisele pursuant to which he serves as Executive Vice President of the Company and as President and Chief Credit Officer of the Bank. Under his employment agreement, Mr. Eisele is entitled to an annual base salary of $335,005, subject to increase from time to time in the Company’s sole discretion. Mr. Eisele is also eligible to receive an annual incentive bonus. The amount of the incentive bonus is based on the attainment of performance criteria established and evaluated by our board of directors, provided that the target annual bonus is equal to 40% of his annual base salary for the year ending December 31, 2020, and 30% of his annual base salary for the year ending December 31, 2021, and each year thereafter, which incentive bonus shall be paid in cash. In addition, Mr. Eisele may be granted an annual long-term incentive benefit, comprised of restricted stock and options, subject to the terms and progressive vesting contained in the 2018 Equity Compensation Plan. Mr. Eisele is eligible to receive benefits under any employee benefit plans made available to senior executives including, but not limited to, retirement plans, supplemental retirement plans, medical, dental, disability, life insurance plans, and any other employee benefit plan or arrangement made available by the Company or the Bank to its senior executives.

In the event of a termination of Mr. Eisele’s employment (i) by the Bank without “cause” (as defined in his employment agreement) Mr. Eisele would be entitled receive (A) twelve (12) months of base salary; (B) payment in full of the prorated target bonus due for the year in which he was terminated and any bonus due for the previous completed performance period (if not previously paid), subject to such payroll deductions and withholdings as are required by law; and (C) twelve (12) months of any health insurance benefits that Mr. Eisele was receiving at the time of termination of his employment under a Bank employee health insurance plan subject to COBRA, or (ii) within twelve (12) months following a “change of control,” by the Bank (or any successor in interest to the Bank that has assumed the Bank’s obligation under his employment agreement) without “cause” or by Mr. Eisele for “good reason” (as such terms are defined in his employment agreement), Mr. Eisele would be entitled to receive (A) twenty-four (24) months of base salary; (B) payment in full of the prorated target bonus due for the year in which he was terminated and any bonus due for the previous completed performance period (if not previously paid), subject to such payroll deductions and withholdings as are required by law; and (C) twelve (12) months of any health insurance benefits that Mr. Eisele was receiving at the time of termination of his employment under a Bank employee health insurance plan subject to COBRA.
The payment of all such severance amounts and benefits is contingent upon Mr. Eisele’s timely execution, and non- revocation of, a release of all claims in a form provided by the Company, and the continued observance of all post-termination obligations contained in his employment agreement.
The foregoing description of the employment agreement is qualified in its entirety by reference to the full and complete copy of the employment agreement attached as Exhibit 10.2 to this Quarterly Report on Form 10-Q.
Executive Employment Agreement with Benjamin C. Reynolds
Effective August 7, 2020, the Company and the Bank entered into an employment agreement with Mr. Reynolds pursuant to which he serves as Executive Vice President, Director of Corporate Development of the Company and the Bank. Under his employment agreement, Mr. Reynolds is entitled to an annual base salary of $281,008, subject to increase from time to time in the Company’s sole discretion. Mr. Reynolds is also eligible to receive an annual incentive bonus. The amount of the incentive bonus is based on the attainment of performance criteria established and evaluated by our board of directors, provided that the target annual bonus is equal to 40% of his annual base salary, which incentive bonus shall be paid in cash. In addition, Mr. Reynolds may be granted an annual long-term incentive benefit, comprised of restricted stock and options, subject to the terms and progressive vesting contained in the 2018 Equity Compensation Plan. Mr. Reynolds is eligible to receive benefits under any employee benefit plans made available to senior executives including, but not limited to, retirement plans, supplemental retirement plans, medical, dental, disability, life insurance plans, and any other employee benefit plan or arrangement made available by the Company or the Bank to its senior executives.
In the event of a termination of Mr. Reynolds’s employment (i) by the Bank without “cause” or (ii) within twelve (12) months following a “change of control,” by the Bank (or any successor in interest to the Bank that has assumed the Bank’s obligation under his employment agreement) without “cause” or by Mr. Reynolds for “good reason,” in each case as such terms are defined in his employment agreement, Mr. Reynolds would be entitled receive (A) twelve (12) months of base salary; (B) payment in full of the prorated target bonus due for the year in which he was terminated and any bonus due for the previous completed performance period (if not previously paid), subject to such payroll deductions and withholdings as are required by law; and (C) twelve (12) months of any health insurance benefits that Mr. Reynolds was receiving at the time of termination of his employment under a Bank employee health insurance plan subject to COBRA.
The payment of all such severance amounts and benefits is contingent upon Mr. Reynolds’s timely execution, and non- revocation of, a release of all claims in a form provided by the Company, and the continued observance of all post-termination obligations contained in his employment agreement.
The foregoing description of the employment agreement is qualified in its entirety by reference to the full and complete copy of the employment agreement attached as Exhibit 10.3 to this Quarterly Report on Form 10-Q.

Item 6. Exhibits
NumberDescription
3.1
3.2
10.1
10.2
Executive Employment Agreement, effective August 7, 2020, by and among Silvergate Bank, Silvergate Capital Corporation and Derek J. Eisele.
10.310.2
31.110.3
31.1
31.2
32.1
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definitions Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SILVERGATE CAPITAL CORPORATION
Date:AugustMay 11, 20202021By:/s/ Alan J. Lane
Alan J. Lane
President and Chief Executive Officer (Principal Executive Officer)
Date:AugustMay 11, 20202021By:/s/ Antonio Martino
Antonio Martino
Chief Financial Officer (Principal Financial and Accounting Officer)

6859