

California (State or other jurisdiction of incorporation or organization)						68-0270948 (I.R.S. employer identification number)

520 Third St, Fourth Floor, Santa Rosa, California (Address of principal executive offices)						95401 (Zip Code)

Registrant's telephone number, including area code: (844) 446-8201

Securities Registered Pursuant to Section 12(b) of the Act

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common stock, no par value

LBC

The Nasdaq Stock Market LLC

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 twelve 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 ☐~~Yes x No o

Indicate by checkmark whether the registrant has submitted electronically ~~and posted on its corporate Website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). ~~YES ☒ NO ☐~~Yes x No o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth ~~company (as defined~~company. See definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange ~~Act).~~Act.

Large accelerated filer

Accelerated filer

☒

Non-accelerated filer

Smaller Reporting Company

☒

Emerging Growth Company

☐

~~Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller Reporting Company ☐ Emerging Growth 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 or 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 ☒x

As of May ~~3, 2018,~~1, 2023, there were ~~56,560,775~~51,027,878 shares of the registrant’s common stock, no par value, outstanding.

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				Page
				~~Page~~
	PART I - FINANCIAL INFORMATION
Item 1.			Financial Statements	34
			~~Index~~Consolidated Statements of Financial Condition	4
			Unaudited Consolidated Statements of Income	5
			Unaudited Consolidated Statements of Comprehensive Income	6
			Unaudited Consolidated Statements of Changes in Stockholders' Equity	7
			Unaudited Consolidated Statements of Cash Flows	8
			Notes to Unaudited Consolidated Financial Statements	39
Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations	3537
Item 3.			Quantitative and Qualitative Disclosures About Market Risk	6061
Item 4.			Controls and Procedures	6264
			PART II - OTHER INFORMATION
Item 1.			Legal Proceedings	6466
Item 1A.			Risk Factors	66
Item ~~1A.~~2.			~~Risk Factors~~	64
~~Item 2.~~	Unregistered Sales of Equity Securities and Use of Proceeds	6466
Item 3.			Defaults Upon Senior Securities	6467
Item 4.			Mine Safety Disclosures	6467
Item 5.			Other Information	6467
Item 6.			Exhibits	~~Exhibits~~67	65
			~~SIGNATURES~~Signatures	6668

~~Safe Harbor Statement under~~

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Cautionary Statements Regarding Forward-Looking Information

All references to ‘‘we,’’ ‘‘our,’’ ‘‘us,’’ ‘‘Luther Burbank Corporation’’ or ‘‘the ~~Private Securities Litigation Reform Act of 1995~~

Company’’ refers to Luther Burbank Corporation, a California corporation, and our consolidated subsidiaries, including Luther Burbank Savings, a California banking corporation, unless the context indicates that we refer only to the parent company, Luther Burbank Corporation. ‘‘Bank’’ or ‘‘LBS’’ refers to Luther Burbank Savings, our banking subsidiary.

This ~~Quarterly Report on Form 10-Q may contain~~document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as ~~amended. You~~amended, including our current views with respect to, among other things, future events and our results of operations, financial condition, financial performance, plans and/or strategies. These forward-looking statements can ~~find many (but~~be identified by the fact that they do not ~~all)~~relate strictly to historical or current facts and may be identified by use of ~~these statements by looking for~~ words such as ~~“approximates,~~"anticipate," "believe," “continue,” ~~“believes,~~"could," "estimate," "expect," “impact,” ~~“expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may”~~"intend," "seek," "may," "outlook," "plan," "potential," "predict," "project," "should," "will," "would" and ~~other~~ similar ~~expressions in this Quarterly Report~~terms and phrases, including references to assumptions. These forward-looking statements are based on ~~Form 10-Q. With respect to~~current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control and involve a number of risks and uncertainties. Accordingly, we caution you that any such forward-looking statement is not a guarantee of future performance and that actual results may prove to be materially different from the results expressed or implied by the forward-looking statements due to a number of factors, including without limitation:

•interest rate, liquidity, economic, market, credit, operational and inflation risks associated with our business or industry, including the ~~Company claims~~speed and predictability of changes in these risks;

•our ability to retain deposits and attract new deposits and loans and the ~~protection~~composition and terms of such deposits and loans;

•our access to adequate sources of liquidity;

•business and economic conditions generally and in the financial services industry, nationally and within our current and future geographic markets, including the tight labor market, ineffective management of the ~~safe harbor provided for~~U.S. Federal budget, debt or debt ceiling, bank failures, or turbulence or uncertainty in domestic or foreign financial markets;

•any failure to adequately manage the transition from LIBOR as a reference rate;

•changes in the ~~Private Securities Litigation Reform Act~~level of ~~1995,~~our nonperforming assets and charge-offs;

•the adequacy of our allowance for credit losses;

•our management of risks inherent in our real estate loan portfolio, including the seasoning of the portfolio, the level of non-conforming loans, the number of large borrowers, and the risk of a prolonged downturn in the real estate market;

•significant market concentrations in California and Washington;

•the occurrence of significant natural or man-made disasters (including fires, earthquakes and terrorist acts), severe weather events, health crises and other catastrophic events;

•climate change, including any enhanced regulatory, compliance, credit and reputational risks and costs;

•political instability or the effects of war or other conflicts, including, but not limited to, the current conflict between Russia and Ukraine, as ~~amended. The Company cautions investors~~well as the civil unrest in Sudan;

•the announced merger with Washington Federal, Inc., including delays in the consummation of the merger or litigation or other conditions that ~~any forward-looking statements presented in this Quarterly Report on Form 10-Q,~~may cause the parties to abandon the merger or ~~those~~make the merger more expensive or less beneficial;

•the impact that the ~~Company~~announced merger may ~~make orally~~ have on our ability to attract and retain customers and key personnel, the value of our shares, our expenses, and/or our ability to conduct our business in ~~writing~~the ordinary course and execute on our strategies;

•the performance of our third-party vendors;

•fraud, financial crimes and fund transfer errors;

•failures, interruptions, cybersecurity incidents and data breaches involving our data, technology and systems and those of our customers and third-party providers;

•rapid technological changes in the financial services industry;

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•any inadequacy in our risk management framework or use of data and/or models;

•the laws and regulations applicable to our business, and the impact of recent and future legislative and regulatory changes;

•changing bank regulatory conditions, policies or programs, whether arising as new legislation or regulatory initiatives, that could lead to restrictions on activities of banks generally, or our subsidiary bank in particular, more restrictive regulatory capital requirements, increased costs, including deposit insurance premiums, regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products;

•our involvement from time to time ~~are based on~~in legal proceedings and examinations and remedial actions by regulators;

•increased competition in the ~~beliefs of, assumptions made by,~~financial services industry; and information available to, management at the time such statements are first made. Actual outcomes will be affected by known and unknown risks, trends, uncertainties and factors that are beyond the Company’s control or ability to predict. Although the Company believes that management’s beliefs and assumptions are reasonable, they are not guarantees of future performance and some will inevitably prove to be incorrect. As a result, the Company’s actual future results can be expected to differ from management’s expectations, and those differences may be material and adverse to the Company’s business, results of operations and financial condition. Accordingly, investors should use caution in placing any reliance on forward-looking statements to anticipate future results or trends.

Some of the risks and uncertainties that may cause the Company’s actual results, performance or achievements to differ materially from those expressed include, but are not limited to, the following: the risk that the impact of •changes in interest rates; political instability; changes in the monetary policies of the U.S. Government; a decline in economic conditions; deterioration in the value of California real estate, both residentialour reputation.

The foregoing factors should not be construed as exhaustive and commercial; an increase in the level of non-performing assets and charge-offs; further increased competition among financial institutions; the Company’s ability to continue to attract deposits and quality loan customers; further government regulation, including regulations regarding capital requirements, and the implementation and costs associatedshould be read together with the ~~same; internal and external fraud and cyber-security threats~~other cautionary statements included in our annual report on Form 10-K for the year ended December 31, 2022, including under the loss of bank or customer funds, loss of system functionality or the theft or loss of data; management’s ability to successfully manage the Company’s operations; and the other risks set forth in the Company’s reports filed with the U.S. Securities and Exchange Commission. For further discussion of these and other factors, see “Item 1A. Riskcaption “Risk Factors” in Item 1A of Part ~~II of this~~I, subsequent Quarterly ~~Report~~Reports on Form 10-Q, and other reports or filings with the ~~Company’s 2017 Annual Report~~Securities and Exchange Commission ("SEC"). You should not place undue reliance on ~~Form 10-K.~~

any of these forward-looking statements. Any forward-looking ~~statements in this Quarterly Report on Form 10-Q and all subsequent written and oral forward-looking statements attributable to the Company or any person acting on behalf~~statement speaks only as of the ~~Company are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. The Company does~~date on which it is made, and we do not undertake any obligation to ~~release publicly~~update or review any ~~revisions to~~ forward-looking ~~statements to reflect events~~statement, whether as a result of new information, future developments or ~~circumstances after the date such forward looking statements are made, and hereby specifically disclaims any intention to do so, unless~~otherwise, except as required by law.

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PART I.

Item 1. Financial Statements

~~Table of Contents~~



	~~Page~~
~~Consolidated Financial Statements:~~
~~Consolidated statements of financial condition~~	4
~~Consolidated statements of income~~	5
~~Consolidated statements of comprehensive income~~	6
~~Consolidated statements of changes in stockholders' equity~~	7
~~Consolidated statements of cash flows~~	8
~~Notes to consolidated financial statements~~	9

LUTHER BURBANK CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollar amounts in thousands)


	March 31, 2023 (unaudited)		December 31, 2022
ASSETS
Cash and cash equivalents	$	516,913	$	185,895

Available for sale debt securities, at fair value	593,427		607,348
Held to maturity debt securities, at amortized cost (fair value of $2,891 and $2,874 at March 31, 2023 and December 31, 2022, respectively)	3,080		3,108
Equity securities, at fair value	10,506		10,340

Loans receivable, net of allowance for credit losses ("ACL") on loans of $35,914 and $36,685 at March 31, 2023 and December 31, 2022, respectively	6,987,565		6,973,760
Accrued interest receivable	23,873		24,306
Federal Home Loan Bank ("FHLB") stock, at cost	46,007		32,694
Premises and equipment, net	13,333		13,661
Goodwill	3,297		3,297
Prepaid expenses and other assets	104,456		120,223
Total assets	$	8,302,457	$	7,974,632

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits	$	5,649,494	$	5,839,340
FHLB advances	1,701,647		1,208,147
Junior subordinated deferrable interest debentures	61,857		61,857
Senior debt
$95,000 face amount, 6.5% interest rate, due September 30, 2024 (less debt issuance costs of $184 and $215 at March 31, 2023 and December 31, 2022, respectively)	94,816		94,785
Accrued interest payable	7,430		3,964
Other liabilities and accrued expenses	91,052		84,003
Total liabilities	7,606,296		7,292,096

Commitments and contingencies (Note 17)

Stockholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized; none issued and outstanding at March 31, 2023 and December 31, 2022, respectively	—		—
Common stock, no par value; 100,000,000 shares authorized; 51,030,877 and 51,073,272 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively	398,363		398,988
Retained earnings	331,069		317,711
Accumulated other comprehensive loss, net of taxes	(33,271)		(34,163)
Total stockholders' equity	696,161		682,536
Total liabilities and stockholders' equity	$	8,302,457	$	7,974,632

See accompanying notes to unaudited consolidated financial statements

March 31,
2018 (unaudited) December 31,
2017
ASSETS

Cash and cash equivalents $ 74,421
$ 75,578
Available for sale investment securities, at fair value 538,440
503,288
Held to maturity investment securities, at amortized cost (fair value of $12,013 and $6,925 at March 31, 2018 and December 31, 2017, respectively) 12,237
6,921
Loans receivable, net of allowance for loan losses of $31,980 and $30,312 as of March 31, 2018 and December 31,2017, respectively 5,294,429
5,011,235
Accrued interest receivable 16,137
14,901
Federal Home Loan Bank ("FHLB") stock, at cost 33,023
27,733
Premises and equipment, net 21,862
22,452
Goodwill 3,297
3,297
Prepaid expenses and other assets 40,042
38,975

Total assets $ 6,033,888
$ 5,704,380

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 4,114,026
$ 3,951,238
Federal Home Loan Bank advances 1,158,153
989,260
Junior subordinated deferrable interest debentures 61,857
61,857
Senior debt
$95,000 face amount, 6.5% interest rate, due September 30, 2024 (less debt issuance costs of $805 and $839 at March 31, 2018 and December 31, 2017, respectively) 94,195
94,161
Accrued interest payable 2,329
1,781
Other liabilities and accrued expenses 49,577
56,338

Total liabilities 5,480,137
5,154,635

Commitments and contingencies (Note 17)

Stockholders' equity:
Common stock, no par value; 100,000,000 shares authorized; 56,561,055 and 56,422,662 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively 455,251
454,287
Retained earnings 105,750
102,459
Accumulated other comprehensive loss, net of taxes (7,250 ) (7,001 )

Total stockholders' equity 553,751
549,745

Total liabilities and stockholders' equity $ 6,033,888
$ 5,704,380

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LUTHER BURBANK CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollar amounts in thousands, except per share data)


	Three Months Ended March 31,
	2023		2022
Interest and fee income:
Loans	$	74,604	$	53,633
Investment securities	5,488		2,301
Cash and cash equivalents	3,303		66
Total interest and fee income	83,395		56,000
Interest expense:
Deposits	37,607		6,020
FHLB advances	9,262		3,097
Junior subordinated deferrable interest debentures	966		275
Senior debt	1,574		1,574
Total interest expense	49,409		10,966
Net interest income before provision for credit losses	33,986		45,034
Reversal of provision for credit losses	(795)		(2,500)
Net interest income after provision for credit losses	34,781		47,534
Noninterest income:

FHLB dividends	577		354
Other income	658		(296)
Total noninterest income	1,235		58
Noninterest expense:
Compensation and related benefits	10,671		10,219
Deposit insurance premium	884		481
Professional and regulatory fees	436		539
Occupancy	1,184		1,194
Depreciation and amortization	649		603
Data processing	862		988
Marketing	739		458
Other expenses	1,509		1,030
Total noninterest expense	16,934		15,512
Income before provision for income taxes	19,082		32,080
Provision for income taxes	5,640		9,140
Net income	$	13,442	$	22,940

Basic earnings per common share	$	0.26	$	0.45
Diluted earnings per common share	$	0.26	$	0.45
Dividends per common share	$	—	$	0.12

See accompanying notes to unaudited consolidated financial statements

Three Months Ended March 31,
2018 2017
Interest income:
Interest and fees on loans $ 46,563
$ 38,743
Interest and dividends on investment securities 2,718
1,653
Total interest income 49,281
40,396
Interest expense:
Interest on deposits 11,932
8,314
Interest on FHLB advances 4,820
3,275
Interest on junior subordinated deferrable interest debentures 487
380
Interest on senior debt 1,577
1,577
Total interest expense 18,816
13,546
Net interest income before provision for loan losses 30,465
26,850
Provision for loan losses (Note 3) 1,500
309
Net interest income after provision for loan losses 28,965
26,541
Noninterest income:
Increase in cash surrender value of life insurance 53
49
Net loss on sale of loans —
(163 )
FHLB dividends 594
633
Other income 378
363
Total noninterest income 1,025
882
Noninterest expense:
Compensation and related benefits 9,619
10,197
Deposit insurance premium 432
398
Professional and regulatory fees 398
185
Occupancy 1,296
1,298
Depreciation and amortization 714
735
Data processing 788
790
Marketing 213
179
Other expenses 1,253
921
Total noninterest expense 14,713
14,703
Income before provision for income taxes 15,277
12,720
Provision for income taxes 4,175
425
Net income $ 11,102
$ 12,295

Basic earnings per common share $ 0.20
$ 0.29
Diluted earnings per common share $ 0.20
$ 0.29
Weighted average common shares outstanding - basic 56,190,970
42,000,000
Weighted average common shares outstanding - diluted 56,755,154
42,000,000

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LUTHER BURBANK CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Dollar amounts in thousands)


	Three Months Ended March 31,
	2023		2022
Net income	$	13,442	$	22,940
Other comprehensive income (loss):
Unrealized gain (loss) on available for sale debt securities:
Unrealized holding gain (loss) arising during the period	1,257		(16,965)

Tax effect	(365)		4,919
Total other comprehensive income (loss), net of tax	892		(12,046)





Comprehensive income	$	14,334	$	10,894

See accompanying notes to unaudited consolidated financial statements

Three Months Ended March 31,
2018 2017
Net income $ 11,102
$ 12,295
Other comprehensive (loss) income:
Unrealized (loss) gain on available for sale investment securities:
Unrealized holding (loss) gain arising during the period (2,971 ) 609
Tax effect 843
(21 )
Net of tax (2,128 ) 588
Unrealized gain on cash flow hedge:
Unrealized holding gain arising during the period 181
50
Tax effect (52 ) (2 )
Net of tax 129
48
Total other comprehensive (loss) income (1,999 ) 636
Comprehensive income $ 9,103
$ 12,931

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LUTHER BURBANK CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022 (UNAUDITED)

(Dollar amounts in thousands, except per share data)



						Accumulated Other Comprehensive Income (Loss) (Net of Taxes)		Total Stockholders' Equity
	Common Stock			Retained Earnings		Available for Sale Securities
	Shares	Amount
Balance, December 31, 2021	51,682,398	$	406,904	$	262,141	$	88		$	669,133

Net income	—	—		22,940		—			22,940
Other comprehensive loss	—	—		—		(12,046)			(12,046)

Restricted stock award grants	206,675	—		—		—			—
Settled restricted stock units	6,759	—		—		—			—
Shares withheld to pay taxes on stock based compensation	(62,422)	(875)		—		—			(875)
Restricted stock forfeitures	(4,100)	(4)		2		—			(2)
Stock based compensation expense	—	714		—		—			714
Shares repurchased	(425,396)	(5,637)		—		—			(5,637)
Cash dividends ($0.12 per share)	—	—		(6,227)		—			(6,227)
Balance, March 31, 2022	51,403,914	$	401,102	$	278,856	$	(11,958)		$	668,000

Balance, December 31, 2022	51,073,272	$	398,988	$	317,711	$	(34,163)		$	682,536
Cumulative effect of change in accounting principal (1)	—	—		(84)		—			(84)
Net income	—	—		13,442		—			13,442
Other comprehensive income	—	—		—		892			892
Restricted stock award grants	42,034	—		—		—			—
Settled restricted stock units	15,426	—		—		—			—
Shares withheld to pay taxes on stock based compensation	(99,855)	(1,098)		—		—			(1,098)

Stock based compensation expense	—	473		—		—			473


Balance, March 31, 2023	51,030,877	$	398,363	$	331,069	$	(33,271)		$	696,161

(1) Represents the impact of the adoption of Accounting Standards Update ("ASU") 2016-13, Financial Instruments – Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments, and the related amendments which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss ("CECL") methodology.

See accompanying notes to unaudited consolidated financial statements

Accumulated Other Comprehensive (Loss) Income (Net of Taxes) Total Stockholders' Equity
Common Stock Retained Earnings Available for Sale Securities Cash Flow Hedge
Shares Amount
Balance, December 31, 2016 42,000,000
$ 2,262
$ 407,648
$ (4,374 ) $ (1,161 ) $ 404,375
Comprehensive income:
Net income —
—
12,295
—
—
12,295
Other comprehensive income —
—
—
588
48
636
Cash dividends ($0.23 per share) —
—
(9,800 ) —
—
(9,800 )
Balance, March 31, 2017 42,000,000
$ 2,262
$ 410,143
$ (3,786 ) $ (1,113 ) $ 407,506

Balance, December 31, 2017 56,422,662
$ 454,287
$ 102,459
$ (6,214 ) $ (787 ) $ 549,745
Comprehensive income:
Net income —
—
11,102
—
—
11,102
Other comprehensive (loss) income —
—
—
(2,128 ) 129
(1,999 )
Reclassification of prior year tax benefit related to re-measuring deferred taxes on items recorded to other comprehensive income —
—
(1,750 ) 1,529
221
—
Issuance of restricted stock awards 131,140
—
—
—
—
—
Vested restricted stock units 12,710
—
—
—
—
—
Shares withheld to pay taxes on stock based compensation (4,057 ) (49 ) —
—
—
(49 )
Restricted stock forfeitures (1,400 ) (1 ) —
—
—
(1 )
Stock-based compensation expense —
1,014
—
—
—
1,014
Cash dividends ($0.11 per share) —
—
(6,061 ) —
—
(6,061 )
Balance, March 31, 2018 56,561,055
$ 455,251
$ 105,750
$ (6,813 ) $ (437 ) $ 553,751

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LUTHER BURBANK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollar amounts in thousands)


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net income	$	13,442	$	22,940
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	649		603
Reversal of provision for credit losses	(795)		(2,500)
Amortization of deferred loan costs, net	1,373		4,792
Amortization of premiums on investment securities, net	1		337



Stock based compensation expense, net of forfeitures	473		710

Change in fair value of mortgage servicing rights	19		104
Change in fair value of equity securities	(166)		577


Other items, net	(31)		44
Effect of changes in:
Accrued interest receivable	433		(253)
Accrued interest payable	3,466		35
Prepaid expenses and other assets	5,652		4,293
Other liabilities and accrued expenses	(8,757)		3,140
Net cash provided by operating activities	15,759		34,822
Cash flows from investing activities:
Proceeds from maturities, paydowns and calls of available for sale debt securities	15,178		38,296
Proceeds from maturities and paydowns of held to maturity debt securities	27		29

Purchases of available for sale debt securities	—		(33,140)

Net decrease (increase) in loans receivable	11,132		(81,469)


(Purchase) redemption of FHLB stock, net	(13,313)		848
Purchase of premises and equipment	(321)		(103)

Net cash provided by (used in) investing activities	12,703		(75,539)
Cash flows from financing activities:
Net (decrease) increase in deposits	(189,846)		63,004
Proceeds from long-term FHLB advances	450,000		100,000
Repayment of long-term FHLB advances	(50,000)		(100,000)
Net change in short-term FHLB advances	93,500		—
Shares withheld for taxes on vested restricted stock	(1,098)		(875)
Shares repurchased	—		(5,637)
Cash paid for dividends	—		(6,225)
Net cash provided by financing activities	302,556		50,267
Increase in cash and cash equivalents	331,018		9,550
Cash and cash equivalents, beginning of period	185,895		138,413
Cash and cash equivalents, end of period	$	516,913	$	147,963
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	45,943	$	10,931
Income taxes	$	11	$	6
Supplemental non-cash disclosures:
Lease liabilities arising from obtaining right-of-use assets	$	—	$	16,255

See accompanying notes to unaudited consolidated financial statements

Three Months Ended March 31,
2018 2017
Cash flows from operating activities:
Net income $ 11,102
$ 12,295
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 714
735
Provision for loan losses 1,500
309
Increase in deferred loan costs, net (2,708 ) (1,049 )
Amortization of premiums on investment securities, net 563
231
Net loss on sale of loans —
163
Originations of loans held for sale —
(17,986 )
Proceeds from sale of loans held for sale —
24,691
Stock based compensation expense, net of forfeitures 1,013
—
Net increase in cash surrender value of life insurance (53 ) (49 )
Effect of changes in:
Accrued interest receivable (1,236 ) (1,033 )
Accrued interest payable 548
96
Other assets (43 ) 527
Other liabilities (6,727 ) (7,522 )
Net cash provided by operating activities 4,673
11,408
Cash flows from investing activities:
Proceeds from maturities or calls of available for sale investment securities 20,965
20,449
Proceeds from maturities or calls of held to maturity investment securities 55
289
Purchases of available for sale investment securities (59,647 ) (27,468 )
Purchases of held to maturity investment securities (5,375 ) —
Net increase in loans receivable (281,986 ) (307,966 )
Purchase of FHLB stock, net (5,290 ) (2,500 )
Purchase of premises and equipment (123 ) (168 )
Net cash used in investing activities (331,401 ) (317,364 )
Cash flows from financing activities:
Net increase in customer deposits 162,788
286,673
Proceeds from long term FHLB advances 100,000
100,000
Net change in short term FHLB advances 68,893
(54,406 )
Shares withheld for taxes on vested restricted stock (49 ) —
Cash paid for dividends (6,061 ) (9,800 )
Net cash provided by financing activities 325,571
322,467
(Decrease) increase in cash and cash equivalents (1,157 ) 16,511
Cash and cash equivalents, beginning of period 75,578
59,208
Cash and cash equivalents, end of period $ 74,421
$ 75,719
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 18,268
$ 13,451
Income taxes $ 158
$ —

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LUTHER BURBANK CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ~~(UNAUDITED)~~


1.	~~NATURE OF OPERATIONS~~

1.NATURE OF OPERATIONS

Organization

Luther Burbank Corporation (the ‘‘Company’’), a California corporation headquartered in Santa Rosa, is the bank holding company for its wholly-owned subsidiary, Luther Burbank Savings (the "Bank"), and ~~its~~the Bank's wholly-owned subsidiary, Burbank Investor Services.

The Bank conducts its business from its headquarters in Manhattan Beach, California. It has nine full service branches located in Sonoma, Marin, Santa Clara, and Los Angeles Counties. Other California loan offices are located in Contra Costa, Los Angeles and Orange Counties. There are also loan offices in King County, Washington and Clackamas County, Oregon. The Company also owns Burbank Financial Inc., a real estate investment company that provides limited loan administrative support to the Bank, and all the common interests in Luther Burbank Statutory Trusts I and II, entities created to issue trust preferred securities.

The Bank conducts its business from its executive offices in Santa Rosa and Gardena, California, and an administrative office in Irvine, California. It has ten full service branches in California located in Sonoma, Marin, Santa Clara, and Los Angeles Counties and one full service branch in Washington located in King County. Additionally, there are several loan production offices located throughout California.

On ~~April 27, 2017,~~November 13, 2022, the Company ~~declared a 200-for-1 stock split, increasing~~entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) with Washington Federal, Inc. (“WAFD”), pursuant to which the ~~number~~Company will merge with and into WAFD (the “Corporate Merger”), with WAFD surviving the Corporate Merger. Promptly following the Corporate Merger, the Company’s wholly-owned bank subsidiary, Luther Burbank Savings, will be merged with and into Washington Federal Bank, dba WaFd Bank, the wholly-owned bank subsidiary of ~~issued and authorized shares from 210,000 to 42,000,000 and 500,000 to 100,000,000, respectively. The Company also declared that~~WAFD (“WAFD Bank”), with WAFD Bank as the ~~stock has zero par value, whereas the stock had previously held a stated value of $8 per share (stated value not adjusted for split). Additional shares issued as a result~~surviving institution. Closing of the ~~stock split were distributed immediately~~transaction, which is expected to occur in 2023, is contingent upon ~~issuance to the stockholders. Share~~shareholder approval and ~~per share amounts included in the consolidated financial statements and accompanying notes reflect the effect~~receipt of ~~the split for~~ all ~~periods presented.~~

We terminated our status as a “Subchapter S” corporation as of December 1, 2017, in connection with our Initial Public Offering ("IPO") and became a taxable C Corporation. Prior to that date, as an S-Corporation, we had no U.S. federal income tax expense.

~~On December 12, 2017, the Company completed the IPO of its common stock. In connection~~necessary regulatory approvals, along with the ~~Company’s IPO, the Company sold and issued 13,972,500 shares~~satisfaction of ~~common stock at $10.75 per share. After deducting underwriting discounts and offering expenses, the Company received total net proceeds of $138.3 million from the IPO.~~

other customary closing conditions.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all footnotes as would be necessary for a fair presentation of financial position, results of operations and comprehensive income, changes in stockholders’ equity and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, these interim unaudited consolidated financial statements reflect all adjustments (consisting solely of normal recurring adjustments and accruals) which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and comprehensive income, changes in stockholders’ equity and cash flows for the interim periods presented. These unaudited consolidated financial statements have been prepared on a basis consistent with, and should be read in conjunction with, the audited consolidated financial statements as of and for the year ended December 31, ~~2017,~~2022, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2022 filed with the ~~SEC,~~Securities and Exchange Commission (the “SEC”), under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). The unaudited consolidated financial statements include the accounts of the Company and ~~the Bank.~~its subsidiaries. All intercompany accounts and transactions have been eliminated.

The results of operations for the three months ended March 31, ~~2018~~2023 are not necessarily indicative of the results of operations that may be expected for any other interim period or for the year ending December 31, ~~2018.~~2023.

The Company’s accounting and reporting policies conform to GAAP and to general practices within the banking industry.

Use of Estimates

Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated

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financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions affect the amounts reported in the unaudited consolidated financial statements and the disclosures provided, and actual results could differ.

Earnings Per Share ("EPS")

Basic earnings per common share represents the amount of earnings for the period available to each share of common stock outstanding during the reporting period. Basic EPS is computed based upon net income divided by the weighted average number of common shares outstanding during the ~~year.~~period. In determining the weighted average number of shares outstanding, vested restricted stock units are included. Diluted EPS represents the amount of earnings for the period available to each share of common stock outstanding including common stock that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during each reporting period. Diluted EPS is computed based upon net income divided by the weighted average number of ~~commons~~common shares outstanding during each period, adjusted for the effect of dilutive potential common shares, such as restricted stock awards and units, calculated using the treasury stock method. ~~The factors used in the earnings per share computation follow:~~


(Dollars in thousands, except share amounts)	Three Months Ended March 31,
	2023		2022
Net income	$	13,442	$	22,940

Weighted average basic common shares outstanding	50,871,173		51,337,488
Add: Dilutive effects of assumed vesting of restricted stock	32,272		76,931
Weighted average diluted common shares outstanding	50,903,445		51,414,419

Income per common share:
Basic EPS	$	0.26	$	0.45
Diluted EPS	$	0.26	$	0.45
Anti-dilutive shares not included in calculation of diluted earnings per share	19,913		20

Three Months Ended March 31,
(Dollars in thousands, except per share amounts) 2018 2017
Net income $ 11,102
$ 12,295

Weighted average basic common shares outstanding 56,190,970
42,000,000
Add: Dilutive effects of assumed vesting of restricted stock 564,184
—
Weighted average diluted common shares outstanding 56,755,154
42,000,000

Income per common share:
Basic $ 0.20
$ 0.29
Diluted $ 0.20
$ 0.29
Anti-dilutive shares not included in calculation of diluted earnings per share —
—

Recently Adopted Financial Accounting ~~Standard Adopted in 2018~~

Standards

FASB ASU ~~2018-02~~2016-13

On January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology. The measurement of expected losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans, held to maturity (“HTM”) debt securities and off-balance sheet exposures (loan commitments, financial guarantees, standby letters of credit and other similar instruments). In addition, CECL modifies the other-than-temporary impairment ("OTTI") model for available for sale (“AFS”) debt securities to require an allowance for credit losses instead of a direct write down, which allows for reversal of credit losses in future periods based on improvements in credit quality. As permitted under ASC 326, the Company elected to maintain the same loan segments that it previously identified prior to adoption of CECL.

The Company adopted CECL using the modified retrospective method for all financial assets measured at cost, including loans, HTM debt securities and off-balance sheet credit exposures. Results for reporting periods beginning January 1, 2023 are reported under ASU 2016-13, while prior period results continue to be reported under the incurred loss model which was the previously applicable GAAP. The Company recorded an increase to its ACL of $119 thousand as a cumulative effect adjustment of adopting ASU 2016-13, with a corresponding decrease in retained earnings, net of $35 thousand in taxes, of $84 thousand. The transition adjustment reflects the results of our model in estimating lifetime expected credit losses on loans, unfunded commitments and other off-balance sheet credit exposures.

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The following table illustrates the impact on the ACL due to the Company’s transition from the incurred loss methodology to the CECL methodology as of January 1, 2023:


(Dollars in thousands)	Pre-CECL Adoption		Impact of CECL Adoption		As Reported Under CECL
Assets:
ACL - Loans
Multifamily residential	$	26,417	$	2,882	$	29,299
Single family residential	8,564		(2,472)		6,092
Commercial real estate	1,539		(784)		755
Construction and land	165		282		447
Total	$	36,685	$	(92)	$	36,593
Liabilities:
ACL - Off-Balance Sheet Credit Exposures	$	563	$	211	$	774

At adoption of CECL and continuing through March 31, 2023, the Company has not recorded an ACL on AFS or HTM investment securities as these investment portfolios consisted primarily of debt securities explicitly or implicitly backed by the U.S. government. Refer to Note 2, Investment Securities, for more information. The Company elected to account for accrued interest receivable separately from the amortized cost of loans and investment securities.

The following accounting policies have been updated in connection with the adoption of the CECL methodology:

Allowance for Credit Losses on Loans

The ACL on loans represents the Company’s estimate of expected lifetime credit losses for its loans at the time of origination or acquisition and is maintained at a level deemed appropriate by management to provide for expected lifetime credit losses in the portfolio as of the date of the consolidated statements of financial condition. The ACL on loans is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. Amortized cost does not include accrued interest, which management elected to exclude from the estimate of expected credit losses. The ACL on loans is increased by the provision for credit losses on loans, which is charged against current period operating results, and decreased by reversals of loan loss provisions as well as loan charge-offs, net of recoveries.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. The Company’s ACL model utilizes an expected cash flow model to measure credit losses on an individual loan basis, which are then aggregated at the portfolio segment level and supplemented by a qualitative reserve that is applied to each portfolio segment level. Loans are segmented based on collateral type and consist of the following segments:

Multifamily residential and commercial real estate loans - These loans typically involve greater principal amounts than other types of loans, and repayment depends upon income generated, or expected to be generated, by the property securing the loan in amounts sufficient to cover operating expenses and debt service, which may be adversely affected by changes in the economy or local market conditions. Multifamily residential and commercial real estate loans also expose a lender to significant credit risk because the collateral securing these loans typically cannot be sold as easily as single family residential real estate. In addition, some commercial real estate loans are not fully amortizing and contain large balloon payments upon maturity. Such balloon payments may require the borrower to either sell or refinance the underlying property in order to comply with the terms of the loan agreement, which may increase the risk of default or non-payment.

Single family residential real estate loans - The degree of risk in single family residential real estate lending depends primarily on the loan amount in relation to collateral value, the interest rate, and the borrower’s ability to repay in an orderly fashion. These loans generally possess a lower inherent risk of

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loss than other real estate portfolio segments. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers’ capacity to repay their obligations may be deteriorating.

Construction and land loans - This type of lending generally possess a higher inherent risk of loss than other real estate portfolio segments. A major risk arises from the necessity to complete projects within specified costs and time lines. Trends in the construction industry significantly impact the credit quality of these loans, as demand drives construction activity. In addition, trends in real estate values significantly impact the credit quality of these loans, as property values determine the economic viability of construction projects.

The Company’s ACL model methodology incorporates assumptions for the probability of default ("PD"), loss given default ("LGD"), and prepayments and curtailments over the contractual terms of the loans. Under the methodology, the ACL reflects the difference between the amortized cost basis and the net expected cash flows of a loan. In determining the PD, the model utilizes both macroeconomic and individual loan characteristics, such as loan-to-value, debt service coverage, seasoning, performance, collateral type, geography and credit score. For each period in a loan’s expected life, the model combines loan characteristics with forecasted economic conditions to determine the likely performance of a loan. With respect to LGD, the model estimates loss severity for secured loans primarily based on the loan type and value of collateral. Collateral values are estimated based on a third-party proprietary database that considers actual historical loan sales. The use of reasonable and supportable forecasts requires significant judgment. The ACL model leverages projections provided by reputable, well-recognized independent economic advisory companies and incorporates a forecast of macroeconomic factors which is updated quarterly. In addition, the ACL model incorporates two years of projected property type performance, such as property value growth and net operating income growth, also updated quarterly. For periods beyond the initial two years for property type performance, forecasts revert to a historical mean over the following three years and subsequently, to the U.S. historical average beyond that.

In ~~February 2018,~~calculating its ACL, management considers whether qualitative adjustments to the ~~FASB provided guidance for~~quantitative model, previously described, are needed. Qualitative adjustments may be related to and include, but are not limited to factors such as: differences in segment-specific risk characteristics, periods wherein current conditions and reasonable and supportable forecasts of economic conditions differ from the ~~reclassification~~conditions that existed at the time of the estimated loss calculation, model limitations identified through back-testing and management’s overall assessment of the adequacy of the ACL. Qualitative internal and external risk factors that are periodically evaluated by management include, but are not limited to, the following:

•Changes in the nature and volume of loans;

•Changes in economic conditions and forecasts;

•Changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of criticized and classified loans;

•The existence and effect of ~~remeasuring deferred tax balances~~loan concentrations;

•Changes in lending policies and procedures;

•Changes in the experience, ability and depth of lending management and other relevant staff;

•Changes in the quality of our systematic loan review processes; and

•The effect of other external factors, such as legal and regulatory requirements on the level of estimated credit losses in the portfolio.

Generally, the measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics. Loans that do not share similar risk characteristics are evaluated individually for credit loss and are not included in the evaluation process discussed above. Individually evaluated loans may consist of loans that are classified as collateral dependent, or of loans that management has determined to not share risk characteristics with collectively evaluated loans. Collateral dependent loans represent loans where management has determined that foreclosure is probable, or where a borrower is experiencing financial difficulty at the reporting date and loan repayment is expected to be provided generally through the operation or sale of the collateral. Expected credit losses for collateral dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs, as appropriate.

Loans with terms that have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are evaluated for an ACL utilizing one of the methodologies above.

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Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

The Company makes commitments to extend credit to meet the financing needs of customers in the form of loans or lines of credit. The Company maintains an ACL on unfunded commitments and other off-balance sheet credit exposures in other liabilities and accrued expenses in the consolidated statements of financial condition. This ACL is estimated over a commitment's contractual period and is determined in a manner consistent with the ACL for loans, which includes consideration of the likelihood that funding will occur. Adjustments to the ACL for off-balance sheet credit exposures are included in the provision for credit losses in the unaudited consolidated statements of income.

Allowance for Credit Losses on Held to Maturity Securities

The Company measures expected credit losses on HTM investment securities on a collective basis by major security type. Accrued interest receivable on HTM investment securities is excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Because substantially all of the Company’s HTM investment securities are either explicitly or implicitly guaranteed by U.S. Government entities or its agencies, the Company does not anticipate any credit related losses in this investment portfolio. Changes in the ACL on HTM securities, if any, are recorded in the provision for credit losses in the unaudited consolidated statements of income. Losses are charged against the ACL when management believes the uncollectibility of a HTM security is confirmed.

Allowance for Credit Losses on Available for Sale Securities

For AFS investment securities in an unrealized loss position, the Company initially assesses whether it intends to ~~items within accumulated~~sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost is written down to fair value through income. For AFS investment securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. If a credit loss exists, an allowance for credit loss is recorded to the extent that the fair value is less than the amortized cost basis. Because substantially all of the Company’s AFS investment securities are either explicitly or implicitly guaranteed by U.S. Government entities or its agencies, the Company does not anticipate any credit related losses in this investment portfolio. Any impairment that has not been recorded through an ACL on AFS securities is recognized in other comprehensive ~~income~~income. Changes in the ACL on AFS securities, if any, are recorded in the provision for credit losses in the unaudited consolidated statements of income. Losses are charged against the ACL when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to ~~retained earnings resulting~~sell is met. Accrued interest receivable on AFS securities is excluded from the ~~Tax Cuts and Jobs Act~~estimate of 2017. ASU 2018-02 is effective for all entities for fiscal years beginning after December 31, 2018, including interim periods therein, with early adoption permitted. As permitted, the Company early adopted ASU 2018-02 during the quarter ended March 31, 2018 and reclassified $1.8 million of stranded tax amounts within accumulated other comprehensive income to retained earnings.

~~Accounting Standards Pending Adoption~~

credit losses.

FASB ASU ~~2016-01~~

2022-02

In ~~January 2016,~~March 2022, the FASB issued guidance to improve the usefulness of disclosures regarding certain loan refinancings, restructurings and write-offs under ASC 326. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL methodology and enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. This Update contains several provisions, including but not limited to 1) requiring equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income; 2) simplifying the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; 3) eliminating the requirement to disclose the method(s) and significant assumptions used to estimate fair value; and 4) requiring separate presentation of financial assets and liabilities by measurement category and form of financial asset on the statement of financial condition or the accompanying notes to the financial statements. The Update also changes certain financial statement disclosure requirements ~~including requiring disclosures~~for certain loan refinancings and restructurings made to borrowers experiencing financial difficulty. In addition, the amendments require disclosure of ~~the fair value~~current period gross write-offs for financing receivables and net investments in leases by year of ~~financial instruments be made on the basis of exit price.~~origination. The ~~Update is effective for public business entities ("PBEs") for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. As an emerging growth company, the~~ Company ~~expects to adopt~~adopted this guidance on January 1, ~~2019, assuming~~2023, concurrent with its adoption of the ~~Company remains an emerging growth company through such date.~~CECL standard. The adoption of this standard isdid not ~~expected to~~ have a material effect on the Company’s operating results or financial condition.

~~FASB ASU 2017-04~~

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In January 2017, the FASB issued guidance related to the goodwill impairment test, which eliminates step 2 in the process. Under the amendments, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized, however, should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The Update is effective for PBEs that are SEC filers for annual periods or any interim goodwill impairment tests beginning after December 15, 2019 using a prospective transition method and early adoption is permitted. As early adoption is permitted, the Company expects to adopt the guidance on December 31, 2018. The adoption of this standard is not expected to have a material effect on the Company’s operating results or financial condition.


2.	2. INVESTMENT SECURITIES

Available for Sale

The following ~~tables summarize~~table summarizes the amortized cost and the estimated fair value of available for sale ~~investment~~debt securities as of the dates ~~indicated (dollars in thousands):~~indicated:

March 31, 2018
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
Debt Securities:
Government Sponsored Entities:
Mortgage-backed securities $ 356,772
$ 152
$ (5,432 ) $ 351,492
Agency bonds 120,405
29
(3,919 ) 116,515
Collateralized mortgage obligations 44,707
263
—
44,970
SBA securities 13,125
—
(137 ) 12,988
U.S. Treasury 10 year note 1,010
—
(39 ) 971
CRA Qualified Investment Fund (CRAIX) 12,000
—
(496 ) 11,504
Total available for sale investment securities $ 548,019
$ 444
$ (10,023 ) $ 538,440

December 31, 2017
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
Debt Securities:
Government Sponsored Entities:
Mortgage-backed securities $ 316,134
$ 112
$ (3,327 ) $ 312,919
Agency bonds 120,405
30
(3,213 ) 117,222
Collateralized mortgage obligations 46,920
249
(1 ) 47,168
SBA securities 13,427
—
(125 ) 13,302
U.S. Treasury 10 year note 1,010
—
(26 ) 984
CRA Qualified Investment Fund (CRAIX) 12,000
—
(307 ) 11,693
Total available for sale investment securities $ 509,896
$ 391
$ (6,999 ) $ 503,288


(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
At March 31, 2023:
Government and Government Sponsored Entities:
Commercial mortgage backed securities ("MBS") and collateralized mortgage obligations ("CMOs")	$	358,558	$	217	$	(25,050)	$	333,725
Residential MBS and CMOs	216,656		12		(21,125)		195,543
Agency bonds	41,196		88		(124)		41,160
Other asset backed securities ("ABS")	23,916		—		(917)		22,999
Total available for sale debt securities	$	640,326	$	317	$	(47,216)	$	593,427
At December 31, 2022:
Government and Government Sponsored Entities:
Commercial MBS and CMOs	$	365,207	$	265	$	(24,736)	$	340,736
Residential MBS and CMOs	221,994		22		(22,632)		199,384
Agency bonds	42,540		189		(99)		42,630
Other ABS	25,763		—		(1,165)		24,598
Total available for sale debt securities	$	655,504	$	476	$	(48,632)	$	607,348

Net unrealized losses on available for sale investment securities are recorded as accumulated other comprehensive ~~income~~loss within stockholders’ equity ~~totaling $6.8~~and totaled $33.3 million and ~~$6.2~~$34.2 million, net of ~~$2.8~~$13.6 million and ~~$394 thousand~~$14.0 million in tax assets, at March 31, ~~2018~~2023 and December 31, ~~2017,~~2022, respectively. At December 31, 2017, $394 thousand of a total $1.9 million tax asset resides in accumulated other comprehensive income, while the remaining $1.5 million was included in the provision for income taxes on the consolidated statements of income related to the tax rate changes associated with the termination of S Corporation status and the change in tax law during the year ended December 31, 2017. The Company adopted ASU 2018-02 effective January 1, 2018 and reclassified the $1.5 million in stranded tax effects from the change in federal corporate tax rates on our available for sale investment securities from accumulated other comprehensive loss, net to retained earnings. There were no sales or transfers of available for sale investment securities and no realized gains or losses on these securities ~~for~~during the three months ended March 31, ~~2018 and 2017.~~2023 or 2022.

The following tables summarize the gross unrealized losses and fair value of available for sale ~~investment~~debt securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss ~~position (dollars in thousands):~~position:

March 31, 2018
Less than 12 Months 12 Months or More Total
Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
Debt Securities:
Government Sponsored Entities:
Mortgage-backed securities $ 145,877
$ (1,555 ) $ 177,062
$ (3,878 ) $ 322,939
$ (5,433 )
Agency bonds 9,755
(246 ) 103,732
(3,673 ) 113,487
(3,919 )
SBA securities —
—
12,988
(137 ) 12,988
(137 )
U.S. Treasury 10 year note —
—
971
(39 ) 971
(39 )
CRA Qualified Investment Fund (CRAIX) 4,869
(131 ) 6,635
(364 ) 11,504
(495 )
Total available for sale investment securities $ 160,501
$ (1,932 ) $ 301,388
$ (8,091 ) $ 461,889
$ (10,023 )


	March 31, 2023
	Less than 12 Months				12 Months or More				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Government and Government Sponsored Entities:
Commercial MBS and CMOs	$	146,394	$	(2,205)	$	150,521	$	(22,845)	$	296,915	$	(25,050)
Residential MBS and CMOs	69,012		(2,781)		121,213		(18,344)		190,225		(21,125)
Agency bonds	31,218		(124)		—		—		31,218		(124)
Other ABS	—		—		22,999		(917)		22,999		(917)
Total available for sale debt securities	$	246,624	$	(5,110)	$	294,733	$	(42,106)	$	541,357	$	(47,216)

At March 31, ~~2018,~~2023, the Company held ~~92 mortgage-backed securities~~58 commercial MBS and CMOs of which 7251 were in a loss position and 4626 had been in a loss position for twelve months or more. The Company held ~~13 agency bonds~~89 residential MBS and CMOs of which 1286 were in a loss position and 11 had been for twelve months or more. The Company also held 15 collateralized mortgage obligations, none of which were in an unrealized loss position. Of the total 4 SBA securities held at March 31, 2018, 4 were in a loss position and had been in a loss position for greater than twelve months. Of the 3 total investments in CRA Qualified Investment Fund (CRAIX), all 3 were in a loss position and 2 had been for greater than 12 months. The Company held 1 U.S. Treasury note at March 31, 2018. This note was in a loss position and had been for greater than 12 months.

December 31, 2017
Less than 12 Months 12 Months or More Total
Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
Debt Securities:
Government Sponsored Entities:
Mortgage-backed securities $ 93,403
$ (805 ) $ 182,343
$ (2,522 ) $ 275,746
$ (3,327 )
Agency bonds 9,851
(148 ) 104,340
(3,065 ) 114,191
(3,213 )
Collateralized mortgage obligations 1,959
(1 ) —
—
1,959
(1 )
SBA securities —
—
13,302
(125 ) 13,302
(125 )
U.S. Treasury 10 year note —
—
984
(26 ) 984
(26 )
CRA Qualified Investment Fund (CRAIX) 4,948
(52 ) 6,745
(255 ) 11,693
(307 )
Total available for sale investment securities $ 110,161
$ (1,006 ) $ 307,714
$ (5,993 ) $ 417,875
$ (6,999 )

~~At December 31, 2017, the Company held 87 mortgage-backed securities of which 68 were in a loss position and 30~~27 had been in a loss position for twelve months or more. The Company held 13six agency bonds of which 12three were in a loss position for less than twelve months. The Company held three other ABS of which all three were in a loss position for twelve months or more.

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	December 31, 2022
	Less than 12 Months				12 Months or More				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Government and Government Sponsored Entities:
Commercial MBS and CMOs	$	188,155	$	(6,165)	$	109,255	$	(18,571)	$	297,410	$	(24,736)
Residential MBS and CMOs	94,137		(5,912)		99,831		(16,720)		193,968		(22,632)
Agency bonds	14,345		(99)		—		—		14,345		(99)
Other ABS	10,804		(580)		13,794		(585)		24,598		(1,165)
Total available for sale debt securities	$	307,441	$	(12,756)	$	222,880	$	(35,876)	$	530,321	$	(48,632)

At December 31, 2022, the Company held 58 commercial MBS and CMOs of which 50 were in a loss position and 1115 had been in a loss position for twelve months or more. The Company ~~also~~ held ~~15 collateralized mortgage obligations, 1~~90 residential MBS and CMOs of which ~~was in an unrealized loss position. Of the total 4 SBA securities held at year end, 4~~86 were in a loss position and 14 had been in a loss position for ~~greater~~twelve months or more. The Company held six agency bonds of which one was in a loss position for less than twelve months. ~~Of the 3 total investments in CRA Qualified Investment Fund (CRAIX), 3~~The Company held three other ABS of which three were in a loss position and 2two had been ~~for greater than 12 months. The Company held 1 U.S. Treasury note at year end. This note was~~ in a loss position ~~and had been~~ for ~~greater than 12 months.~~twelve months or more.

The unrealized losses on the Company’s investments were caused by interest rate changes. In addition, the contractual cash flows of these investments are guaranteed by the U.S. government or agencies sponsored by the U.S. government. Accordingly, it is expected that the securities will not be settled at a price less than amortized cost. Because the decline in market value is attributable to changes in interest rates but not credit quality, and because the Company has the ability and intent to hold those investments until a recovery of fair value, which may be maturity, the Company does not consider these securities to be other-than-temporarily impaired at March 31, 2023 or December 31, 2022. Additionally, the Company had no ACL recorded for available for sale investment securities at March 31, 2023.

As of March 31, 2023 and December 31, 2022, there were no holdings of securities of any one issuer in an amount greater than 10% of stockholders' equity, other than the U.S. government and its agencies.

Held to Maturity

The following table summarizes the amortized cost and estimated fair value of held to maturity investment securities as of the dates indicated:


(Dollars in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Value
As of March 31, 2023:
Government Sponsored Entities:
Residential MBS	$	3,022	$	—	$	(189)	$	2,833
Other investments	58		—		—		58
Total held to maturity investment securities	$	3,080	$	—	$	(189)	$	2,891
As of December 31, 2022:
Government Sponsored Entities:
Residential MBS	$	3,047	$	—	$	(234)	$	2,813
Other investments	61		—		—		61
Total held to maturity investment securities	$	3,108	$	—	$	(234)	$	2,874

The following table summarizes the gross unrecognized losses and fair value of held to maturity investment securities, aggregated by investment category and length of time that individual securities have

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been in a continuous unrecognized loss position:


	Less than 12 Months				12 Months or More				Total
(Dollars in thousands)	Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses
As of March 31, 2023:
Government Sponsored Entities:
Residential MBS	$	1,652	$	(100)	$	1,181	$	(89)	$	2,833	$	(189)
As of December 31, 2022:
Government Sponsored Entities:
Residential MBS	$	2,813	$	(234)	$	—	$	—	$	2,813	$	(234)

At March 31, 2023, the Company had seven held to maturity residential MBS of which all seven were in a loss position and three had been in a loss position for twelve months or more. At December 31, 2022, the Company had seven held to maturity residential MBS of which all seven were in a loss position for less than twelve months.

The unrecognized losses on the Company’s held to maturity investments at March 31, 2023 were caused by interest rate changes. In addition, the contractual cash flows of these investments are guaranteed by agencies sponsored by the U.S. government. Accordingly, it is expected that the securities will not be settled at a price less than amortized cost. Because the decline in market value is attributable to changes in interest rates but not credit quality, and because the Company has the ability and intent to hold those investments until ~~a recovery of fair value, which may be~~ maturity, the Company does not consider ~~those investments~~these securities to be other-than-temporarily impaired at March 31, ~~2018 and~~2023 or December 31, ~~2017.~~

~~As of March 31, 2018 and December 31, 2017, there were~~2022. Additionally, the Company had no ~~holdings of securities of any one issuer in an amount greater than 10% of stockholders' equity, other than the U.S. government and its agencies.~~

~~Held to Maturity~~

~~The following tables summarize the amortized cost and estimated fair value of~~ACL recorded for held to maturity investment securities ~~as of the dates indicated (dollars in thousands):~~

March 31, 2018
Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Estimated Fair Value
Debt securities:
Government Sponsored Entities:
Mortgage-backed securities $ 11,956
$ 33
$ (257 ) $ 11,732
Other investments 281
—
—
281
Total held to maturity investment securities $ 12,237
$ 33
$ (257 ) $ 12,013

December 31, 2017
Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Estimated Fair Value
Debt securities:
Government Sponsored Entities:
Mortgage-backed securities $ 6,636
$ 73
$ (69 ) $ 6,640
Other investments 285
—
—
285
Total held to maturity investment securities $ 6,921
$ 73
$ (69 ) $ 6,925

The following tables summarize the gross unrecognized losses and fair value of held to maturity investment securities, aggregated by investment category and length of time that individual securities have been in a continuous unrecognized loss position (dollars in thousands):

March 31, 2018
Less than 12 Months 12 Months or More Total
Fair Value Unrecognized Losses Fair Value Unrecognized Losses Fair Value Unrecognized Losses
Debt securities:
Government Sponsored Entities:
Mortgage-backed securities $ 7,625
$ (123 ) $ 2,943
$ (134 ) $ 10,568
$ (257 )

December 31, 2017
Less than 12 Months 12 Months or More Total
Fair Value Unrecognized Losses Fair Value Unrecognized Losses Fair Value Unrecognized Losses
Debt securities:
Government Sponsored Entities:
Mortgage-backed securities $ 1,047
$ (4 ) $ 3,029
$ (65 ) $ 4,076
$ (69 )

The unrecognized losses on the Company’s investments were caused by interest rate changes. It is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rate and other market conditions. The issuers continue to make timely principal and interest payments on the investments. The fair value is expected to recover as the investments approach maturity.at March 31, 2023.

The following table summarizes the scheduled maturities of ~~available-for-sale~~available for sale and ~~held-to-maturity~~held to maturity investment securities as of March 31, ~~2018 (dollars in thousands):~~2023:

March 31, 2018
Amortized Cost Fair Value
Available-for-sale investments securities
One to five years $ 120,296
$ 116,341
Five to ten years 1,329
1,334
Beyond ten years 414,394
409,261
No maturity 12,000
11,504
Total available-for-sale investment securities $ 548,019
$ 538,440
Held-to-maturity investment securities beyond ten years $ 12,237
$ 12,013
Total held-to-maturity investment securities $ 12,237
$ 12,013


	March 31, 2023
(Dollars in thousands)	Amortized Cost		Fair Value
Available for sale debt securities


Five to ten years	$	37,479	$	37,421
Beyond ten years	3,717		3,739
MBS, CMOs and other ABS	599,130		552,267
Total available for sale debt securities	$	640,326	$	593,427
Held to maturity investments securities
Five to ten years	$	58	$	58
MBS	3,022		2,833
Total held to maturity debt securities	$	3,080	$	2,891

The amortized cost and fair value of debt securities are shown by contractual maturity. Expected maturities

may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. ~~Equity~~As such, mortgage backed securities, collateralized mortgage obligations and other asset backed securities are not included in the maturity categories above and instead are shown separately. As of March 31, 2023, securities with ~~no maturity date are shown separately.~~an amortized cost totaling $612.3 million were pledged to the FHLB and Federal Reserve Bank of San Francisco ("FRB") to secure borrowing arrangements. See Note 9 for additional information. No securities were pledged as of December 31, 2022.

Equity Securities

Equity securities consist of investments in a qualified community reinvestment fund. At March 31, ~~2018~~2023 and December 31, ~~2017.~~2022, the fair value of equity securities totaled $10.5 million and $10.3 million, respectively. Changes in fair value are recognized in other noninterest income and totaled $166 thousand and $(577) thousand during the three months ended March 31, 2023 and 2022, respectively. There were no sales of

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equity securities during the three months ended March 31, 2023 or 2022.


3.	~~LOANS RECEIVABLE~~

3. LOANS

Loans ~~receivable~~ consist of the ~~following (dollars in thousands):~~following:


(Dollars in thousands)	March 31, 2023		December 31, 2022
Mortgages on:
Multifamily residential	$	4,522,072	$	4,532,312
Single family residential	2,308,485		2,283,628
Commercial real estate	168,049		172,258
Construction and land	24,873		22,247

Total	7,023,479		7,010,445
Allowance for credit losses on loans	(35,914)		(36,685)
Loans, net	$	6,987,565	$	6,973,760

March 31,
2018 December 31,
2017
Permanent mortgages on:
Multifamily residential $ 3,076,356
$ 2,887,438
Single family residential 2,042,624
1,957,546
Commercial real estate 125,445
112,492
Construction and land loans on:
Single family residential 36,320
41,165
Non-Mortgage (‘‘NM’’) loans: 100
50
Total 5,280,845
4,998,691
Deferred loan costs, net 45,564
42,856
Allowance for loan losses (31,980 ) (30,312 )
Loans receivable held for investment, net $ 5,294,429
$ 5,011,235

Certain loans have been pledged to secure borrowing arrangements (see Note 7)9).

Prior to the Company’s adoption of CECL on January 1, 2023, the Company maintained an allowance for loan losses ("ALLL") in accordance with the probable incurred loss model. The probable incurred loss model was reflective of estimates for loan losses incurred and inherent in the loan portfolio as of the balance sheet date, and did not reflect current estimates of future expected credit losses over the lives of the Company’s loans, as now required by CECL.

The following table summarizes activity in and the allocation of the allowance for credit losses by portfolio segment during the three months ended March 31, 2023:


	Allowance for Credit Losses
(Dollars in thousands)	Beginning Balance		Impact of CECL Adoption		Charge-Offs		Recoveries		Provision		Ending Balance
Multifamily residential	$	26,417	$	2,882	$	—	$	—	$	(2,007)	$	27,292
Single family residential	8,564		(2,472)		—		—		1,339		7,431
Commercial real estate	1,539		(784)		—		—		22		777
Construction and land	165		282		—		—		(33)		414
Allowance for credit losses on loans	36,685		(92)		—		—		(679)		35,914
Allowance for credit losses on off-balance sheet credit exposures	563		211		—		—		(116)		658
Total	$	37,248	$	119	$	—	$	—	$	(795)	$	36,572

The following table summarizes activity in and the allocation of the allowance for loan losses by portfolio segment ~~(dollars in thousands):~~during the three months ended March 31, 2022:

Multifamily Residential Single Family Residential Commercial Real Estate Land, NM, and Construction Total
Three months ended March 31, 2018
Allowance for loan losses:
Beginning balance allocated to portfolio segments $ 18,588
$ 9,044
$ 1,734
$ 946
$ 30,312
Provision for loan losses 1,245
167
63
25
1,500
Charge-offs —
—
—
—
—
Recoveries —
3
90
75
168
Ending balance allocated to portfolio segments $ 19,833
$ 9,214
$ 1,887
$ 1,046
$ 31,980
Three months ended March 31, 2017
Allowance for loan losses:
Beginning balance allocated to portfolio segments $ 18,478
$ 11,559
$ 1,823
$ 1,438
$ 33,298
Provision for loan losses 1,395
(1,465 ) 127
252
309
Charge-offs —
—
—
—
—
Recoveries —
3
—
89
92
Ending balance allocated to portfolio segments $ 19,873
$ 10,097
$ 1,950
$ 1,779
$ 33,699

~~The following tables summarize the allocation of the allowance for loan losses by impairment methodology (dollars in thousands):~~

March 31, 2018
Multifamily Residential Single Family Residential Commercial Real Estate Land, NM, and Construction Total
Ending allowance balance allocated to:
Loans individually evaluated for impairment $ —
$ 25
$ —
$ —
$ 25
Loans collectively evaluated for impairment 19,833
9,189
1,887
1,046
31,955
Ending balance $ 19,833
$ 9,214
$ 1,887
$ 1,046
$ 31,980
Loans:
Ending balance: individually evaluated for impairment $ 1,564
$ 10,211
$ —
$ —
$ 11,775
Ending balance: collectively evaluated for impairment 3,074,792
2,032,413
125,445
36,420
5,269,070
Ending balance $ 3,076,356
$ 2,042,624
$ 125,445
$ 36,420
$ 5,280,845

December 31, 2017
Multifamily Residential Single Family Residential Commercial Real Estate Land, NM, and Construction Total
Ending allowance balance allocated to:
Loans individually evaluated for impairment $ —
$ 25
$ —
$ —
$ 25
Loans collectively evaluated for impairment 18,588
9,019
1,734
946
30,287
Ending balance $ 18,588
$ 9,044
$ 1,734
$ 946
$ 30,312
Loans:
Ending balance: individually evaluated for impairment $ 2,246
$ 8,991
$ 656
$ —
$ 11,893
Ending balance: collectively evaluated for impairment 2,885,192
1,948,555
111,836
41,215
4,986,798
Ending balance $ 2,887,438
$ 1,957,546
$ 112,492
$ 41,215
$ 4,998,691


	Allowance for Loan Losses
(Dollars in thousands)	Beginning Balance		Charge-Offs		Recoveries		Provision		Ending Balance

Multifamily residential	$	26,043	$	—	$	—	$	(1,892)	$	24,151
Single family residential	7,224		—		—		(427)		6,797
Commercial real estate	2,094		—		—		(212)		1,882
Construction and land	174		—		—		31		205
Allowance for loan losses	$	35,535	$	—	$	—	$	(2,500)	$	33,035

The Company assigns a risk rating to all loans and periodically performs detailed reviews of ~~all such~~ loans to identify credit risks and to assess the overall collectability of the portfolio. During these internal reviews,

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management monitors and analyzes the financial condition of borrowers and guarantors, ~~and trends in~~as well as the ~~operation~~financial performance and/or other characteristics of ~~the~~loan collateral. These credit quality indicators are used to assign a risk rating to each individual loan. The risk ratings can be grouped into six major categories, defined as follows:

Pass assets are those which are performing according to contract and have no existing or known weaknesses deserving of management’s close attention. The basic underwriting criteria used to approve the loans are still valid, and all payments have essentially been made as planned.

Watch assets are expected to have an event occurring in the ~~next 90 to 120 days~~near future that will lead to a change in risk rating with the change being either favorable or unfavorable. These assets require heightened monitoring of the event by management.

Special mention assets have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard assets are inadequately protected by the current net worth ~~and~~and/or paying capacity of the obligor or by the collateral pledged. These assets have well-defined weaknesses: the primary source of repayment is gone or severely impaired (i.e., bankruptcy or loss of employment) and/or there has been

a deterioration in collateral value. In addition, there is the distinct possibility that the Company will sustain some loss, either directly or indirectly (i.e., the cost of monitoring), if the deficiencies are not corrected. A deterioration in collateral value alone does not mandate that an asset be adversely classified if such factor does not indicate that the primary source of repayment is in jeopardy.

Doubtful assets have the weaknesses of those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable based on current facts, conditions and values.

Loss assets are considered uncollectible and of such little value that their continuance as assets, without establishment of a specific valuation allowance or charge-off, is not warranted. This classification does not necessarily mean that an asset has absolutely no recovery or salvage value; but rather, it is not practical or desirable to defer writing off a basically worthless asset (or portion thereof) even though partial recovery may be affected in the future.

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The following ~~tables summarize~~table presents the internal risk ratings for total loans by portfolio segment of loan and origination year as of March 31, 2023, as well as gross charge-offs for the three months ended March 31, 2023:


(Dollars in thousands)	Loans by Origination Year
(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Total

Multifamily residential
Pass	$	23,568	$	1,183,333	$	1,216,122	$	720,962	$	429,745	$	887,435	$	4,461,165
Watch	—		691		12,054		4,833		6,358		18,619		42,555
Special Mention	—		—		—		—		1,731		—		1,731
Substandard	—		—		—		3,584		3,875		9,162		16,621
Total	$	23,568	$	1,184,024	$	1,228,176	$	729,379	$	441,709	$	915,216	$	4,522,072
Year to date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Single family residential
Pass	$	65,714	$	835,490	$	732,585	$	167,821	$	142,040	$	350,157	$	2,293,807
Watch	—		1,418		1,151		—		3,869		6,510		12,948
Special Mention	—		—		—		—		—		—		—
Substandard	—		—		—		—		—		1,730		1,730
Total	$	65,714	$	836,908	$	733,736	$	167,821	$	145,909	$	358,397	$	2,308,485
Year to date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate
Pass	$	—	$	24,186	$	1,942	$	11,607	$	24,216	$	104,546	$	166,497
Watch	—		—		—		—		—		604		604
Special Mention	—		—		—		—		948		—		948
Substandard	—		—		—		—		—		—		—
Total	$	—	$	24,186	$	1,942	$	11,607	$	25,164	$	105,150	$	168,049
Year to date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Construction and land
Pass	$	—	$	6,528	$	18,345	$	—	$	—	$	—	$	24,873
Watch	—		—		—		—		—		—		—
Special Mention	—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—
Total	$	—	$	6,528	$	18,345	$	—	$	—	$	—	$	24,873
Year to date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total loans
Pass	$	89,282	$	2,049,537	$	1,968,994	$	900,390	$	596,001	$	1,342,138	$	6,946,342
Watch	—		2,109		13,205		4,833		10,227		25,733		56,107
Special Mention	—		—		—		—		2,679		—		2,679
Substandard	—		—		—		3,584		3,875		10,892		18,351
Total	$	89,282	$	2,051,646	$	1,982,199	$	908,807	$	612,782	$	1,378,763	$	7,023,479
Year to date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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The following table summarizes the loan portfolio allocated by management’s internal risk ratings at ~~March 31, 2018 and~~ December 31, ~~2017 (dollars in thousands):~~2022.

March 31, 2018
Multifamily Residential Single Family Residential Commercial Real Estate Land, NM and Construction Total
Grade:
Pass $ 3,030,678
$ 2,015,783
$ 121,203
$ 34,635
$ 5,202,299
Watch 32,854
15,357
3,267
—
51,478
Special mention 5,755
6,001
—
1,785
13,541
Substandard 7,069
5,483
975
—
13,527
Total $ 3,076,356
$ 2,042,624
$ 125,445
$ 36,420
$ 5,280,845


(Dollars in thousands)											(Dollars in thousands)	Multifamily Residential		Single Family Residential		Commercial Real Estate		Construction and Land		Total

	December 31, 2017
	Multifamily Residential		Single Family Residential		Commercial Real Estate		Land, NM and Construction		Total
Grade:											Grade:
Pass	$	2,847,720	$	1,923,960	$	106,539	$	41,215	$	4,919,434	Pass	$	4,469,443	$	2,269,325	$	169,711	$	22,247	$	6,930,726
Watch	25,354		20,178		4,315		—		49,847		Watch	44,436		11,341		1,594		—		57,371
Special mention	6,569		9,025		—		—		15,594		Special mention	2,460		—		953		—		3,413
Substandard	7,795		4,383		1,638		—		13,816		Substandard	15,973		2,962		—		—		18,935

Total	$	2,887,438	$	1,957,546	$	112,492	$	41,215	$	4,998,691	Total	$	4,532,312	$	2,283,628	$	172,258	$	22,247	$	7,010,445

The following ~~tables summarize~~table summarizes an aging analysis of the loan portfolio by the time past due as of the dates indicated below:


(Dollars in thousands)	30-59 Days		60-89 Days		90+ Days		Total Past Due		Current		Total
As of March 31, 2023:
Loans:
Multifamily residential	$	5,531	$	—	$	3,121	$	8,652	$	4,513,420	$	4,522,072
Single family residential	1,665		—		—		1,665		2,306,820		2,308,485
Commercial real estate	—		—		—		—		168,049		168,049
Construction and land	—		—		—		—		24,873		24,873
Total	$	7,196	$	—	$	3,121	$	10,317	$	7,013,162	$	7,023,479
As of December 31, 2022:
Loans:
Multifamily residential	$	—	$	—	$	3,023	$	3,023	$	4,529,289	$	4,532,312
Single family residential	—		—		104		104		2,283,524		2,283,628
Commercial real estate	—		—		—		—		172,258		172,258
Construction and land	—		—		—		—		22,247		22,247
Total	$	—	$	—	$	3,127	$	3,127	$	7,007,318	$	7,010,445

As of both March 31, 2023 and December 31, 2022, there were no loans that were past due over 89 days and still accruing interest.

Loans that have been classified as collateral dependent are loans where substantially all repayment of the loan is expected to come from the operation of or eventual liquidation of the collateral. Collateral dependent loans are evaluated individually for purposes ofmeasuring the ACL, which is determined based on the estimated fair value of the collateral. Estimates for costs to sell are included in the determination of the ACL when liquidation of the collateral is anticipated. In cases where the loan is well secured and the estimated value of the collateral exceeds the amortized cost of the loan, no ACL is recorded. The following table presents the amortized cost basis of collateral dependent loans by loan type at March 31, ~~2018 and December 31, 2017 (dollars in thousands):~~2023.


	Amortized Cost by Collateral Type						Allowance for Credit Losses
(Dollars in thousands)	Residential		Office		Industrial
Multifamily residential	$	3,504	$	—	$	—	$	—
Single family residential	1,466		—		—		—


Total	$	4,970	$	—	$	—	$	—

March 31, 2018
30 Days 60 Days 90+ Days Non-accrual Current Total
Loans:
Multifamily residential $ —
$ —
$ —
$ 1,564
$ 3,074,792
$ 3,076,356
Single family residential 2,841
—
—
5,397
2,034,386
2,042,624
Commercial real estate —
2,104
—
—
123,341
125,445
Land, NM, and construction —
—
—
—
36,420
36,420
Total $ 2,841
$ 2,104
$ —
$ 6,961
$ 5,268,939
$ 5,280,845

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December 31, 2017
30 Days 60 Days 90+ Days Non-accrual Current Total
Loans:
Multifamily residential $ 2,751
$ —
$ —
$ 2,246
$ 2,882,441
$ 2,887,438
Single family residential 4,870
3,364
—
4,135
1,945,177
1,957,546
Commercial real estate —
—
—
656
111,836
112,492
Land, NM, and construction —
—
—
—
41,215
41,215
Total $ 7,621
$ 3,364
$ —
$ 7,037
$ 4,980,669
$ 4,998,691

The following table summarizes information related to impaired loans at ~~March 31, 2018 and~~ December 31, ~~2017 (dollars in thousands):~~2022:


(Dollars in thousands)													(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:													With no related allowance recorded:
Multifamily residential													Multifamily residential	$	485	$	562	$	—
Single family residential													Single family residential	5,580		5,779		—

	As of March 31, 2018						As of December 31, 2017							6,065		6,341		—
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
With an allowance recorded:													With an allowance recorded:
Multifamily residential	$	1,564	$	1,686	$	—	$	2,246	$	2,545	$	—	Multifamily residential	3,024		3,002		600
Single family residential	9,257		9,488		—		8,029		8,237		—		Single family residential	801		798		25
Commercial real estate	—		—		—		656		798		—
	10,821		11,174		—		10,931		11,580		—
With an allowance recorded:
Single family residential	954		954		25		962		962		25

	954		954		25		962		962		25			3,825		3,800		625
Total:													Total:
Multifamily residential	1,564		1,686		—		2,246		2,545		—		Multifamily residential	3,509		3,564		600
Single family residential	10,211		10,442		25		8,991		9,199		25		Single family residential	6,381		6,577		25
Commercial real estate	—		—		—		656		798		—
	$	11,775	$	12,128	$	25	$	11,893	$	12,542	$	25

														$	9,890	$	10,141	$	625

The following table summarizes information related to impaired loans for the three months ended March 31, ~~2018 and 2017 (dollars~~2022:




(Dollars in thousands)	Average Recorded Investment		Interest Income		Cash Basis Interest
With no related allowance recorded:
Multifamily residential	$	503	$	8	$	8
Single family residential	4,830		43		19


	5,333		51		27
With an allowance recorded:

Single family residential	835		6		—


	835		6		—
Total:
Multifamily residential	503		8		8
Single family residential	5,665		49		19


	$	6,168	$	57	$	27

The following table summarizes the allocation of the allowance for loan losses by impairment methodology as of December 31, 2022:


(Dollars in thousands)	Multifamily Residential		Single Family Residential		Commercial Real Estate		Construction and Land		Total










Ending allowance balance allocated to:
Loans individually evaluated for impairment	$	600	$	25	$	—	$	—	$	625
Loans collectively evaluated for impairment	25,817		8,539		1,539		165		36,060
Ending balance	$	26,417	$	8,564	$	1,539	$	165	$	36,685
Loans:
Ending balance: individually evaluated for impairment	$	3,509	$	6,381	$	—	$	—	$	9,890
Ending balance: collectively evaluated for impairment	4,528,803		2,277,247		172,258		22,247		7,000,555
Ending balance	$	4,532,312	$	2,283,628	$	172,258	$	22,247	$	7,010,445

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The following table summarizes the population of loans with active payment modifications for borrowers experiencing financial difficulty as of March 31, 2023:


(Dollars in thousands)	Multifamily Residential			Single Family Residential			Commercial Real Estate			Construction and Land			Total

Loan modifications	$	—		$	1,200		$	—		$	—		$	1,200
% of loan modifications to total loan category	—			0.05		%	—			—			0.02		%

Weighted average interest rate reductions	—		%	0.20		%	—		%	—		%	0.20		%
Weighted average term extension	—			6 months			—			—			6 months

The Company had no modified loans with a subsequent payment default within the twelve months following their modification during the quarter ended March 31, 2023. A loan is considered to be in ~~thousands):~~

Three Months Ended March 31,
2018 2017
Average Recorded Investment Interest Income Cash Basis Interest Average Recorded Investment Interest Income Cash Basis Interest
With no related allowance recorded:
Multifamily residential $ 2,070
$ —
$ —
$ 1,524
$ —
$ —
Single family residential 8,165
37
—
6,353
48
—
Commercial real estate 487
—
—
832
—
—
10,722
37
—
8,709
48
—
With an allowance recorded:
Single family residential 1,718
17
—
989
8
—
1,718
17
—
989
8
—
Total:
Multifamily residential 2,070
—
—
1,524
—
—
Single family residential 9,883
54
—
7,342
56
—
Commercial real estate 487
—
—
832
—
—
$ 12,440
$ 54
$ —
$ 9,698
$ 56
$ —
default once it is 90 days contractually past due under the modified terms.

The following table summarizes the recorded investment related to troubled debt restructurings ("TDRs") at ~~March 31, 2018 and~~ December 31, ~~2017 (dollars in thousands):~~2022:

March 31,
2018 December 31,
2017
Troubled Debt Restructurings:
Multifamily residential $ —
$ 667
Single family residential 5,594
5,653
Total recorded investment in troubled debt restructurings $ 5,594
$ 6,320


(Dollars in thousands)
Troubled debt restructurings:

Single family residential	$	1,211

The Company ~~has~~had allocated $25 thousand of ~~allowances~~its allowance for loan losses for loans modified in ~~troubled debt restructurings~~TDRs at ~~March 31, 2018 and~~ December 31, ~~2017.~~2022. The Company does not have commitments to lend additional funds to borrowers with loans whose terms have been modified in ~~troubled debt restructurings. There were no troubled debt restructurings in~~TDRs.

During the three months ended March 31, ~~2018~~2022, the Company modified the terms of one loan that qualified as a TDR. The following table provides details of this modification:


(Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Single family residential	1	$	405	$	412

Terms of the modification above included suspension of loan payments for six months and ~~2017.~~

a similar extension of the loan term. The TDR above resulted in no increase to the allowance for loan losses and no charge-offs primarily due to collateral support provided by the secondary source of repayment.

The Company had no ~~troubled debt restructurings~~TDRs with a subsequent payment default within the twelve months following ~~the~~their modification during the three months ended March 31, ~~2018 and 2017.~~2022. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

~~The terms~~

Table of certain other loans were modified during the three months ended March 31, 2018 and 2017 that did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment of $3.1 million and $2.8 million as of March 31, 2018 and March 31, 2017, respectively. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant such as delays in payment of up to 4 months.Contents

4. NONPERFORMING ASSETS


4.	~~NONPERFORMING ASSETS~~

Nonperforming assets include nonperforming loans plus real estate ~~owned (foreclosed property).~~owned. The ~~Company’s nonperforming assets and trends related~~following table presents the composition of non-accrual loans as of the dates indicated below:


	March 31, 2023				December 31, 2022
(Dollars in thousands)	Non-Accrual Loans with No ACL		Non-Accrual Loans		Non-Accrual Loans with No ALLL		Non-Accrual Loans
Multifamily residential	$	3,504	$	3,504	$	3,509	$	3,509
Single family residential	1,466		1,466		2,962		2,962
Commercial real estate	—		—		—		—
Construction and land	—		—		—		—
Total	$	4,970	$	4,970	$	6,471	$	6,471

The allowance for non-accrual loans is based on the CECL cash flow methodology discussed in Note 1, “Summary of Significant Accounting Policies", unless the loan is considered collateral dependent. The allowance for collateral dependent loans is determined based on the estimated fair value of the underlying collateral.

Interest income on non-accrual loans is subsequently recognized on a cash basis as long as the remaining unpaid principal amount of the loans are deemed to ~~those assets at~~be fully collectible. If there is doubt regarding the collectability of the loan, then any interest payments received are applied to principal. Interest income was recognized on a cash basis on non-accrual loans during the three months ended March 31, ~~2018~~2023 and ~~December~~2022 totaling $28 thousand and $27 thousand, respectively. Contractual interest not recorded on nonperforming loans during the three months ended March 31, ~~2017 are indicated below (dollars in thousands):~~2023 and 2022 totaled $118 thousand and $7 thousand, respectively.

March 31,
2018 December 31,
2017
Non-accrual loans:
Multifamily residential $ 1,564
$ 2,246
Single family residential 5,397
4,135
Commercial real estate —
656
Total non-accrual loans 6,961
7,037
Real estate owned —
—
Total nonperforming assets $ 6,961
$ 7,037
Contractual interest not accrued during the quarter $ 12
$ 10

~~There was~~The Company did not own any other real estate owned as of March 31, ~~2018~~2023 and December 31, ~~2017.~~2022.

~~Generally, nonperforming loans are considered impaired, because the repayment of the loan will not be made in accordance with the original contractual agreement.~~5. MORTGAGE SERVICING RIGHTS


5.	~~MORTGAGE SERVICING RIGHTS~~

Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors, and conducting foreclosure proceedings. Loan servicing income is recorded on the accrual basis and includes servicing fees from investors and certain charges collected from borrowers. Mortgage loans serviced for others are not reported as assets. The principal balances of these loans are as ~~follows (dollars in thousands):~~follows:

March 31,
2018 December 31,
2017
Mortgage loans serviced for:
FHLMC $ 609,254
$ 625,545
Colorado Federal Savings 40,049
40,236
First National Bank of Alaska 34,589
36,050
Provident Bank 20,390
20,855
Pacific Coast Bankers Bank 19,996
20,112
American River Bank 19,539
20,718
Exchange Bank 17,861
20,165
Total mortgage loans serviced for others $ 761,678
$ 783,681


(Dollars in thousands)	March 31, 2023		December 31, 2022
Mortgage loans serviced for:
Federal Home Loan Mortgage Corporation ("Freddie Mac")	$	78,312	$	80,478
Other financial institutions	37,220		37,503
Total mortgage loans serviced for others	$	115,532	$	117,981

Custodial account balances maintained in connection with serviced loans totaled ~~$4.8~~$1.6 million and ~~$5.2 million~~$234 thousand at March 31, ~~2018~~2023 and December 31, ~~2017,~~2022, respectively.

~~Activity~~The Company measures servicing rights at fair value at each reporting date and reports changes in the fair value of servicing assets in earnings in the period in which the changes occur. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income. Activities for mortgage servicing rights are as ~~follows (dollars in thousands):~~follows:

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								Three Months Ended March 31,
	Three Months Ended March 31,
	2018			2017
Beginning Balance	$	4,255		$	1,099
(Dollars in thousands)							(Dollars in thousands)	2023		2022
Beginning balance							Beginning balance	$	688	$	915
Additions	—			83			Additions	—		—
Disposals	—			—			Disposals	—		—
Change in fair value due to changes in assumptions	—			—
Changes in fair value due to changes in assumptions							Changes in fair value due to changes in assumptions	—		—
Other changes in fair value	(131		)	(29		)	Other changes in fair value	(19)		(104)
Ending balance	$	4,124		$	1,153		Ending balance	$	669	$	811

Fair value as of March 31, ~~2018~~2023 was determined using a discount rate of 10%, prepayment speeds ranging from ~~6.0%~~5.4% to ~~70.4%, depending on the stratification of the specific right,~~32.7% and a weighted average default rate of 5%. The weighted average prepayment speed at March 31, 2023 was 24.5%. Fair value as of December 31, ~~2017~~2022 was determined using a discount rate of 10%, prepayment speeds ranging from ~~5.8%~~3.5% to ~~70.4%, depending on the stratification of the specific right,~~32.3% and a weighted average default rate of 5%. The weighted average prepayment speed at December 31, 2022 was 23.0%.

6. LEASES

The Company leases various office premises under long-term operating lease agreements. These leases expire between 2023 and 2033, with certain leases containing five-year renewal options. The Company includes lease extension options in the lease term if it is reasonably certain the Company will exercise the option, when considering the economic incentive to do so. Leases are classified as operating or finance leases at the lease commencement date. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term. All of the Company’s leases are classified as operating leases.

The Company records operating lease right-of-use assets and operating lease liabilities on the Company's consolidated statements of financial condition. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

The Company uses its incremental borrowing rate at lease commencement to discount lease payments when the rate implicit in the lease is not readily determinable. The Company selected a FHLB advance rate at lease inception based on the lease term and other factors, as a reasonable incremental borrowing rate. In addition, the Company has elected to account for any non-lease components in its leases as part of the associated lease component. The Company also has elected to not recognize short-term leases with an original term of 12 months or less on the Company's consolidated statements of financial condition.

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6.	~~DEPOSITS~~

Supplemental lease information as of March 31, 2023 and December 31, 2022 is as follows:


(Dollars in thousands)	March 31, 2023			December 31, 2022
Operating lease right-of-use assets included in prepaid expenses and other assets	$	12,478		$	13,244
Operating lease liabilities included in other liabilities and accrued expenses	12,478			13,316



Weighted average remaining lease term (years) of operating leases	5.0			5.1
Weighted average discount rate of operating leases	2.73		%	2.69		%

Supplemental lease information for the three months ended March 31, 2023 and 2022 is as follows:


	Three Months Ended March 31,
(Dollars in thousands)	2023		2022




Operating lease costs included in occupancy expense	$	904	$	929



Cash paid for amounts included in the measurement of operating lease liabilities	976		1,033

At March 31, 2023, future undiscounted lease payments with initial terms of one year or more are as follows:


(Dollars in thousands)
April 1 - December 31, 2023	$	2,537
2024	2,803
2025	2,388
2026	2,203
2027	1,964
Thereafter	1,640
Total undiscounted lease payments	13,535
Less: Imputed interest	(1,057)
Net lease liabilities	$	12,478

7. QUALIFIED AFFORDABLE HOUSING PROJECT INVESTMENTS

The Company is invested in qualified affordable housing projects that are expected to provide federal and state tax credits in the future. The investments are accounted for using the proportional amortization method. As of March 31, 2023 and December 31, 2022, the Company was committed to invest $18.0 million and $17.9 million, respectively, of which $5.2 million and $4.8 million, respectively, had been funded and was included in prepaid expenses and other assets in the consolidated statements of financial condition. The total unfunded commitments related to the investments totaled $12.8 million and $13.1 million at March 31, 2023 and December 31, 2022, respectively, and were included in other liabilities and accrued expenses in the consolidated statements of financial condition. During the three months ended March 31, 2023 and 2022, the Company recognized amortization expense of $364 thousand and $136 thousand, respectively, and tax benefits related to the investments of $119 thousand and $196 thousand, respectively. Amortization expense and tax benefits are included in the provision for income taxes in the unaudited consolidated statements of income.

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8. DEPOSITS

A summary of deposits at March 31, ~~2018~~2023 and December 31, ~~2017~~2022 is as ~~follows (dollars in thousands):~~follows:

March 31,
2018 December 31,
2017
Certificate accounts $ 2,398,698
$ 2,242,682
Money market savings 1,407,825
1,389,425
NOW accounts 196,767
203,159
Money market checking 81,893
85,073
Commercial checking 28,843
30,899
$ 4,114,026
$ 3,951,238


(Dollars in thousands)	March 31, 2023		December 31, 2022
Time deposits	$	3,405,641	$	3,134,373
Money market savings	1,271,147		1,718,008
Money market checking	754,080		728,231
Interest-bearing demand	143,870		158,068
Noninterest-bearing demand	74,756		100,660
Total	$	5,649,494	$	5,839,340

The Company had ~~certificates of deposit with a denomination of $100 thousand~~time deposits that met or ~~more totaling $2.1 billion and $1.9 billion at March 31, 2018 and December 31, 2017, respectively.~~

~~The Company had certificates of deposit that meet or exceed~~exceeded the ~~FDIC~~Federal Deposit Insurance Corporation ("FDIC") insurance limit of $250 thousand of ~~$1.2~~$1.4 billion and ~~$1.1~~$1.3 billion at March 31, ~~2018~~2023 and December 31, ~~2017,~~2022, respectively.

The Company utilizes brokered deposits as an additional source of funding. The Company had brokered deposits of ~~$295.9~~$543.4 million and ~~$278.4~~$455.8 million at March 31, ~~2018~~2023 and December 31, ~~2017,~~2022, respectively.

The increase in brokered deposits was utilized to partially offset retail deposit declines during the three months ended March 31, 2023.

Maturities of the Company’s ~~certificate accounts~~time deposits at March 31, ~~2018~~2023 are summarized as ~~follows (dollars~~follows:

~~in thousands):~~


(Dollars in thousands)
April 1 - December 31, 2023	$	2,462,856
2024	919,568
2025	7,357
2026	10,450
2027	4,537
Thereafter	873
Total	$	3,405,641

9. FEDERAL HOME LOAN BANK AND FEDERAL RESERVE BANK ADVANCES

April 1 - December 31, 2018 $ 1,467,831
Year ending December 31, 2019 560,064
Year ending December 31, 2020 278,666
Year ending December 31, 2021 51,750
Year ending December 31, 2022 35,530
Thereafter 4,857
$ 2,398,698


7.	~~FEDERAL HOME LOAN BANK AND FEDERAL RESERVE BANK ADVANCES~~

The Bank may borrow from the ~~Federal Home Loan Bank ("FHLB"),~~FHLB, on either a short-term or long-term basis, up to 40% of its assets, provided that adequate collateral has been pledged. As of March 31, ~~2018 and December 31, 2017,~~2023, the Bank had pledged various mortgage loans and securities to secure these borrowing arrangements totaling approximately ~~$2.3~~$4.3 billion and ~~$2.4~~$258.3 million, respectively, compared to pledged mortgage loans totaling approximately $4.2 billion ~~respectively,~~ as ~~well as~~of December 31, 2022. Additionally, the FHLB stock held by the Bank toas of both dates further secure these ~~borrowing~~ arrangements.

The Bank has access to the Loan and Discount Window of the ~~Federal Reserve~~FRB and the FRB's new Bank ~~of San Francisco~~Term Funding Program ("~~FRB"~~BTFP"). Advances under ~~this window~~these programs are subject to the Bank providing qualifying collateral. ~~Various mortgage~~Mortgage loans totaling approximately ~~$394.9 million~~$2.5 billion and ~~$379.0~~$904.9 million as of March 31, ~~2018~~2023 and December 31, ~~2017,~~2022, respectively, secure ~~this~~the discount window borrowing arrangement. Securities with a current par value totaling $354.0 million secure the BFTP as of March 31, 2023. No securities were pledged to secure FRB borrowings as of December 31, 2022. There were no borrowings outstanding with the FRB as of March 31, ~~2018 and~~2023 or December 31, ~~2017.~~2022.

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The following table discloses the Bank’s outstanding advances from the ~~Federal Home Loan Bank~~FHLB of San ~~Francisco (dollars~~Francisco:


	Outstanding Balances				As of March 31, 2023
(Dollars in thousands)	March 31, 2023		December 31, 2022		Minimum Interest Rate		Maximum Interest Rate		Weighted Average Rate		Maturity Dates
Fixed rate short-term	$	150,000	$	56,500	5.27	%	5.27	%	5.27	%	June 2023
Fixed rate long-term(1)	1,551,647		1,151,647		0.38	%	7.33	%	3.15	%	May 2023 to March 2030

	$	1,701,647	$	1,208,147

(1) Included in ~~thousands):~~

March 31,
2018 December 31,
2017
FHLB fixed rate short-term borrowings, interest rates from 1.78% to 1.94%, weighted average rate of 1.90%, and maturity dates of April and June 2018 as of March 31, 2018 $ 480,500
$ 411,600
FHLB fixed rate long-term borrowings, interest rates from 1.55% to 7.69%, weighted average rate of 2.09%, maturity dates between July 2018 and August 2032 as of March 31, 2018 527,653
427,660
FHLB variable rate long-term borrowings, interest rates from 1.68% to 1.89%, weighted average rate of 1.82%, and maturity dates between July 2018 and January 2020 as of March 31, 2018 150,000
150,000
$ 1,158,153
$ 989,260
total fixed rate long-term advances is a $200.0 million advance which matures in September 2025 and contains a FHLB quarterly call provision beginning in September 2023.

The Bank's available borrowing capacity based on loans and securities pledged ~~loans~~ to the ~~FRB~~FHLB and the ~~FHLB~~FRB totaled ~~$869.5~~$2.3 billion and $1.7 billion at March 31, 2023 and December 31, 2022, respectively. As of March 31, 2023 and December 31, 2022, the Bank had aggregate loan balances of $17.8 million and $1.1 billion, atrespectively available to pledge to the FHLB and FRB to increase its borrowing capacity. As of March 31, ~~2018~~2023 and December 31, ~~2017, respectively.~~2022, the Bank pledged as collateral a $62.6 million FHLB letter of credit to Freddie Mac related to our multifamily securitization reimbursement obligation.

Short-term borrowings are borrowings with original maturities of ~~1 year~~90 days or less. During the three months ended March 31, ~~2018~~2023, there was a maximum amount of ~~short term~~short-term borrowings outstanding of ~~$495.7~~$150.0 million, an average amount outstanding of ~~$457.4~~$49.0 million, ~~and~~with a weighted average interest rate of ~~1.61%~~5.05%.

During the three months ended March 31, 2022, there was a maximum amount of short-term borrowings outstanding of $135.3 million, an average amount outstanding of $21.7 million, with a weighted average interest rate of 0.34%.

The following table summarizes scheduled principal payments on FHLB advances over the next five years as of March 31, ~~2018 (dollars in~~2023:

~~thousands):~~


(Dollars in thousands)
April 1 - December 31, 2023	$	350,000
2024	500,000
2025	751,500
2026	100,000
2027	—
Thereafter	147
	$	1,701,647

10. JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES

April 1 - December 31, 2018 $ 531,000
Year ending December 31, 2019 275,000
Year ending December 31, 2020 150,000
Year ending December 31, 2021 150,600
Year ending December 31, 2022 —
Thereafter 51,553
$ 1,158,153


8.	~~JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES~~

The Company formed ~~wholly owned~~two wholly-owned trust companies (the ‘‘Trusts’’) which issued guaranteed preferred beneficial interests (the "Trust Securities") in the Company’s junior subordinated deferrable interest debentures ~~(‘‘the Trust Securities’’~~(the "Notes"). The Company is not considered the primary beneficiary of the Trusts and therefore, the Trusts are not consolidated in the Company’s financial statements, but rather the junior subordinated debentures are shown as a liability. The Company’s investment in the common securities of the Trusts, totaling $1.9 million, ~~are~~is included in other assets onin the consolidated ~~statement~~statements of financial condition. The sole asset of the Trusts are ~~junior subordinated deferrable interest debentures (the ‘‘Notes’’).~~the Notes that they hold.

~~At March 31, 2018 and December 31, 2017, the Company had two Trusts which have issued Trust Securities to the public.~~ The Trusts have invested the proceeds of such Trust Securities in the Notes. Each of the Notes has an interest rate equal to the corresponding Trust Securities distribution rate. The Company has the right to defer payment of interest on the Notes at any time or from time to time for a period not exceeding five years provided that no extension period may extend beyond the stated maturity of the relevant Notes. During any such extension period, distributions on the Trust Securities will also be deferred, and the Company’s ability to pay dividends on its common stock will be restricted.

The Company has entered into contractual arrangements which, taken collectively, fully and unconditionally guarantee payment of: (i) accrued and unpaid distributions required to be paid on the Trust

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Securities; (ii) the redemption price with respect to any Trust Securities called for redemption by the Trusts; and (iii) payments due upon a voluntary or involuntary dissolution, winding up or liquidation of the Trusts. The Trust Securities are mandatorily redeemable upon maturity of the Notes, or upon earlier redemption as provided in the

indenture. The Company has the right to redeem the Notes purchased by the Trusts, in whole or in part, on or after the redemption date. As specified in the indenture, if the Notes are redeemed prior to maturity, the redemption price will be the principal amount and any accrued but unpaid interest.

The following table is a summary of the outstanding Trust Securities and Notes at March 31, ~~2018~~2023 and December 31, ~~2017 (dollars in thousands):~~2022:


	March 31, 2023				December 31, 2022				Date	Maturity	Rate Index
Issuer	Amount		Rate		Amount		Rate		Issued	Date	(Quarterly Reset)
(Dollars in thousands)
Luther Burbank Statutory Trust I	$	41,238	6.25	%	$	41,238	6.15	%	3/1/2006	6/15/2036	3 month LIBOR + 1.38%
Luther Burbank Statutory Trust II	$	20,619	6.49	%	$	20,619	6.39	%	3/1/2007	6/15/2037	3 month LIBOR + 1.62%

Issuer Issuance Date Amount of Trust Securities Amount of Notes Redemption Date Maturity Date
Luther Burbank Statutory Trust I March 2006 $ 40,000
$ 41,238
June 15, 2011 June 15, 2036
Quarterly adjustments - three month Libor plus 1.38%
(3.505% and 2.968% at 3/31/2018 and 12/31/2017, respectively)
Luther Burbank Statutory Trust II March 2007 $ 20,000
$ 20,619
June 15, 2012 June 15, 2037
Quarterly adjustments - three month Libor plus 1.62%
(3.745% and 3.208% at 3/31/2018 and 12/31/2017, respectively)
11. SENIOR DEBT


9.	~~SENIOR DEBT~~

In September 2014, the Company issued $95 million in senior unsecured term notes to qualified institutional investors. The proceeds of this debt were used to retire senior unsecured term notes issued between 2009 and 2011 totaling $62.7 million, including a prepayment penalty of $243 thousand, and make an additional contribution to the Bank of $28 million in the form of paid-in capital. The balance of the proceeds, or approximately $2.7 million, was retained at the holding company to be used as cash reserves and for general corporate purposes. The following table summarizes information on these notes as of March 31, ~~2018~~2023 and December 31, ~~2017 (dollars in thousands):~~2022:


	March 31, 2023				December 31, 2022
(Dollars in thousands)	Principal		Unamortized Debt Issuance Costs		Principal		Unamortized Debt Issuance Costs		Maturity Date	Fixed Interest Rate
Senior Unsecured Term Notes	$	95,000	$	184	$	95,000	$	215	9/30/2024	6.50	%

March 31, 2018 December 31, 2017
Principal Unamortized debt issuance costs Principal Unamortized debt issuance costs
Senior unsecured term notes, fixed interest rate 6.50%, does not amortize and matures on September 30, 2024 (discount is based on imputed interest rate of 6.70%) $ 95,000
$ 805
$ 95,000
$ 839
12. DERIVATIVES AND HEDGING ACTIVITIES


~~10.~~	~~INCOME TAXES~~

~~In connection with~~From time to time, the initial public offering, the Company terminated its S Corporation status and became a taxable entity (“C Corporation”) on December 1, 2017. As such, any periods prior to December 1, 2017 will only reflect an effective state income tax rate.

~~The provision for income tax for the three months ended March 31, 2018 and 2017 differs from the statutory federal rate of 21% and 35%, respectively, due to the following:~~

Three months ended March 31,
2018 2017
Statutory U.S. Federal Income Tax $ 3,208
$ 4,452
Increase (decrease) resulting from:
Benefit of S Corporation status —
(4,452 )
State Taxes 1,316
425
Other (349 ) —
Provision for income taxes $ 4,175
$ 425

The Company’s effective tax rate differs from the statutory California tax rate of 3.5% prior to December 1, 2017 and the statutory federal and state tax rate of 29.56% for the three months ended March 31, 2018, primarily due to nontaxable earnings on life insurance and nondeductible meal and entertainment expense.


~~11.~~	~~REGULATORY CAPITAL MATTERS~~

The final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks (the “Basel III Capital Rules”) became effective for the Holding Company and Bank 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. The Basel III Capital Rules provide for the following minimum capital to risk-weighted assets ratios as of January 1, 2015: a) 4.5% based upon common equity tier 1 capital ("CET1"); b) 6.0% based upon tier 1 capital; and c) 8.0% based upon total regulatory capital. A minimum leverage ratio (tier 1 capital as a percentage of average consolidated assets) of 4.0% is also required under the Basel III Capital Rules.

As of March 31, 2018 and December 31, 2017, the Company and the Bank met all capital adequacy requirements to which it is subject. Also, as of March 31, 2018 and December 31, 2017, the Bank satisfied all criteria necessary to be categorized as “well capitalized” under the regulatory framework for prompt corrective action. There have been no conditions or events since March 31, 2018 that management believes have changed the "well capitalized" categorization.

~~The Company’s and Bank’s actual capital amounts and regulatory capital ratios are presented as follows (dollars in thousands):~~

Actual
Minimum Regulatory
Requirement
Minimum Capital Adequacy with Capital Buffer
Minimum Regulatory Requirement for "Well- Capitalized" Institution under prompt corrective action
provisions
Amount Ratio Amount Ratio Amount Ratio Amount Ratio
Luther Burbank Corporation
As of March 31, 2018
Tier 1 Leverage Ratio $ 619,209
10.57 % $ 241,612
4.00 % N/A
N/A
N/A N/A
Common Equity Tier 1 Risk-Based Ratio 557,352
15.55 % 161,342
4.50 % $ 228,568
6.38 % N/A N/A
Tier 1 Risk-Based Capital Ratio 619,209
17.27 % 215,123
6.00 % 282,348
7.88 % N/A N/A
Total Risk-Based Capital Ratio 653,367
18.22 % 286,830
8.00 % 354,056
9.88 % N/A N/A
As of December 31, 2017
Tier 1 Leverage Ratio $ 615,010
11.26 % $ 218,499
4.00 % N/A
N/A
N/A N/A
Common Equity Tier 1 Risk-Based Ratio 553,153
16.05 % 155,107
4.50 % $ 198,192
5.75 % N/A N/A
Tier 1 Risk-Based Capital Ratio 615,010
17.84 % 206,809
6.00 % 249,894
7.25 % N/A N/A
Total Risk-Based Capital Ratio 647,421
18.78 % 275,746
8.00 % 318,831
9.25 % N/A N/A

Actual Minimum Regulatory
Requirement Minimum Capital Adequacy with Capital Buffer Minimum Regulatory Requirement for "Well- Capitalized" Institution under prompt corrective action
provisions
Amount Ratio Amount Ratio Amount Ratio Amount Ratio
Luther Burbank Savings
As of March 31, 2018
Tier 1 Leverage Ratio $ 696,502
11.90 % $ 241,507
4.00 % N/A
N/A
$ 301,884
5.00 %
Common Equity Tier 1 Risk-Based Ratio 696,502
19.44 % 161,225
4.50 % $ 228,402
6.38 % 232,880
6.50 %
Tier 1 Risk-Based Capital Ratio 696,502
19.44 % 214,966
6.00 % 282,143
7.88 % 286,622
8.00 %
Total Risk-Based Capital Ratio 730,660
20.39 % 286,622
8.00 % 353,799
9.88 % 358,277
10.00 %
As of December 31, 2017
Tier 1 Leverage Ratio $ 685,434
12.54 % $ 218,585
4.00 % N/A
N/A
$ 273,232
5.00 %
Common Equity Tier 1 Risk-Based Ratio 685,434
19.90 % 154,980
4.50 % $ 198,030
5.75 % 223,859
6.50 %
Tier 1 Risk-Based Capital Ratio 685,434
19.90 % 206,640
6.00 % 249,689
7.25 % 275,519
8.00 %
Total Risk-Based Capital Ratio 717,845
20.84 % 275,519
8.00 % 318,569
9.25 % 344,399
10.00 %


~~12.~~	~~DERIVATIVES~~

~~The~~ Company utilizes interest rate ~~cap~~swaps and ~~swap agreements~~other derivative financial instruments as part of its asset liability management strategy to ~~help~~ manage ~~its~~ interest rate risk ~~position. The~~positions.

Fair Value Hedges of Interest Rate Risk

As of March 31, 2023, the Company held 11 interest rate swaps with a total notional amount of $1.8 billion, two of which, with an aggregate notional amount of $400 million, have effective dates in April and June 2023. The swaps provide a hedge against the interest rate ~~caps~~risk associated with both fixed rate loans and hybrid adjustable loans in their fixed rate period.

All outstanding swaps ~~do not represent amounts exchanged by~~are designated as fair value hedges and involve the ~~parties. The~~payment of a fixed rate amount ~~exchanged is determined by reference~~to a counterparty in exchange for the Company receiving a variable rate payment over the life of the swaps without the exchange of the underlying notional amount. Any gain or loss on the derivatives, as well as any offsetting loss or gain on the hedged items attributable to the ~~notional amount and~~hedged risk are recognized in interest income on loans.

The following table presents the ~~other terms~~effect of the ~~individual~~Company’s interest rate ~~cap or swap agreements.~~

Interest Rate Caps Designated as Cash Flow Hedges: Interest rate caps with a notional amount totaling $100 million as of both March 31, 2018 and December 31, 2017, were designated as cash flow hedges of certain Federal Home Loan Bank advances and were determined to be fully effective during all periods presented. As such, no amount of ineffectiveness has been included in net income. Therefore,swaps on the aggregate fair value of the caps is recorded in other assets (liabilities) with changes in fair value recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining terms of the cap.

~~Summary information about the interest-rate caps designated as cash flow hedges as of year-end is as follows (dollars in thousands):~~

March 31,
2018 December 31,
2017
Notional amounts $ 100,000
$ 100,000
Weighted average rate on FHLB advances 1.78 % 1.42 %
Weighted average cap rate 2.55 % 2.55 %
Weighted average original maturity 4.0 years
4.0 years
Weighted average remaining maturity 0.6 years
0.9 years
Unrealized losses $ (614 ) $ (796 )

~~The Company recognized $173 thousand and $77 thousand of cap premium amortization on cash flow hedges in the~~ unaudited consolidated statements of income for the three months ended March 31, ~~2018~~2023 and ~~2017,~~2022:


	For the Three Months Ended March 31,
(Dollars in thousands)	2023		2022
Derivative - interest rate swaps:
Interest income (loss)	$	8,164	$	(65)
Hedged items - loans:
Interest income (loss)	62		(13)
Net increase (decrease) in interest income	$	8,226	$	(78)

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The following table presents the fair value of the Company’s interest rate swaps, as well as their classification in the consolidated statements of financial condition as of March 31, 2023 and December 31, 2022:


			Fair Values of Derivative Instruments
			Asset Derivatives			Liability Derivatives
(Dollars in thousands)	Notional Amount		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
As of March 31, 2023:
Interest Rate Swaps	$	1,800,000	Prepaid Expenses and Other Assets	$	11,763	Other Liabilities and Accrued Expenses	$	18,053
As of December 31, 2022:
Interest Rate Swaps	$	1,850,000	Prepaid Expenses and Other Assets	$	21,323	Other Liabilities and Accrued Expenses	$	2,136

As of March 31, 2023 and December 31, 2022, the following amounts were recorded in the consolidated statements of financial condition related to cumulative basis adjustments for its fair value hedges:


Line Item in the Consolidated Statements of Financial Condition in Which the Hedged Items are Included (1)	Carrying Amount of the Hedged Assets		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
(Dollars in thousands)
As of March 31, 2023:
Loans receivable, net	$	1,806,180	$	6,180
As of December 31, 2022:
Loans receivable, net	$	1,430,641	$	(19,359)

(1) These amounts include the amortized cost basis of portfolio loans used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolios anticipated to be outstanding for the designated hedge period. At March 31, 2023 and December 31, 2022, the amortized cost basis of the portfolio loans used in these hedging relationships were $4.5 billion and $3.9 billion, respectively.

As of March 31, 2023, the Company had $8.7 million in cash collateral posted in connection with its interest rate swaps. There was no cash collateral posted as of December 31, 2022.


~~13.~~	~~STOCK BASED COMPENSATION~~

13. STOCK BASED COMPENSATION

The Company’s stock based compensation consists of restricted stock awards ~~(RSAs)~~("RSAs") and restricted stock units ~~(RSUs)~~("RSUs") granted under ~~its 2017~~the Luther Burbank Corporation Omnibus Equity and Incentive Compensation Plan ("Omnibus Plan"). In connection with its ~~IPO~~initial public offering ("IPO") in December 2017, ~~the Company granted RSAs and RSUs to employees and nonemployee directors which all vest ratably over three years. At the same time,~~ the Company granted RSUs in exchange for unvested phantom stock awards ~~held by employees and all vested and unvested~~related to a then discontinued employee benefit plan that awarded phantom stock ~~awards held by~~to certain key executives and nonemployee ~~directors~~directors. The RSUs were granted on a per share ~~basis. The RSUs were subjected to~~basis, with the same vesting schedule and deferral elections that existed for the original phantom stock awards.

~~In recognition of prior and current service, additional~~ Post IPO, the Company typically grants RSAs ~~were granted during the first quarter of 2018. These awards~~ to nonemployee directors and certain employees on an annual basis. RSA grants vest ~~over~~after one year ~~while awards to employees vest~~for nonemployee directors and ratably over three ~~years.~~ to four years for employees.

All RSAs and RSUs ~~were~~are granted at the fair value of the common stock at the time of the award. ~~The~~ RSAs and RSUs are considered fixed awards as the number of shares and fair value are known at the date of grant and the fair value at the grant date is amortized over the vesting and/or service period.

Non-cash stock compensation expense recognized for RSAs ~~and RSUs~~ for the ~~quarter~~three months ended on March 31, ~~2018~~2023 and 2022 totaled ~~$1.0 million. No~~$473 thousand and $710 thousand, respectively. The fair value of RSAs ~~or RSUs had been granted prior to December 2017.~~that vested during the three months ended March 31, 2023 and 2022 totaled $2.7 million and $2.6 million, respectively.

As of both March 31, ~~2018,~~2023 and December 31, 2022, there was ~~$7.9~~$2.4 million of unrecognized compensation expense related to ~~1,226,891~~232,459 and 414,004 unvested RSAs, ~~and RSUs. This expense is~~respectively, which amounts were expected to be ~~recognized~~expensed over a weighted average period of ~~2.26 years.~~1.50 years and 1.74 years, respectively. As of March 31, ~~2018, 169,490~~

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2023 and December 31, 2022, 65,799 and 81,225 shares, respectively, of RSUs were vested and remain unsettled per the original deferral elections. There were no unvested RSUs at March 31, 2023 or December 31, 2022.

The following table summarizes share information about ~~restricted stock awards~~RSAs and ~~restricted stock units for the quarter ended March 31, 2018:~~RSUs:


						Three Months Ended March 31,
						2023			2022
	Restricted Stock and Restricted Stock Units Outstanding		Weighted Average Grant Date Fair Value			Number of Shares	Weighted Average Grant Date Fair Value		Number of Shares	Weighted Average Grant Date Fair Value
Beginning of the period balance	1,319,700		$	10.75	Beginning of the period balance	495,229	$	11.89	581,189	$	10.56
Shares granted	131,140		12.77		Shares granted	42,034	11.24		206,675	13.81
Shares settled	(53,059	)	10.75		Shares settled	(239,005)	11.81		(253,706)	10.45
Shares forfeited	(1,400	)	10.75		Shares forfeited	—	—		(4,100)	11.93
End of the period balance	1,396,381		$	10.94	End of the period balance	298,258	$	11.87	530,058	$	11.87

Under its Omnibus Plan, the Company reserved 3,360,000 shares of common stock for new awards. At March 31, ~~2018~~2023 and December 31, ~~2017,~~2022, there were ~~2,559,959~~1,640,434 and ~~2,689,699~~1,682,468 shares, respectively, of common stock reserved and available for grant through restricted stock or other awards under the Omnibus Plan. RSU awards were initially issued to replace unvested phantom stock awards under the Luther Burbank Corporation Phantom Stock Plan and were excluded from the shares reserved and available for grant under the Omnibus Plan.


~~14.~~	~~FAIR VALUE MEASUREMENTS~~

~~Fair Value Measurements~~14. FAIR VALUE MEASUREMENTS

Fair Value Hierarchy

The Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. Valuations within these levels are based upon:

Level 1 - Quoted market prices for identical instruments traded in active exchange markets.

Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable or can be corroborated by observable market data.

Level 3 - Model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect the Company’s estimates of assumptions that market participants would use on pricing the asset or liability. Valuation techniques include management judgment and estimation which may be significant.

Because broadly traded markets do not exist for most of the Company’s financial instruments, the fair value calculations attempt to incorporate the effect of current market conditions at a specific time. These determinations are subjective in nature, involve uncertainties and matters of significant judgment and do not include tax ramifications; therefore, the results cannot be determined with precision, substantiated by comparison to independent markets and may not be realized in an actual sale or immediate settlement of the instruments. There may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results. For all of these reasons, the aggregation of the fair value calculations presented herein do not represent, and should not be construed to represent, the underlying value of the Company.

Management monitors the availability of observable market data to assess the appropriate classification of assets and liabilities within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of

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the transfer relative to total assets, total liabilities, or total earnings.

The following methods and assumptions were used to estimate the fair value of financial instruments:

For cash and cash equivalents, ~~variable rate loans,~~ accrued interest receivable and payable, demand deposits and short-term borrowings, the carrying amount iswas estimated to be fair value. The fair value of accrued interest receivable/payable balances ~~are~~were determined using inputs and fair value measurements commensurate with the asset or liability from which the accrued interest is generated.

Fair values for available for sale ~~investment~~and held to maturity debt securities, which include primarily debt securities issued by U.S. government sponsored agencies, ~~are~~were based on quoted market prices for similar securities.

Fair values for equity securities, which consist of investments in a qualified community reinvestment fund, were based on quoted market prices.

Loans were valued using the exit price notion. The fair value ~~of mortgage banking loans held for sale recorded at level two is determined using quoted prices for similar assets, adjusted for specific attributes of that loan.~~

The fair value of other loans held for sale recorded at level three are determined by two methodologies. The first methodology is used for single family portfolio loans that have been designated as held for sale after having been retained on the balance sheet for at least twelve months of seasoning. To be announced ("TBA") prices for Fannie Mae mortgage backed securities are provided by a third party with prices varying depending upon the underlying loan’s weighted average coupon rate. These prices are then used to determine the fair value of the loan pool using each loan’s coupon rate. As compensating evidence, the loans are also run through a valuation model taking into consideration loan level adjustments such as loan to value ratios, property type, and an estimated servicing release premium. The second methodology is used for multifamily portfolio loans that have been designated as held for sale in relation to a planned securitization transaction. This analysis begins with a third party quoted price for a risk free government guaranteed security comprised of these same multifamily loans. This information is then input into an interest rate risk model to generate an option adjusted spread ("OAS"). This OAS is added to a credit risk spread, based primarily on the cost of the Freddie Mac guarantee fee, to generate a fair market value for the loan pool. Both of these methodologies are performed monthly and compared to the prior month analysis for reasonableness.

~~For loans, the fair value is~~was estimated using market quotes for similar assets or the present value of future cash flows, discounted using ~~the current~~a market rate ~~at which~~for similar ~~loans would be made to borrowers with similar credit ratings and for the same maturities~~products and giving consideration to estimated prepayment risk and credit risk. The fair value of loans iswas determined utilizing estimates resulting in a Level 3 classification.

~~Impaired loans are measured for impairment based on the present~~The fair value of ~~expected future cash flows discounted at the loan’s effective interest rate, except that as a practical expedient, the Company may measure impairment~~collateral dependent loans were measured based on ~~a loan’s observable market price, or~~ the fair value of the collateral ~~(net of estimated costs to sell) if~~at the ~~loan is collateral dependent.~~reporting date, adjusted for selling costs. The fair value of ~~impaired~~collateral dependent loans iswas determined utilizing estimates resulting in a Level 3 classification.

It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability.

~~Typical unobservable inputs used for computing the~~The fair value of ~~impaired loans include adjustments made by appraisers~~servicing rights was determined using a valuation model that utilizes interest rate, prepayment speed, and ~~brokers for differences between comparable property sales,~~default rate assumptions that market participants would use in estimating future net ~~operating~~servicing income ~~assumptions~~ and capitalization rates. Other factors considered include geographic sales trends and the values of comparable surrounding properties as well as the condition of the subject property. In measuring the fair value of impaired collateral dependent loans, the Company assumes a 100% default rate. The valuation techniques used by third party appraisers is consistent among all loan classes held by the Company due to the similarities in the type of loan collateral. For loans measured at fair value on a non-recurring basis in the Company’s loan portfolio at March 31, 2018 and December 31, 2017, adjustments made by appraisers and brokers to comparable property sales generally ranged from (10)% to 20%. Additionally, all appraisals are reviewed in accordance with Uniform Standards of Professional Appraisal Practice, or USPAP, by in house licensed appraisers who review not only the appraisal but independently search for comparable properties to ensure selected comparable properties and corresponding adjustments are appropriate. When necessary appraisal staff will adjust or reject an appraised value. The Company estimates that ~~selling costs approximate 6% of the collateral fair value.~~

~~Real estate owned fair values are categorized as Level 3 due to ongoing assumptions in fair value measurements related to real estate~~can be validated against available market ~~conditions which may require adjustments made by appraisers and brokers for differences between comparable property sales, net operating income assumptions, and capitalization rates.~~data.

The fair values of derivatives ~~are~~were based on valuation models using observable market data as of the measurement date.

Fair values for fixed-rate ~~certificates of deposit are~~time deposits were estimated using discounted cash flow analyses using interest rates offered at each reporting date by the Company for ~~certificates~~time deposits with similar remaining maturities. For deposits with no contractual maturity, the fair value iswas assumed to equal the carrying value.

The fair value of FHLB advances iswas estimated based on discounting the future cash flows using the market rate currently ~~offered.~~offered for similar terms.

The fair value of subordinated debentures iswas based on an indication of value provided by a third-party broker.

For senior debt, the fair value iswas based on an indication of value provided by a third-party broker.

~~The fair values~~

Table of ~~commitments are estimated using the fees currently charged to enter into similar agreements and are not significant.~~Contents

Fair Value of Financial Instruments

The carrying and estimated fair values of the Company’s financial instruments ~~are~~were as ~~follows (dollars in thousands):~~follows:

March 31, 2018
Fair Level Measurements Using
Carrying Amount Fair Value Level 1 Level 2 Level 3
Financial assets:
Cash and cash equivalents $ 74,421
$ 74,421
$ 74,421
$ —
$ —
Investment securities:
Available for sale 538,440
538,440
—
538,440
—
Held to maturity 12,237
12,013
—
12,013
—
Loans receivable, net 5,294,429
5,292,414
—
—
5,292,414
Accrued interest receivable 16,137
16,137
10
1,309
14,818
Federal Home Loan Bank stock 33,023
N/A
N/A
N/A
N/A
Interest Rate Cap Premium 10
10
—
10
—
Financial liabilities:
Customer deposits $ 4,114,026
$ 4,073,150
$ 1,715,328
$ 2,357,822
$ —
FHLB advances 1,158,153
1,158,556
—
1,158,556
—
Junior subordinated deferrable interest debentures 61,857
58,085
—
58,085
—
Senior debt 94,195
100,819
—
100,819
—
Accrued interest payable 2,329
2,329
—
2,329
—


																Fair Level Measurements Using
	December 31, 2017
					Fair Level Measurements Using
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
(Dollars in thousands)											(Dollars in thousands)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
As of March 31, 2023:											As of March 31, 2023:
Financial assets:											Financial assets:
Cash and cash equivalents	$	75,578	$	75,578	$	75,578	$	—	$	—	Cash and cash equivalents	$	516,913	$	516,913	$	516,913	$	—	$	—
Investment securities:
Debt securities:											Debt securities:
Available for sale	503,288		503,288		—		503,288		—		Available for sale	593,427		593,427		—		593,427		—
Held to maturity	6,921		6,925		—		6,925		—		Held to maturity	3,080		2,891		—		2,891		—
Equity securities											Equity securities	10,506		10,506		—		10,506		—

Loans receivable, net	5,011,235		5,022,250		—		—		5,022,250		Loans receivable, net	6,987,565		6,662,388		—		—		6,662,388
Accrued interest receivable	14,901		14,901		27		1,320		13,554		Accrued interest receivable	23,873		23,873		580		2,027		21,266
Federal Home Loan Bank stock	27,733		N/A		N/A		N/A		N/A
Interest rate cap premium	1		1		—		1		—
FHLB stock											FHLB stock	46,007		N/A		N/A		N/A		N/A
Interest rate swaps											Interest rate swaps	11,763		11,763		—		11,763		—
Financial liabilities:											Financial liabilities:
Customer deposits	$	3,951,238	$	3,917,999	$	1,708,556	$	2,209,443	$	—
Deposits											Deposits	$	5,649,494	$	5,618,781	$	2,013,853	$	3,604,928	$	—
FHLB advances	989,260		989,833		—		989,833		—		FHLB advances	1,701,647		1,670,831		—		1,670,831		—
Junior subordinated deferrable interest debentures	61,857		58,624		—		58,624		—		Junior subordinated deferrable interest debentures	61,857		57,653		—		57,653		—
Senior debt	94,161		104,500		—		104,500		—		Senior debt	94,816		93,128		—		93,128		—
Accrued interest payable	1,781		1,781		—		1,781		—		Accrued interest payable	7,430		7,430		—		7,430		—
Interest rate swaps											Interest rate swaps	18,053		18,053		—		18,053		—
As of December 31, 2022:											As of December 31, 2022:
Financial assets:											Financial assets:
Cash and cash equivalents											Cash and cash equivalents	$	185,895	$	185,895	$	185,895	$	—	$	—
Debt securities:											Debt securities:
Available for sale											Available for sale	607,348		607,348		—		607,348		—
Held to maturity											Held to maturity	3,108		2,874		—		2,874		—
Equity securities											Equity securities	10,340		10,340		—		10,340		—
Loans receivable, net											Loans receivable, net	6,973,760		6,743,783		—		—		6,743,783
Accrued interest receivable											Accrued interest receivable	24,306		24,306		58		4,171		20,077
FHLB stock											FHLB stock	32,694		N/A		N/A		N/A		N/A
Interest rate swaps											Interest rate swaps	21,323		21,323		—		21,323		—
Financial liabilities:											Financial liabilities:
Deposits											Deposits	$	5,839,340	$	5,789,929	$	2,449,966	$	3,339,963	$	—
FHLB advances											FHLB advances	1,208,147		1,153,511		—		1,153,511		—
Junior subordinated deferrable interest debentures											Junior subordinated deferrable interest debentures	61,857		56,967		—		56,967		—
Senior debt											Senior debt	94,785		94,652		—		94,652		—
Accrued interest payable											Accrued interest payable	3,964		3,964		—		3,964		—
Interest rate swaps											Interest rate swaps	2,136		2,136		—		2,136		—

These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these ~~estimates~~estimates.

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Assets and Liabilities Recorded at Fair Value

The following ~~tables present~~table presents information about the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis as of March 31, ~~2018~~2023 and December 31, ~~2017.~~2022.

Recurring Basis

The Company is required or permitted to record the following assets and liabilities at fair value on a recurring ~~basis under other accounting pronouncements (dollars in thousands):~~basis:

March 31, 2018
Description Fair Value Level 1 Level 2 Level 3
Financial Assets:
Available for sale investment securities:
Government Sponsored Entities:
Mortgage-backed securities $ 351,492
$ —
$ 351,492
$ —
Agency bonds 116,515
—
116,515
—
Collateralized mortgage obligations 44,970
—
44,970
—
SBA securities 12,988
—
12,988
—
U.S. Treasury 10 year note 971
—
971
—
CRA Qualified Investment Fund (CRAIX) 11,504
—
11,504
—
Total investment securities available for sale $ 538,440
—
$ 538,440
—
Interest rate cap premium $ 10
$ —
$ 10
$ —

December 31, 2017
Description Fair Value Level 1 Level 2 Level 3
Financial Assets:
Available for sale investment securities:
Government Sponsored Entities:
Mortgage-backed securities $ 312,919
$ —
$ 312,919
$ —
Agency bonds 117,222
—
117,222
—
Collateralized mortgage obligations 47,168
—
47,168
—
SBA securities 13,302
—
13,302
—
U.S. Treasury 10 year note 984
—
984
—
CRA Qualified Investment Fund (CRAIX) 11,693
—
11,693
—
Total investment securities available for sale $ 503,288
$ —
$ 503,288
$ —
Interest rate cap premium $ 1
$ —
$ 1
$ —


(Dollars in thousands)	Fair Value		Level 1		Level 2		Level 3
As of March 31, 2023:
Financial Assets:
Available for sale debt securities:
Government and Government Sponsored Entities:
Commercial MBS and CMOs	$	333,725	$	—	$	333,725	$	—
Residential MBS and CMOs	195,543		—		195,543		—
Agency bonds	41,160		—		41,160		—
Other ABS	22,999		—		22,999		—
Total available for sale debt securities	$	593,427	$	—	$	593,427	$	—
Equity securities	$	10,506	$	—	$	10,506	$	—
Mortgage servicing rights	669		—		—		669
Interest rate swaps	11,763		—		11,763		—
Financial Liabilities:
Interest rate swaps	$	18,053	$	—	$	18,053	$	—
As of December 31, 2022:
Financial Assets:
Available for sale debt securities:
Government and Government Sponsored Entities:
Commercial MBS and CMOs	$	340,736	$	—	$	340,736	$	—
Residential MBS and CMOs	199,384		—		199,384		—
Agency bonds	42,630		—		42,630		—
Other ABS	24,598		—		24,598		—
Total available for sale debt securities	$	607,348	$	—	$	607,348	$	—
Equity securities	$	10,340	$	—	$	10,340	$	—
Mortgage servicing rights	688		—		—		688
Interest rate swaps	21,323		—		21,323		—
Financial Liabilities:
Interest rate swaps	$	2,136	$	—	$	2,136	$	—

There were no transfers between Level 1 and Level 2 during the three months ended March 31, ~~2018 and 2017.~~2023 or 2022.

Non-recurring Basis

The Company may be required, from time to time, to measure certain assets and liabilities at fair value on a non-recurring basis. These include assets that are measured at the lower of cost or market value that were recognized at fair value which was below cost at the reporting ~~date (dollars in thousands):~~date.

December 31, 2017
Description Fair Value Level 1 Level 2 Level 3 Total Gain (Loss) or (Valuation Allowance)
Single family residential $ 191
$ —
$ —
$ 191
$ (5 )
Total assets measured at fair value on a non-recurring basis $ 191
$ —
$ —
$ 191
$ (5 )

~~Single family residential loans~~At both March 31, 2023 and December 31, 2022, there were no assets or liabilities measured at fair value ~~include loans held for sale and certain impaired loans. For the three months ended March 31, 2018, there were no charge offs~~ on ~~impaired loans. At December 31, 2017, an impaired loan of $196 thousand was adjusted to~~ a fair value of $191 thousand by recording charge-offs of $5 thousand. The fair value of impaired, collateral dependent loans is estimated at the fair value of the underlying collateral, less estimated selling costs. These loans are categorized as Level 3 due to ongoing real estate market conditions which may require the use of unobservable inputs and assumptions in fair value measurements.

~~The company held no real estate owned at March 31, 2018 and December 31, 2017. Management periodically obtains updated valuations of properties after foreclosure.~~

~~Financial Instruments Recorded Using Fair Value Option~~

~~The Company has elected the fair value option for certain of its loans held for sale. These loans are intended for sale~~non-recurring basis and the Company ~~believes that the fair value is the best indicator~~held no other real estate owned.

Table of the resolution of these loans. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on loans held for investment. No loans are held for sale as of March 31, 2018 and December 31, 2017.Contents

~~There was no interest income on loans held for sale for the three months ended March 31, 2018. For the three months ended March 31, 2017 interest income on loans held for sale totaled $32 thousand.~~15. VARIABLE INTEREST ENTITIES ("VIE")


~~15.~~	~~VARIABLE INTEREST ENTITIES ("VIE")~~

The Company is involved with VIEs through its loan securitization activities. WeThe Company evaluated ~~our~~its association with VIEs for consolidation purposes. Specifically, a VIE is to be consolidated by its primary beneficiary, the entity that has both the power to direct the activities that most significantly impact the VIE, and a variable interest that could potentially be significant to the VIE. A variable interest is a contractual, ownership or other interest whose value fluctuates with the changes in the value of the VIE's assets and liabilities. ~~Our~~The assessment includes an evaluation of ~~our~~the Company's continuing involvement with the VIE and the nature and significance of ~~our~~its variable interests.

Multifamily loan securitization

With respect to the securitization transaction with Freddie Mac which settled September 27, 2017, ~~our~~the Company's variable interests reside with a reimbursement agreement entered into with Freddie Mac that obligates the ~~Bank~~Company to reimburse Freddie Mac for ~~any~~ defaulted contractual principal and interest payments identified after the ultimate resolution of ~~the~~any defaulted loans. Such reimbursement obligations are not to exceed 10% of the original principal amount of the loans comprising the securitization pool. As part of the securitization transaction, the ~~Bank~~Company released all servicing obligations and rights to Freddie Mac who was designated as the Master Servicer. As Master Servicer, Freddie Mac appointed the ~~Bank~~Company with sub-servicing obligations, which include obligations to collect and remit payments of principal and interest, manage payments of taxes and insurance, and otherwise administer the underlying loans. The servicing of defaulted loans and foreclosed loans was assigned to a separate third party entity, independent of the ~~Bank~~Company and Freddie Mac. Freddie Mac, in its capacity as Master Servicer, can terminate the ~~Bank~~Company in its role as sub-servicer and direct such responsibilities accordingly. In evaluating ~~our~~the variable interests and continuing involvement in the VIE, wethe Company determined that ~~we do~~it does not have the power to make significant decisions or direct the activities that most significantly impact the economic performance of the VIE's assets and liabilities. As sub-servicer of the loans, the ~~Bank~~Company does not have the authority to make significant decisions that influence the value of the VIE's net assets and therefore, is not the primary beneficiary of the VIE. ~~Therefore, we~~Hence, the Company determined that the VIE associated with the multifamily securitization should not be included in the consolidated financial statements of the ~~Bank.~~Company.

~~We believe that our~~The Company believes its maximum exposure to loss as a result of ~~our~~ involvement with the VIE associated with the securitization under the reimbursement agreement executed with Freddie Mac is 10% of the original principal amount of the loans comprising the securitization pool, or $62.6 million. ~~Our~~The reserve for estimated losses with respect to the reimbursement obligation totaled ~~$1.7 million~~$270 thousand and $439 thousand as of March 31, ~~2018~~2023 and December 31, ~~2017,~~2022, respectively, based upon ~~our~~an analysis of quantitative and qualitative data ~~over~~of the underlying loans included in the securitization pool. No disbursements have been made in connection with the reimbursement obligation. In connection with the adoption the CECL accounting standard on January 1, 2023, the Company decreased the allowance for the reimbursement obligation by $119 thousand, which represented the difference between the CECL methodology and the prior methodology utilized for estimating losses for its reimbursement obligation.

16. LOAN SALE AND SECURITIZATION ACTIVITIES


~~16.~~	~~LOAN SALE AND SECURITIZATION ACTIVITIES~~

The Company periodically sells ~~originated and acquired~~ loans as part of its business operations and overall management of liquidity, assets and liabilities, and financial performance. The transfer of loans is executed in securitization or sale transactions. With respect to sale transactions, the Company's continuing involvement may or may not include ongoing servicing responsibilities and general representations and warranties. With respect to securitization sales, the Company executed its first and only transaction to date on September 27, 2017 with Freddie Mac. The transaction involved the sale of ~~$626~~$626.0 million in originated multifamily loans through a Freddie Mac sponsored transaction. The Company's continuing involvement includes sub-servicing responsibilities, general representations and warranties, and a limited reimbursement ~~obligations.~~obligation.

As sub-servicer for Freddie Mac, the Bank is required to maintain a minimum net worth in accordance with ~~generally accepted accounting principles~~GAAP of not less than $2.0 million. If ~~Luther Burbank Savings’~~the Bank's capital were to fall below this threshold, Freddie Mac would have the authority to terminate and assume the Bank’s sub-servicing duties. At March 31, ~~2018,~~2023, the Bank’s ~~actual~~ net worth was ~~$693~~$838.6 million which equates to its Tier 1 capital of $868.5 million plus goodwill of $3.3 million and accumulated other comprehensive loss related to net unrealized losses on available for sale securities of $33.3 million.

~~Servicing responsibilities on loan sales generally include obligations to collect and remit payments~~

Table of principal and interest, provide foreclosure services, manage payments of tax and insurance, and otherwise administer the underlying loans. In connection with the securitization transaction, Freddie Mac was designated as the Master Servicer and appointed Luther Burbank Savings to perform sub-servicing responsibilities, which generally include the servicing responsibilities described above with exception to the servicing of foreclosed or defaulted loans. The overall management, servicing, and resolution of defaulted loans and foreclosed loans are separately designated to the special servicer, a third party institution that is independent of the Master Servicer and the Bank. The Master Servicer has the right to terminate the Bank in its role as sub-servicer and direct such responsibilities accordingly.Contents

General representations and warranties associated with loan sales and the securitization ~~sales~~transaction require the ~~Bank~~Company to uphold various assertions that pertain to the underlying loans at the time of the transaction, including, but not limited to, compliance with relevant laws and regulations, absence of fraud, enforcement of liens, no environmental damages, and maintenance of relevant environmental insurance. Such representations and warranties are limited to those that do not meet the quality represented at the transaction date and do not pertain to a decline in value or future payment defaults. In circumstances where the ~~Bank~~Company breaches its

representations and warranties, the ~~Bank~~Company would generally be required to cure such instances through a repurchase or substitution of the subject loan(s).

With respect to the securitization transaction, the ~~Bank~~Company also has continuing involvement through a reimbursement agreement executed with Freddie Mac. To the extent the ultimate resolution of defaulted loans results in contractual principal and interest payments that are deficient, the ~~Bank~~Company is obligated to reimburse Freddie Mac for such amounts, not to exceed 10% of the original principal amount of the loans comprising the securitization pool at the closing date of September 27, 2017. ~~We recognized a liability of $1.7 million as of March 31, 2018 for our exposure to the reimbursement agreement with Freddie Mac.~~

The following table provides cash flows associated with the Company's loan sale activities:

Three Months Ended March 31,
(In thousands) 2018 2017
Proceeds from loan sales $ —
$ 24,691
Servicing fees 407
108

During the three months ended March 31, 2018 there were no sales of originated loans. During the three months ended March 31, 2017 there were $24.7 million of sales of originated loans resulting in a net loss of of $163 thousand.


	Three Months Ended March 31,
(Dollars in thousands)	2023		2022
Proceeds from loan sales	$	—	$	—
Servicing fees	64		97

The following table provides information about the loans transferred through sales or securitization and not recorded ~~on our Consolidated Statement~~in the consolidated statements of ~~Financial Condition,~~financial condition, for which the Company's continuing involvement includes sub-servicing or servicing responsibilities and/or reimbursement ~~obligations (dollars in thousands):~~obligations:


(Dollars in thousands)	Single Family Residential		Multifamily Residential
As of March 31, 2023:
Principal balance of loans	$	10,907	$	104,625
Loans 90+ days past due	—		—
Charge-offs, net	—		—
As of December 31, 2022:
Principal balance of loans	$	11,000	$	106,981
Loans 90+ days past due	—		—
Charge-offs, net	—		—

Single Family Residential Multifamily Residential
March 31, 2018
Principal balance of loans $ 28,830
$ 732,848
Loans 90+ days past due —
—
Charge-offs, net —
—
December 31, 2017
Principal balance of loans 29,772
753,909
Loans 90+ days past due —
—
Charge-offs, net —
—
17. COMMITMENTS AND CONTINGENCIES


~~17.~~	~~COMMITMENTS AND CONTINGENCIES~~

Financial Instruments ~~With Off-Balance-Sheet~~with Off-Balance Sheet Risk

The Company is a party to financial instruments with ~~off-balance-sheet~~off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments represent commitments to originate fixed and variable rate loans and ~~lines of credit and~~ loans in process, and involve, to varying degrees, ~~elements of~~credit risk and interest rate ~~risk and credit~~ risk in excess of the amount recognized in the Company’s consolidated ~~statement~~statements of financial condition. The Company’s exposure to credit loss in the event of nonperformance by the other party for commitments to extend ~~credit and lines of~~ credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments to originate loans and lines of credit as it does for ~~on-balance-sheet~~on-balance sheet instruments. As it relates to interest rate risk, the Company's exposure is generally limited to increases in interest rates that may result during the short period of time between the commitment and funding of fixed rate credit facilities and adjustable rate credit facilities with initial fixed rate periods. The limited timing risk associated with these credit facilities are considered within the Company's asset liability management process.

Commitments to fund loans and ~~home equity~~ lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have expiration dates or other termination clauses. In addition, external market forces may impact the probability of commitments

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being exercised; therefore, total commitments outstanding do not necessarily represent future cash requirements.

At March 31, ~~2018~~2023 and December 31, ~~2017,~~2022, the Company had outstanding commitments of approximately ~~$114.8~~$36.7 million and ~~$65.8~~$37.7 million, respectively, for ~~real estate~~ loans. Unfunded ~~loan~~ commitment reserves totaled ~~$330~~$389 thousand and ~~$197~~$125 thousand at March 31, ~~2018~~2023 and December 31, ~~2017,~~2022, respectively.

~~Operating Leases~~

The Company ~~leases various office premises~~adopted the CECL accounting standard on January 1, 2023. Upon adoption, the Company increased the allowance for unfunded loan commitments by $330 thousand, which represented the difference between the allowance calculated under ~~long-term operating lease agreements. These leases expire between 2018~~the CECL methodology as of January 1, 2023 and ~~2028, with certain leases containing either three, five or ten year renewal options. At March~~the incurred loss methodology as of December 31, ~~2018, minimum~~2022. The $330 thousand increase in the allowance for unfunded loan commitments was primarily due to higher lifetime expected losses on unfunded commitments on construction loans under ~~these non-cancellable leases with initial or remaining terms of one year or more are as follows (dollars in thousands):~~

April 1 - December 31, 2018 $ 4,021
Year ending December 31, 2019 5,117
Year ending December 31, 2020 3,723
Year ending December 31, 2021 3,267
Year ending December 31, 2022 2,419
Thereafter 1,864
$ 20,411

~~Rent expense under operating leases was $1.1 million and $1.1 million for~~ the ~~three months ended March 31, 2018 and 2017, respectively.~~

CECL methodology.

Contingencies

~~The~~At present, there are no pending or threatened proceedings against the Company ~~is involved in legal proceedings arising in the normal course of business. In the opinion of management, the outcomes of such proceedings will not~~which, if determined adversely, would have a material ~~adverse~~ effect on the Company’s business, financial position, or results of ~~operations.~~operations or cash flows. In the ordinary course of operations, as well as in connection with the pending merger with WAFD, the Company may be party to various legal proceedings.

Correspondent Banking Agreements

The Company maintains funds on deposit with other federally insured financial institutions under correspondent banking agreements. ~~These~~Insured portions of these balances are ~~insured by the FDIC up~~limited to $250 ~~thousand.~~thousand per institution based on FDIC insurance limits. At March 31, ~~2018~~2023 and December 31, ~~2017,~~2022, the Company had ~~$856~~$854 thousand and ~~$845 thousand,~~$25.0 million, respectively, in uninsured available cash ~~balances exceeding~~balances. Additionally, the ~~insured amounts.~~Company had $8.7 million in restricted cash as collateral for its interest rate swap agreements at a correspondent bank as of March 31, 2023, compared to none at December 31, 2022. The Company also has established federal funds lines of credit with correspondent banks totaling $50.0 million at both March 31, 2023 and December 31, 2022, none of which were advanced at those dates. The Company periodically monitors the financial condition and capital adequacy of these correspondent banks.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion of our financial condition at March 31, ~~2018~~2023 and December 31, ~~2017~~2022 and our results of operations for the three months ended March 31, ~~2018~~2023 and December 31, 2022 and the three months ended March 31, ~~2017,~~2023 and 2022, and should be read in conjunction with our audited consolidated financial statements set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2022 that was filed with the ~~Securities and Exchange Commission (the “SEC”)~~SEC on ~~March 16, 2018~~February 22, 2023 (our “Annual Report”) and with the accompanying ~~unaudited notes~~Notes to ~~consolidated financial statements~~Unaudited Consolidated Financial Statements set forth in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, ~~2018~~2023 (this “Report”). Because we conduct all of our material business operations through our bank subsidiary, Luther Burbank Savings (the "Bank"), the discussion and analysis relates to activities primarily conducted by the Bank.

Overview

We are a bank holding company headquartered in Santa Rosa, California, and the parent company of Luther Burbank Savings, a California-chartered commercial bank ~~headquartered in Manhattan Beach, California~~ with ~~$6.0~~$8.3 billion in assets at March 31, ~~2018.~~2023. Our principal business is providing high-value, relationship-based banking products and services to our customers, which include real estate investors, professionals, entrepreneurs, ~~high net worth individuals~~depositors and commercial businesses. We generate most of our revenue from interest on loans and investments. Our primary source of funding for our loans is retail deposits and we place secondary reliance on wholesale funding, primarily borrowings from the ~~FHLB~~Federal Home Loan Bank ("FHLB") and brokered deposits. Our largest expenses are interest on deposits and borrowings along with salaries and related employee benefits. Our principal lending products are real estate secured loans, consisting primarily of multifamily residential properties and ~~purchase money mortgages on~~ jumbo single family residential properties on the West Coast.

Selected Financial Data

The following table sets forth the Company’s selected historical consolidated financial data for the periods and as of the dates indicated. You should read this information together with the Company’s audited consolidated financial statements included in our Annual Report and the unaudited consolidated financial statements and related notes included elsewhere in this ~~Quarterly Report on Form 10-Q.~~Report. The selected historical consolidated financial data as of and for the three months ~~ended~~ March 31, ~~2018~~2023 and ~~2017~~2022 are derived from our unaudited consolidated financial statements, which are included elsewhere in this ~~Quarterly Report on Form 10-Q.~~Report. The selected historical consolidated financial data ~~as of and~~ for the three months ended December 31, ~~2017 (except as otherwise noted below)~~2022 are derived from our ~~audited~~unaudited consolidated financial statements which are included in our ~~Annual Report~~previously filed Form 8-K on ~~Form 10-K.~~January 24, 2023 as Exhibit 99.1. The Company’s historical results for any prior period are not necessarily indicative of future performance.

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(Dollars in thousands, except share/per share data and percentages) As of or For the Three Months Ended
March 31, 2018 March 31, 2017 December 31, 2017
Per Common Share (1)
Basic earnings per share $ 0.20
$ 0.29
$ 0.45
Diluted earnings per share $ 0.20
$ 0.29
$ 0.45
Book value per share $ 9.79
$ 9.70
$ 9.74
Tangible book value per share (2) $ 9.73
$ 9.62
$ 9.68
Common shares outstanding at end of period 56,561,055
42,000,000
56,422,662
Weighted average shares outstanding - basic 56,190,970
42,000,000
45,667,516
Weighted average shares outstanding - diluted 56,755,154
42,000,000
45,831,743
Pro Forma Statements of Income and Per Common Share Data (2)
Pro forma provision for income tax $ 4,175
$ 5,342
$ 6,122
Pro forma net income 11,102
7,378
8,455
Pro forma net income per common share—basic 0.20
0.18
0.19
Pro forma net income per common share—diluted 0.20
0.18
0.18
Selected Ratios
Return on average:
Assets 0.76 % 0.95 % 1.50 %
Stockholders' equity 7.98 % 12.01 % 17.97 %
Average stockholders' equity to average assets 9.52 % 7.92 % 8.32 %
Dividend payout ratio 54.59 % 79.71 % 230.64 %
Net interest margin 2.11 % 2.10 % 2.05 %
Efficiency ratio (2) 46.72 % 53.02 % 45.51 %
Loan to deposit ratio 129.47 % 131.94 % 127.59 %
Pro Forma Selected Ratios (2)
Pro forma return on average assets 0.76 % 0.57 % 0.62 %
Pro forma return on average equity 7.98 % 7.21 % 7.44 %
Credit Quality Ratios
Allowance for loan losses to loans 0.60 % 0.71 % 0.60 %
Allowance for loan losses to nonperforming loans 459.42 % 780.97 % 430.75 %
Nonperforming assets to total assets 0.12 % 0.08 % 0.12 %
Net recoveries to average loans 0.01 % 0.01 % 0.01 %

(1) Earnings per common share, basic and diluted, book value per common share and number of common shares outstanding have been adjusted retroactively to reflect a 200-for-1 stock split effective April 27, 2017.
(2) Considered a non-GAAP financial measure. See Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations - ‘‘Non-GAAP Financial Measures’’ for a reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measure. Net tangible book value is defined as total assets less goodwill and total liabilities. Efficiency ratio is defined as the ratio of noninterest expense to net interest income plus noninterest income. For periods prior to January 1, 2018, we calculate our pro forma net income, return on average assets and return on average equity by adding back our franchise S Corporation tax to net income, and using a combined C Corporation effective tax rate for federal and California income taxes of 42.0%. This calculation reflects only the change in our status as an S Corporation and does not give effect to any other transaction. Beginning January 1, 2018, our pro forma provision for tax expense is our actual C Corporation provision.


	As of or For the Three Months Ended

(Dollars in thousands, except per share data)	March 31, 2023			December 31, 2022			March 31, 2022
Statements of Income and Financial Condition Data
Net Income	$	13,442		$	13,689		$	22,940
Pre-tax, pre-provision net earnings (1)	$	18,287		$	20,431		$	29,580
Total assets	$	8,302,457		$	7,974,632		$	7,260,826
Per Common Share
Diluted earnings per share	$	0.26		$	0.27		$	0.45
Book value per share	$	13.64		$	13.36		$	13.00
Tangible book value per share (1)	$	13.58		$	13.30		$	12.93



Selected Ratios
Return on average:
Assets	0.67		%	0.69		%	1.28		%
Stockholders' equity	7.78		%	8.04		%	13.60		%
Dividend payout ratio	—		%	44.84		%	27.14		%
Net interest margin	1.72		%	2.01		%	2.54		%
Efficiency ratio (1)	48.08		%	49.23		%	34.40		%
Noninterest expense to average assets	0.84		%	1.00		%	0.86		%
Loan to deposit ratio	124.32		%	120.06		%	113.66		%



Credit Quality Ratios
Allowance for credit losses on loans to total loans	0.51		%	0.52		%	0.52		%
Allowance for credit losses on loans to nonperforming loans	722.62		%	566.91		%	1,450.81		%
Nonperforming assets to total assets	0.06		%	0.08		%	0.03		%
Net charge-offs to average loans	—		%	—		%	—		%
Capital Ratios
Tier 1 leverage ratio	9.73		%	9.72		%	10.27		%
Total risk-based capital ratio	19.50		%	19.14		%	19.37		%

(1) Considered a non-GAAP financial measure. See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - ‘‘Non-GAAP Financial Measures’’ for a reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measure. Pre-tax, pre-provision net earnings is defined as net income before taxes and provision for credit losses. Tangible book value per share is defined as total assets less goodwill and total liabilities divided by period end shares outstanding. Efficiency ratio is defined as the ratio of noninterest expense to net interest income plus noninterest income.

Critical Accounting Policies and Estimates

Our unaudited consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ~~generally accepted in the United States~~(“GAAP”) and with general practices within the financial services industry. Application of these principles requires management to make complex and subjective estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under current circumstances. These assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent, objective sources. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates.

Our most significant accounting policies are described in Note 1 to our audited ~~Financial Statements~~financial statements for the year ended December 31, ~~2017,~~2022, included ~~on Form 10-K.~~in our Annual Report. We have identified the following accounting policies and estimates that, due to the difficult, subjective or complex judgments and assumptions inherent in those policies and estimates and the potential sensitivity of our financial statements to those judgments and assumptions, are critical to an understanding of our financial condition and results of operations. We believe that the judgments, estimates and assumptions used in the preparation of our financial statements are reasonable and appropriate.

Pursuant to the JOBS Act, as an emerging growth company, we can elect to opt out of the extended transition period for adopting any new or revised accounting standards. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we may adopt the standard for the private company.

We have elected to take advantage of the scaled disclosures and other relief under the JOBS Act, and we may take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us under the JOBS Act, so long as we qualify as an emerging growth company.

Allowance for ~~Loan~~Credit Losses

("ACL") on Loans

The Company adopted the current expected credit loss ("CECL") allowance ~~for loan losses is provided for probable incurred~~methodology on January 1, 2023. The

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ACL on loans represents the Company’s estimate of expected lifetime credit losses ~~inherent in the loan portfolio~~for its loans at the ~~statement~~time of ~~financial condition date. The allowance~~origination or acquisition and is ~~increased~~maintained at a level deemed appropriate by ~~a provision charged~~management to ~~expense and reduced by loan principal charge-offs, net of recoveries. Where management determines that the allowance~~provide for ~~loan losses is more than adequate to absorb the probable incurred~~expected lifetime credit losses in the portfolio as of the date of the consolidated statements of financial condition. The ACL on loans is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. Amortized cost does not include accrued interest, which management elected to exclude from the estimate of expected credit losses. Loans are charged-off against the allowance when management believes that the uncollectibility of a loan is ~~reduced by recapturing provisions~~confirmed. Recoveries will never exceed the aggregate of amounts previously charged-off.

While management estimates the ACL balance using relevant available information, from internal and ~~a credit is made~~external sources, relating to the expense account. The allowance is based on management’s assessment of various factors including the nature of the loan portfolio, previous loss experience, known and inherent risks in the portfolio, the estimated value of underlying collateral, information that may affect a borrower’s ability to repay,past events, current ~~economic~~ conditions and ~~the results of our ongoing reviews of the portfolio.~~

~~While we use available information, including independent appraisals for collateral, to estimate the extent of probable incurred loan losses within the loan portfolio,~~reasonable and supportable forecasts, inherent uncertainties in the estimation process make it reasonably possible that ultimate losses may vary significantly from our original estimates. ~~Generally, loans are partially or fully charged off when it is determined that the unpaid principal balance exceeds the current fair value of the collateral with no other likely source of repayment.~~

~~Loans Held for Sale~~

Loans originated and intended for sale in the secondary market are carried at fair value. Loans originated and intended for sale only after a minimum 12 month period of seasoning, a practice generally utilized to allow for appropriate community reinvestment lending recognition, are classified as held for sale and are carried at the lower of aggregate cost or fair value. Loans transferred to the held-for-sale portfolio that were not originated with the intent to sell are carried at the lower of aggregate cost or fair value. Changes in the fair value of loans that are carried at fair value are recorded in noninterest income in the period incurred.

When determining whether to recognize sale accounting, we give consideration to the legal isolation of transferred assets including the right to pledge or exchange such assets and the surrender of control over transferred assets. Loan sale transactions that involve securitizations with variable interest entities are evaluated for consolidation with consideration given to the nature and extent of continuing involvement with the transferred assets. When the conditions for sale accounting and legal isolation are met, loans are derecognized from the balance sheet and any gains or losses are recorded to earnings through noninterest income.

Fair Value Measurement

We use estimates of fair value in applying various accounting standards for our unaudited consolidated financial statements. Fair value is defined as the exit price at which an asset may be sold or a liability may be transferred in an orderly transaction between willing and able market participants. When available, fair value is measured by looking at observable market prices for identical assets and liabilities in an active market. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, prepayment speeds and credit spreads. ~~Methods used to estimate fair value do not necessarily represent an exit price.~~ Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable.

Changes in the fair value of ~~investments available-for-sale and derivatives designated as effective cash flow hedges~~debt securities available for sale are recorded in our consolidated ~~statement~~statements of financial condition and ~~other~~ comprehensive income (loss) while changes in the fair value of equity securities, loans held for sale ~~or other~~and derivatives are recorded in the consolidated ~~statement~~statements of financial condition and in the ~~statement~~unaudited consolidated statements of ~~operations.~~income.

~~Investment Securities Impairment~~

We assess on a quarterly basis whether there have been any events or economic circumstances to indicate that a security in which we have an unrealized loss is impaired on an other-than-temporary basis. In any instance, we would consider many factors, including the severity and duration of the impairment, our intent and ability to hold the security for a period of time sufficient for a recovery in value, recent events specific to the issuer or industry, and, for debt securities, external credit ratings and recent downgrades. Securities with respect to which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value.

Non-GAAP Financial Measures

Some of the financial measures discussed in ~~this Quarterly Report on Form 10-Q~~Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations contain financial measures that are ‘‘not measures recognized under GAAP and therefore, are considered non-GAAP financial measures.’’ In accordance with SEC rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding ormeasures, including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles as in effect from time to time in the United States in our statements of income, statements of financial condition or statements of cash flows.

~~Pre-tax,~~pre-tax, pre-provision net earnings, is defined as income before taxes and provision for loan losses. We believe the most directly comparable GAAP financial measure is income before taxes. Disclosure of this measure enables you to compare our operations to those of other banking companies before consideration of taxes and provision expense, which some investors may consider to be a more appropriate comparison given our S Corporation status and recaptures from the allowance for loan losses. Prior to January 1, 2018, we calculate our pro forma net income, return on averageefficiency ratio, tangible assets, ~~return on average~~tangible stockholders' equity and per share amounts by adding back our franchise S Corporation tax to net income, and using a combined C Corporation effective tax rate for federal and California income taxes of 42.0%. This calculation reflects only the change in our status as an S Corporation and does not give effect to any other transaction. Beginning Janauary 1, 2018, our pro forma income tax expense is our actual C Corporation tax provision. Net tangible book value ~~is defined as total assets less goodwill~~per share.

Our management uses these non-GAAP financial measures in their analysis of the Company’s performance, financial condition and ~~total liabilities. Efficiency ratio is defined as noninterest expenses divided by operating revenue, which is equal to net interest income plus noninterest income.~~the efficiency of its operations. We believe that these non-GAAP financial measures provide ~~useful information to management and investors that is supplementary to our financial condition, results~~a greater understanding of ongoing operations and ~~cash flows computed~~enhance comparability of results with prior periods and other companies, as well as demonstrate the effects of significant changes in ~~accordance with GAAP.~~the current period. We also believe that investors find these non-GAAP financial measures useful as they assist investors in understanding our underlying operating performance and the analysis of ongoing operating trends. However, we acknowledge that our non-GAAP financial measures have a number of limitations. ~~As such, you~~You should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other banking companies use. Other banking companies may use names similar to those we use for the non-GAAP financial measures we disclose, but may calculate them differently. You should understand how we and other companies each calculate their non-GAAP financial measures when making comparisons.

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The following reconciliation table provides a more detailed analysis of these non-GAAP financial measures:


	As of or For the Three Months Ended
(Dollars in thousands)	March 31, 2023			December 31, 2022			March 31, 2022
Pre-tax, Pre-provision Net Earnings
Income before taxes	$	19,082		$	19,781		$	32,080
Plus: (Reversal of) provision for credit losses	(795)			650			(2,500)
Pre-tax, pre-provision net earnings	$	18,287		$	20,431		$	29,580
Efficiency Ratio
Noninterest expense (numerator)	$	16,934		$	19,814		$	15,512
Net interest income	$	33,986		$	39,274		45,034
Noninterest income	1,235			971			58
Operating revenue (denominator)	$	35,221		$	40,245		$	45,092
Efficiency ratio	48.08		%	49.23		%	34.40		%












Tangible Book Value Per Share
Total assets	$	8,302,457		$	7,974,632		$	7,260,826
Less: Goodwill	(3,297)			(3,297)			(3,297)
Tangible assets	8,299,160			7,971,335			7,257,529
Less: Total liabilities	(7,606,296)			(7,292,096)			(6,592,826)
Tangible stockholders' equity (numerator)	$	692,864		$	679,239		$	664,703
Period end shares outstanding (denominator)	51,030,877			51,073,272			51,403,914
Tangible book value per share	$	13.58		$	13.30		$	12.93

As of or For the Three Months Ended
(Dollars in thousands) March 31, 2018 March 31, 2017 December 31, 2017
Tangible book value
Total assets $ 6,033,888
$ 5,391,540
$ 5,704,380
Less: Goodwill (3,297 ) (3,297 ) (3,297 )
Less: Total liabilities (5,480,137 ) (4,984,033 ) (5,154,635 )
Tangible book value $ 550,454
$ 404,210
$ 546,448

Pro forma provision for income tax
Net income before income taxes $ 15,277
$ 12,720
$ 14,577
Total effective actual/ pro forma tax rate 27 % 42 % 42 %
Actual/ pro forma provision for income taxes $ 4,175
$ 5,342
$ 6,122

Pro forma net income
Net income before income taxes $ 15,277
$ 12,720
$ 14,577
Actual/ pro forma provision for income taxes 4,175
5,342
6,122
Actual/ pro forma net income $ 11,102
$ 7,378
$ 8,455

Pro forma ratios and per share data
Annualized actual/ pro forma net income (numerator) $ 44,408
$ 29,510
$ 33,819

Average assets (denominator) 5,848,751
5,172,186
5,461,226
Actual/ pro forma return on average assets 0.76 % 0.57 % 0.62 %

Average stockholders' equity (denominator) 556,661
409,451
454,635
Actual/ pro forma return on average stockholders' equity 7.98 % 7.21 % 7.44 %

Actual/ pro forma net income (numerator) $ 11,102
$ 7,378
$ 8,455

Weighted average shares outstanding - basic (denominator) 56,190,970
42,000,000
45,667,516
Actual/ pro forma net income per common share—basic $ 0.20
$ 0.18
$ 0.19

Weighted average shares outstanding - diluted (denominator) 56,755,154
42,000,000
45,831,743
Actual/ pro forma net income per common share—diluted $ 0.20

$ 0.18
$ 0.18

Efficiency ratio
Noninterest expense (numerator) $ 14,713
$ 14,703
$ 13,221
Net interest income $ 30,465
$ 26,850
$ 27,554
Noninterest income 1,025
882
1,494
Operating revenue (denominator) $ 31,490
$ 27,732
$ 29,048
Efficiency ratio 46.72 % 53.02 % 45.51 %

~~Factors Affecting Comparability of Financial Results~~

~~S Corporation Status~~

We terminated our status as a “Subchapter S” corporation as of December 1, 2017, in connection with our IPO. Prior to this date, we elected to be taxed for U.S. federal income tax purposes as an S Corporation. As a result, our earnings were not subject to, and we did not pay, U.S. federal income tax, and we were not required to make any provision or

recognize any liability for U.S. federal income tax in our financial statements. While we were not subject to and did not pay U.S. federal income tax, we were subject to, and paid, California S Corporation income tax at a rate of 3.5%.

Upon the termination of our status as an S Corporation on December 1, 2017, we commenced paying U.S. federal income tax and a higher California income tax on our taxable earnings and our financial statements will reflect a provision for both U.S. federal income tax and California income tax. As a result of this change, the net income and earnings per share data presented in our historical financial statements and the other financial information set forth in this Quarterly Report, which unless otherwise specified, do not include any provision for U.S. federal income tax, will not be comparable with our future net income and earnings per share in periods after we commenced being taxed as a C Corporation. As a C Corporation, our net income is calculated by including a provision for U.S. federal income tax and a higher California income tax rate, currently at 10.84%.

The termination of our status as an S Corporation may also affect our financial condition and cash flows. Historically, we have made quarterly cash distributions to our shareholders in amounts estimated by us to be sufficient for them to pay estimated individual U.S. federal and California income tax liabilities resulting from our taxable income that was ‘‘passed through’’ to them. However, these distributions have not been consistent, as sometimes the distributions have been less than or in excess of the shareholder’s estimated U.S. federal and California income tax liabilities resulting from their ownership of our stock. In addition, these estimates have been based on individual income tax rates, which may differ from the rates imposed on the income of C Corporations. Subsequent to the termination of our S Corporation status on December 1, 2017, other than our obligations under the tax sharing agreement with prior S Corporation shareholders, no income will be ‘‘passed through’’ to any shareholders, but, as noted above, we have commenced paying U.S. federal income tax and a higher California income tax. The amounts that we have historically distributed to our shareholders may not be indicative of the amount of U.S. federal and California income tax that we will be required to pay after December 1, 2017. Depending on our effective tax rate and our future dividend rate, our future cash flows and financial condition could be positively or adversely affected compared to our historical cash flows and financial condition.

Deferred tax assets and liabilities are recognized for the tax consequences attributable to differences between the financial statement carrying amounts of our existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

~~Retail Mortgage Banking Activity and Other Loan Sales~~

We began retail mortgage banking operations in 2013, with the primary purpose of serving a wider customer base of consumers who desire 30-year fixed rate single family real estate financing. We offered a wide range of mortgage products including variable rate 3, 5, 7 and 10-year hybrid products and long-term fixed rate programs. While much of the variable rate loan production from this activity was held in our loan portfolio, the long-term fixed loan originations were sold to correspondents or to Freddie Mac. Since 2016, we have sold $31.3 million of single family residential loans to Freddie Mac, on a servicing retained basis. We also brokered loans to other financial institutions where those organizations had a desirable product for our customers. As part of our retail mortgage banking activity, we also made single family residential construction loans, $33.1 million of which remained on our books, and $7.3 million of which were subject to commitments for future disbursements, at March 31, 2018.

We decided to wind down this business activity during the first quarter of 2017, as we found that the highly competitive nature and expense of running this business was unprofitable, primarily due to the lack of sufficient loan volume needed to offset fixed costs. Revenue from this activity, including net gains on the sales of loans, broker fee income and servicing fee income can be found in noninterest income on our consolidated statements of operations while the related expenses are captured in noninterest expense on the consolidated statements of operations.

While we are still able to originate single family residential loans on a retail basis with our portfolio of hybrid products, we are not actively pursuing this business. Our single family residential loans are primarily sourced from brokers, with many of which we have long-term relationships. This activity has been a significant part of our lending business since 2006.

~~Multifamily Securitization Transaction~~

During 2017, we entered into a trust sale memorandum of understanding with Freddie Mac, pursuant to which we agreed to sell a portfolio of multifamily loans to a real estate mortgage investment conduit, or REMIC, that holds the loans in trust and issued securities that are fully guaranteed by Freddie Mac and privately offered and sold to investors. On September 27, 2017, we closed this securitization transaction. We did not purchase any of the securities for our portfolio.

The primary purpose of this multifamily securitization transaction was to enable us to redeploy capital and funding to support higher-yielding assets while also reducing our reliance on wholesale funding, improving liquidity measures and reducing our concentration of multifamily loans.

The size of the multifamily loan portfolio sold to the REMIC was $626.1 million, consisting of one class of post-reset, variable rate 3, 5, and 7-year hybrid loans in an aggregate principal amount of approximately $91.6 million, and two classes of pre-reset, variable rate 3, 5 and 7-year hybrid loans in an aggregate principal amount of approximately $534.5 million. 74.3% of the loan portfolio consisted of loans for multifamily properties located in California, while the remaining 25.7% of the loan portfolio consistent of loans for multifamily properties located in Washington. We retain sub-servicing obligations on the loan portfolio. The gross proceeds of this sale to us was approximately $637.6 million. We used the proceeds of this sale to pay down short-term FHLB borrowings. These borrowings had no prepayment penalties associated with them. The following table summarizes the loans that sold in this securitization.

Loan Type Number of Mortgage Loans Principal Balance (1)(2) Percentage of Mortgage Pool Balance Weighted Average Mortgage Rate (2) Loan to Value Ratio (2) Debt Service Coverage Ratio (2)
Post-Reset Hybrid Loans 65
$ 91,552
14.6 % 3.66 % 53.2 % 1.88
Pre-Reset Hybrid Loans (3) 237
415,628
66.4
3.39
54.2
1.67
Pre-Reset Hybrid Loans (4) 70
118,880
19.0
3.51
46.5
1.70
Total 372
$ 626,060
100.0 % 3.45 % 52.6 % 1.71

~~(1)~~

~~Dollars in thousands~~


~~(2)~~			~~Represents balance, weighted average rate and ratios at the security cut-off date of September 1, 2017.~~


~~(3)~~			~~Loans have 1 to 40 months until their first rate reset.~~

~~(4)~~

~~Loans have 41 or more months until their first rate reset.~~

In connection with the securitization, we entered into a reimbursement agreement with Freddie Mac, pursuant to which we are obligated to reimburse Freddie Mac for the first losses in the underlying loan portfolio not to exceed 10% of the unpaid principal amount of the loans comprising the securitization pool at settlement, or approximately $62.6 million. Our reimbursement obligation is supported by a FHLB letter of credit. Our reimbursement obligation will terminate on the later of (i) the date on which Freddie Mac has no further liability (accrued or contingent) under its guarantee for these securities or (ii) the date on which the we shall pay to Freddie Mac our full reimbursement obligation.

As a result of our exit from retail mortgage banking and current securitization activities, gains on the sale of loans and other fee income shown as noninterest income in our consolidated statements of operations may not be directly comparable, and will likely vary, from period to period.

~~Public Company Costs~~

As a result of our initial public offering completed in December 2017, we expect to incur additional costs associated with operating as a public company. We expect that these costs will include additional personnel, legal, consulting, regulatory, insurance, accounting, investor relations and other expenses that we did not incur as a private company.

The Sarbanes-Oxley Act, as well as rules adopted by the SEC and national securities exchanges, requires public companies to implement specified corporate governance practices that were inapplicable to us as a private company. These additional rules and regulations will increase our legal, regulatory and financial compliance costs and will make some activities more time-consuming and costly.

Results of ~~operations~~Operations - Three Months Ended March 31, ~~2018~~2023 and ~~2017~~December 31, 2022

Overview

For the three months ended March 31, ~~2018~~2023, our net income was ~~$11.1~~$13.4 million as compared to ~~$12.3~~$13.7 million for the three months ended December 31, 2022. The decrease of $247 thousand, or 1.8%, was attributable to a decrease in net interest income of $5.3 million, partially offset by a decrease in noninterest expense of $2.9 million and a decrease in the provision for credit losses of $1.4 million. Pre-tax, pre-provision net earnings decreased by $2.1 million, or 10.5%, for the three months ended March 31, 2023 as compared to the linked quarter.

Net Interest Income

Net interest income decreased by $5.3 million, or 13.5%, to $34.0 million for the three months ended March 31, ~~2017. The decrease of $1.2~~2023 from $39.3 million ~~or 9.7%, was attributed primarily~~for the prior quarter due to ~~an increase of $3.6 million in~~higher interest expense on our deposit portfolio and FHLB advances, partially offset by higher interest income on loans and cash and cash equivalents.

Our net interest ~~income, a $1.2 million increase in the provision for loan losses and an increase of $3.8 million in the provision for income taxes, compared to~~margin was 1.72% during the three months ended March 31, ~~2017. The~~2023 compared to 2.01% during the prior quarter. Our net interest margin reflects the net impact of an increase in the cost of interest bearing liabilities, partially offset by an increase in the yield on interest earning assets. Due to the liability sensitivity of our balance sheet, our interest-bearing liabilities generally reprice more quickly than our interest-earning assets, which will result in lower net interest income ~~was credited to strong organic loan growth. Loan loss provisions recognized~~ during periods of rising interest rates. During the first quarter, ~~ended March 31, 2018 were directly attributable to loan growth. Despite higher loan growth during~~ the ~~quarter ended March 31, 2017, loan loss provisions were lower~~cost of our interest bearing liabilities increased by 62 basis points primarily due to ~~improvements~~an increase in the ~~credit metrics~~cost of our ~~loan portfolio. The~~deposits and FHLB advances, while the yield on our interest earning assets increased by 22 basis points primarily due to an increase in ~~provision for income taxes~~our loan yield. Our net interest spread in the first quarter was ~~due to the increase in tax rates associated with the revocation of our S Corporation election in conjunction with our IPO in December 2017. Pre-tax, pre-provision net earnings increased~~1.45%, decreasing by ~~$3.7 million, or 28.8%, for the three months ended March 31, 2018~~40 basis points as compared to the ~~three months ended March 31, 2017 largely due to the additional $3.6 million in net interest income.~~

~~Net Interest Income~~

Net interest income increased by $3.6 million, or 13.5%, to $30.5 million for three months ended March 31, 2018 from $26.9 million for three months ended March 31, 2017. Our net interest margin of 2.11% for the three months ended March 31, 2018 increased slightly from our net interest margin of 2.10% for the three months ended March 31, 2017, primarily due to the increased rates on new loan origination volume exceeding the rate on loans paid off and sold and secondarily, the recovery of $269 thousand of interest on two nonaccrual loans that paid off within thelinked quarter.

Average balance sheet, interest and yield/rate analysis. The following table presents average balance sheet information, interest income, interest expense and the corresponding average yield earned and rates paid for the three months ended March 31, ~~2018~~2023 and ~~2017.~~December 31, 2022. The average balances are daily ~~averages~~averages.

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	For the Three Months Ended
	March 31, 2023						December 31, 2022
(Dollars in thousands)	Average Balance		Interest Inc/Exp		Yield/Rate		Average Balance		Interest Inc/Exp		Yield/Rate
Interest-Earning Assets
Multifamily residential	$	4,521,440	$	48,961	4.33	%	$	4,518,952	$	45,682	4.04	%
Single family residential	2,283,753		22,991		4.03	%	2,229,808		22,737		4.08	%
Commercial real estate	169,268		2,147		5.07	%	175,254		2,076		4.74	%
Construction and land	23,665		505		8.65	%	20,612		399		7.68	%
Total loans (1)	6,998,126		74,604		4.26	%	6,944,626		70,894		4.08	%
Investment securities	614,527		5,488		3.57	%	639,137		5,082		3.18	%
Cash and cash equivalents	291,706		3,303		4.59	%	215,060		1,964		3.62	%
Total interest-earning assets	7,904,359		83,395		4.22	%	7,798,823		77,940		4.00	%
Noninterest-earning assets (2)	149,670						154,605
Total assets	$	8,054,029					$	7,953,428
Interest-Bearing Liabilities
Transaction accounts	$	150,429	160		0.43	%	$	170,867	151		0.35	%
Money market demand accounts	2,271,018		13,956		2.46	%	2,622,015		12,271		1.83	%
Time deposits	3,268,933		23,491		2.88	%	2,973,058		17,043		2.25	%
Total deposits	5,690,380		37,607		2.65	%	5,765,940		29,465		2.00	%
FHLB advances	1,327,863		9,262		2.83	%	1,129,382		6,833		2.40	%
Junior subordinated debentures	61,857		966		6.33	%	61,857		794		5.09	%
Senior debt	94,796		1,574		6.64	%	94,765		1,574		6.64	%
Total interest-bearing liabilities	7,174,896		49,409		2.77	%	7,051,944		38,666		2.15	%
Noninterest-bearing deposit accounts	86,967						119,589
Other noninterest-bearing liabilities	100,627						101,234
Total liabilities	7,362,490						7,272,767
Total stockholders' equity	691,539						680,661
Total liabilities and stockholders' equity	$	8,054,029					$	7,953,428

Net interest spread (3)					1.45	%					1.85	%
Net interest income/margin (4)			$	33,986	1.72	%			$	39,274	2.01	%

(1) Non-accrual loans are included in total loan balances. No adjustment has been made for these loans in the calculation of yields. Interest income on loans includes amortization of deferred loan costs, net of deferred loan fees. Net deferred loan cost amortization totaled $1.4 million for both the three months ended March 31, 2023 and ~~include both performing and nonperforming~~December 31, 2022.

(2) Noninterest-earning assets includes the allowance for credit losses on loans.

(3) Net interest spread is the average yield on total interest-earning assets minus the average rate on total interest-bearing liabilities.

(4) Net interest margin is net interest income divided by total average interest-earning assets.

For the Three Months Ended March 31,
2018 2017
(Dollars in thousands) Average Balance Interest Inc / Exp Average Yield/Rate Average Balance Interest Inc / Exp Average Yield/Rate
Interest-Earning Assets
Multifamily residential $ 3,000,059
$ 27,930
3.72 % $ 2,724,910
$ 23,490
3.45 %
Single family residential 2,009,329
16,806
3.35 % 1,755,119
14,118
3.22 %
Commercial 117,559
1,463
4.98 % 60,953
784
5.14 %
Construction, land and NM 38,419
364
3.79 % 37,390
351
3.76 %
Total Loans (1) 5,165,366
46,563
3.61 % 4,578,372
38,743
3.38 %
Securities available-for-sale 524,119
2,383
1.82 % 455,096
1,465
1.29 %
Securities held-to-maturity (2) 10,544
89
3.38 % 7,452
59
3.17 %
Cash and cash equivalents 70,041
246
1.40 % 70,983
129
0.73 %
Total interest-earning assets 5,770,070
49,281
3.42 % 5,111,903
40,396
3.16 %
Noninterest-earning assets (3) 78,681
60,283

Total assets $ 5,848,751
$ 5,172,186

Interest-Bearing Liabilities
Transaction accounts (4) $ 224,674
$ 407
0.72 % $ 205,712
$ 350
0.68 %
Money market demand accounts 1,507,614
3,314
0.88 % 1,545,433
2,919
0.76 %
Time deposits 2,274,818
8,211
1.44 % 1,716,304
5,045
1.18 %
Total deposits 4,007,106
11,932
1.19 % 3,467,449
8,314
0.96 %
FHLB advances 1,070,087
4,820
1.80 % 1,084,904
3,275
1.21 %
Senior debt 94,173
1,577
6.70 % 94,037
1,577
6.71 %
Junior subordinated debentures 61,857
487
3.15 % 61,857
380
2.46 %
Total interest-bearing liabilities 5,233,223
18,816
1.44 % 4,708,247
13,546
1.15 %
Noninterest-bearing liabilities 58,867
54,488

Total stockholders' equity 556,661
409,451

Total liabilities and stockholders' equity $ 5,848,751
$ 5,172,186

Net interest spread (5) 1.98 % 2.01 %
Net interest income/margin (6) $ 30,465
2.11 % $ 26,850
2.10 %

~~(1)~~

Loan balance includes portfolio real estate loans, real estate loans held for sale and $100 thousand or less in non-mortgage loans. Non-accrual loans are included in total loan balances. No adjustment has been made for these loans in the calculation of yields. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs. Net deferred loan cost amortization totaled $2.3 million and $2.2 million for the three months ended March 31, 2018 and 2017, respectively.


~~(2)~~	Securities held to maturity include obligations of states and political subdivisions of $281 thousand and $298 thousand as of March 31, 2018 and March 31, 2017, respectively. Yields are not calculated on a tax equivalent basis.


~~(3)~~	~~Noninterest earning assets includes the allowance for loan losses.~~


~~(4)~~	~~Transaction accounts include both interest and non-interest bearing deposits.~~


~~(5)~~	~~Net interest spread is the average yield on total interest-earning assets minus the average rate on total interest-bearing liabilities.~~


~~(6)~~	~~Net interest margin is net interest income divided by total interest-earning assets.~~

Interest rates and operating interest differential. Increases and decreases in interest income and interest expense result from ~~change~~changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned from our interest-earning assets and interest incurred on our interest-bearing liabilities during the periods indicated. The effect of changes in volume is determined by multiplying the change in volume by the ~~current~~prior period’s average rate. The effect of rate changes is calculated by multiplying the change in average rate by the prior period’s volume. The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the absolute dollar amounts of the changes in each.

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	Three Months Ended March 31,
	2018 vs 2017
	Variance Due To									Three Months Ended March 31, 2023 vs December 31, 2022
				Yield/						Variance Due To
(Dollars in thousands)	Volume			Rate			Total		(Dollars in thousands)	Volume		Yield/Rate		Total
Interest-Earning Assets									Interest-Earning Assets
Multifamily residential	$	2,478		$	1,962		$	4,440	Multifamily residential	$	25	$	3,254	$	3,279
Single family residential	2,109			579			2,688		Single family residential	539		(285)		254
Commercial	705			(26		)	679
Construction, land and NM	10			3			13
Total Loans	5,302			2,518			7,820
Securities available-for-sale	247			671			918
Securities held-to-maturity	26			4			30
Commercial real estate									Commercial real estate	(72)		143		71
Construction and land									Construction and land	57		49		106
Total loans									Total loans	549		3,161		3,710
Investment securities									Investment securities	(201)		607		406
Cash and cash equivalents	(2		)	119			117		Cash and cash equivalents	764		575		1,339
Total interest-earning assets	5,573			3,312			8,885		Total interest-earning assets	1,112		4,343		5,455

Interest-Bearing Liabilities									Interest-Bearing Liabilities
Transaction accounts	33			24			57		Transaction accounts	(20)		29		9
Money market demand accounts	(73		)	468			395		Money market demand accounts	(1,841)		3,526		1,685
Time deposits	1,862			1,304			3,166		Time deposits	1,688		4,760		6,448
Total deposits	1,822			1,796			3,618		Total deposits	(173)		8,315		8,142
FHLB advances	(46		)	1,591			1,545		FHLB advances	1,203		1,226		2,429
Junior subordinated debentures									Junior subordinated debentures	—		172		172
Senior debt	2			(2		)	—		Senior debt	—		—		—
Junior subordinated debentures	—			107			107
Total interest-bearing liabilities	1,778			3,492			5,270		Total interest-bearing liabilities	1,030		9,713		10,743

Net Interest Income									Net Interest Income	$	82	$	(5,370)	$	(5,288)
Net Interest Income	$	3,795		$	(180	)	$	3,615

Total interest income increased by ~~$8.9~~$5.5 million, or ~~22.0%~~7.0%, for the three months ended March 31, ~~2018~~2023 as compared to the ~~same period of 2017. Interest income from loans accounted for $7.8~~prior quarter. This increase was primarily due to a $3.7 million ~~of that amount as the average daily balance of loans increased by $587.0 million, or 12.8%. The~~improvement in interest income ~~increase~~earned on loans resulting from ~~greater average loan balances was further enhanced by a 23~~an 18 basis point increase in the average yield on our loans due to the recent origination of loans at higher current rates relative to the existing coupon on our loan ~~yield.~~ portfolio, as well as higher income earned on our interest rate swaps. Interest income was also positively impacted by an increase in the average balance and yield on cash and cash equivalents of $76.6 million and 97 basis points, respectively, compared to the linked quarter. The increase in average balance was due to our purposeful plan to increase on-balance sheet liquidity, while the increase in average yield was due to the general rise in interest rates.

The volume of new ~~loans originated~~loan originations totaled ~~$478~~$90.3 million and ~~$583~~$281.4 million for the three months ended March 31, ~~2018~~2023 and ~~2017,~~December 31, 2022, respectively. ~~Loan~~Declining loan originations ~~were higher during~~are primarily attributable to slowing demand resulting from the ~~first quarter~~general rise in interest rates and our desire to achieve a risk adjusted return on new loan volume in light of ~~2017 due to anticipated loan sales during 2017.~~the elevated cost of new funding. The weighted average rate on new loans for the three months ended March 31, ~~2018~~2023 was ~~4.31%~~6.42% as compared to ~~the weighted average rate on new loans~~5.68% for the ~~three months ended March 31, 2017 of 3.91%. The weighted average rate on loan curtailments/payoffs~~linked quarter. Loan prepayment speeds were 4.2% and 5.7% during the three months ended March 31, ~~2018 was 3.89% as compared~~2023 and December 31, 2022, respectively. The continued lower prepayment speeds were due to arising market interest rates, which continued to impact purchase and refinancing activity. The weighted average rate on loan ~~curtailment/payoff rate of 3.63% for~~payoffs/curtailments during the three months ended March 31, ~~2017.~~

2023 was 4.43% as compared to 4.19% for the prior quarter.

Total interest expense increased ~~$5.3~~$10.7 million, or 27.8%, to ~~$18.8~~$49.4 million, for the three months ended March 31, ~~2018~~2023 from ~~$13.5~~$38.7 million for the prior quarter. Interest expense on deposits increased $8.1 million, to $37.6 million, for the three months ended March 31, ~~2017. Interest expense on deposits increased $3.6 million to $11.9~~2023 from $29.5 million for the ~~three months ended March 31, 2018 from $8.3 million for the same period of 2017. This~~prior quarter. The increase iswas primarily due to average daily deposit balances increasing by $539.7 million, or 15.6%, from period to period, as well as cost of deposits increasing to 1.19% for the three months ended March 31, 2018, from 0.96% for the same period ended 2017. Interest expense on advances from the FHLB accounted for $1.5 million of the increase. Average daily advances decreased by $14.8 million, or 1.4%, from period to period; however, the cost of those advances increased to 1.80% for the three months ended March 31, 2018, as compared to 1.21% for the three months ended March 31, 2017. Thea 65 basis point increase in the cost of interest-bearing deposits predominantly due to rate increases in both retail and brokered deposits. Additionally, interest expense on FHLB advances increased $2.4 million compared to the prior quarter due to an increase in the average balance and cost of advances of $198.5 million and 43 basis points, respectively. The increase in FHLB advances was ~~caused by rising borrowing interest rates~~primarily utilized to offset declines in retail deposits and supplement our liquidity during the ~~quarter ended March 31, 2018 compared to the same period last year. We use both deposits and FHLB advances to fund net loan growth.~~quarter. We also use long-term FHLB advances ~~with or without embedded interest rate caps,~~ as a hedge of interest rate risk, as we can

strategically control the duration of those funds. A discussion of instruments used to mitigate interest rate risk can be found under Part III - ~~Financial Information,~~ Item 3.7A. ‘‘Quantitative and Qualitative Disclosures About Market Risk.’’

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Provision for ~~Loan~~Credit Losses

During the three months ended March 31, 2023, the Company recaptured loan loss provisions of $679 thousand, compared to recognizing loan loss provisions of $650 thousand during the linked quarter. The reversal during the current quarter was predominantly due to the elimination of a specific reserve previously established on a collateral dependent loan. The provision recorded during the linked quarter was primarily related to loan growth. The Company adopted the CECL methodology on January 1, 2023 resulting in a decrease in the ACL on loans of $92 thousand. The CECL methodology was adopted using the modified retrospective method and results for reporting periods beginning January 1, 2023 are reported under the CECL methodology, while prior period results continue to be reported under previously applicable GAAP. Our ACL on loans as a percentage of total loans was 0.51% at March 31, 2023 compared to 0.52% at December 31, 2022.

~~Provisions for~~Nonperforming assets totaled $5.0 million, or 0.06% of total assets, at March 31, 2023 compared to $6.5 million, or 0.08% of total assets, at December 31, 2022. The decrease in nonperforming assets was primarily due to two single family residential loans returning to performing status during the quarter. Classified loans, which includes loans graded Substandard and of greater risk, totaled $18.4 million and $18.9 million at March 31, 2023 and December 31, 2022, respectively. Criticized loans, which includes loans graded Special Mention and classified loans, were $21.0 million at March 31, 2023 compared to $22.3 million at December 31, 2022. The Company's exposure to nonresidential commercial real estate remains limited, totaling $168.0 million, or 2.4% of our loan ~~losses totaled $1.5~~portfolio, at the end of the current quarter. See further detail of our nonresidential commercial real estate below in this item under "Loan Portfolio Composition - Commercial real estate loans".

Noninterest Income

Noninterest income increased by $264 thousand, or 27.2%, to $1.2 million for the three months ended March 31, ~~2018 as compared to a provision for loan losses of $309~~2023 from $971 thousand for the ~~three months ended March 31, 2017.~~prior quarter. The ~~provision recorded~~following table presents the major components of our noninterest income:


	For the Three Months Ended
(Dollars in thousands)	March 31, 2023		December 31, 2022		$ Increase (Decrease)		% Increase (Decrease)
Noninterest Income

FHLB dividends	$	577	$	529	$	48	9.1	%
Fee income	138		110		28		25.5	%
Other	520		332		188		56.6	%
Total noninterest income	$	1,235	$	971	$	264	27.2	%

The increase in ~~the first quarter of 2018 was directly attributed to loan growth during the period. Despite higher loan growth during~~noninterest income for the quarter ended March 31, ~~2017, loan loss provisions were lower due~~2023 compared to ~~improvements~~the quarter ended December 31, 2022, was primarily attributable to an increase in the ~~credit metrics~~fair value of ~~our loan portfolio. At times, refinements in our model and improvements in~~equity securities during the credit metrics of our real estate portfolio, measures such as collateral support, debt service coverage, and payment performance along with continued general economic recovery will cause management to reevaluate quantitative and qualitative adjustments within our methodology for calculating the allowance for loan losses and will result in an expected reductioncurrent quarter compared to the allowance for loan losses as a percentage of total loans as evidenced during the three months ended March 31, 2017. Our allowance for loan losses as a percentage of total loans was 0.60% at March 31, 2018 as comparedprior quarter. Changes in fair value are primarily attributable to ~~0.71% and 0.60% at March 31, 2017 and December 31, 2017, respectively.~~

~~While loans~~changes in our portfolio occasionally become impaired, the loans, as individually analyzed and measured, generally do not require a charge-off or reserve for loss. While our nonperforming loans as a percentage of total loans increased slightly from 0.09% to 0.13% from December 31, 2017 to March 31, 2018, 42% of those loans, by balance, were current and paying as agreed at March 31, 2018. Additionally, our classified loans as a percentage of total loans decreased 2 basis points, from 0.28% to 0.26%, over the same period.

market interest rates.

Noninterest ~~Income~~

Expense

Noninterest ~~income increased by $143 thousand~~expense decreased $2.9 million, or 14.5%, to ~~$1.0~~$16.9 million for the three months ended March 31, ~~2018~~2023 from ~~$882~~$19.8 million for the three months ended December 31, 2022. The following table presents the major components of our noninterest expense:

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	For the Three Months Ended
(Dollars in thousands)	March 31, 2023		December 31, 2022		$ Increase (Decrease)		% Increase (Decrease)
Noninterest Expense
Compensation and related benefits	$	10,671	$	12,039	$	(1,368)	(11.4)	%
Deposit insurance premium	884		551		333		60.4	%
Professional and regulatory fees	436		629		(193)		(30.7)	%
Occupancy	1,184		1,191		(7)		(0.6)	%
Depreciation and amortization	649		794		(145)		(18.3)	%
Data processing	862		1,050		(188)		(17.9)	%
Marketing	739		1,318		(579)		(43.9)	%
Merger costs	553		1,090		(537)		(49.3)	%
Other expenses	956		1,152		(196)		(17.0)	%
Total noninterest expense	$	16,934	$	19,814	$	(2,880)	(14.5)	%

The decrease in noninterest expense during the quarter ended March 31, 2023 compared to the linked quarter was predominantly due to a $1.4 million decrease in compensation costs primarily due to a $2.9 million decrease in salaries and related benefits related to a reduction in lending workforce at the end of 2022, partially offset by a $1.6 million decline in capitalized loan origination costs due to lower loan origination volume. Noninterest expense was also positively impacted by a $579 thousand decrease in marketing expenses due to lower costs incurred related to our specialty deposit gathering efforts and a $537 thousand decline in costs incurred in connection with our previously announced merger with Washington Federal, Inc. ("WAFD") compared to the prior quarter.

Income Tax Expense

For the three months ended March 31, 2023, we recorded income tax expense of $5.6 million as compared to $6.1 million for the prior quarter with effective tax rates of 29.6% and 30.8%, respectively.

Results of Operations - Three Months Ended March 31, 2023 and 2022

Overview

For the three months ended March 31, 2023, our net income was $13.4 million as compared to $22.9 million for the three months ended March 31, ~~2017.~~2022. The decrease of $9.5 million, or 41.4%, was primarily attributable to a decrease of $11.0 million in net interest income as compared to the same period last year. Pre-tax, pre-provision net earnings decreased by $11.3 million, or 38.2%, for the three months ended March 31, 2023 as compared to the same period last year.

Net Interest Income

Net interest income decreased by $11.0 million, or 24.5%, to $34.0 million for the three months ended March 31, 2023 from $45.0 million for the same period last year due to higher interest expense on deposits and FHLB advances, partially offset by higher interest income on loans, investments and cash and cash equivalents.

Net interest margin for the three months ended March 31, 2023 was 1.72% compared to 2.54% for the same period last year. The decrease in our margin was primarily related to a 207 basis point increase in the cost of our interest-bearing liabilities, partially offset by a 106 basis point increase in the yield of our interest-earning assets.

Average balance sheet, interest and yield/rate analysis. The following table presents average balance sheet information, interest income, interest expense and the corresponding average yield earned and rates paid for the three months ended March 31, 2023 and 2022. The average balances are daily averages.

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	For the Three Months Ended March 31,
	2023						2022
(Dollars in thousands)	Average Balance		Interest Inc/Exp		Yield/Rate		Average Balance		Interest Inc/Exp		Yield/Rate
Interest-Earning Assets
Multifamily residential	$	4,521,440	$	48,961	4.33	%	$	4,211,697	$	39,146	3.72	%
Single family residential	2,283,753		22,991		4.03	%	1,867,416		12,025		2.58	%
Commercial real estate	169,268		2,147		5.07	%	193,871		2,204		4.55	%
Construction and land	23,665		505		8.65	%	20,341		258		5.14	%
Total loans (1)	6,998,126		74,604		4.26	%	6,293,325		53,633		3.41	%
Investment securities	614,527		5,488		3.57	%	650,091		2,301		1.42	%
Cash and cash equivalents	291,706		3,303		4.59	%	153,370		66		0.17	%
Total interest-earning assets	7,904,359		83,395		4.22	%	7,096,786		56,000		3.16	%
Noninterest-earning assets (2)	149,670						92,904
Total assets	$	8,054,029					$	7,189,690
Interest-Bearing Liabilities
Transaction accounts	$	150,429	160		0.43	%	$	169,580	95		0.22	%
Money market demand accounts	2,271,018		13,956		2.46	%	2,964,527		3,222		0.43	%
Time deposits	3,268,933		23,491		2.88	%	2,231,471		2,703		0.49	%
Total deposits	5,690,380		37,607		2.65	%	5,365,578		6,020		0.45	%
FHLB advances	1,327,863		9,262		2.83	%	761,119		3,097		1.65	%
Junior subordinated debentures	61,857		966		6.33	%	61,857		275		1.80	%
Senior debt	94,796		1,574		6.64	%	94,673		1,574		6.65	%
Total interest-bearing liabilities	7,174,896		49,409		2.77	%	6,283,227		10,966		0.70	%
Noninterest-bearing deposit accounts	86,967						147,533
Other noninterest-bearing liabilities	100,627						84,022
Total liabilities	7,362,490						6,514,782
Total stockholders' equity	691,539						674,908
Total liabilities and stockholders' equity	$	8,054,029					$	7,189,690

Net interest spread (3)					1.45	%					2.46	%
Net interest income/margin (4)			$	33,986	1.72	%			$	45,034	2.54	%

(1) Non-accrual loans and loans held for sale are included in total loan balances. No adjustment has been made for these loans in the calculation of yields. Interest income on loans includes amortization of deferred loan costs, net of deferred loan fees. Net deferred loan cost amortization totaled $1.4 million and $4.8 million for the three months ended March 31, 2023 and 2022, respectively.

(2) Noninterest-earning assets includes the allowance for credit losses.

(3) Net interest spread is the average yield on total interest-earning assets minus the average rate on total interest-bearing liabilities.

(4) Net interest margin is net interest income divided by total interest-earning assets.

Interest rates and operating interest differential. The following table shows the effect that changes in volume and average interest rates had on the interest earned from our interest-earning assets and interest incurred on our interest-bearing liabilities during the periods indicated.

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	Three Months Ended March 31, 2023 vs 2022
	Variance Due To
(Dollars in thousands)	Volume		Yield/Rate		Total
Interest-Earning Assets
Multifamily residential	$	3,039	$	6,776	$	9,815
Single family residential	3,114		7,852		10,966
Commercial real estate	(295)		238		(57)
Construction and land	48		199		247
Total loans	5,906		15,065		20,971
Investment securities	(132)		3,319		3,187
Cash, cash equivalents and restricted cash	109		3,128		3,237
Total interest-earning assets	5,883		21,512		27,395
Interest-Bearing Liabilities
Transaction accounts	(12)		77		65
Money market demand accounts	(914)		11,648		10,734
Time deposits	1,808		18,980		20,788
Total deposits	882		30,705		31,587
FHLB advances	3,145		3,020		6,165
Junior subordinated debentures	—		691		691
Senior debt	—		—		—
Total interest-bearing liabilities	4,027		34,416		38,443

Net Interest Income	$	1,856	$	(12,904)	$	(11,048)

Total interest income increased by $27.4 million, or 48.9%, for the three months ended March 31, 2023 as compared to the same period last year. The increase was primarily due to an 85 basis point increase in loan yields and a $704.8 million increase in the average balance of loans. The increase in loan yields was attributable to an $8.3 million increase in interest income earned on our interest rate swaps as well as loans originated in the past twelve months at increasing interest rates. The average balance of loans increased due to strong prior year loan originations and slowing prepayment speeds. Additionally, interest income on investments and cash and cash equivalents increased $3.1 million and $3.2 million, respectively, primarily due to a 215 basis point and a 442 basis point, respectively, increase in yield compared to the same period last year due to rising market interest rates. At March 31, 2023, over 63% of our available for sale securities portfolio consisted of floating rate securities with an average repricing period of approximately 14 months.

The volume of new loans originated totaled $90.3 million and $568.9 million for the three months ended March 31, 2023 and 2022, respectively. The decline in loan originations was primarily attributable to slowing demand resulting from the general rise in interest rates and our desire to achieve a risk adjusted return on new loan volume in light of the elevated cost of new funding. The weighted average interest rate on new loans for the three months ended March 31, 2023 was 6.42% as compared to 3.14% for the same period last year. The increase in the average coupon on originations was primarily due to the rising interest rate environment. Loan prepayment speeds were 4.2% and 26.2% during the three months ended March 31, 2023 and 2022, respectively. The decrease in prepayment speeds was due to rising market interest rates, which slowed purchase and refinancing activity during the current year-to-date period. The weighted average rate on loan payoffs/curtailments during the three months ended March 31, 2023 was 4.43% as compared to 3.70% for the same period last year.

Total interest expense increased $38.4 million, or 350.6%, to $49.4 million for the three months ended March 31, 2023 from $11.0 million for the same period last year. Interest expense on deposits increased $31.6 million primarily due to the cost of interest-bearing deposits increasing 220 basis points due to the general rise in market interest rates. Interest expense on advances from the FHLB increased by $6.2 million during the three months ended March 31, 2023 compared to the same period last year, due to an increase in the average balance and cost of FHLB advances of $566.7 million and 118 basis points, respectively. The increase in FHLB advances has been utilized to fund loan growth, mitigate interest rate risk and, during the current quarter, increase liquidity. The increase in the

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cost of FHLB advances is due to rising market interest rates. A discussion of instruments used to mitigate interest rate risk can be found under Part II - Item 7A. ‘‘Quantitative and Qualitative Disclosures About Market Risk.’’

Provision for Credit Losses

For the three months ended March 31, 2023 and 2022, we recorded $679 thousand and $2.5 million, respectively, in reversals of provisions for loan losses. During the three months ended March 31, 2023, the reversal was predominantly due to the elimination of a specific reserve previously established on a collateral dependent loan while the prior year amount was related to the reversal of the remaining portion of qualitative reserves established for economic uncertainty early in the COVID-19 pandemic. As discussed above, the Company adopted the CECL methodology on January 1, 2023.

Noninterest Income

Noninterest income increased to $1.2 million for the three months ended March 31, 2023 from $58 thousand for the same period last year.

The following table presents the major components of our noninterest income:


	For the Three Months Ended March 31,
(Dollars in thousands)	2023		2022		$ Increase (Decrease)		% Increase (Decrease)
Noninterest Income

FHLB dividends	$	577	$	354	$	223	63.0	%
Fee income	138		226		(88)		(38.9)	%
Other	520		(522)		1,042		(199.6)	%
Total noninterest income	$	1,235	$	58	$	1,177	2,029.3	%

The increase in noninterest income for the three months ended March 31, ~~2018 and 2017:~~

For the Three Months Ended March 31,
(Dollars in thousands) 2018 2017 $ Increase (Decrease) % Increase (Decrease)
Noninterest Income
FHLB stock dividends $ 594
$ 633
$ (39 ) (6.2 )%
Fee income 313
337
(24 ) (7.1 )%
Loss on sale of loans —
(163 ) 163
(100.0 )%
Earnings on CSV life insurance 53
49
4
8.2 %
Other 65
26
39
150.0 %
Total noninterest income $ 1,025
$ 882
$ 143
16.2 %

~~Loss on sale of loans.~~ ~~There were no gains on the sale of loans, including the change in fair value of loans held for sale for~~2023 compared to the three months ended March 31, ~~2018 as~~2022 was primarily due to a $743 thousand net increase in the fair value of equity securities during the current period compared to ~~a net loss of $163 thousand for~~ the same period ended March 31, 2017. Losses on sale of loans for the three months ended March 31, 2017 consisted solely of mortgage banking activity and was primarily caused by increased pipeline fall out as we exited that activity.last year.

Noninterest Expense

~~Our noninterest~~Noninterest expense ~~decreased $10 thousand,~~increased $1.4 million, or ~~0.1%~~9.2%, to ~~$14.7~~$16.9 million for the three months ended March 31, ~~2018~~2023 from ~~$14.7~~$15.5 million for the same period last year.

The following table presents the major components of our noninterest expense:


	For the Three Months Ended March 31,
(Dollars in thousands)	2023		2022		$ Increase (Decrease)		% Increase (Decrease)
Noninterest Expense
Compensation and related benefits	$	10,671	$	10,219	$	452	4.4	%
Deposit insurance premium	884		481		403		83.8	%
Occupancy	1,184		1,194		(10)		(0.8)	%
Depreciation and amortization	649		603		46		7.6	%
Professional and regulatory fees	436		539		(103)		(19.1)	%
Data processing	862		988		(126)		(12.8)	%
Marketing	739		458		281		61.4	%
Merger costs	553		—		553		N/A
Other expenses	956		1,030		(74)		(7.2)	%
Total noninterest expense	$	16,934	$	15,512	$	1,422	9.2	%

The increase in noninterest expense during the three months ended March 31, ~~2017.~~

~~The following table presents~~2023 as compared to the ~~components of our noninterest expense for the three months ended March 31, 2018 and 2017:~~

same

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For the Three Months Ended March 31,
(Dollars in thousands) 2018 2017 $ Increase (Decrease) % Increase (Decrease)
Noninterest Expense
Compensation and related benefits $ 9,619
$ 10,197
$ (578 ) (5.7 )%
Deposit insurance premium 432
398
34
8.5 %
Occupancy 1,296
1,298
(2 ) (0.2 )%
Depreciation and amortization 714
735
(21 ) (2.9 )%
Professional and regulatory fees 398
185
213
115.1 %
Marketing 213
179
34
19.0 %
Data processing 788
790
(2 ) (0.3 )%
Operating 1,025
1,039
(14 ) (1.3 )%
Other 228
(118 ) 346
(293.2 )%
Total noninterest expense $ 14,713
$ 14,703
$ 10
0.1 %

~~Compensation~~period last year was primarily attributable to $553 thousand of costs incurred in connection with our previously announced merger with WAFD and ~~related benefits.~~ ~~Compensation~~a $452 thousand increase in compensation expense due to a decline in capitalized salary costs due to lower loan origination volume, partially offset by a decrease in salaries and related benefits ~~expense decreased by $578~~related to a reduction in our lending workforce at the end of 2022. Additionally, deposit insurance premiums increased $403 thousand ~~or 5.7%,~~compared to ~~$9.6 million for the three months ended March 31, 2018 from $10.2 million for~~ the same period ~~in 2017. The decrease in expense was primarily~~last year due to a net decrease of $546 thousand in incentive compensation and severance payments related to the discontinued mortgage banking operations in the first quarter of 2017. We employed 267 full time equivalent employees at both March 31, 2018 and March 31, 2017.

~~Professional and regulatory fees.~~ Professional and regulatory fees increased by $213 thousand, or 115.1%, to $398 thousand for the three months ended March 31, 2018 from $185 thousand for the same period in 2017 primarily due to greater third party audit costs in relation to our recent conversion from a private company to a public company as a result of our IPO in December 2017. In addition, regulatory fees increased due to the timing of a change in the Bank’s charter. On September 9, 2016, we converted the Bank from a federally chartered savings and loan to a California state commercial bank. As a result, the DBO and the FDIC are our primary bank regulators, while the Federal Reserve remains the primary federal regulator for the Company. Given the timing of our charter change, we were not assessed any DBO regulatory fees during the first six months of 2017.

~~Other.~~ Other noninterest expense increased by $346 thousand, or 293.2%, to $228 thousand for the three months ended March 31, 2018 from $(118) thousand for the same period in 2017. Other noninterest expense includes provisions for (expense) or reversals of (income) reserves for off balance sheet liabilities such as undisbursed funds on loans and lines of credit and early payoff/default obligations on sold loans. For the three months ended March 31, 2018 and 2017, a provision for off-balance sheet reserves of $133 thousand and a reversal of off-balance sheet reserves of $309 thousand, respectively, were recorded in other noninterest expense for these purposes. The increase in reserves related to off-balance sheet risk period over period reflects an increase in required reserves for unfunded construction loan balances. Other noninterest expense also includes the cost of issuing forgivable down payment assistance loans to borrowers with low-to-moderate income and/or with collateral property located in low-to-moderate income census tracts. As we do not expect to collect any interest or principal on these loans, they are recorded as an expenseassessment rates effective at the ~~time~~beginning of origination. For the three months ended March 31, 2018 and 2017, these loans totaled $27 thousand and $94 thousand, respectively. Other noninterest expense also includes miscellaneous other office costs such as guard services, moving expenses and shredding services.

2023.

Income Tax Expense

For the three months ended March 31, ~~2018,~~2023, we recorded an income tax expense of ~~$4.2~~$5.6 million as compared to ~~income tax expense of $425 thousand~~$9.1 million for the ~~three months ended March 31, 2017~~same period last year with effective tax rates of ~~27.3%~~29.6% and ~~3.3%~~28.5%, respectively. We elected to be taxed as an S Corporation until December 1, 2017, at which time we revoked our election in connection with our initial public offering. Prior to December 1, 2017, we did not pay corporate U.S. federal income tax on our taxable income. Instead, our taxable income was ‘‘passed through’’ to our shareholders. Our tax expense for the three months ended March 31, 2018 reflects our liability for both federal and state taxes as a C Corporation. See ‘‘S Corporation Status’’ above for a discussion of our status as an S Corporation and ‘‘Pro Forma Income Tax Expense and Net Income’’ below for a discussion on what our income tax expense and net income would have been had we been taxed as a C Corporation.

~~Pro Forma Income Tax Expense and Net Income~~

In connection with our IPO, we revoked our “Subchapter S” corporation election on December 1, 2017. Prior to that date, as an S-Corporation, we had no U.S. federal income tax expense. We calculate our pro forma net income by adding back our franchise S Corporation tax to net income, and using a combined C Corporation effective tax rate for federal and California income taxes of 42.0%. This calculation reflects only the change in our status as an S Corporation and does not give effect to any other transaction. Our net income for the three months ended March 31, 2018 and 2017 was $11.1 million and $12.3 million, respectively. Had we been subject to U.S. federal income tax during the three months ended March 31, 2017, on a pro forma basis, our provision for combined federal and state income tax would have been $5.3 million. As a result of the foregoing factors, our pro forma net income (after U.S. federal and California state income tax) for the three months ended March 31, 2018 and 2017 would have been $11.1 million and $7.4 million, respectively.

Financial ~~condition~~Condition - As of March 31, ~~2018~~2023 and December 31, ~~2017~~2022

Total assets ~~as of~~at March 31, ~~2018~~2023 were ~~$6.0~~$8.3 billion, ~~compared to $5.7 billion at December 31, 2017,~~ an increase of ~~$329.5~~$327.8 million, or ~~5.8%.~~4.1%, from December 31, 2022. The increase was primarily ~~driven by~~due to a $331.0 million increase in cash and cash equivalents as compared to prior year-end. Total liabilities were $7.6 billion at quarter end, an increase ~~in gross loans~~ of $284.9 million. We funded $477.9 million of loans during the three months ended March 31, 2018, which was reduced primarily by normal loan amortization and loan payoffs. Our loan growth was funded through deposits and FHLB advances. Deposits increased by $162.8$314.2 million, or ~~4.1%~~4.3%, ~~to $4.1 billion as of March 31, 2018~~ from ~~$4.0 billion as of~~ December 31, ~~2017.~~2022. The increase in total liabilities was primarily attributable to a $493.5 million increase in FHLB advances, ~~increased~~partially offset by ~~$168.9~~a $189.8 million ~~or 17.1%, to $1.2 billion as of March 31, 2018.~~

decline in our deposits.

Loan Portfolio Composition

Our loan portfolio is our largest class of earning assets and typically provides higher yields than other types of earning assets. Associated with the higher yields is an inherent amount of credit risk which we attempt to mitigate with strong underwriting. As of both March 31, ~~2018~~2023 and December 31, ~~2017~~2022, our total loans amounted to ~~$5.3 billion and $5.0 billion, respectively.~~$7.0 billion. The following table presents the balance and associated percentage of each major product type within our portfolio as of the dates indicated.


	As of March 31, 2023				As of December 31, 2022
(Dollars in thousands)	Amount		% of total		Amount		% of total
Real estate loans
Multifamily residential	$	4,490,561	64.5	%	$	4,500,500	64.8	%
Single family residential	2,278,658		32.7	%	2,253,987		32.4	%
Commercial real estate	167,590		2.4	%	171,767		2.5	%
Construction and land	25,167		0.4	%	22,533		0.3	%

Total loans before deferred items	6,961,976		100.0	%	6,948,787		100.0	%
Deferred loan costs, net	61,503				61,658
Total loans	$	7,023,479			$	7,010,445

As of March 31, 2018 As of December 31, 2017
(Dollars in thousands) Amount % of total loans Amount % of total loans
Real estate loans held-for-investment
Multifamily residential $ 3,076,356
58.2 % $ 2,887,438
57.7 %
Single family residential 2,042,624
38.7 % 1,957,546
39.2 %
Other:
Commercial real estate 125,445
2.4 % 112,492
2.3 %
Construction and land 36,320
0.7 % 41,165
0.8 %
Non-mortgage 100
— % 50
— %
Total loans held-for-investment 5,280,845
100.0 % 4,998,691
100.0 %
Unamortized Deferred Loan Costs 45,564
42,856

Total loans $ 5,326,409
$ 5,041,547

~~There were no loans held for sale at March 31, 2018 or December 31, 2017.~~

~~Over the past few years, we have experienced significant growth in our loan portfolio, although the~~The relative composition of the loan portfolio has not changed ~~significantly.~~significantly over the past several years. Our primary focus remains multifamily real estate lending, which ~~constitutes 58%~~constituted 65% of our portfolio at both March 31, 2023 and December 31, 2022. Single family residential lending is our secondary lending emphasis and represented 33% and 32% of our portfolio at March 31, ~~2018. Single family residential lending, which we entered in 2006, is our secondary lending emphasis~~2023 and ~~represents 39% of our portfolio at March~~December 31, ~~2018.~~2022, respectively.

We recognize that ~~these two~~our multifamily and single family residential loan products represent concentrations within our balance sheet. Multifamily loan balances as a percentage of risk-based capital were ~~473.6%~~548% and ~~448.5%~~560% as of March 31, ~~2018~~2023 and December 31, ~~2017,~~2022, respectively. Our ~~non-construction~~ single family loans as a percentage of risk-based capital were ~~316.8%~~280% and ~~306.4%~~281% as of the same dates. Additionally, our loans are geographically concentrated with borrowers and collateral properties on the West Coast. At March 31, ~~2018, 62%~~2023, 61%, ~~26%~~27% and ~~12%~~9% of our real estate loans were collateralized by properties in southern California counties, northern California counties and in Washington, ~~respectively. At~~respectively, compared to 61%, 27% and 9%, respectively, at December 31, ~~2017, our collateral footprint was similar at 62%, 26% and 12% for southern California counties, northern California counties and in Washington, respectively.~~2022.

~~We believe that our past success is attributable~~Our lending strategy has been to ~~focusing~~focus on products and markets where we have significant expertise. Given our concentrations, we have established strong risk management practices including risk-based lending standards, self-established product and geographical limits, annual cash flow evaluations of income property loans and semi-annual stress testing. We expect to continue growing our loan portfolio. We have placed more recent focus on originating non-residential commercial real estate loans in our core markets and we anticipate geographic expansion

Table of ~~our single family and multifamily products into strategically selected West Coast markets; however, do not expect our product or geographic concentrations to materially change.~~Contents

We ~~have~~had a small portfolio of construction loans with commitments (funded and unfunded) totaling ~~$44.5 million and $53.1~~$38.7 million at both March 31, ~~2018~~2023 and December 31, ~~2017, respectively. These loans consist primarily~~2022. As of both March 31, 2023 and December 31, 2022, the average loan commitment for our single family ~~owner-occupied~~construction product, which includes small tract housing and condominium projects, and our multifamily residential construction loans ~~that were accommodated as part of our retail mortgage banking operations. As a result of the recent northern California fires impacting our local community, we plan to expand our~~was $5.7 million and $3.4 million, respectively. Our construction lending ~~to help rebuild homes in the affected areas.~~

typically focuses on non-owner occupied single family residential projects with completed per-unit values of $4.0 million or less and multifamily projects with loan commitments of $15.0 million or less. In late 2022, we stopped accepting any new construction loan applications.

The following table presents the activity in our loan portfolio for the periods shown:


	Three Months Ended
(Dollars in thousands)	March 31, 2023		December 31, 2022		March 31, 2022
Loan increases:
Multifamily residential	$	23,380	$	108,978	$	297,128
Single family residential	66,927		166,694		251,964
Commercial real estate	—		—		14,420
Construction and land	—		5,707		5,400


Total loans originated and purchased	90,307		281,379		568,912

Loan decreases:
Loan principal reductions and payoffs	(105,288)		(134,361)		(495,715)


Other (1)	28,015		8,972		(4,299)
Total loan outflows	(77,273)		(125,389)		(500,014)
Net change in total loan portfolio	$	13,034	$	155,990	$	68,898

(1) Other changes in loan balances primarily represent the net change in disbursements on unfunded commitments, deferred loan costs, fair value adjustments and, to the extent applicable, may include foreclosures and charge-offs. Fair value adjustments totaled $25.5 million, $7.9 million and $(7.8) million for the three months ended March 31, 2023, December 31, 2022 and March 31, 2022, respectively.

Three Months Ended March 31,
(Dollars In thousands) 2018 2017
Loan Inflows:
Loans originated:
Multifamily residential $ 241,760
$ 410,172
Single family residential 215,248
123,906
Commercial real estate 20,795
16,698
Construction and land —
14,509
Non-mortgage 50
—
Mortgage banking originations —
18,041
Total loans originated 477,853
583,326

Loan Outflows:
Portfolio loan sales —
—
Mortgage banking loan sales —
(24,692 )
Loan principal reductions and payoffs (200,117 ) (254,155 )
Other (1) 7,126
(3,211 )
Total loan outflows (192,991 ) (282,058 )

Net increase in total loan portfolio $ 284,862
$ 301,268

(1) Other changes in loan balances primarily represent the net change in disbursements on unfunded commitments and may include foreclosures, charge-offs and negative amortization.

Total loan origination volume has increased significantly over the past few years as we have made investments in both experienced lending staff as well as front-end loan origination systems allowing us to be more competitive in our markets. MFR loan originations were higher during the first quarter of 2017 due to anticipated loan sales during 2017. The fluctuation in SFR originations was primarily attributable to an increase in customer demand experienced during the first quarter of 2018 compared to the same period last year. In September 2017, we closed a multifamily securitization transaction. The primary purpose of this transaction was to enable us to redeploy capital and funding to support higher-yielding assets while also reducing our reliance on wholesale funding, improving liquidity measures and reducing our concentration of multifamily loans.

Multifamily residential loans. We provide multifamily residential loans for the purchase or refinance of apartment buildings of five units or more, with the financed properties serving as collateral for the loan. Our multifamily lending is built around three core principles: market selection, deal selection and sponsor selection. We focus on markets with a high barrier to entry for new development, where there is a limited supply of new housing and where there is a high variance between the cost to rent and the cost to own. We typically lend on stabilized and seasoned assets and focus on older, smaller properties with rents at or below market levels, catering to low and middle income renters. Our customers are generally experienced real estate professionals who desire regular income/cash flow streams and are focused on building wealth steadily over time. We have instituted strong lending policies to mitigate credit and concentration risk. At March 31, ~~2018,~~2023, our multifamily real estate portfolio had an average loan balance of ~~$1.5~~$1.6 million, ~~an average unit count of 15.6 units,~~ a weighted average loan to value of ~~56.7% and~~56.4%, a weighted average debt service coverage ratio of ~~1.58,~~1.6 times and supporting collateral averaging 13.7 housing units, as compared to an average loan balance of ~~$1.5~~$1.7 million, ~~an average unit count of 15.4 units,~~ a weighted average loan to value of ~~56.6% and~~56.7%, a weighted average debt service coverage ratio of ~~1.54~~1.5 times and supporting collateral averaging 13.7 housing units at December 31, ~~2017.~~2022.

Single family residential loans. We provide permanent financing on single family residential properties primarily located in our market areas, which are both owner-occupied and investor owned. We conduct this business primarily through a network of third party mortgage brokers with the intention of retaining these loans in our portfolio. The majority of our originations are for purchase transactions, but we also provide ~~refinancings.~~loans to refinance single family properties. Our underwriting criteria focuses on debt

ratios, credit scores, liquidity of the borrower and the borrower’s cash reserves. At March 31, ~~2018,~~2023, our single family residential real estate portfolio had an average loan balance of ~~$880~~$905 thousand, a weighted average loan to value of ~~64.9%~~64.1% and a weighted average borrower credit score at origination/refreshed of ~~749. Our~~759. At December 31, 2022, our single family residential real estate portfolio had an average loan balance of ~~$865~~$907 thousand, a weighted average loan to value of ~~65.1%~~64.0% and a weighted average borrower credit score at origination/refreshed of ~~748 at December 31, 2017.~~759.

Commercial real estate loans. While not a large part of our portfolio during any period presented, we also lend on ~~non-residential~~

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nonresidential commercial real estate. Our nonresidential commercial real estate loans are generally used to finance the purchase or refinance of established multi-tenant industrial, office and retail sites. At March 31, ~~2018,~~2023, our commercial real estate portfolio had an average loan balance of ~~$1.9~~$2.2 million, a weighted average loan to value of ~~59.3%~~53.8% and a weighted average debt service coverage ratio of ~~1.56,~~2.8 times, as compared to an average loan balance of ~~$1.8~~$2.2 million, a weighted average loan to value of ~~59.0%~~53.9% and a weighted average debt service coverage ratio of ~~1.52~~1.7 times at December 31, ~~2017.~~2022. Our ~~business plan provides~~exposure to nonresidential commercial real estate is limited. Additional detail is provided within the table below as of March 31, 2023:


(Dollars in thousands)	Count	Balance		Weighted Average LTV	% of Total Loans
Multifamily Real Estate	2,741	$	4,522,072	56.4%	64.4%
Single Family Real Estate	2,547	2,308,485		64.1%	32.9%
Commercial Real Estate Type:
Mid Rise Office	7	37,615		62.3%	0.5%
Strip Retail	13	23,203		50.3%	0.3%
Medical Office	5	18,466		59.0%	0.3%
Shopping Center	5	17,925		56.6%	0.3%
Low Rise Office	10	17,035		50.9%	0.2%
Unanchored Retail	8	14,540		44.3%	0.2%
Anchored Retail	3	11,479		50.7%	0.2%
More than 50% commercial	10	10,867		47.5%	0.2%
Multi-Tenant Industrial	5	6,961		41.3%	0.1%
Shadow Retail	3	3,915		61.4%	0.1%
Flex Industrial	2	2,367		61.0%	0.0%
Warehouse	3	2,350		44.1%	0.0%
Restaurant	2	1,253		26.1%	0.0%
Other	1	73		14.0%	0.0%
Commercial Real Estate	77	168,049		53.8%	2.4%
Construction (1)	8	24,873		57.7%	0.3%
Total	5,373	$	7,023,479	58.8%	100.0%

(1) Construction LTV is calculated based on an "as-completed" property value.Undisbursed commitments for ~~increased emphasis on this product through marketing~~construction loans totaled $13.6 million at March 31, 2023.

Construction and ~~cross-selling efforts.~~

~~Other.~~ land. Other categories of loans included in our portfolio ~~include~~consist of construction ~~loans~~ and ~~non-mortgage~~land loans. Construction loans ~~currently consist primarily of~~include a single family ~~owner-occupied~~construction product, which includes small tract housing and condominium projects, and multifamily construction projects. As of March 31, 2023 and December 31, 2022, the Company had no land loans outstanding.

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The ~~non-mortgage~~following table sets forth the contractual maturity distribution of our loan portfolio:


(Dollars in thousands)	Due in 1 year or less		Due after 1 year through 5 years		Due after 5 years through 15 years		Due after 15 years		Total
As of March 31, 2023:
Loans
Real estate mortgage loans:
Multifamily residential	$	49	$	735	$	38,897	$	4,450,880	$	4,490,561
Single family residential	20		418		50,463		2,227,757		2,278,658
Commercial real estate	33		55,941		111,616		—		167,590
Construction and land	18,582		6,585		—		—		25,167
Total loans	$	18,684	$	63,679	$	200,976	$	6,678,637	$	6,961,976

Fixed interest rates	$	—	$	196	$	44,191	$	273,178	$	317,565
Floating or hybrid adjustable rates	18,684		63,483		156,785		6,405,459		6,644,411
Total loans	$	18,684	$	63,679	$	200,976	$	6,678,637	$	6,961,976
As of December 31, 2022:
Loans
Real estate mortgage loans:
Multifamily residential	$	72	$	537	$	39,917	$	4,459,974	$	4,500,500
Single family residential	27		468		51,443		2,202,049		2,253,987
Commercial real estate	—		41,505		130,262		—		171,767
Construction and land	17,464		5,069		—		—		22,533
Total loans	$	17,563	$	47,579	$	221,622	$	6,662,023	$	6,948,787

Fixed interest rates	$	—	$	197	$	45,045	$	270,285	$	315,527
Floating or hybrid adjustable rates	17,563		47,382		176,577		6,391,738		6,633,260
Total loans	$	17,563	$	47,579	$	221,622	$	6,662,023	$	6,948,787

Our fixed interest rate loans generally consist of 30 and 40-year loans that are primarily secured by single family residential properties, often in conjunction with our ~~portfolio~~efforts to provide affordable housing financing to low-to-moderate income individuals. Our floating and adjustable rate loans are largely hybrid interest rate programs that provide an initial fixed term of three to ten years and then convert to quarterly or semi-annual repricing adjustments thereafter. As of March 31, 2023 and December 31, 2022, $4.4 billion and $4.6 billion, respectively, of our floating or hybrid adjustable rate loans were ~~provided in support~~at their floor rates. The weighted average minimum interest rate on loans at their floor rates was 3.65% and 3.66% at March 31, 2023 and December 31, 2022, respectively. Hybrid adjustable rate loans still within their initial fixed term totaled $5.6 billion and $5.7 billion at March 31, 2023 and December 31, 2022, respectively. These loans had a weighted average term to first repricing date of ~~community investment efforts.~~

3.6 years and 3.7 years at March 31, 2023 and December 31, 2022, respectively.

Asset Quality

Our primary objective is to maintain a high level of asset quality in our loan portfolio. We believe our underwriting practices and policies, established by experienced professionals, appropriately govern the risk profile for our loan portfolio. These policies are continually evaluated and updated as necessary. All loans are assessed and assigned a risk classification at origination based on underlying characteristics of the transaction such as collateral type, collateral cash flow, collateral coverage and borrower strength. We believe that we have a comprehensive methodology to proactively monitor our credit quality after ~~the origination process.~~origination. Particular emphasis is placed on our commercial portfolio where risk assessments are ~~reevaluated~~re-evaluated as a result of reviewing commercial property operating statements and borrower financials on at least an annual basis. Single family residential loans are subject to an annual regrading based upon a credit score ~~refresh.~~refresh, among other factors. On an ongoing basis, we also monitor payment performance, delinquencies, and tax and property insurance ~~compliance.~~compliance, as well as any other pertinent information that may be available to determine the collectability of a loan. We believe our practices

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facilitate the early detection and remediation of problems within our loan portfolio. ~~Assigned risk classifications are an integral part of management assessing the adequacy of our allowance for loan losses.~~ We periodically employ the use of an outside independent consulting firm to evaluate our underwriting and risk assessment ~~process.~~processes. Like other financial institutions, we are subject to the risk that our loan portfolio will be exposed to increasing pressures from deteriorating borrower credit due to general economic conditions.

Nonperforming assets. Our nonperforming assets consist of nonperforming loans and foreclosed real estate, if any. It is our policy to place a loan on non-accrual status in the event that the borrower is 90 days or more delinquent, unless the loan is well secured and in the process of collection, or earlier if the timely collection of contractual payments appears doubtful. Cash payments subsequently received on non-accrual loans are recognized as income only where the future collection of the remaining principal is considered by management to be probable. Loans are restored to accrual status only when the loan is less than 90 days delinquent and not in foreclosure, and the borrower has demonstrated the ability to make future payments of principal and interest.

~~Troubled debt restructures.~~ Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings, or TDRs. Concessions could include reductions of interest rates, extension of the maturity date at a rate lower than current market rate for a new loan with similar risk, reduction of accrued interest, principal forgiveness, forbearance, or other material modifications. The assessment of whether a borrower is experiencing or will likely experience financial difficulty and whether a concession has been granted is highly subjective in nature, and management’s judgment is required when determining whether a modification is classified as a TDR.

The following table provides details of our nonperforming and restructured assets as of the dates presented and certain other related information:


	March 31,			December 31,
(Dollars in thousands)	2018			2017			(Dollars in thousands)	March 31, 2023			December 31, 2022
Non-accrual loans							Non-accrual loans
Multifamily residential portfolio	$	1,564		$	2,246		Multifamily residential portfolio	$	3,504		$	3,509
Single family residential portfolio	5,397			4,135			Single family residential portfolio	1,466			2,962
Commercial real estate	—			656
Construction and land	—			—
Non-mortgage	—			—

Total non-accrual loans	$	6,961		$	7,037		Total non-accrual loans	4,970			6,471
Real estate owned	—			—			Real estate owned	—			—
Total nonperforming assets	$	6,961		$	7,037		Total nonperforming assets	$	4,970		$	6,471
Troubled debt restructurings (performing - not included above)	$	4,814		$	4,857
Allowance for loan losses to period end nonperforming loans	459.42		%	430.75		%

Allowance for credit losses on loans to period end nonperforming loans							Allowance for credit losses on loans to period end nonperforming loans	722.62		%	566.91		%
Nonperforming loans to period end loans	0.13		%	0.14		%	Nonperforming loans to period end loans	0.07		%	0.09		%
Nonperforming assets to total assets	0.12		%	0.12		%	Nonperforming assets to total assets	0.06		%	0.08		%
Nonperforming loans plus performing TDRs to total loans	0.22		%	0.24		%

When assessing whether a loan should be placed on non-accrual status because contractual ~~payment appears~~payments appear doubtful, consideration is given to ~~the~~ information we collect ~~on an annual basis~~ from ~~commercial real estate~~third parties and our borrowers to substantiate their future ability to repay principal and interest due on their loans as contractually agreed.

~~For~~Interest income recognized on non-accrual loans subsequent to their classification as non-accrual totaled $28 thousand for the three months ended March 31, ~~2018~~2023 compared to $55 thousand and ~~2017, no~~$27 thousand for the three months ended December 31, 2022 and March 31, 2022, respectively. Gross interest income that would have been recorded on non-accrual loans had they been current in accordance with their original terms was ~~recognized subsequent to a loan’s classification as nonaccrual. For~~$146 thousand for the three months ended March 31, ~~2018 and 2017, the Company recorded $54~~2023 compared to $44 thousand and ~~$56~~$27 thousand ~~respectively, of interest income related to performing TDR loans.~~for the three months ended December 31, 2022 and March 31, 2022, respectively.

Allowance for ~~loan~~credit losses. ~~Our~~The Company adopted the CECL allowance methodology on January 1, 2023. The ACL on loans represents the Company’s estimate of expected lifetime credit losses for ~~loan losses~~its loans at the time of origination or acquisition and is maintained at a level deemed appropriate by management ~~believes is adequate~~ to ~~account~~provide for ~~probable incurred~~expected lifetime credit losses in the ~~loan~~ portfolio ~~incurred~~ as of the ~~reporting date. We determine~~date of the consolidated statements of financial condition. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. The use of reasonable and supportable forecasts requires significant judgment. The ACL model leverages projections provided by reputable, well-recognized independent economic advisory companies and incorporates a forecast of macroeconomic factors which is updated quarterly. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance. Such agencies may require the Bank to recognize additions to the allowance based on judgments different from those of management.

The ACL on loans is a ~~quarterly evaluation~~valuation account that is deducted from the amortized cost basis of ~~risk. That evaluation gives~~loans to present the net amount expected to be collected. Amortized cost does not include accrued interest, which management elected to exclude from the estimate of expected credit losses. Loans are charged-off against the allowance when management believes that the uncollectibility of a loan is confirmed. Recoveries will never exceed the aggregate of amounts previously charged-off. The Company also maintains an ACL on unfunded commitments and other off-balance sheet credit exposures in other liabilities and accrued expenses in the consolidated statements of financial condition. This ACL is estimated over a commitment's contractual period and is determined in a manner consistent with the ACL for loans, which includes consideration of the likelihood that funding will occur. Adjustments to the ~~nature~~ACL

Table of ~~the loan portfolio, historical loss experience, known and inherent risks~~Contents

for unfunded commitments are included in the portfolio, the estimated value of any underlying collateral, adverse situations that may affect a borrower’s ability to repay, current economic and environmental conditions and risk assessments assigned to each loan as a result of our ongoing reviews of the loan portfolio. This process involves a considerable degree of judgment and subjectivity.

~~Our allowance is established through charges to~~ the provision for ~~loan losses. Loans, or portion~~(or reversal of) credit losses on the unaudited consolidated statements of ~~loans, deemed to be uncollectible~~income. All ACL balances are charged against the allowance. Recoveries of previously charged-off amounts are credited to our allowance for loan and lease losses. The allowance is decreased by the reversal of prior provisions when the total allowance balance is deemed excessive for the risks inherent in the portfolio. The allowance for loan losses balance is neither indicative of the specific amounts of future charge-offs that may occur, nor ~~is it~~are they an indicator of any future loss trends.

The following ~~table provides~~tables provide information on the activity within the allowance ~~for loan losses~~ as of and for the periods indicated:


(Dollars in thousands)	Beginning Balance		Impact of CECL Adoption		Charge-Offs		Recoveries		Provision		Ending Balance
Three months ended March 31, 2023
Multifamily residential	$	26,417	$	2,882	$	—	$	—	$	(2,007)	$	27,292
Single family residential	8,564		(2,472)		—		—		1,339		7,431
Commercial real estate	1,539		(784)		—		—		22		777
Construction and land	165		282		—		—		(33)		414
Allowance for credit losses on loans	36,685		(92)		—		—		(679)		35,914
Allowance for credit losses on off-balance sheet credit exposures	563		211		—		—		(116)		658
Total allowance for credit losses	$	37,248	$	119	$	—	$	—	$	(795)	$	36,572
Three months ended December 31, 2022
Multifamily residential	$	26,204	$	—	$	—	$	—	$	213	$	26,417
Single family residential	8,157		—		—		—		407		8,564
Commercial real estate	1,543		—		—		—		(4)		1,539
Construction and land	131		—		—		—		34		165
Allowance for loan losses	$	36,035	$	—	$	—	$	—	$	650	$	36,685
Three months ended March 31, 2022
Multifamily residential	$	26,043	$	—	$	—	$	—	$	(1,892)	$	24,151
Single family residential	7,224		—		—		—		(427)		6,797
Commercial real estate	2,094		—		—		—		(212)		1,882
Construction and land	174		—		—		—		31		205
Allowance for loan losses	$	35,535	$	—	$	—	$	—	$	(2,500)	$	33,035

Three Months Ended March 31,
(Dollars in thousands) 2018 2017
Loans held-for-investment $ 5,280,845
$ 4,689,750
Allowance for loan losses at beginning of period $ 30,312
$ 33,298
Charge-offs:
     Multifamily residential —
—
     Single family residential —
—
     Commercial real estate —
—
     Construction and land —
—
     Non-mortgage —
—
          Total charge-offs —
—
Recoveries:
     Multifamily residential —
—
     Single family residential 3
3
     Commercial real estate 90
—
     Construction and land 75
89
     Non-mortgage —
—
          Total recoveries 168
92
Net recoveries 168
92
Provision for loan losses 1,500
309
Allowance for loan losses at period end $ 31,980
$ 33,699
Allowance for loan losses to period end loans held-for-investment 0.60 % 0.71 %
Annualized net recoveries to average loans 0.01 % 0.01 %


	Three Months Ended
(Dollars in thousands)	March 31, 2023		December 31, 2022		March 31, 2022

















Allowance for credit losses on loans to period end loans	0.51	%	0.52	%	0.52	%
Annualized net charge-offs to average loans:
Multifamily residential	—	%	—	%	—	%
Single family residential	—	%	—	%	—	%
Commercial real estate	—	%	—	%	—	%
Construction and land	—	%	—	%	—	%
Annualized net charge-offs to average loans	—	%	—	%	—	%

Investment Portfolio

~~Our total securities held-for-investment and available-for-sale amounted to $550.7 million at March 31, 2018 and $510.2 million at December 31, 2017.~~ Our investment portfolio is generally comprised of government agency securities which are high-quality liquid investments under Basel ~~III.~~III, with over 97.9% classified as available for sale. The portfolio is primarily maintained to serve as a contingent, on-balance sheet source of liquidity and as such, is generally kept unencumbered. We manage our investment portfolio according to written investment policies approved by our board of directors. Our investment strategy aims to maximize earnings while maintaining liquidity in securities with minimal credit risk and interest rate risk which is reflective in the yields obtained on those securities. Most of our securities are classified as ~~available-for-sale,~~available for sale, although we occasionally purchase long-term fixed rate mortgage backed securities or municipal securities for community reinvestment purposes and classify those as ~~held-to-maturity.~~held to maturity. In addition, we have equity securities which consist of investments in a qualified community reinvestment fund.

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The following table presents the book value of our investment portfolio:


	March 31, 2023				December 31, 2022
(Dollars in thousands)	Book Value		% of Total		Book Value		% of Total
Available for sale debt securities:
Government and Government Sponsored Entities:
Commercial mortgage backed securities ("MBS") and collateralized mortgage obligations ("CMOs")	$	333,725	54.98	%	$	340,736	54.89	%
Residential MBS and CMOs	195,543		32.21	%	199,384		32.11	%
Agency bonds	41,160		6.78	%	42,630		6.87	%
Other asset backed securities	22,999		3.79	%	24,598		3.96	%
Total available for sale debt securities	593,427		97.76	%	607,348		97.83	%
Held to maturity:
Government Sponsored Entities:
Residential MBS	3,022		0.50	%	3,047		0.49	%
Other investments	58		0.01	%	61		0.01	%
Total held to maturity debt securities	3,080		0.51	%	3,108		0.50	%
Equity securities	10,506		1.73	%	10,340		1.67	%
Total investment securities	$	607,013	100.00	%	$	620,796	100.00	%

The unrealized losses in the Company's available for sale and held to maturity portfolios were $46.9 million and $189 thousand, respectively, and represented 7.73% and 0.03%, respectively, of our total investment portfolio ~~as of the dates indicated:~~

(Dollars in thousands) March 31, 2018 December 31, 2017
Book Value % of Total Book Value % of Total
Available-for-sale:
(At fair value)
Government Sponsored Entities:
Mortgage-backed securities $ 351,492
63.82 % $ 312,919
61.33 %
Agency bonds 116,515
21.16 % 117,222
22.98 %
Collateralized mortgage obligations 44,970
8.17 % 47,168
9.24 %
SBA securities 12,988
2.36 % 13,302
2.61 %
CRA Qualified Investment Fund (CRAIX) 11,504
2.09 % 11,693
2.29 %
U.S. Treasury 10 year note 971
0.18 % 984
0.19 %
Total available-for-sale 538,440
97.78 % 503,288
98.64 %

Held-to-maturity:
(At amortized cost)
Government Sponsored Entities:
Mortgage-backed securities 11,956
2.17 % 6,636
1.30 %
Other investments 281
0.05 % 285
0.06 %
Total held-to-maturity 12,237
2.22 % 6,921
1.36 %
Total investment securities $ 550,677
100.00 % $ 510,209
100.00 %

Atat March 31, ~~2018, there was no issuer, other than U.S. government agencies where the aggregate book value or market value of such issuer’s securities held by the Company exceed 10%~~2023. Over 63% of our ~~stockholders’ equity.~~

~~Liabilities~~

~~Total liabilities as~~available for sale securities portfolio consisted of floating rate securities with an average repricing period of approximately 14 months. As of March 31, ~~2018~~2023, securities with a book value totaling $573.5 million were ~~$5.5 billion~~pledged to the FHLB and FRB to increase our borrowing capacity in response to the bank failures in that occurred in March 2023. There were no advances against these pledged securities during the current quarter. No securities were pledged as of December 31, 2022.

Prepaid Expenses and Other Assets

Prepaid expenses and other assets totaled $104.5 million at March 31, 2023 compared to ~~$5.2 billion~~$120.2 million at December 31, ~~2017, an increase~~2022, a decrease of ~~$325.5~~$15.8 million, or ~~6.3%~~13.1%. ~~The increase~~This decrease was ~~chiefly driven by an increase~~primarily due to a $9.6 million decline in ~~total deposits~~the fair value of ~~$162.8 million and an increase of $168.9 million in FHLB advances. The growth in deposits and FHLB advances period over period was instrumental in supporting~~ our ~~continued growth in real estate loans.~~swaps during the quarter.

Deposits

Representing ~~75.1%~~74.3% of our total liabilities as of March 31, ~~2018,~~2023, deposits are our primary source of funding for our business operations. ~~We believe we will maintain and grow~~Despite the recent volatility in the banking sector caused by bank closures during the current quarter, our deposit ~~customer base in~~outflows appear to have generally stabilized following an initial period of elevated withdrawals. We attribute the return to a ~~rising rate~~more normalized environment ~~without the need~~ to ~~match increases in the federal funds target rate point for point, or to compete solely on the basis~~our competitive pricing of ~~rate, and without materially increasing our cost of funds in the near term. This belief is based on our steady funding costs over the past three years coupled with~~deposit products, as well as our strong customer relationships, our reputation as a safe, sound, secure and "well-capitalized" institution and our commitment to excellent customer service, evidenced in part by increased deposits over ~~the same period of time, as well as our reputation as a safe, sound, secure, well-capitalized institution and our commitment to excellent customer service. We are~~recent years. Further, we remain focused on growing ~~our~~ deposits by deepening our relationships with our existing loan and deposit customers and looking to expand our traditional product footprint with ~~new~~newer emphasis placed on ~~specialty,~~ specialty/business ~~and online affiliations, and transactional deposits.~~affiliations. When competitively priced, or when there is market disruption, and/or for asset liability management purposes, we will supplement our deposits with wholesale ~~deposits from deposit brokers.~~deposits.

Total deposits ~~increased~~decreased by ~~$162.8~~$189.8 million, or ~~4.1%~~3.3%, to ~~$4.1~~$5.6 billion at March 31, ~~2018~~2023 from ~~$4.0~~$5.8 billion at December 31, 2022. Retail deposits declined $277.4 million, while brokered deposits increased $87.6 million during the three months ended March 31, 2023. The decline in retail deposits during the quarter accelerated after the bank failures on March 10th and 12th, 2023, with 62% of the retail deposit outflows during the quarter occurring after these events. The deposit declines were primarily experienced in money market accounts, partially offset by increases in time deposits. Consequently, the proportion of non-maturity deposits within the portfolio decreased to 39.7% at

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March 31, 2023 compared to 46.3% at December 31, 2022, while our portfolio of time deposits increased to 60.3% from 53.7% as of ~~December 31, 2017. Deposit increases were attributed~~the same dates. The increase in brokered deposits was utilized to ~~both organic retail deposit growth from our existing nine branches coupled with growth~~partially offset the decline in ~~wholesale deposits. Given our consistently high retention rate at renewal, we consider all~~ our retail deposits ~~including time~~and further supplement our liquidity position. Our cost of interest bearing deposits was 2.65% during the quarter ended March 31, 2023, compared to ~~be core~~2.00% and 0.45% during the three months ended December 31, 2022 and March 30, 2022, respectively. As discussed above, the increase in our cost of interest bearing deposits compared to the prior quarter and prior year-to-date period was predominantly due to interest rate increases in both retail and brokered deposits. ~~We expect to continue to maintain approximately half of our deposits balance in time deposits.~~

Our loan to deposit ratio was ~~129.47%~~124% and ~~127.59%~~120% at March 31, ~~2018~~2023 and December 31, ~~2017,~~2022, respectively. It is common for us to operate with a loan to deposit ratio exceeding those commonly seen at other banks. Our higher than average ratio is attributed to our use of FHLB borrowings to ~~fund~~supplement loan growth and to strategically manage our interest rate risk, as well as our preference to maintain a large proportion of our assets ~~being comprised of~~in real estate loans which generally provide a better yield than ~~the~~ high-quality liquid ~~investments that we typically hold for contingent liquidity purposes. We intend~~investments. The increase in this ratio during the current quarter was due to ~~continue to operate our business with a loan to~~the retail deposit ~~ratio similar to these levels.~~

outflows discussed above.

The following ~~table summarizes~~tables summarize our deposit composition by average deposits and average rates paid for the periods indicated:


	Three Months Ended
	March 31, 2023						December 31, 2022						March 31, 2022
(Dollars in thousands)	Average amount		Weighted average rate paid		Percent of total deposits		Average amount		Weighted average rate paid		Percent of total deposits		Average amount		Weighted average rate paid		Percent of total deposits
Noninterest-bearing deposit accounts	$	86,967	—	%	1.5	%	$	119,589	—	%	2.0	%	$	147,533	—	%	2.7	%
Interest-bearing transaction accounts	150,429		0.43	%	2.6	%	170,867		0.35	%	2.9	%	169,580		0.22	%	3.1	%
Money market demand accounts	2,271,018		2.46	%	39.3	%	2,622,015		1.83	%	44.6	%	2,964,527		0.43	%	53.8	%
Time deposits	3,268,933		2.88	%	56.6	%	2,973,058		2.25	%	50.5	%	2,231,471		0.49	%	40.4	%
Total	$	5,777,347	2.60	%	100.0	%	$	5,885,529	1.96	%	100.0	%	$	5,513,111	0.44	%	100.0	%

Three Months Ended
March 31, 2018 March 31, 2017
(Dollars in thousands) Average Amount Weighted average rate paid Percent of total deposits Average Amount Weighted average rate paid Percent of total deposits
Transaction accounts (1) $ 224,674
0.72 % 5.6 % $ 205,712
0.68 % 5.9 %
Money market demand accounts 1,507,614
0.88 % 37.6 % 1,545,433
0.76 % 44.6 %
Time deposits 2,274,818
1.44 % 56.8 % 1,716,304
1.18 % 49.5 %
$ 4,007,106
1.19 % 100.0 % $ 3,467,449
0.96 % 100.0 %
(1) Transaction accounts include both interest bearing and non-interest bearing deposits.
The Company estimated its balance of uninsured deposits at approximately $1.0 billion, or 17.9% or total deposits, and $1.3 billion, or 22.5% of total deposits, at March 31, 2023 and December 31, 2022, respectively. The following table summarizes our deposit composition by source and segregates balances between estimated insured and uninsured balances for each deposit category as of March 31, 2023 and December 31, 2022.


	March 31, 2023				December 31, 2022
(Dollars in thousands)	Insured		Uninsured		Insured		Uninsured
Consumer	$	3,175,326	$	846,762	$	3,090,797	$	931,454
Business	917,867		166,139		981,692		379,560
Brokered	543,400		—		455,837		—
Total deposits	$	4,636,593	$	1,012,901	$	4,528,326	$	1,311,014

The following table sets forth the maturity of time deposits and estimated insured and uninsured balances as of March 31, ~~2018:~~2023:


(Dollars in thousands except for column headings)	Insured			Uninsured
Remaining maturity:
Three months or less	$	601,950		$	109,572
Over three through six months	796,443			185,759
Over six through twelve months	1,170,083			248,594
Over twelve months	241,240			52,000
Total	$	2,809,716		$	595,925
Percent of time deposits to total deposits	49.73		%	10.55		%

(in thousands except for column headings and percentages) Under $100,000 $100,000 and greater
Remaining maturity:
Three months or less $ 59,250
$ 691,822
Over three through six months 54,643
322,565
Over six through twelve months 109,132
558,155
Over twelve months 106,456
496,675
Total $ 329,481
$ 2,069,217
Percent of total deposits 8.01 % 50.30 %

~~The Company had certificates~~Table of ~~deposit that meet or exceed the FDIC Insurance limit of $250 thousand of $1.2 billion at March 31, 2018. At the same date, the Company had $295.9 million of brokered deposits.~~Contents

FHLB Advances and Other Borrowings

In addition to deposits, we utilize ~~short and long-term~~ collateralized FHLB borrowings to fund our ~~loan growth.~~asset growth and, more recently, to add liquidity to our balance sheet. FHLB advances can, at times, have attractive rates and we have commonly used them to strategically extend the duration of our liabilities as part of our interest rate risk ~~management. Total~~management efforts to reduce the liability sensitive position of our balance sheet. FHLB advances totaled $1.7 billion and $1.2 billion at March 31, ~~2018 were $1.2 billion compared to $989.3 million at~~2023 and December 31, ~~2017, an increase of $168.9 million, or 17.1%.~~2022, respectively. The increase in FHLB advances this quarter was primarily utilized to supplement our liquidity in response to the unexpected bank closures in March 2023 and offset the declines in retail deposits discussed above. As of the same dates, the Bank had a ~~result~~FHLB letter of ~~borrowing to support our strong loan growth.~~credit outstanding totaling $62.6 million.

Historically, we have utilized other instruments such as trust preferred securities and senior debt at the bank holding company level as a source of capital for our Bank to support asset growth. We have established two trusts ~~or Trusts,~~(the "Trusts") of which we own all the common securities, that have issued trust preferred securities, or ("Trust ~~Securities,~~Securities"), to investors in private placement transactions. The proceeds of the securities qualify as Tier 1 capital under the ~~final Dodd Frank~~applicable regulations for community banks with total assets less than $15 billion. In accordance with GAAP, the Trusts are not consolidated in our ~~balance sheet~~consolidated statements of financial condition but rather, the common securities are included in our other assets and the junior subordinated debentures ~~or Notes,~~("Notes") issued to the Trusts are shown as a liability. The following table is a summary of our outstanding Trust Securities and related Notes as of ~~March 31, 2018 (dollars in thousands):~~the dates indicated:

Issuer Issuance Date Amount of Trust Securities Amount of Notes Redemption Date Maturity Date
Luther Burbank Statutory Trust I March 2006 $ 40,000
$ 41,238
June 15, 2011 June 15, 2036
Quarterly adjustments - three month Libor plus 1.38%
(3.505% at March 31, 2018)
Luther Burbank Statutory Trust II March 2007 $ 20,000
$ 20,619
June 15, 2012 June 15, 2037
Quarterly adjustments - three month Libor plus 1.62%
(3.745% at March 31, 2018)


	March 31, 2023				December 31, 2022				Date	Maturity	Rate Index
Issuer	Amount		Rate		Amount		Rate		Issued	Date	(Quarterly Reset)
(Dollars in thousands)
Luther Burbank Statutory Trust I	$	41,238	6.25	%	$	41,238	6.15	%	3/1/2006	6/15/2036	3 month LIBOR + 1.38%
Luther Burbank Statutory Trust II	$	20,619	6.49	%	$	20,619	6.39	%	3/1/2007	6/15/2037	3 month LIBOR + 1.62%

We have the right to defer payment of interest on the Notes at any time or from time to time for a period not exceeding five years provided that no extension period may extend beyond the stated maturity of the relevant Note. During any such extension period, distributions on the Trust Securities will also be deferred, and our ability to pay dividends on our common stock will be restricted.

We have entered into contractual arrangements which, taken collectively, fully and unconditionally guarantee payment of: (i) accrued and unpaid distributions required to be paid on the Trust Securities; (ii) the redemption price with respect to any Trust Securities called for redemption by the Trusts; and (iii) payments due upon a voluntary or involuntary dissolution, winding up or liquidation of the Trusts. The Trust Securities are mandatorily redeemable upon maturity of the Notes, or upon earlier redemption as provided in the indenture. We have the right to redeem the Notes purchased by the Trusts, in whole or in part, on or after the redemption date. As specified in the indenture, if the Notes are redeemed prior to maturity, the redemption price will be the principal amount and any accrued but unpaid interest.

In 2014, we issued senior debt totaling $95.0 million to qualified institutional investors. These senior notes are unsecured, carry a fixed interest coupon of 6.5%, pay interest only on a quarterly basis and mature on September 30, 2024. The senior debt is redeemable at any time prior to August 31, 2024, at a redemption price equal to the greater of (i) 100% of the principal amount, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semi-annual basis at the calculated rate for a U. S. Treasury security having a comparable remaining maturity, plus 30 basis points, plus in each case, accrued and unpaid interest. On or after September 1, 2024, the senior debt may be redeemed at 100% of the principal amount plus accrued and unpaid interest.

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The following table presents information regarding our FHLB advances and other borrowings as of ~~and~~or for the periods indicated:


	As of or For the Three Months Ended

(Dollars in thousands)	March 31, 2023			December 31, 2022			March 31, 2022
FHLB advances
Average amount outstanding during the period	$	1,327,863		$	1,129,382		$	761,119
Maximum amount outstanding at any month-end during the period	1,704,647			1,208,147			751,647
Balance outstanding at end of period	1,701,647			1,208,147			751,647
Weighted average maturity (in years)	1.6			1.7			2.3
Weighted average interest rate at end of period	3.34		%	2.64		%	1.75		%
Weighted average interest rate during the period	2.83		%	2.40		%	1.65		%

Junior subordinated deferrable interest debentures
Balance outstanding at end of period	$	61,857		$	61,857		$	61,857
Weighted average maturity (in years)	13.7			14.0			14.8
Weighted average interest rate at end of period	6.33		%	6.23		%	2.29		%
Weighted average interest rate during the period	6.33		%	5.09		%	1.80		%

Senior unsecured term notes
Balance outstanding at end of period	$	94,816		$	94,785		$	94,693
Weighted average maturity (in years)	1.4			1.7			2.4
Weighted average interest rate at end of period	6.64		%	6.64		%	6.65		%
Weighted average interest rate during the period	6.64		%	6.64		%	6.65		%

Three Months Ended March 31,
(Dollars in thousands) 2018 2017

FHLB advances
Average amount outstanding during the period $ 1,070,087
$ 1,084,904
Maximum amount outstanding at any month-end during the period 1,158,153
1,157,480
Balance outstanding at end of period 1,158,153
1,157,480
Weighted average maturity (in years) 1.2
1.4
Weighted average interest rate at end of period 1.98 % 1.22 %
Weighted average interest rate during the period 1.80 % 1.21 %

Junior subordinated deferrable interest debentures
Balance outstanding at end of period $ 61,857
$ 61,857
Weighted average maturity (in years) 18.8
19.8
Weighted average interest rate at end of period 3.58 % 2.52 %
Weighted average interest rate during the period 3.15 % 2.46 %

Senior unsecured term notes
Balance outstanding at end of period $ 94,195
$ 94,061
Weighted average maturity (in years) 6.6
7.6
Weighted average interest rate at end of period 6.70 % 6.71 %
Weighted average interest rate during the period 6.70 % 6.71 %

Our level of FHLB advances can fluctuate on a daily basis depending on our funding needs and the availability of other sources of funds to satisfy those needs. Short-term advances allow us flexibility in funding particularly when planned transactions will yield an immediate large inflow of cash such as the closing of the securitization transaction in the third quarter of 2017, and the closing of the initial public offering. We intend to use the net cash proceeds from these transactions to reduce our ~~level of short-term FHLB advances until we can redeploy such funds into higher yielding assets such as loans and investments.~~daily liquidity needs.

The following table sets forth the amount of short-term borrowings outstanding, comprised entirely of FHLB advances, as well as the weighted average interest rate thereon, as of or for the dates ~~indicated.~~indicated:


								As of or For the Three Months Ended
	Three Months Ended March 31,
(Dollars in thousands)	2018			2017			(Dollars in thousands)	March 31, 2023			December 31, 2022			March 31, 2022
Outstanding at period end	$	480,500		$	579,800		Outstanding at period end	$	150,000		$	56,500		$	—
Average amount outstanding	457,425			564,900			Average amount outstanding	48,993			75,561			21,694
Maximum amount outstanding at any month end	495,700			579,800			Maximum amount outstanding at any month end	150,000			100,000			—
Weighted average interest rate:
During period	1.61		%	0.66		%
End of period	1.90		%	0.72		%
Weighted average interest rate at end of period							Weighted average interest rate at end of period	5.27		%	4.65		%	—		%
Weighted average interest rate during the period							Weighted average interest rate during the period	5.05		%	3.19		%	0.34		%

Stockholders’ Equity

~~Stockholders’~~The Company's stockholders’ equity totaled ~~$553.8 million and $549.7~~$696.2 million at March 31, ~~2018 and~~2023, an increase of $13.6 million, or 2.0%, compared to December 31, ~~2017, respectively.~~

2022. The increase in stockholders' equity was primarily due to net income of $13.4 million.

Off-Balance Sheet Arrangements

In the normal course of business, we enter into various transactions that are not included in our consolidated statements of financial condition in accordance with GAAP. These transactions include commitments to extend credit in the ordinary course of business including commitments to fund new loans and undisbursed ~~construction funds. While these~~funds, as well

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as certain guarantees and derivative transactions.

Loan commitments represent contractual cash requirements to a borrower although, a portion of these commitments to extend credit may expire without being drawn upon. Therefore, the total commitment amounts, shown below, do not necessarily represent future cash requirements. In conjunction with mortgage banking activities, we enter into forward sales contracts to hedge interest rate risk involved with interest rate lock commitments on loans. Given our exit from mortgage banking activities, the volume of both forward sales and written option contracts have decreased from prior periods.obligations. The following is a summary of our off-balance ~~commitments~~sheet arrangements outstanding as of the dates presented.


(Dollars in thousands)	March 31, 2023		December 31, 2022
Commitments to fund loans	$	36,712	$	37,741

(Dollars in thousands) March 31,
2018 December 31,
2017
Commitments to fund loans held-for-investment $ 114,832
$ 65,767

In connection with our Freddie Mac multifamily loan securitization, ~~in 2017,~~ we entered into a reimbursement agreement pursuant to which we may be required to reimburse Freddie Mac for the first losses in the underlying loan portfolio, not to exceed 10% of the unpaid principal amount at settlement, or approximately $62.6 million. A $62.6 million letter of credit with the FHLB is pledged as collateral in connection with this reimbursement agreement. We have recorded a reserve for estimated losses with respect to the reimbursement obligation of ~~$1.7 million as of~~$270 thousand and $439 thousand at March 31, ~~2018,~~2023 and December 31, 2022, respectively, which is included in other liabilities and accrued expenses onin the consolidated statements of financial condition. ~~Please refer~~In connection with the adoption of the CECL accounting standard on January 1, 2023, the Company decreased the allowance for the reimbursement obligation by $119 thousand, which represented the difference between the CECL methodology and the prior methodology utilized for estimating losses for its reimbursement obligation. The prior period allowance is reported in accordance with previous GAAP.

As of March 31, 2023, the Company held eleven interest rate swaps with a total notional amount of $1.8 billion, two of which, with an aggregate notional amount of $400 million, have effective dates in April and June 2023. The swaps provide a hedge against the interest rate risk associated with both hybrid adjustable loans in their fixed rate period and a pool of fixed rate single family loans. Our swaps involve the payment of a fixed rate amount to ~~"Factors Affecting Comparability~~a counterparty in exchange for the Company receiving a variable rate payment over the life of ~~Financial Results - Multifamily Securitization Transaction"~~the swaps without the exchange of the underlying notional amounts. As of March 31, 2023, these swaps carried a weighted average fixed payment rate of 2.74%, while receiving a federal funds weighted average rate of 4.83%. The net hedging impact associated with our swaps is reported in ~~Part I, Item 2. "Management's Discussion and Analysis" for additional information regarding the securitization.~~interest income on loans.

We guarantee ~~the~~ distributions and payments for redemption or liquidation of the Trust Securities issued by the Trusts to the extent of funds held by the Trusts. Although this guarantee is not separately recorded, the obligation underlying the guarantee is fully reflected on our consolidated statements of financial condition as junior subordinated debentures held by the Trusts. The junior subordinated debentures currently qualify as Tier 1 capital under the Federal Reserve capital adequacy guidelines. With the exception of our obligations in connection with its Trust Securities and the other items detailed above, we have no other off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources, that isare material to investors.

Contractual Obligations

The following table presents, as of March 31, ~~2018,~~2023, our significant contractual obligations to third parties on debt and lease agreements and service obligations. For more information about our contractual obligations, see Part I, Item 1, "Financial Statements and Supplementary Data", Note 17. ‘‘Commitments and Contingencies,’’ in the notes to our unaudited consolidated financial ~~statements.~~statements in this Report.

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																	Payments Due by Period
			Payments Due by Period														Less than 1 Year				1 to 3 Years			3 to 5 Years		More than 5 Years
As of March 31, 2018			Less than 1 Year			1 to 3 Years			3 to 5 Years			More than 5 Years
(Dollars in thousands)	Total				(Dollars in thousands)						Less than 1 Year					1 to 3 Years							3 to 5 Years			More than 5 Years				Total
Contractual Cash Obligations																				Contractual Cash Obligations
Time deposits (1)	$	2,398,698	$	1,776,864			$	598,297			$	23,537		$	—	Time deposits (1)			$	3,112,401				$	277,476			$	15,764			$	—	$	3,405,641
FHLB advances (1)	1,158,153		531,000			575,000			50,600			1,553
FHLB advances (1)(2)														FHLB advances (1)(2)			450,000				1,151,500			100,000		147				1,701,647
Senior debt (1)	95,000		—			—			—			95,000		Senior debt (1)			—				95,000			—		—				95,000
Junior subordinated debentures (1)	61,857		—			—			—			61,857		Junior subordinated debentures (1)			—				—			—		61,857				61,857
Operating leases (net of sublease income)	18,242		4,665			7,178			5,013			1,386
Significant contract (2)	4,207		1,354			2,707			146			—
Operating leases														Operating leases			3,282				4,994			3,941		1,318				13,535
Significant contract (3)														Significant contract (3)			1,545				3,089			166		—				4,800
Total	$	3,736,157	$	2,313,883		$	1,183,182		$	79,296		$	159,796	Total			$	3,567,228			$	1,532,059		$	119,871	$	63,322			$	5,282,480
(1) Amounts exclude interest
(2) We have one significant, long-term contract for core processing services which expires May 9, 2021. Actual obligation is unknown and dependent on certain factors including volume and activities. For purposes of this disclosure, future obligations are estimated using our March 31, 2018 year to date average monthly expense extrapolated over the remaining life of the contract.

(1) Amounts exclude interest.														(1) Amounts exclude interest.
(2) Included in total FHLB advances is a $200.0 million advance which matures in September 2025 and contains a FHLB quarterly call provision beginning in September 2023.														(2) Included in total FHLB advances is a $200.0 million advance which matures in September 2025 and contains a FHLB quarterly call provision beginning in September 2023.
(3) We have one significant, long-term contract for core processing services which expires May 9, 2026. The actual obligation is unknown and dependent on certain factors including volume and activities. For purposes of this disclosure, future obligations are estimated using our year-to-date 2023 average monthly expense extrapolated over the remaining life of the contract.														(3) We have one significant, long-term contract for core processing services which expires May 9, 2026. The actual obligation is unknown and dependent on certain factors including volume and activities. For purposes of this disclosure, future obligations are estimated using our year-to-date 2023 average monthly expense extrapolated over the remaining life of the contract.

We believe that we will we be able to meet our contractual obligations as they come due. Adequate cash levels are expected through profitability, repayments from loans and securities, deposit gathering activity, access to borrowing sources and periodic loan sales.

Liquidity Management and Capital Adequacy

Liquidity Management

Liquidity refers to our capacity to meet our cash obligations at a reasonable cost. Our cash obligations require us to have cash flow that is adequate to fund loan growth and maintain on-balance sheet liquidity while meeting present and future obligations of deposit withdrawals, borrowing maturities and other contractual cash obligations. In managing our cash flows, management regularly confronts situations that can give rise to increased liquidity risk. These include funding mismatches, market constraints in accessing sources of funds and the ability to convert assets into cash. Changes in economic conditions, the banking industry, such as bank failures, or exposure to credit, market, operational, legal and reputational risks also could affect the ~~bank’s~~Company’s liquidity risk profile and are considered in the assessment of liquidity management.

We continually monitor our liquidity position to ensure that our assets and liabilities are managed in a manner to meet all reasonably foreseeable short-term, long-term and strategic liquidity demands. 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,~~Company, 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 stress tests that are commensurate with the complexity of our business activities; 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 requirements; and internal controls and internal audit processes sufficient to determine the adequacy of the ~~Bank’s~~Company’s liquidity risk management process.

Our liquidity position is supported by management of our liquid assets and liabilities and access to alternative sources of funds. Our liquidity requirements are met primarily through our deposits, FHLB advances and the principal and interest payments we receive on loans and investment securities. Cash on hand, unrestricted cash at third party banks, investments ~~available-for-sale~~available for sale and maturing or prepaying balances in our investment and loan portfolios are our most liquid assets. Other sources of liquidity that are routinely available to us include funds from retail and wholesale deposits, advances from the FHLB and proceeds from the sale of loans. Less commonly used

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sources of funding include borrowings from the ~~FRB~~Federal Reserve Bank ("FRB") discount window and the newly established FRB Bank Term Funding Program ("BTFP"), draws on established federal funds lines from unaffiliated commercial banks and the issuance of debt or equity securities. Our reliance on wholesale funding sources may fluctuate as economic conditions and customer preferences change.

We ~~believe~~proactively and prudently manage liquidity, which became even more important during the first quarter of 2023 in light of the recent bank failures and other deposit dislocations resulting from the rapidly rising interest rate environment. During the quarter, we increased our on-balance sheet liquidity by $308.6 million through additional borrowings from the FHLB. Usage of our FHLB line to augment our liquidity is consistent with our past borrowing practices. In addition, we supplemented our borrowing capacity by pledging substantially all of our investment portfolio, as well as the majority of previously unpledged loans, to the FHLB and FRB. Although the Bank has established a $354 million line under the BTFP and expanded its discount window capacity, we have ~~ample~~not utilized either line during the current year. At the end of the quarter, our total liquidity, ~~resources~~as shown below, represented 314% of our estimated uninsured deposit balances. As of March 31, 2023, we maintained the following liquidity position:


(Dollars in thousands)	As of March 31, 2023		% of Assets
Unrestricted cash & cash equivalents	$	508,233	6.12%
Unpledged liquid securities	33,505		0.40%
Unutilized brokered deposit capacity(1)	304,024		3.66%
Unutilized FHLB borrowing capacity(2)(3)	1,135,446		13.68%
Unutilized FRB borrowing capacity(2)	1,150,979		13.86%
Commercial lines of credit	50,000		0.60%
Total liquidity	$	3,182,187	38.33%

(1)Capacity based on internal guidelines.

(2)Capacity based on pledged collateral specific to ~~fund future growth and meet other cash needs~~the FHLB or FRB, as ~~necessary.~~applicable.

(3)Availability to borrow from the FHLB is permitted up to 40% of Luther Burbank Savings’ (the “Bank”) assets or $3.3 billion, subject to collateral capacity.

Our total deposits at March 31, ~~2018~~2023 and December 31, ~~2017~~2022 were ~~$4.1~~$5.6 billion and ~~$4.0~~$5.8 billion, respectively. Based on the values of loans and securities pledged as collateral, our $1.7 billion of FHLB advances outstanding and our $62.6 million FHLB letter of credit outstanding, we had ~~$689.4 million~~$1.1 billion of additional borrowing capacity with the FHLB at March 31, ~~2018.~~2023. Based on the values of other loans and securities pledged as collateral, we had ~~$180.0 million~~$1.2 billion of borrowing capacity with the FRB at March 31, ~~2018.~~2023. There were no outstanding advances with the FRB at March 31, ~~2018.~~2023. In addition to the liquidity provided by the FHLB and FRB described above, we have established federal funds lines of credit with unaffiliated banks totaling $50.0 million at March 31, ~~2018,~~2023, none of which ~~was~~were advanced at that date. In the ordinary course of business, we maintain correspondent bank accounts with unaffiliated banks which are used for normal business activity including ordering cash for our branch network, the purchase of investment securities and the receipt of principal and interest on those investments. ~~Cash~~Available cash balances at correspondent banks, including amounts at the FRB, totaled ~~$67.8~~$508.2 million at March 31, ~~2018.~~2023.

The Company is a corporation separate and apart from our Bank and, therefore, must provide for its own liquidity, including liquidity required to meet its debt service requirements on its senior notes and junior subordinated debentures. The Company’s main source of cash flow is dividends declared and paid to it by the Bank. There are statutory and regulatory limitations that affect the ability of our Bank to pay dividends to the Company. We believe that these limitations will not impact our ability to meet our ongoing short-term cash obligations. For contingency purposes, the Company typically maintains a minimum level of cash to fund one year’s projected operating cash flow needs.

Capital Adequacy

We are subject to various regulatory capital requirements administered by ~~the~~ federal and state banking regulators. Our capital management consists of providing equity to support our current operations and future growth. Failure to meet minimum regulatory capital requirements may result in mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and off-balance sheet items as calculated under regulatory accounting policies. As of March 31, ~~2018~~2023 and December 31, ~~2017,~~2022, we were in

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compliance with all applicable regulatory capital requirements, including the capital conservation buffer, and the Bank qualified as ‘‘well-capitalized’’ for purposes of the FDIC’s prompt corrective action regulations. ~~At March 31, 2018, the capital conservation buffer was 1.875%.~~

The vast majority of our multifamily residential loans and single family residential loans are currently eligible for 50% risk-weighting for purposes of calculating our regulatory capital levels. ToRisk-weighting requirements of multifamily residential loans and single family residential loans are contingent upon meeting specific criteria, which, if not adequately met, would increase the ~~extent that we increase our levels of commercial~~required risk-weighting percentage for these loans. Commercial real estate lending collateralized by real estate other than multifamily residential properties ~~which loans would~~are generally ~~be 100%~~ risk weighted ~~we would expect that our risk-based capital ratios would decline.~~at 100%. Our leverage ratio is not impacted by the composition of our assets. ~~See ‘‘Supervision and Regulation’’ for additional information regarding the regulatory capital requirements applicable to us.~~

The following table presents our regulatory capital ratios as of the dates presented, as well as the regulatory capital ratios that are required by FDIC regulations to maintain ‘‘well-capitalized’’ status:


					Minimum Required
	Actual				For Capital Adequacy Purposes				Plus Capital Conservation Buffer				For Well- Capitalized Institution
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Luther Burbank Corporation
As of March 31, 2023
Tier 1 Leverage Ratio	$	787,992	9.73	%	$	323,924	4.00	%	N/A		N/A		N/A		N/A
Common Equity Tier 1 Risk-Based Ratio	726,135		17.18	%	190,243		4.50	%	$	295,933	7.00	%	N/A		N/A
Tier 1 Risk-Based Capital Ratio	787,992		18.64	%	253,657		6.00	%	359,348		8.50	%	N/A		N/A
Total Risk-Based Capital Ratio	824,586		19.50	%	338,210		8.00	%	443,900		10.50	%	N/A		N/A
As of December 31, 2022
Tier 1 Leverage Ratio	$	775,259	9.72	%	$	319,051	4.00	%	N/A		N/A		N/A		N/A
Common Equity Tier 1 Risk-Based Ratio	713,402		16.80	%	191,066		4.50	%	$	297,214	7.00	%	N/A		N/A
Tier 1 Risk-Based Capital Ratio	775,259		18.26	%	254,755		6.00	%	360,902		8.50	%	N/A		N/A
Total Risk-Based Capital Ratio	812,529		19.14	%	339,673		8.00	%	445,820		10.50	%	N/A		N/A
Luther Burbank Savings
As of March 31, 2023
Tier 1 Leverage Ratio	$	868,546	10.73	%	$	323,836	4.00	%	N/A		N/A		$	404,796	5.00	%
Common Equity Tier 1 Risk-Based Ratio	868,546		20.56	%	190,117		4.50	%	$	295,737	7.00	%	274,613		6.50	%
Tier 1 Risk-Based Capital Ratio	868,546		20.56	%	253,489		6.00	%	359,110		8.50	%	337,985		8.00	%
Total Risk-Based Capital Ratio	905,140		21.42	%	337,985		8.00	%	443,606		10.50	%	422,482		10.00	%
As of December 31, 2022
Tier 1 Leverage Ratio	$	856,631	10.74	%	$	318,970	4.00	%	N/A		N/A		$	398,712	5.00	%
Common Equity Tier 1 Risk-Based Ratio	856,631		20.19	%	190,945		4.50	%	$	297,026	7.00	%	275,809		6.50	%
Tier 1 Risk-Based Capital Ratio	856,631		20.19	%	254,593		6.00	%	360,674		8.50	%	339,458		8.00	%
Total Risk-Based Capital Ratio	893,901		21.07	%	339,458		8.00	%	445,538		10.50	%	424,322		10.00	%

Actual
Minimum Regulatory
Requirement
Minimum Capital Adequacy with Capital Buffer
Minimum Regulatory Requirement for "Well- Capitalized" Institution under prompt corrective action
provisions
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Amount Ratio
Luther Burbank Corporation
As of March 31, 2018
Tier 1 Leverage Ratio $ 619,209
10.57 % $ 241,612
4.00 % N/A
N/A
N/A N/A
Common Equity Tier 1 Risk-Based Ratio 557,352
15.55 % 161,342
4.50 % $ 228,568
6.38 % N/A N/A
Tier 1 Risk-Based Capital Ratio 619,209
17.27 % 215,123
6.00 % 282,348
7.88 % N/A N/A
Total Risk-Based Capital Ratio 653,367
18.22 % 286,830
8.00 % 354,056
9.88 % N/A N/A
As of December 31, 2017
Tier 1 Leverage Ratio $ 615,010
11.26 % $ 218,499
4.00 % N/A
N/A
N/A N/A
Common Equity Tier 1 Risk-Based Ratio 553,153
16.05 % 155,107
4.50 % $ 198,192
5.75 % N/A N/A
Tier 1 Risk-Based Capital Ratio 615,010
17.84 % 206,809
6.00 % 249,894
7.25 % N/A N/A
Total Risk-Based Capital Ratio 647,421
18.78 % 275,746
8.00 % 318,831
9.25 % N/A N/A

Luther Burbank Savings
As of March 31, 2018
Tier 1 Leverage Ratio $ 696,502
11.90 % $ 241,507
4.00 % N/A
N/A
$ 301,884
5.00 %
Common Equity Tier 1 Risk-Based Ratio 696,502
19.44 % 161,225
4.50 % $ 228,402
6.38 % 232,880
6.50 %
Tier 1 Risk-Based Capital Ratio 696,502
19.44 % 214,966
6.00 % 282,143
7.88 % 286,622
8.00 %
Total Risk-Based Capital Ratio 730,660
20.39 % 286,622
8.00 % 353,799
9.88 % 358,277
10.00 %
As of December 31, 2017
Tier 1 Leverage Ratio $ 685,434
12.54 % $ 218,585
4.00 % N/A
N/A
$ 273,232
5.00 %
Common Equity Tier 1 Risk-Based Ratio 685,434
19.90 % 154,980
4.50 % $ 198,030
5.75 % 223,859
6.50 %
Tier 1 Risk-Based Capital Ratio 685,434
19.90 % 206,640
6.00 % 249,689
7.25 % 275,519
8.00 %
Total Risk-Based Capital Ratio 717,845
20.84 % 275,519
8.00 % 318,569
9.25 % 344,399
10.00 %

Impact of Inflation and Changing Prices

Our unaudited consolidated financial statements and related notes have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars, without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of operations. Unlike most industrial companies, nearly all of our assets and liabilities are monetary in nature. As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods or services.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the exposure to unanticipated changes in net interest earnings or loss due to changes in the market value of assets and liabilities as a result of fluctuations in interest rates. As a financial institution, our primary

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market risk is interest rate risk. Interest rate risk is the risk to earnings and value arising from volatility in market interest rates. Interest rate risk arises from timing differences in the repricings and maturities of interest-earning assets and interest-bearing liabilities ~~(reprice~~(repricing risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay ~~residential mortgage~~ loans at any time and depositors’ ability to redeem certificates of deposit before maturity (option risk), changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S. Treasuries and LIBOR (basis risk).

We manage market risk though our Asset Liability Council ~~or ALCO,~~("ALCO") which is comprised of senior management who are responsible for ensuring that board approved strategies, policy limits, and procedures for managing interest rate risk are appropriately executed within the designated lines of authority and responsibility. The ALCO meets monthly to review, among other things, the composition of our assets and liabilities, the sensitivity of our assets and liabilities to interest rate changes, our actual and forecasted liquidity position, investment activity and our interest rate hedging transactions. The chairperson of the ALCO reports regularly to our board of directors. Our board reviews all policies impacting asset and liability management and establishes risk tolerance limits for business operations on at least an annual basis.

Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints. In recognition of this, we actively manage our assets and liabilities to maximize our net interest income and return on equity, while ~~limiting~~managing our ~~exposure to board-established~~ risk ~~tolerances~~exposure and maintaining adequate liquidity and capital positions.

Given the nature of our loan and deposit activities, we are liability sensitive to volatility in interest rates. A liability sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate lower net interest income, as rates paid on our interest-bearing liabilities would reprice upward more quickly than rates earned on our interest-earning assets, thus compressing our net interest margin. Conversely, an asset sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate higher net interest income, as rates earned on our interest-earning assets would reprice upward more quickly than rates paid on our interest-bearing liabilities, thus expanding net interest margin.

We use two primary modeling techniques to assess our exposure to interest rates that simulate the earnings and valuation effects of variations in interest rates: Net Interest Income at Risk or ("NII at ~~Risk,~~Risk") and the Economic Value of Equity ~~or EVE.~~("EVE"). These models require that we use numerous assumptions, including asset and liability pricing and repricing, future growth, prepayment rates, non-maturity deposit sensitivity and decay rates. These assumptions are inherently uncertain and, as a result, the models cannot precisely predict the fluctuations in market interest rates or precisely measure the impact of future changes in interest rates. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.

Stress testing the balance sheet and net interest income using instantaneous parallel shock movements in the yield curve of ~~100~~-400 to ~~400~~+400 basis points is a regulatory and banking industry practice. However, these stress tests may not represent a realistic forecast of future interest rate movements in the yield curve.

Instantaneous parallel interest rate shock modeling is not a predictor of actual future performance of earnings. It is a

financial metric used to manage interest rate risk, implement hedging transactions if the metric rises above policy limits for interest rate risk, and track the movement of the ~~bank’s~~Company's interest rate risk position over a historical time frame for comparison purposes.

Our earnings are a function of collecting both a credit risk premium on our loans and an interest rate risk premium on our balance sheet position. The purpose of these premiums being to diversify our earnings position with both credit risk and interest rate risk, which generally tend to be negatively correlated historically for the ~~bank.~~Company. During weak economic times, ~~such as the financial crisis of 2007-2008,~~ our loan losses ~~were~~have been higher than ~~normal. However, due to~~normal, but the ~~decline in~~Federal Reserve will generally reduce short-term interest rates ~~caused by the Federal Reserve attempting~~in an attempt to stimulate the economy and add ~~liquidity,~~liquidity. As a result, our interest rate spread ~~increased sufficiently to offset the loan losses in our loan portfolio.~~will generally increase during those periods. During strong economic times, when the Federal Reserve raises short-term interest rates to dampen economic activity, the ~~Bank’s~~Company’s interest rate spread decreases. These periods ~~are often~~have historically been indicative of inflation and real property value increases. As such, the decrease in net interest income is typically somewhat offset by ~~little to no~~declining loan losses in our loan portfolio. There is no guarantee, however, that the past countercyclical nature of our loan losses and our net interest spread declines will continue in

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the future.

On a quarterly basis, we measure and report NII at Risk to isolate the change in income related solely to interest-earning assets and interest-bearing liabilities. The following table illustrates the results of our NII at Risk analysis to determine the extent to which our net interest income over the following 12 months would change if prevailing interest rates increased or decreased by the specified amounts at March 31, ~~2018.~~2023. It models instantaneous parallel shifts in market interest rates, implied by the forward yield curve over the next one year period.


Interest Rate Risk to Earnings (NII)	Interest Rate Risk to Earnings (NII)		Interest Rate Risk to Earnings (NII)
March 31, 2018
March 31, 2023			March 31, 2023
(Dollars in millions)	(Dollars in millions)		(Dollars in millions)
Change in Interest Rates (basis points)	$ Change NII	% Change NII	Change in Interest Rates (basis points)	$ Change NII	% Change NII
+400 BP	(35.0)	(27.5)%	+400 BP	$(10.0)	(23.7)%
+300 BP	(22.8)	(18.0)%	+300 BP	(6.1)	(14.3)%
+200 BP	(12.9)	(10.2)%	+200 BP	(3.3)	(7.7)%
+100 BP	(5.9)	(4.6)%	+100 BP	(1.1)	(2.6)%
-100 BP	7.6	5.9%	-100 BP	(0.2)	(0.4)%
-200 BP			-200 BP	(0.2)	(0.5)%
-300 BP			-300 BP	(0.8)	(2.0)%
-400 BP			-400 BP	(1.5)	(3.5)%

The NII at Risk reported at March 31, ~~2018~~2023 reflects that our earnings ~~are~~were in a liability sensitive position in which an increase in ~~short-term~~ interest rates is expected to generate lower net interest income. AtIn addition, a decrease in short-term interest rates is expected to generate slightly lower net interest income because of our current hedge position. During the three months ended March 31, ~~2018 all~~2023, our NII ~~stress tests measures were within~~at Risk decreased in connection with upward interest rate shocks as compared to December 31, 2022 primarily due to a decline in longer-term interest rates, a decrease in the months to repricing of our ~~board established limits.~~loan balances and an increase in the level of our hedge positions, partially offset by slower loan prepayments and lower loan market values.

EVE measures the period end market value of assets minus the market value of liabilities and the change in this value as rates change. The EVE results included in the table below reflect the analysis reviewed monthly by management. It models instantaneous parallel shifts in market interest rates, implied by the forward yield curve. The EVE model calculates the market value of capital by taking the present value of all asset cash flows less the present value of all liability cash flows.


Interest Rate Risk to Capital (EVE)	Interest Rate Risk to Capital (EVE)		Interest Rate Risk to Capital (EVE)
March 31, 2018
March 31, 2023			March 31, 2023
(Dollars in millions)	(Dollars in millions)		(Dollars in millions)
Change in Interest Rates (basis points)	$ Change EVE	% Change EVE	Change in Interest Rates (basis points)	$ Change EVE	% Change EVE
+400 BP	(378.0)	(63.1)%	+400 BP	$(279.4)	(60.6)%
+300 BP	(251.4)	(41.9)%	+300 BP	(184.0)	(39.9)%
+200 BP	(146.9)	(24.5)%	+200 BP	(105.5)	(22.9)%
+100 BP	(63.9)	(10.7)%	+100 BP	(43.6)	(9.5)%
-100 BP	54.1	9.0%	-100 BP	22.7	4.9%
-200 BP			-200 BP	29.0	6.3%
-300 BP			-300 BP	25.6	5.6%
-400 BP			-400 BP	5.9	1.3%

The EVE ~~at Risk~~ reported at March 31, ~~2018~~2023 reflects that our market value of capital iswas in a liability sensitive position in which an increase in ~~short-term~~ interest rates is expected to generate lower market values of capital. AtDuring the three months ended March 31, ~~2018 all~~2023, our EVE ~~stress tests measures were within~~at risk increased as compared to December 31, 2022 primarily due to a decline in longer-term interest rates, a decrease in the months to repricing of our ~~board established limits.~~

loan balances and an increase in the level of our hedge positions, partially offset by slower loan prepayments and lower loan market values.

Certain shortcomings are inherent in the NII at Risk and EVE analyses presented above. Both the NII at Risk and

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EVE simulations include assumptions regarding balances, asset prepayment speeds, deposit repricing and runoff and interest rate relationships among balances that we believe to be reasonable for the various interest rate environments. Differences in actual occurrences from these assumptions, as well as nonparallel changes in the yield curve, may change our market risk exposure. Simulated results are not intended to be used as a forecast of the actual effect of changes in market interest rates on our results, but rather as a means to better plan and execute appropriate interest rate risk strategies.

Hedge Positions

In managing our market risk, our board of directors has authorized the ALCO to utilize long-term borrowings and derivatives, including interest rate caps and swaps, to mitigate ~~on-balance sheet~~ interest rate risk in accordance with regulations and our internal policy. We use or expect to use borrowings, interest rate caps and swaps as macro hedges against ~~inherent~~interest rate sensitivity in our loan portfolio, other interest-earning assets and our interest-bearing liabilities. Positions for hedging purposes are undertaken as mitigation to exposure primarily from mismatches between the repricing of assets and liabilities.

We are currently ~~utilize stand-alone~~utilizing FHLB advances and interest rate ~~caps and FHLB advances with embedded interest rate caps~~swaps to hedge our liability sensitive interest rate risk position. ~~The stand-alone caps~~As of March 31, 2023, the Company maintained 11 interest rate swaps with an aggregate notional amount of $1.8 billion to primarily hedge the interest rate risk associated with both fixed rate loans and hybrid adjustable loans in their fixed rate period. All of our swaps are ~~derivative instruments that have been~~ designated as ~~cash flow~~fair value hedges and involve the payment of a fixed rate amount to a counterparty in exchange for the Company receiving a variable rate ~~borrowings. These~~payment over the life of the swaps without the exchange of the underlying notional amount. The gain or loss on derivatives, as well as the offsetting gain or loss on the hedged items attributable to the hedged risk are recognized in interest income for loans in our unaudited consolidated statements of income. During the three months ended March 31, 2023, the Company recognized an increase in interest income of $8.2 million in connection with interest rate ~~cap agreements are recorded at fair value with changes in fair value reflected in other comprehensive~~swaps compared to a reduction of interest income ~~and~~of $78 thousand during the fair value of these derivatives is recorded on the consolidated balance sheet in other assets and other liabilities. The interest rate caps embedded in FHLB advances do not qualify as derivative contracts. The cost of these contracts is inseparable from the cost of the advances and, as such is included in interest expense in our consolidated statement of operations.three months ended March 31, 2022.

The following table summarizes ~~our two~~ derivative instruments ~~and FHLB borrowings~~ utilized by us as interest rate risk hedge positions as of March 31, ~~2018:~~2023:

March 31, 2018
(Dollars in thousands) Fair Value
Hedging Instrument Hedge Accounting Type Months to Maturity Notional Other Assets Other Liabilities
Interest rate cap Cash Flow Hedge 3
$ 50,000
$ 1
$ —
Interest rate cap Cash Flow Hedge 12
50,000
9
—
FHLB fixed rate advance With embedded cap 15
75,000
—
—
FHLB fixed rate advance With embedded cap 18
75,000
—
—
FHLB fixed rate advance With embedded cap 19
30,000
—
—
FHLB fixed rate advance With embedded cap 19
45,000
—
—
FHLB variable rate advance With embedded cap 22
50,000
—
—
FHLB fixed rate advance With embedded cap 23
50,000
—
—
FHLB fixed rate advance With embedded cap 25
50,000
—
—
FHLB fixed rate advance With embedded cap 35
100,000
—
—
FHLB fixed rate advance With embedded cap 35
50,000
—
—
FHLB fixed rate advance With embedded cap 60
50,000
—
—
$ 675,000
$ 10
$ —


(Dollars in thousands)					Fair Value
Hedging Instrument	Hedge Accounting Type	Months to Maturity	Notional		Other Assets		Other Liabilities
Interest rate swap	Fair value hedge	3	$	300,000	$	3,168	$	—
Interest rate swap	Fair value hedge	12	100,000		2,323		—
Interest rate swap	Fair value hedge	15	100,000		1,755		—
Interest rate swap	Fair value hedge	26	100,000		2,670		—
Interest rate swap	Fair value hedge	35	200,000		—		1,336
Interest rate swap	Fair value hedge	36	100,000		—		1,533
Interest rate swap (1)	Fair value hedge	39	200,000		—		4,209
Interest rate swap	Fair value hedge	53	100,000		1,847		—
Interest rate swap	Fair value hedge	54	200,000		—		2,828
Interest rate swap	Fair value hedge	55	200,000		—		4,055
Interest rate swap (2)	Fair value hedge	61	200,000		—		4,092
			$	1,800,000	$	11,763	$	18,053
(1) Effective date of June 24, 2023
(2) Effective date of April 27, 2023

Counterparty Credit Risk

Derivative contracts involve the risk of dealing with institutional derivative counterparties and their ability to meet contractual terms. Our policies require that counterparties must be approved by our ~~ALCO and all positions over and above the~~ALCO. Additionally, contracts are in place to ensure that minimum transfer amounts and collateral requirements are ~~secured by marketable securities or cash.~~established.

Item 4. Controls and Procedures

Management of the Company, with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness as of March 31, ~~2018,~~2023, of the Company's disclosure controls and

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procedures, as defined in Rules 13a-15(e) and 15(d)-15(e) under the Exchange Act. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective

as of March 31, ~~2018~~2023 in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management of the Company as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

On January 1, 2023, the Company adopted ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology (Allowance for Loan and Leases Losses or "ALLL") with an expected loss methodology that is referred to as the CECL methodology. The Company designed new controls and modified existing controls as part of its adoption. These additional controls over financial reporting included controls around model assumptions and forecasted macroeconomic factors, as well as expanded controls over loan level data. There ~~was~~were no ~~change~~other changes in the ~~Company's~~Company’s internal control over financial reporting that occurred during the ~~Company's last fiscal quarter~~period covered by this report that ~~has~~have materially affected, or isare reasonably likely to materially affect, ~~such controls.~~the Company’s internal control over financial reporting.

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PART II.

Item 1. Legal Proceedings

~~From~~On March 24, 2023, Martin Siegel, a purported Luther Burbank Corporation shareholder, filed and served a putative class action on behalf of our shareholders in the Superior Court for the County of Sonoma, California captioned Siegel v. Lagomarsino, et al. (Case No. SCV-272922). The Siegel complaint alleges that our board of directors breached their fiduciary duty by failing to disclose certain internal projections and other information allegedly underlying the fairness opinion of our financial adviser, Piper Sandler & Co., in connection with our pending merger transaction with Washington Federal, Inc. Following the filing of our Current Report on Form 8-K on April 10, 2023 containing certain supplemental information regarding unaudited prospective financial estimates received and considered by Piper Sandler & Co., Mr. Siegel withdrew his request for a preliminary injunction to require us to disclose the internal projections and other information and to delay our May 4, 2023 shareholders meeting, but reserved the right to seek an award of attorney’s fees and expenses.

In addition, two other purported Luther Burbank Corporation shareholders have filed similar actions in the United States District Court for the Southern District of New York alleging violations of the Securities Exchange Act of 1934, as amended in matters captioned Wang v. Luther Burbank Corporation, et al. (Civil Action No. 23-cv-01949) and O’Dell v. Luther Burbank Corporation, et al. (Civil Action No. 23-cv-1912), and one other purported Luther Burbank Corporation shareholder has filed a similar action in the Superior Court for the County of Sonoma, California captioned Coffman v. Luther Burbank Corporation, et al. (Case No. SCV-273074). None of the plaintiffs have taken any action to serve these actions or otherwise prosecute their claims.

We believe the Siegel complaint and the other complaints are without merit.

In addition to the matters described above, from time to time, we are a party to legal actions that are routine and incidental to our business. ~~Given~~In addition, given the nature, scope and complexity of the extensive legal and regulatory landscape applicable to our business, ~~including laws and regulations governing consumer protections, fair lending, fair labor, privacy, information security and anti-money laundering and anti-terrorism laws,~~ we, like all banking organizations, are subject to heightened ~~legal and~~ regulatory compliance and ~~litigation~~legal risk. However, based ~~upon~~on available information, ~~and in consultation with legal counsel,~~ management does not expect the ultimate disposition of any or a combination of these actions, including those described above, to have a material adverse effect on our business, ~~prospects,~~ financial condition ~~liquidity,~~or results of ~~operation, cash flows or capital levels.~~operations.

Item 1A. Risk Factors

There ~~were~~have been no material changes from the risks disclosed in the Risk Factors section of the Company's Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2022, other than as described below.

Recent negative developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the banking system. The recent high-profile bank failures involving Silicon Valley Bank, Signature Bank and First Republic Bank, among other recent events within the banking industry, and responses to them, have generated significant market volatility among publicly traded bank holding companies and, in particular, banks like the Company. These market developments have negatively impacted customer confidence in the safety and soundness of certain banks. As a result, customers may choose, and some of our customers have chosen, to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations. While the Department of the Treasury, the Federal Reserve, and the FDIC have made statements ensuring that depositors of these recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in banks and the banking system more broadly. In addition, the banking operating environment and public trading prices of banking institutions can be highly correlated, in particular during times of stress, which could adversely impact the trading prices of our common stock and potentially our results of operations. Additional bank failures or other events that erode confidence in the banking industry, or in community banks, or our bank specifically, could quickly escalate and have consequences that we may not be able to adequately predict or mitigate and may also exacerbate the “Risk Factors” discussed in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no repurchases or unregistered sales of the Company’s stock during the quarter.

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Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6.Exhibits

Incorporated by Reference

Exhibit Number

Description

Filed Herewith

Form

File No.

Exhibit

Filing Date

2.1

Agreement and Plan of Reorganization, dated November 13, 2022, by and between Washington Federal, Inc. and Luther Burbank Corporation*

8-K

001-38317

2.1

11/14/2022

3.1

Amended and Restated Articles of Incorporation of Luther Burbank Corporation

S-1

333-221455

3.1

11/9/2017

3.2

Amended and Restated Bylaws of Luther Burbank Corporation

8-K

001-38317

3.1

4/27/2018

4.1

Specimen Certificate for Common Stock

S-1

333-221455

4.1

11/9/2017

Pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K, copies of instruments defining the rights of holders of long-term debt and preferred securities are not filed. The Company agrees to furnish a copy thereof to the SEC upon request.

31.1

Rule 13a-14(a) Certification of Chief Executive Officer

31.2

Rule 13a-14(a) Certification of Chief Financial Office r

32.1

Section 1350 Certification of Chief Executive Officer

32.2

Section 1350 Certification of Chief Financial Officer

101.INS

XBRL 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.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definitions Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule will be furnished supplementally to the SEC upon request; provided, however, that the parties may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any document so furnished.



~~Exhibit Number~~	~~Description~~

~~3.1~~	~~Amended and Restated Bylaws of Luther Burbank Corporation (incorporated by reference to Exhibit 3.1 to the Current Report filed on Form 8-K by Luther Burbank Corporation on April 27, 2018)~~ Table of Contents
~~31.1~~	Rule 13a-14(a) Certification of Chief Executive Officer*
~~31.2~~	Rule 13a-14(a) Certification of Chief Financial Officer*
~~32.1~~	Section 1350 Certification of Chief Executive Officer*
~~32.2~~	Section 1350 Certification of Chief Financial Officer*
~~101~~	Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2018 is formatted in XBRL (Extensible Business Reporting Language) interactive data files: (i) the Consolidated Statements of Financial Condition (Unaudited), (ii) the Consolidated Statements of Income (Unaudited), (iii) the Consolidated Statements of Comprehensive Income (Unaudited), (iv) the Consolidated Statements of Changes in Stockholders' Equity (Unaudited), (v) the Consolidated Statements of Cash Flows (Unaudited), and (vi) the Notes to Unaudited Condensed Consolidated Financial Statements.
* Filed herewith

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.


		LUTHER BURBANK CORPORATION

DATED:	MAY 5, 2023	By: /s/ Simone Lagomarsino
		Simone Lagomarsino
		President and Chief Executive Officer

DATED:	MAY 5, 2023	By: /s/ Laura Tarantino
		Laura Tarantino
		Executive Vice President and Chief Financial Officer

~~LUTHER BURBANK CORPORATION~~

~~DATED: MAY 10, 2018 By:~~ ~~/s/ John G. Biggs~~

~~John G. Biggs~~

~~President and Chief Executive Officer~~

~~DATED: MAY 10, 2018 By:~~ ~~/s/ Laura Tarantino~~

~~Laura Tarantino~~

~~Executive Vice President and Chief Financial Officer~~



	March 31, 2018 (unaudited)			December 31, 2017
ASSETS

Cash and cash equivalents	$	74,421		$	75,578
Available for sale investment securities, at fair value	538,440			503,288
Held to maturity investment securities, at amortized cost (fair value of $12,013 and $6,925 at March 31, 2018 and December 31, 2017, respectively)	12,237			6,921
Loans receivable, net of allowance for loan losses of $31,980 and $30,312 as of March 31, 2018 and December 31,2017, respectively	5,294,429			5,011,235
Accrued interest receivable	16,137			14,901
Federal Home Loan Bank ("FHLB") stock, at cost	33,023			27,733
Premises and equipment, net	21,862			22,452
Goodwill	3,297			3,297
Prepaid expenses and other assets	40,042			38,975

Total assets	$	6,033,888		$	5,704,380

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits	$	4,114,026		$	3,951,238
Federal Home Loan Bank advances	1,158,153			989,260
Junior subordinated deferrable interest debentures	61,857			61,857
Senior debt
$95,000 face amount, 6.5% interest rate, due September 30, 2024 (less debt issuance costs of $805 and $839 at March 31, 2018 and December 31, 2017, respectively)	94,195			94,161
Accrued interest payable	2,329			1,781
Other liabilities and accrued expenses	49,577			56,338

Total liabilities	5,480,137			5,154,635

Commitments and contingencies (Note 17)

Stockholders' equity:
Common stock, no par value; 100,000,000 shares authorized; 56,561,055 and 56,422,662 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively	455,251			454,287
Retained earnings	105,750			102,459
Accumulated other comprehensive loss, net of taxes	(7,250		)	(7,001		)

Total stockholders' equity	553,751			549,745

Total liabilities and stockholders' equity	$	6,033,888		$	5,704,380



	March 31, 2018			December 31, 2017
Permanent mortgages on:
Multifamily residential	$	3,076,356		$	2,887,438
Single family residential	2,042,624			1,957,546
Commercial real estate	125,445			112,492
Construction and land loans on:
Single family residential	36,320			41,165
Non-Mortgage (‘‘NM’’) loans:	100			50
Total	5,280,845			4,998,691
Deferred loan costs, net	45,564			42,856
Allowance for loan losses	(31,980		)	(30,312		)
Loans receivable held for investment, net	$	5,294,429		$	5,011,235



	March 31, 2018
	30 Days		60 Days		90+ Days		Non-accrual		Current		Total
Loans:
Multifamily residential	$	—	$	—	$	—	$	1,564	$	3,074,792	$	3,076,356
Single family residential	2,841		—		—		5,397		2,034,386		2,042,624
Commercial real estate	—		2,104		—		—		123,341		125,445
Land, NM, and construction	—		—		—		—		36,420		36,420
Total	$	2,841	$	2,104	$	—	$	6,961	$	5,268,939	$	5,280,845



	March 31, 2018		December 31, 2017
Non-accrual loans:
Multifamily residential	$	1,564	$	2,246
Single family residential	5,397		4,135
Commercial real estate	—		656
Total non-accrual loans	6,961		7,037
Real estate owned	—		—
Total nonperforming assets	$	6,961	$	7,037
Contractual interest not accrued during the quarter	$	12	$	10



	March 31, 2018		December 31, 2017
Certificate accounts	$	2,398,698	$	2,242,682
Money market savings	1,407,825		1,389,425
NOW accounts	196,767		203,159
Money market checking	81,893		85,073
Commercial checking	28,843		30,899
	$	4,114,026	$	3,951,238



April 1 - December 31, 2018	$	1,467,831
Year ending December 31, 2019	560,064
Year ending December 31, 2020	278,666
Year ending December 31, 2021	51,750
Year ending December 31, 2022	35,530
Thereafter	4,857
	$	2,398,698



	March 31, 2018		December 31, 2017
FHLB fixed rate short-term borrowings, interest rates from 1.78% to 1.94%, weighted average rate of 1.90%, and maturity dates of April and June 2018 as of March 31, 2018	$	480,500	$	411,600
FHLB fixed rate long-term borrowings, interest rates from 1.55% to 7.69%, weighted average rate of 2.09%, maturity dates between July 2018 and August 2032 as of March 31, 2018	527,653		427,660
FHLB variable rate long-term borrowings, interest rates from 1.68% to 1.89%, weighted average rate of 1.82%, and maturity dates between July 2018 and January 2020 as of March 31, 2018	150,000		150,000
	$	1,158,153	$	989,260



	Actual				Minimum Regulatory Requirement				Minimum Capital Adequacy with Capital Buffer				Minimum Regulatory Requirement for "Well- Capitalized" Institution under prompt corrective action provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount	Ratio
Luther Burbank Corporation
As of March 31, 2018
Tier 1 Leverage Ratio	$	619,209	10.57	%	$	241,612	4.00	%	N/A		N/A		N/A	N/A
Common Equity Tier 1 Risk-Based Ratio	557,352		15.55	%	161,342		4.50	%	$	228,568	6.38	%	N/A	N/A
Tier 1 Risk-Based Capital Ratio	619,209		17.27	%	215,123		6.00	%	282,348		7.88	%	N/A	N/A
Total Risk-Based Capital Ratio	653,367		18.22	%	286,830		8.00	%	354,056		9.88	%	N/A	N/A
As of December 31, 2017
Tier 1 Leverage Ratio	$	615,010	11.26	%	$	218,499	4.00	%	N/A		N/A		N/A	N/A
Common Equity Tier 1 Risk-Based Ratio	553,153		16.05	%	155,107		4.50	%	$	198,192	5.75	%	N/A	N/A
Tier 1 Risk-Based Capital Ratio	615,010		17.84	%	206,809		6.00	%	249,894		7.25	%	N/A	N/A
Total Risk-Based Capital Ratio	647,421		18.78	%	275,746		8.00	%	318,831		9.25	%	N/A	N/A



	March 31, 2018			December 31, 2017
Notional amounts	$	100,000		$	100,000
Weighted average rate on FHLB advances	1.78		%	1.42		%
Weighted average cap rate	2.55		%	2.55		%
Weighted average original maturity	4.0 years			4.0 years
Weighted average remaining maturity	0.6 years			0.9 years
Unrealized losses	$	(614	)	$	(796	)



	Three Months Ended March 31,
(In thousands)	2018		2017
Proceeds from loan sales	$	—	$	24,691
Servicing fees	407		108



April 1 - December 31, 2018	$	4,021
Year ending December 31, 2019	5,117
Year ending December 31, 2020	3,723
Year ending December 31, 2021	3,267
Year ending December 31, 2022	2,419
Thereafter	1,864
	$	20,411



Loan Type	Number of Mortgage Loans	Principal Balance (1)(2)		Percentage of Mortgage Pool Balance		Weighted Average Mortgage Rate (2)		Loan to Value Ratio (2)		Debt Service Coverage Ratio (2)
Post-Reset Hybrid Loans	65	$	91,552	14.6	%	3.66	%	53.2	%	1.88
Pre-Reset Hybrid Loans (3)	237	415,628		66.4		3.39		54.2		1.67
Pre-Reset Hybrid Loans (4)	70	118,880		19.0		3.51		46.5		1.70
Total	372	$	626,060	100.0	%	3.45	%	52.6	%	1.71



	Three Months Ended
	March 31, 2018						March 31, 2017
(Dollars in thousands)	Average Amount		Weighted average rate paid		Percent of total deposits		Average Amount		Weighted average rate paid		Percent of total deposits
Transaction accounts (1)	$	224,674	0.72	%	5.6	%	$	205,712	0.68	%	5.9	%
Money market demand accounts	1,507,614		0.88	%	37.6	%	1,545,433		0.76	%	44.6	%
Time deposits	2,274,818		1.44	%	56.8	%	1,716,304		1.18	%	49.5	%
	$	4,007,106	1.19	%	100.0	%	$	3,467,449	0.96	%	100.0	%
(1) Transaction accounts include both interest bearing and non-interest bearing deposits.



(in thousands except for column headings and percentages)	Under $100,000			$100,000 and greater
Remaining maturity:
Three months or less	$	59,250		$	691,822
Over three through six months	54,643			322,565
Over six through twelve months	109,132			558,155
Over twelve months	106,456			496,675
Total	$	329,481		$	2,069,217
Percent of total deposits	8.01		%	50.30		%