UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-38317

Luther Burbank Corporation

(Exact name of registrant as specified in its charter)


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 x No o

Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes 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. See definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☒

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 ~~August 1,~~October 31, 2022, there were ~~51,074,871~~51,074,605 shares of the registrant’s common stock, no par value, outstanding.

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		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	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	9
	Notes to Unaudited Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	60
Item 4.	Controls and Procedures	63
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	64
Item 1A.	Risk Factors	64
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 3.	Defaults Upon Senior Securities	64
Item 4.	Mine Safety Disclosures	64
Item 5.	Other Information	64
Item 6.	Exhibits	65
	Signatures	66

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Cautionary Statements Regarding Forward-Looking Information

This 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, 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 be identified by the fact that they do not relate strictly to historical or current facts and may be identified by use of words such as "anticipate," "believe," “continue,” "could," "estimate," "expect," “impact,” "intend," "seek," "may," "outlook," "plan," "potential," "predict," "project," "should," "will," "would" and similar terms and phrases, including references to assumptions. These forward-looking statements are based on 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:

•~~the ongoing and dynamic nature of the COVID-19 pandemic and the impact of actions to mitigate any continuing effects from the COVID-19 pandemic;~~

•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, supply chain disruptions, or turbulence in domestic or foreign financial markets;

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

•the occurrence of significant natural or man-made disasters, including fires, earthquakes and terrorist acts, as well as public health issues and other adverse external events that could harm our business;

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

•our management of risks inherent in our real estate loan portfolio, and the risk of a prolonged downturn in the real estate market, which could impair the value of our collateral and our ability to sell collateral upon any foreclosure;

•our ability to ~~achieve organic loan~~retain deposits and ~~deposit growth~~attract new deposits and loans and the composition and terms of such ~~growth;~~deposits and loans;

•the fiscal position of the U.S. and the soundness of other financial institutions;

•changes in consumer spending and savings habits;

•technological changes;

•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;

•increased competition in the financial services industry;

•changes in the level of our nonperforming assets and charge-offs;

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

•the composition of our management team and our ability to attract and retain key personnel;

•material weaknesses in our internal control over financial reporting;

•systems failures or interruptions involving our information technology and telecommunications systems;

•potential exposure to fraud, negligence, data breaches, computer theft and cyber-crime;

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

•the effect of changes in accounting policies and practices or accounting standards, as may be adopted from time-to-time by bank regulatory agencies, the U.S. Securities and Exchange Commission ("SEC"), the Public Company Accounting Oversight Board, the Financial Accounting Standards Board ("FASB") or other accounting standards setters, including ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments,” commonly referenced as the Current Expected Credit Loss (“~~CECL��~~CECL”) model, which will change how we estimate credit losses and may increase the required level of our allowance for credit losses after adoption on January 1, 2023; ~~and~~

•political instability or the effects of war or other conflicts, including, but not limited to, the current conflict between Russia and ~~Ukraine.~~Ukraine; and

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•public health crises and pandemics, including the COVID-19 pandemic, and their effects on the economic and business environments in which we operate, including on our credit quality and business operations, as well as the impact on general economic and financial market conditions.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in our annual report on Form 10-K for the year ended December 31, 2021, including under the caption “Risk Factors” in Item 1A of Part I, subsequent Quarterly Reports on Form 10-Q and other reports we file with the SEC. You should not place undue reliance on any of these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

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PART I.

Item 1. Financial Statements

LUTHER BURBANK CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollar amounts in thousands)


		June 30, 2022 (unaudited)		December 31, 2021			September 30, 2022 (unaudited)		December 31, 2021
ASSETS	ASSETS					ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	86,548	$	138,413	Cash and cash equivalents	$	256,658	$	138,413

Available for sale debt securities, at fair value	Available for sale debt securities, at fair value	661,432		647,317		Available for sale debt securities, at fair value	640,473		647,317
Held to maturity debt securities, at amortized cost (fair value of $3,067 and $4,018 at June 30, 2022 and December 31, 2021, respectively)		3,162		3,829
Held to maturity debt securities, at amortized cost (fair value of $2,845 and $4,018 at September 30, 2022 and December 31, 2021, respectively)						Held to maturity debt securities, at amortized cost (fair value of $2,845 and $4,018 at September 30, 2022 and December 31, 2021, respectively)	3,135		3,829
Equity securities, at fair value	Equity securities, at fair value	10,772		11,693		Equity securities, at fair value	10,317		11,693

Loans receivable, net of allowance for loan losses of $35,535 and $35,535 at June 30, 2022 and December 31, 2021, respectively		6,602,294		6,261,885
Loans receivable, net of allowance for loan losses of $36,035 and $35,535 at September 30, 2022 and December 31, 2021, respectively						Loans receivable, net of allowance for loan losses of $36,035 and $35,535 at September 30, 2022 and December 31, 2021, respectively	6,818,420		6,261,885
Accrued interest receivable	Accrued interest receivable	19,297		17,761		Accrued interest receivable	21,011		17,761
Federal Home Loan Bank ("FHLB") stock, at cost	Federal Home Loan Bank ("FHLB") stock, at cost	27,874		23,411		Federal Home Loan Bank ("FHLB") stock, at cost	32,694		23,411
Premises and equipment, net	Premises and equipment, net	14,969		16,090		Premises and equipment, net	14,260		16,090
Goodwill	Goodwill	3,297		3,297		Goodwill	3,297		3,297
Prepaid expenses and other assets	Prepaid expenses and other assets	100,871		56,261		Prepaid expenses and other assets	121,319		56,261
Total assets	Total assets	$	7,530,516	$	7,179,957	Total assets	$	7,921,584	$	7,179,957

LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:	Liabilities:					Liabilities:
Deposits	Deposits	$	5,668,759	$	5,538,243	Deposits	$	5,794,380	$	5,538,243
FHLB advances	FHLB advances	954,947		751,647		FHLB advances	1,201,647		751,647
Junior subordinated deferrable interest debentures	Junior subordinated deferrable interest debentures	61,857		61,857		Junior subordinated deferrable interest debentures	61,857		61,857
Senior debt	Senior debt					Senior debt
$95,000 face amount, 6.5% interest rate, due September 30, 2024 (less debt issuance costs of $276 and $338 at June 30, 2022 and December 31, 2021, respectively)		94,724		94,662
$95,000 face amount, 6.5% interest rate, due September 30, 2024 (less debt issuance costs of $246 and $338 at September 30, 2022 and December 31, 2021, respectively)						$95,000 face amount, 6.5% interest rate, due September 30, 2024 (less debt issuance costs of $246 and $338 at September 30, 2022 and December 31, 2021, respectively)	94,754		94,662
Accrued interest payable	Accrued interest payable	276		118		Accrued interest payable	950		118
Other liabilities and accrued expenses	Other liabilities and accrued expenses	78,331		64,297		Other liabilities and accrued expenses	91,327		64,297
Total liabilities	Total liabilities	6,858,894		6,510,824		Total liabilities	7,244,915		6,510,824

Commitments and contingencies (Note 16)	Commitments and contingencies (Note 16)	0		0		Commitments and contingencies (Note 16)

Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized; none issued and outstanding at June 30, 2022 and December 31, 2021, respectively		—		—
Common stock, no par value; 100,000,000 shares authorized; 51,063,498 and 51,682,398 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		397,620		406,904
Preferred stock, no par value; 5,000,000 shares authorized; none issued and outstanding at September 30, 2022 and December 31, 2021, respectively						Preferred stock, no par value; 5,000,000 shares authorized; none issued and outstanding at September 30, 2022 and December 31, 2021, respectively	—		—
Common stock, no par value; 100,000,000 shares authorized; 51,074,605 and 51,682,398 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively						Common stock, no par value; 100,000,000 shares authorized; 51,074,605 and 51,682,398 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	398,325		406,904
Retained earnings	Retained earnings	295,297		262,141		Retained earnings	310,160		262,141
Accumulated other comprehensive (loss) income, net of taxes	Accumulated other comprehensive (loss) income, net of taxes	(21,295)		88		Accumulated other comprehensive (loss) income, net of taxes	(31,816)		88
Total stockholders' equity	Total stockholders' equity	671,622		669,133		Total stockholders' equity	676,669		669,133
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	7,530,516	$	7,179,957	Total liabilities and stockholders' equity	$	7,921,584	$	7,179,957

See accompanying notes to unaudited consolidated financial statements

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LUTHER BURBANK CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollar amounts in thousands, except per share data)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Interest and fee income:	Interest and fee income:									Interest and fee income:
Loans	Loans	$	56,912	$	54,191	$	110,545	$	108,249	Loans	$	62,366	$	55,757	$	172,911	$	164,006
Investment securities	Investment securities	2,863		2,091		5,163		4,074		Investment securities	4,127		2,213		9,290		6,287
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	198		34		265		84		Cash, cash equivalents and restricted cash	547		78		812		162
Total interest and fee income	Total interest and fee income	59,973		56,316		115,973		112,407		Total interest and fee income	67,040		58,048		183,013		170,455
Interest expense:	Interest expense:									Interest expense:
Deposits	Deposits	6,913		9,749		12,933		21,355		Deposits	14,085		7,535		27,018		28,890
FHLB advances	FHLB advances	3,628		3,839		6,725		7,772		FHLB advances	5,346		3,573		12,071		11,345
Junior subordinated deferrable interest debentures	Junior subordinated deferrable interest debentures	385		255		660		514		Junior subordinated deferrable interest debentures	560		250		1,220		763
Senior debt	Senior debt	1,575		1,574		3,149		3,148		Senior debt	1,575		1,574		4,724		4,723
Total interest expense	Total interest expense	12,501		15,417		23,467		32,789		Total interest expense	21,566		12,932		45,033		45,721
Net interest income before provision for loan losses	Net interest income before provision for loan losses	47,472		40,899		92,506		79,618		Net interest income before provision for loan losses	45,474		45,116		137,980		124,734
Provision for (reversal of) loan losses	Provision for (reversal of) loan losses	2,500		(2,500)		—		(5,000)		Provision for (reversal of) loan losses	500		(4,000)		500		(9,000)
Net interest income after provision for loan losses	Net interest income after provision for loan losses	44,972		43,399		92,506		84,618		Net interest income after provision for loan losses	44,974		49,116		137,480		133,734
Noninterest income:	Noninterest income:									Noninterest income:

FHLB dividends	FHLB dividends	342		371		696		738		FHLB dividends	363		407		1,059		1,145
Other income	Other income	20		139		(276)		81		Other income	(94)		24		(370)		105
Total noninterest income	Total noninterest income	362		510		420		819		Total noninterest income	269		431		689		1,250
Noninterest expense:	Noninterest expense:									Noninterest expense:
Compensation and related benefits	Compensation and related benefits	7,070		8,641		17,289		19,021		Compensation and related benefits	8,857		9,596		26,146		28,617
Deposit insurance premium	Deposit insurance premium	479		467		960		939		Deposit insurance premium	508		492		1,468		1,431
Professional and regulatory fees	Professional and regulatory fees	634		614		1,173		1,098		Professional and regulatory fees	639		445		1,812		1,543
Occupancy	Occupancy	1,197		1,257		2,391		2,472		Occupancy	1,199		1,263		3,590		3,735
Depreciation and amortization	Depreciation and amortization	746		678		1,349		1,333		Depreciation and amortization	806		625		2,155		1,958
Data processing	Data processing	1,007		873		1,995		1,846		Data processing	1,044		883		3,039		2,729
Marketing	Marketing	525		235		983		527		Marketing	1,211		380		2,194		907
Other expenses	Other expenses	1,667		1,115		2,697		2,048		Other expenses	1,112		951		3,809		2,999
Total noninterest expense	Total noninterest expense	13,325		13,880		28,837		29,284		Total noninterest expense	15,376		14,635		44,213		43,919
Income before provision for income taxes	Income before provision for income taxes	32,009		30,029		64,089		56,153		Income before provision for income taxes	29,867		34,912		93,956		91,065
Provision for income taxes	Provision for income taxes	9,442		8,813		18,582		16,526		Provision for income taxes	8,865		10,169		27,447		26,695
Net income	Net income	$	22,567	$	21,216	$	45,507	$	39,627	Net income	$	21,002	$	24,743	$	66,509	$	64,370

Basic earnings per common share	Basic earnings per common share	$	0.44	$	0.41	$	0.89	$	0.76	Basic earnings per common share	$	0.41	$	0.48	$	1.31	$	1.25
Diluted earnings per common share	Diluted earnings per common share	$	0.44	$	0.41	$	0.89	$	0.76	Diluted earnings per common share	$	0.41	$	0.48	$	1.30	$	1.24
Dividends per common share	Dividends per common share	$	0.12	$	0.06	$	0.24	$	0.12	Dividends per common share	$	0.12	$	0.12	$	0.36	$	0.24

See accompanying notes to unaudited consolidated financial statements

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LUTHER BURBANK CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Dollar amounts in thousands)

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Net income $ 22,567 $ 21,216 $ 45,507 $ 39,627
Other comprehensive (loss) income:
Unrealized (loss) gain on available for sale debt securities:
Unrealized holding (loss) gain arising during the period (13,150) 512 (30,115) (3,303)
Tax effect 3,813 (150) 8,732 959
Total other comprehensive (loss) income, net of tax (9,337) 362 (21,383) (2,344)
Comprehensive income $ 13,230 $ 21,578 $ 24,124 $ 37,283


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	21,002	$	24,743	$	66,509	$	64,370
Other comprehensive loss:
Unrealized loss on available for sale debt securities:
Unrealized holding loss arising during the period	(14,855)		(2,482)		(44,970)		(5,785)

Tax effect	4,334		722		13,066		1,681
Total other comprehensive loss, net of tax	(10,521)		(1,760)		(31,904)		(4,104)





Comprehensive income	$	10,481	$	22,983	$	34,605	$	60,266

See accompanying notes to unaudited consolidated financial statements

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LUTHER BURBANK CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE THREE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2022 AND 2021 (UNAUDITED)

(Dollar amounts in thousands, except per share data)


									Accumulated Other Comprehensive Income (Loss) (Net of Taxes)					Total Stockholders' Equity														Accumulated Other Comprehensive Income (Loss) (Net of Taxes)				Total Stockholders' Equity
		Common Stock			Retained Earnings				Available for Sale Securities								Common Stock								Retained Earnings			Available for Sale Securities			Total Stockholders' Equity
		Shares	Amount										Shares					Amount				Retained Earnings		Available for Sale Securities
Balance, March 31, 2021		52,231,912	$	411,702			$	208,236			$	4,031								$	623,969

Net income		—	—		21,216				—						21,216
Other comprehensive income		—	—		—				362						362

Restricted stock award grants		6,395	—		—				—						—

Stock based compensation expense		—	651		—				—						651
Shares repurchased		(376,603)	(4,493)		—				—						(4,493)
Cash dividends ($0.06 per share)		—	—		(3,006)				—						(3,006)
Balance, June 30, 2021	Balance, June 30, 2021	51,861,704	$	407,860	$	226,446			$	4,393					$	638,699		Balance, June 30, 2021	51,861,704				$	407,860		$	226,446		$	4,393					$	638,699

Balance, March 31, 2022		51,403,914	$	401,102	$	278,856			$	(11,958)					$	668,000

Net income	Net income	—	—		22,567				—						22,567			Net income	—				—			24,743			—				24,743
Other comprehensive loss	Other comprehensive loss	—	—		—				(9,337)						(9,337)			Other comprehensive loss	—				—			—			(1,760)				(1,760)

Restricted stock forfeitures	Restricted stock forfeitures	(33,739)	(67)		12				—						(55)			Restricted stock forfeitures	(1,332)				(5)			—			—				(5)
Stock based compensation expense	Stock based compensation expense	—	683		—				—						683			Stock based compensation expense	—				650			—			—				650
Shares repurchased	Shares repurchased	(306,677)	(4,098)		—				—						(4,098)			Shares repurchased	(177,768)				(2,174)			—			—				(2,174)
Cash dividends ($0.12 per share)	Cash dividends ($0.12 per share)	—	—		(6,138)				—						(6,138)			Cash dividends ($0.12 per share)	—				—			(6,217)			—				(6,217)
Balance, September 30, 2021																		Balance, September 30, 2021	51,682,604				$	406,331		$	244,972		$	2,633			$	653,936

Balance, June 30, 2022	Balance, June 30, 2022	51,063,498	$	397,620	$	295,297			$	(21,295)					$	671,622		Balance, June 30, 2022	51,063,498				$	397,620		$	295,297		$	(21,295)			$	671,622

Net income																		Net income	—				—			21,002			—				21,002
Other comprehensive loss																		Other comprehensive loss	—				—			—			(10,521)				(10,521)
Restricted stock award grants																		Restricted stock award grants	11,373				—			—			—				—
Settled restricted stock units																		Settled restricted stock units	3,502				—			—			—				—
Shares withheld to pay taxes on stock based compensation																		Shares withheld to pay taxes on stock based compensation	(3,768)				(51)			—			—				(51)

Stock based compensation expense																		Stock based compensation expense	—				756			—			—				756

Cash dividends ($0.12 per share)																		Cash dividends ($0.12 per share)	—				—			(6,139)			—				(6,139)
Balance, September 30, 2022																		Balance, September 30, 2022	51,074,605				$	398,325		$	310,160		$	(31,816)			$	676,669

See accompanying notes to unaudited consolidated financial statements

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LUTHER BURBANK CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2022 AND 2021 (UNAUDITED)

(Dollar amounts in thousands, except per share data)


									Accumulated Other Comprehensive Income (Loss) (Net of Taxes)			Total Stockholders' Equity																Accumulated Other Comprehensive Income (Loss) (Net of Taxes)			Total Stockholders' Equity
		Common Stock			Retained Earnings				Available for Sale Securities									Common Stock									Retained Earnings						Total Stockholders' Equity
		Shares	Amount								Total Stockholders' Equity				Shares					Amount					Retained Earnings			Available for Sale Securities
Balance, December 31, 2020	Balance, December 31, 2020	52,220,266	$	414,120			$	192,834					$	6,737							$	613,691		Balance, December 31, 2020			52,220,266				$	414,120		$	192,834	$	6,737				$	613,691

Net income	Net income	—	—		39,627				—										39,627		Net income		—				—			64,370			—							64,370
Other comprehensive loss	Other comprehensive loss	—	—		—				(2,344)							(2,344)			Other comprehensive loss	—					—			—			(4,104)							(4,104)

Restricted stock award grants	Restricted stock award grants	289,473	—		—				—							—			Restricted stock award grants	289,473					—			—			—							—
Settled restricted stock units	Settled restricted stock units	68,873	—		—				—							—			Settled restricted stock units	68,873					—			—			—							—
Shares withheld to pay taxes on stock based compensation	Shares withheld to pay taxes on stock based compensation	(85,825)	(901)		—				—							(901)			Shares withheld to pay taxes on stock based compensation	(85,825)					(901)			—			—							(901)
Restricted stock forfeitures	Restricted stock forfeitures	(52,798)	(67)		13				—							(54)			Restricted stock forfeitures	(54,130)					(72)			14			—							(58)
Stock based compensation expense	Stock based compensation expense	—	1,301		—				—							1,301			Stock based compensation expense	—					1,952			—			—							1,952
Shares repurchased	Shares repurchased	(578,285)	(6,593)		—				—							(6,593)			Shares repurchased	(756,053)					(8,768)			—			—							(8,768)
Cash dividends ($0.12 per share)		—	—		(6,028)				—							(6,028)
Balance, June 30, 2021		51,861,704	$	407,860	$	226,446			$	4,393						$	638,699
Cash dividends ($0.24 per share)																			Cash dividends ($0.24 per share)	—					—			(12,246)			—							(12,246)
Balance, September 30, 2021																			Balance, September 30, 2021	51,682,604					$	406,331		$	244,972		$	2,633						$	653,936

Balance, December 31, 2021	Balance, December 31, 2021	51,682,398	$	406,904	$	262,141			$	88						$	669,133		Balance, December 31, 2021	51,682,398					$	406,904		$	262,141		$	88						$	669,133

Net income	Net income	—	—		45,507				—							45,507			Net income	—					—			66,509			—							66,509
Other comprehensive loss	Other comprehensive loss	—	—		—				(21,383)							(21,383)			Other comprehensive loss	—					—			—			(31,904)							(31,904)
Restricted stock award grants	Restricted stock award grants	206,675	—		—				—							—			Restricted stock award grants	218,048					—			—			—							—
Settled restricted stock units	Settled restricted stock units	6,759	—		—				—							—			Settled restricted stock units	10,261					—			—			—							—
Shares withheld to pay taxes on stock based compensation	Shares withheld to pay taxes on stock based compensation	(62,422)	(875)		—				—							(875)			Shares withheld to pay taxes on stock based compensation	(66,190)					(926)			—			—							(926)
Restricted stock forfeitures	Restricted stock forfeitures	(37,839)	(71)		14				—							(57)			Restricted stock forfeitures	(37,839)					(71)			14			—							(57)
Stock based compensation expense	Stock based compensation expense	—	1,396		—				—							1,396			Stock based compensation expense	—					2,152			—			—							2,152
Shares repurchased	Shares repurchased	(732,073)	(9,734)		—				—							(9,734)			Shares repurchased	(732,073)					(9,734)			—			—							(9,734)
Cash dividends ($0.24 per share)		—	—		(12,365)				—							(12,365)
Balance, June 30, 2022		51,063,498	$	397,620	$	295,297			$	(21,295)						$	671,622
Cash dividends ($0.36 per share)																			Cash dividends ($0.36 per share)	—					—			(18,504)			—							(18,504)
Balance, September 30, 2022																			Balance, September 30, 2022	51,074,605					$	398,325		$	310,160		$	(31,816)						$	676,669

See accompanying notes to unaudited consolidated financial statements

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LUTHER BURBANK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollar amounts in thousands)


		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	45,507	$	39,627	Net income	$	66,509	$	64,370
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	1,349		1,333		Depreciation and amortization	2,155		1,958
Provision for (reversal of) loan losses	Provision for (reversal of) loan losses	—		(5,000)		Provision for (reversal of) loan losses	500		(9,000)
Amortization of deferred loan costs, net	Amortization of deferred loan costs, net	8,815		9,831		Amortization of deferred loan costs, net	11,173		15,035
Amortization of premiums on investment securities, net	Amortization of premiums on investment securities, net	528		1,225		Amortization of premiums on investment securities, net	552		1,698

Stock based compensation expense, net of forfeitures	Stock based compensation expense, net of forfeitures	1,325		1,234		Stock based compensation expense, net of forfeitures	2,081		1,880

Change in fair value of mortgage servicing rights	Change in fair value of mortgage servicing rights	136		407		Change in fair value of mortgage servicing rights	190		639
Change in fair value of equity securities	Change in fair value of equity securities	921		178		Change in fair value of equity securities	1,376		233

Other items, net	Other items, net	110		100		Other items, net	217		125
Effect of changes in:	Effect of changes in:					Effect of changes in:
Accrued interest receivable	Accrued interest receivable	(1,536)		(114)		Accrued interest receivable	(3,250)		(94)
Accrued interest payable	Accrued interest payable	158		(861)		Accrued interest payable	832		(1,211)
Prepaid expenses and other assets	Prepaid expenses and other assets	(5,798)		2,539		Prepaid expenses and other assets	(12,653)		(1,920)
Other liabilities and accrued expenses	Other liabilities and accrued expenses	(3,049)		(5,928)		Other liabilities and accrued expenses	11,483		11,804
Net cash provided by operating activities	Net cash provided by operating activities	48,466		44,571		Net cash provided by operating activities	81,165		85,517
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Proceeds from maturities, paydowns and calls of available for sale debt securities	Proceeds from maturities, paydowns and calls of available for sale debt securities	72,742		71,218		Proceeds from maturities, paydowns and calls of available for sale debt securities	108,908		109,718
Proceeds from maturities and paydowns of held to maturity debt securities	Proceeds from maturities and paydowns of held to maturity debt securities	659		3,070		Proceeds from maturities and paydowns of held to maturity debt securities	684		3,234

Purchases of available for sale debt securities	Purchases of available for sale debt securities	(117,494)		(135,200)		Purchases of available for sale debt securities	(147,578)		(176,200)

Net increase in loans receivable	Net increase in loans receivable	(362,403)		(123,673)		Net increase in loans receivable	(592,313)		(31,251)

Proceeds from sale of loans						Proceeds from sale of loans	—		1,731
Purchase of loans, including discounts/premiums	Purchase of loans, including discounts/premiums	—		(286,917)		Purchase of loans, including discounts/premiums	—		(286,917)
Purchase of FHLB stock, net		(4,463)		(4,013)
(Purchase) redemption of FHLB stock, net						(Purchase) redemption of FHLB stock, net	(9,283)		1,711
Purchase of premises and equipment	Purchase of premises and equipment	(228)		(155)		Purchase of premises and equipment	(325)		(191)

Net cash used in investing activities	Net cash used in investing activities	(411,187)		(475,670)		Net cash used in investing activities	(639,907)		(378,165)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net increase in deposits	Net increase in deposits	130,516		137,643		Net increase in deposits	256,137		322,827
Proceeds from long-term FHLB advances	Proceeds from long-term FHLB advances	150,000		150,000		Proceeds from long-term FHLB advances	350,000		350,000
Repayment of long-term FHLB advances	Repayment of long-term FHLB advances	(100,000)		(180,000)		Repayment of long-term FHLB advances	(100,000)		(405,100)
Net change in short-term FHLB advances	Net change in short-term FHLB advances	153,300		228,400		Net change in short-term FHLB advances	200,000		—
Shares withheld for taxes on vested restricted stock	Shares withheld for taxes on vested restricted stock	(875)		(901)		Shares withheld for taxes on vested restricted stock	(926)		(901)
Shares repurchased	Shares repurchased	(9,734)		(6,593)		Shares repurchased	(9,734)		(8,768)
Cash paid for dividends	Cash paid for dividends	(12,351)		(6,015)		Cash paid for dividends	(18,490)		(12,232)
Net cash provided by financing activities	Net cash provided by financing activities	310,856		322,534		Net cash provided by financing activities	676,987		245,826
Decrease in cash, cash equivalents and restricted cash		(51,865)		(108,565)
Increase (decrease) in cash, cash equivalents and restricted cash						Increase (decrease) in cash, cash equivalents and restricted cash	118,245		(46,822)
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	138,413		178,861		Cash, cash equivalents and restricted cash, beginning of period	138,413		178,861
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	86,548	$	70,296	Cash, cash equivalents and restricted cash, end of period	$	256,658	$	132,039
Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
Interest	Interest	$	23,309	$	33,650	Interest	$	44,201	$	46,932
Income taxes	Income taxes	$	15,369	$	18,883	Income taxes	$	21,987	$	25,901
Supplemental non-cash disclosures:	Supplemental non-cash disclosures:					Supplemental non-cash disclosures:
Lease liabilities arising from obtaining right-of-use assets	Lease liabilities arising from obtaining right-of-use assets	$	17,514	$	—	Lease liabilities arising from obtaining right-of-use assets	$	15,707	$	—
Non-cash investing activity:						Non-cash investing activity:

Loans transferred to held for sale						Loans transferred to held for sale	$	—	$	1,706

See accompanying notes to unaudited consolidated financial statements

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LUTHER BURBANK CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 the Bank's wholly-owned subsidiary, Burbank Investor Services. 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 ~~headquarters~~executive offices in Santa Rosa and Gardena, California. It has 10ten full service branches in California located in Sonoma, Marin, Santa Clara, and Los Angeles Counties and 1one full service branch in Washington located in King County. Additionally, there are several loan production offices located throughout California, as well as a loan production office in Clackamas County, Oregon.

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, 2021, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the 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 its subsidiaries. All intercompany accounts and transactions have been eliminated.

The results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2022 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, 2022.

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 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.

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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 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 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.


(Dollars in thousands, except share amounts)	(Dollars in thousands, except share amounts)	Three Months Ended June 30,				Six Months Ended June 30,				(Dollars in thousands, except share amounts)	Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Net income	Net income	$	22,567	$	21,216	$	45,507	$	39,627	Net income	$	21,002	$	24,743	$	66,509	$	64,370

Weighted average basic common shares outstanding	Weighted average basic common shares outstanding	50,794,950		51,726,331		51,066,219		51,854,531		Weighted average basic common shares outstanding	50,738,479		51,333,283		50,956,972		51,680,782
Add: Dilutive effects of assumed vesting of restricted stock	Add: Dilutive effects of assumed vesting of restricted stock	112,312		134,802		94,621		125,155		Add: Dilutive effects of assumed vesting of restricted stock	155,079		211,630		114,774		153,980
Weighted average diluted common shares outstanding	Weighted average diluted common shares outstanding	50,907,262		51,861,133		51,160,840		51,979,686		Weighted average diluted common shares outstanding	50,893,558		51,544,913		51,071,746		51,834,762

Income per common share:	Income per common share:									Income per common share:
Basic EPS	Basic EPS	$	0.44	$	0.41	$	0.89	$	0.76	Basic EPS	$	0.41	$	0.48	$	1.31	$	1.25
Diluted EPS	Diluted EPS	$	0.44	$	0.41	$	0.89	$	0.76	Diluted EPS	$	0.41	$	0.48	$	1.30	$	1.24
Anti-dilutive shares not included in calculation of diluted earnings per share	Anti-dilutive shares not included in calculation of diluted earnings per share	1,359		—		433		2,706		Anti-dilutive shares not included in calculation of diluted earnings per share	—		—		2,493		6,291

Adoption of New Financial Accounting Standards

FASB ASU 2016-13

In June 2016, the Financial Accounting Standards Board ("FASB") issued guidance to replace the incurred loss model with an expected loss model, which is referred to as the current expected credit loss ("CECL") model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables, held to maturity debt securities, and reinsurance receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor. The transition will be applied as follows:

- For debt securities with other than temporary impairment ("OTTI"), the guidance will be applied prospectively.

- Existing purchased credit impaired ("PCI") assets will be grandfathered and classified as purchased credit deteriorated ("PCD") assets at the date of adoption. The assets will be grossed up for the allowance for expected credit losses for all PCD assets at the date of adoption and will continue to recognize the noncredit discount in interest income based on the yield of such assets as of the adoption date. Subsequent changes in expected credit losses will be recorded through the allowance.

- For all other assets within the scope of CECL, a cumulative-effect adjustment will be recognized in retained earnings as of the beginning of the first reporting period in which the guidance is effective.

These amendments are effective for PBEs that are SEC filers for annual periods and interim periods within those annual periods beginning after December 15, 2019. As an emerging growth company, the Company expects to adopt this guidance on January 1, 2023. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective.

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Through ~~June~~September 30, 2022, CECL implementation activities have generally focused on capturing and validating loan data, segmenting the loan portfolio, evaluating credit loss methodologies and models, ~~as well as~~ evaluating model results and ~~sensitivities.~~sensitivities and completing a third party model validation. In determining an expected allowance under CECL, the Company has selected a credit loss model that utilizes an approach focused on a loan's probability of default and loss given default. As part of the process to test and refine our CECL model, the Company has completed quarterly model runs for analysis and backtesting purposes starting with the third quarter of 2018. This process has been on-going and will continue until our adoption date. Continuing implementation activities include ~~the completion of a third party model validation,~~ refining qualitative factor adjustments, finalizing policies and disclosures and evaluating, documenting and testing internal controls. We estimate that the adoption of the CECL standard would not currently result in a material change in our allowance for credit losses, which, if necessary, will be recorded as a cumulative-effect adjustment to retained earnings, net of tax as of January 1, 2023. The ultimate impact will depend on the portfolio and forecasts when the standard is adopted.

2. INVESTMENT SECURITIES

Available for Sale

The following table summarizes the amortized cost and the estimated fair value of available for sale debt securities as of the dates indicated:


(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
At June 30, 2022:
At September 30, 2022:										At September 30, 2022:
Government and Government Sponsored Entities:	Government and Government Sponsored Entities:									Government and Government Sponsored Entities:
Commercial mortgage backed securities ("MBS") and collateralized mortgage obligations ("CMOs")	Commercial mortgage backed securities ("MBS") and collateralized mortgage obligations ("CMOs")	$	416,134	$	1,468	$	(16,427)	$	401,175	Commercial mortgage backed securities ("MBS") and collateralized mortgage obligations ("CMOs")	$	404,141	$	551	$	(23,840)	$	380,852
Residential MBS and CMOs	Residential MBS and CMOs	222,336		129		(14,033)		208,432		Residential MBS and CMOs	214,557		44		(21,060)		193,541
Agency bonds	Agency bonds	25,576		225		—		25,801		Agency bonds	39,963		210		(84)		40,089
Other asset backed securities ("ABS")	Other asset backed securities ("ABS")	27,377		—		(1,353)		26,024		Other asset backed securities ("ABS")	26,658		—		(667)		25,991
Total available for sale debt securities	Total available for sale debt securities	$	691,423	$	1,822	$	(31,813)	$	661,432	Total available for sale debt securities	$	685,319	$	805	$	(45,651)	$	640,473
At December 31, 2021:	At December 31, 2021:									At December 31, 2021:
Government and Government Sponsored Entities:	Government and Government Sponsored Entities:									Government and Government Sponsored Entities:
Commercial MBS and CMOs	Commercial MBS and CMOs	$	407,111	$	3,281	$	(2,646)	$	407,746	Commercial MBS and CMOs	$	407,111	$	3,281	$	(2,646)	$	407,746
Residential MBS and CMOs	Residential MBS and CMOs	200,775		1,225		(1,867)		200,133		Residential MBS and CMOs	200,775		1,225		(1,867)		200,133
Agency bonds	Agency bonds	10,587		244		—		10,831		Agency bonds	10,587		244		—		10,831
Other ABS	Other ABS	28,720		37		(150)		28,607		Other ABS	28,720		37		(150)		28,607
Total available for sale debt securities	Total available for sale debt securities	$	647,193	$	4,787	$	(4,663)	$	647,317	Total available for sale debt securities	$	647,193	$	4,787	$	(4,663)	$	647,317

Net unrealized gains (losses) on available for sale investment securities are recorded as accumulated other comprehensive income (loss) within stockholders’ equity and totaled ~~$(21.3)~~$(31.8) million and $88 thousand, net of ~~$8.7~~$13.0 million and $(36) thousand in tax assets (liabilities), at ~~June~~September 30, 2022 and December 31, 2021, respectively. There were no sales or transfers of available for sale investment securities and no realized gains or losses on these securities during the three or ~~six~~nine months ended ~~June~~September 30, 2022 or 2021.

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


		June 30, 2022													September 30, 2022
		Less than 12 Months				12 Months or More				Total					Less than 12 Months				12 Months or More				Total
(Dollars in thousands)	(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Government and Government Sponsored Entities:	Government and Government Sponsored Entities:													Government and Government Sponsored Entities:
Commercial MBS and CMOs	Commercial MBS and CMOs	$	152,632	$	(8,905)	$	71,739	$	(7,522)	$	224,371	$	(16,427)	Commercial MBS and CMOs	$	204,498	$	(7,168)	$	99,631	$	(16,672)	$	304,129	$	(23,840)
Residential MBS and CMOs	Residential MBS and CMOs	153,853		(9,659)		26,193		(4,374)		180,046		(14,033)		Residential MBS and CMOs	125,321		(9,554)		62,127		(11,506)		187,448		(21,060)

Agency bonds														Agency bonds	14,846		(84)		—		—		14,846		(84)
Other ABS	Other ABS	26,024		(1,353)		—		—		26,024		(1,353)		Other ABS	16,251		(378)		9,739		(289)		25,990		(667)
Total available for sale debt securities	Total available for sale debt securities	$	332,509	$	(19,917)	$	97,932	$	(11,896)	$	430,441	$	(31,813)	Total available for sale debt securities	$	360,916	$	(17,184)	$	171,497	$	(28,467)	$	532,413	$	(45,651)

At ~~June~~September 30, 2022, the Company held 89 residential MBS and CMOs of which 6682 were in a loss position and 6nine had been in a loss position for twelve months or more. The Company held 5960 commercial MBS and CMOs of which 3446 were in a loss position and 1013 had been in a loss position for twelve months or more. The Company held 3five agency bonds of which one was in a loss position and none had been in a loss position for twelve months or more. The Company held three other ABS of which 3all three were in a loss position and ~~none~~one had been in a loss position for twelve months or more.


	December 31, 2021
	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	$	157,031	$	(2,632)	$	10,608	$	(14)	$	167,639	$	(2,646)
Residential MBS and CMOs	118,803		(1,864)		247		(3)		119,050		(1,867)

Other ABS	$	15,253	$	(150)	$	—	$	—	$	15,253	$	(150)
Total available for sale debt securities	$	291,087	$	(4,646)	$	10,855	$	(17)	$	301,942	$	(4,663)

At December 31, 2021, the Company held 88 residential MBS and CMOs of which 14 were in a loss position and 4four had been in a loss position for twelve months or more. The Company held 54 commercial MBS and CMOs of which 20 were in a loss position and 2two had been in a loss position for twelve months or more. The Company held 3three other ABS of which 2two were in a loss position and none had been in a loss position for 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 investments to be other-than-temporarily impaired at ~~June~~September 30, 2022 or December 31, 2021.

As of ~~June~~September 30, 2022 and December 31, 2021, 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.

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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)	(Dollars in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Value		(Dollars in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Value
As of June 30, 2022:
As of September 30, 2022:										As of September 30, 2022:
Government Sponsored Entities:	Government Sponsored Entities:									Government Sponsored Entities:
Residential MBS	Residential MBS	$	3,097	$	—	$	(95)	$	3,002	Residential MBS	$	3,072	$	—	$	(290)	$	2,782
Other investments	Other investments	65		—		—		65		Other investments	63		—		—		63
Total held to maturity investment securities	Total held to maturity investment securities	$	3,162	$	—	$	(95)	$	3,067	Total held to maturity investment securities	$	3,135	$	—	$	(290)	$	2,845
As of December 31, 2021:	As of December 31, 2021:									As of December 31, 2021:
Government Sponsored Entities:	Government Sponsored Entities:									Government Sponsored Entities:
Residential MBS	Residential MBS	$	3,761	$	189	$	—	$	3,950	Residential MBS	$	3,761	$	189	$	—	$	3,950
Other investments	Other investments	68		—		—		68		Other investments	68		—		—		68
Total held to maturity investment securities	Total held to maturity investment securities	$	3,829	$	189	$	—	$	4,018	Total held to maturity investment securities	$	3,829	$	189	$	—	$	4,018

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 been in a continuous unrecognized loss position:


		Less than 12 Months				12 Months or More				Total					Less than 12 Months				12 Months or More				Total
(Dollars in thousands)	(Dollars in thousands)	Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses		(Dollars in thousands)	Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses
As of June 30, 2022:
As of September 30, 2022:														As of September 30, 2022:
Government Sponsored Entities:	Government Sponsored Entities:													Government Sponsored Entities:
Residential MBS	Residential MBS	$	3,002	$	(95)	$	—	$	—	$	3,002	$	(95)	Residential MBS	$	2,782	$	(290)	$	—	$	—	$	2,782	$	(290)

At ~~June~~September 30, 2022, the Company had 7seven held to maturity residential MBS of which 7all seven were in a loss position and none had been in a loss position for twelve months or more.

The unrecognized losses on the Company’s held to maturity investments at ~~June~~September 30, 2022 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 maturity, the Company does not consider these investments to be other-than-temporarily impaired at ~~June~~September 30, 2022.

The following table summarizes the scheduled maturities of available for sale and held to maturity investment securities as of ~~June~~September 30, 2022:


		June 30, 2022					September 30, 2022
(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Fair Value		(Dollars in thousands)	Amortized Cost		Fair Value
Available for sale debt securities	Available for sale debt securities					Available for sale debt securities

Five to ten years	Five to ten years	$	25,576	$	25,801	Five to ten years	$	39,963	$	40,089

MBS, CMOs and other ABS	MBS, CMOs and other ABS	665,847		635,631		MBS, CMOs and other ABS	645,356		600,384
Total available for sale debt securities	Total available for sale debt securities	$	691,423	$	661,432	Total available for sale debt securities	$	685,319	$	640,473
Held to maturity investments securities	Held to maturity investments securities					Held to maturity investments securities
Five to ten years	Five to ten years	$	65	$	65	Five to ten years	$	63	$	63
MBS	MBS	3,097		3,002		MBS	3,072		2,782
Total held to maturity debt securities	Total held to maturity debt securities	$	3,162	$	3,067	Total held to maturity debt securities	$	3,135	$	2,845

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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. 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. No securities were pledged as of ~~June~~September 30, 2022 or December 31, 2021.

Equity Securities

Equity securities consist of investments in a qualified community reinvestment fund. At ~~June~~September 30, 2022 and December 31, 2021, the fair value of equity securities totaled ~~$10.8~~$10.3 million and $11.7 million, respectively. Changes in fair value are recognized in other noninterest income and totaled ~~$(344)~~$(455) thousand and ~~$(921)~~$(1.4) million during the three and nine months ended September 30, 2022, respectively, compared to $(55) thousand and $(233) thousand during the three and ~~six~~nine months ended ~~June 30, 2022, respectively, compared to $33 thousand and $(178) thousand during the three and six months ended June~~September 30, 2021, respectively. There were no sales of equity securities during the three or ~~six~~nine months ended ~~June~~September 30, 2022 or 2021.

3. LOANS

Loans consist of the following:


(Dollars in thousands)	(Dollars in thousands)	June 30, 2022		December 31, 2021		(Dollars in thousands)	September 30, 2022		December 31, 2021
Permanent mortgages on:	Permanent mortgages on:					Permanent mortgages on:
Multifamily residential	Multifamily residential	$	4,414,725	$	4,210,735	Multifamily residential	$	4,495,363	$	4,210,735
Single family residential	Single family residential	2,011,374		1,881,676		Single family residential	2,159,384		1,881,676
Commercial real estate	Commercial real estate	184,708		187,097		Commercial real estate	181,971		187,097
Land and construction loans	Land and construction loans	27,022		17,912		Land and construction loans	17,737		17,912

Total	Total	6,637,829		6,297,420		Total	6,854,455		6,297,420
Allowance for loan losses	Allowance for loan losses	(35,535)		(35,535)		Allowance for loan losses	(36,035)		(35,535)
Loans held for investment, net	Loans held for investment, net	$	6,602,294	$	6,261,885	Loans held for investment, net	$	6,818,420	$	6,261,885

Certain loans have been pledged to secure borrowing arrangements (see Note 8).

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The following table summarizes activity in and the allocation of the allowance for loan losses by portfolio segment:


(Dollars in thousands)	(Dollars in thousands)	Multifamily Residential		Single Family Residential		Commercial Real Estate		Land and Construction		Total		(Dollars in thousands)	Multifamily Residential		Single Family Residential		Commercial Real Estate		Land and Construction		Total
Three months ended June 30, 2022
Three months ended September 30, 2022												Three months ended September 30, 2022
Allowance for loan losses:	Allowance for loan losses:											Allowance for loan losses:
Beginning balance allocated to portfolio segments	Beginning balance allocated to portfolio segments	$	24,151	$	6,797	$	1,882	$	205	$	33,035	Beginning balance allocated to portfolio segments	$	26,007	$	7,625	$	1,673	$	230	$	35,535
Provision for (reversal of) loan losses	Provision for (reversal of) loan losses	1,856		828		(209)		25		2,500		Provision for (reversal of) loan losses	197		532		(130)		(99)		500
Charge-offs	Charge-offs	—		—		—		—		—		Charge-offs	—		—		—		—		—
Recoveries	Recoveries	—		—		—		—		—		Recoveries	—		—		—		—		—
Ending balance allocated to portfolio segments	Ending balance allocated to portfolio segments	$	26,007	$	7,625	$	1,673	$	230	$	35,535	Ending balance allocated to portfolio segments	$	26,204	$	8,157	$	1,543	$	131	$	36,035
Three months ended June 30, 2021
Three months ended September 30, 2021												Three months ended September 30, 2021
Allowance for loan losses:	Allowance for loan losses:											Allowance for loan losses:
Beginning balance allocated to portfolio segments	Beginning balance allocated to portfolio segments	$	30,838	$	9,816	$	2,871	$	241	$	43,766	Beginning balance allocated to portfolio segments	$	30,114	$	8,332	$	2,705	$	184	$	41,335
Reversal of provision for loan losses	Reversal of provision for loan losses	(724)		(1,546)		(166)		(64)		(2,500)		Reversal of provision for loan losses	(2,933)		(747)		(283)		(37)		(4,000)
Charge-offs	Charge-offs	—		—		—		—		—		Charge-offs	—		—		—		—		—
Recoveries	Recoveries	—		62		—		7		69		Recoveries	—		—		—		—		—
Ending balance allocated to portfolio segments	Ending balance allocated to portfolio segments	$	30,114	$	8,332	$	2,705	$	184	$	41,335	Ending balance allocated to portfolio segments	$	27,181	$	7,585	$	2,422	$	147	$	37,335
Six months ended June 30, 2022
Nine months ended September 30, 2022												Nine months ended September 30, 2022
Allowance for loan losses:	Allowance for loan losses:											Allowance for loan losses:
Beginning balance allocated to portfolio segments	Beginning balance allocated to portfolio segments	$	26,043	$	7,224	$	2,094	$	174	$	35,535	Beginning balance allocated to portfolio segments	$	26,043	$	7,224	$	2,094	$	174	$	35,535
(Reversal of) provision for loan losses		(36)		401		(421)		56		—
Provision for (reversal of) loan losses												Provision for (reversal of) loan losses	161		933		(551)		(43)		500
Charge-offs	Charge-offs	—		—		—		—		—		Charge-offs	—		—		—		—		—
Recoveries	Recoveries	—		—		—		—		—		Recoveries	—		—		—		—		—
Ending balance allocated to portfolio segments	Ending balance allocated to portfolio segments	$	26,007	$	7,625	$	1,673	$	230	$	35,535	Ending balance allocated to portfolio segments	$	26,204	$	8,157	$	1,543	$	131	$	36,035
Six months ended June 30, 2021
Nine months ended September 30, 2021												Nine months ended September 30, 2021
Allowance for loan losses:	Allowance for loan losses:											Allowance for loan losses:
Beginning balance allocated to portfolio segments	Beginning balance allocated to portfolio segments	$	33,259	$	9,372	$	3,347	$	236	$	46,214	Beginning balance allocated to portfolio segments	$	33,259	$	9,372	$	3,347	$	236	$	46,214
Reversal of provision for loan losses	Reversal of provision for loan losses	(3,145)		(1,104)		(642)		(109)		(5,000)		Reversal of provision for loan losses	(6,078)		(1,851)		(925)		(146)		(9,000)
Charge-offs	Charge-offs	—		—		—		—		—		Charge-offs	—		—		—		—		—
Recoveries	Recoveries	—		64		—		57		121		Recoveries	—		64		—		57		121
Ending balance allocated to portfolio segments	Ending balance allocated to portfolio segments	$	30,114	$	8,332	$	2,705	$	184	$	41,335	Ending balance allocated to portfolio segments	$	27,181	$	7,585	$	2,422	$	147	$	37,335

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The following table summarizes the allocation of the allowance for loan losses by impairment methodology:


(Dollars in thousands)	(Dollars in thousands)	Multifamily Residential		Single Family Residential		Commercial Real Estate		Land and Construction		Total		(Dollars in thousands)	Multifamily Residential		Single Family Residential		Commercial Real Estate		Land and Construction		Total
As of June 30, 2022:
As of September 30, 2022:												As of September 30, 2022:
Ending allowance balance allocated to:	Ending allowance balance allocated to:											Ending allowance balance allocated to:
Loans individually evaluated for impairment	Loans individually evaluated for impairment	$	—	$	25	$	—	$	—	$	25	Loans individually evaluated for impairment	$	—	$	25	$	—	$	—	$	25
Loans collectively evaluated for impairment	Loans collectively evaluated for impairment	26,007		7,600		1,673		230		35,510		Loans collectively evaluated for impairment	26,204		8,132		1,543		131		36,010
Ending balance	Ending balance	$	26,007	$	7,625	$	1,673	$	230	$	35,535	Ending balance	$	26,204	$	8,157	$	1,543	$	131	$	36,035
Loans:	Loans:											Loans:
Ending balance: individually evaluated for impairment	Ending balance: individually evaluated for impairment	$	852	$	8,012	$	—	$	—	$	8,864	Ending balance: individually evaluated for impairment	$	843	$	6,434	$	—	$	—	$	7,277
Ending balance: collectively evaluated for impairment	Ending balance: collectively evaluated for impairment	4,413,873		2,003,362		184,708		27,022		6,628,965		Ending balance: collectively evaluated for impairment	4,494,520		2,152,950		181,971		17,737		6,847,178
Ending balance	Ending balance	$	4,414,725	$	2,011,374	$	184,708	$	27,022	$	6,637,829	Ending balance	$	4,495,363	$	2,159,384	$	181,971	$	17,737	$	6,854,455
As of December 31, 2021:	As of December 31, 2021:											As of December 31, 2021:
Ending allowance balance allocated to:	Ending allowance balance allocated to:											Ending allowance balance allocated to:
Loans individually evaluated for impairment	Loans individually evaluated for impairment	$	—	$	25	$	—	$	—	$	25	Loans individually evaluated for impairment	$	—	$	25	$	—	$	—	$	25
Loans collectively evaluated for impairment	Loans collectively evaluated for impairment	26,043		7,199		2,094		174		35,510		Loans collectively evaluated for impairment	26,043		7,199		2,094		174		35,510
Ending balance	Ending balance	$	26,043	$	7,224	$	2,094	$	174	$	35,535	Ending balance	$	26,043	$	7,224	$	2,094	$	174	$	35,535
Loans:	Loans:											Loans:
Ending balance: individually evaluated for impairment	Ending balance: individually evaluated for impairment	$	505	$	5,687	$	—	$	—	$	6,192	Ending balance: individually evaluated for impairment	$	505	$	5,687	$	—	$	—	$	6,192
Ending balance: collectively evaluated for impairment	Ending balance: collectively evaluated for impairment	4,210,230		1,875,989		187,097		17,912		6,291,228		Ending balance: collectively evaluated for impairment	4,210,230		1,875,989		187,097		17,912		6,291,228
Ending balance	Ending balance	$	4,210,735	$	1,881,676	$	187,097	$	17,912	$	6,297,420	Ending balance	$	4,210,735	$	1,881,676	$	187,097	$	17,912	$	6,297,420

The Company assigns a risk rating to all loans and periodically performs detailed reviews of all loans to identify credit risks and to assess the overall collectability of the portfolio. During these internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, as well as the financial performance and/or other characteristics of 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 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/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

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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.

The following table summarizes the loan portfolio allocated by management’s internal risk ratings at ~~June~~September 30, 2022 and December 31, 2021.


(Dollars in thousands)	(Dollars in thousands)	Multifamily Residential		Single Family Residential		Commercial Real Estate		Land, Construction and NM		Total		(Dollars in thousands)	Multifamily Residential		Single Family Residential		Commercial Real Estate		Land, Construction and NM		Total
As of June 30, 2022:
As of September 30, 2022:												As of September 30, 2022:
Grade:	Grade:											Grade:
Pass	Pass	$	4,360,690	$	1,993,279	$	180,522	$	27,022	$	6,561,513	Pass	$	4,442,276	$	2,141,123	$	177,805	$	17,737	$	6,778,941
Watch	Watch	31,663		13,917		3,223		—		48,803		Watch	32,912		15,274		3,208		—		51,394
Special mention	Special mention	4,058		—		963		—		5,021		Special mention	2,473		—		958		—		3,431
Substandard	Substandard	18,314		4,178		—		—		22,492		Substandard	17,702		2,987		—		—		20,689

Total	Total	$	4,414,725	$	2,011,374	$	184,708	$	27,022	$	6,637,829	Total	$	4,495,363	$	2,159,384	$	181,971	$	17,737	$	6,854,455
As of December 31, 2021:	As of December 31, 2021:											As of December 31, 2021:
Grade:	Grade:											Grade:
Pass	Pass	$	4,129,767	$	1,856,942	$	180,950	$	17,523	$	6,185,182	Pass	$	4,129,767	$	1,856,942	$	180,950	$	17,523	$	6,185,182
Watch	Watch	66,062		22,946		6,147		389		95,544		Watch	66,062		22,946		6,147		389		95,544
Special mention	Special mention	4,586		—		—		—		4,586		Special mention	4,586		—		—		—		4,586
Substandard	Substandard	10,320		1,788		—		—		12,108		Substandard	10,320		1,788		—		—		12,108

Total	Total	$	4,210,735	$	1,881,676	$	187,097	$	17,912	$	6,297,420	Total	$	4,210,735	$	1,881,676	$	187,097	$	17,912	$	6,297,420

The following table summarizes an aging analysis of the loan portfolio by the time past due at ~~June~~September 30, 2022 and December 31, 2021:


(Dollars in thousands)	(Dollars in thousands)	30 Days		60 Days		90+ Days		Non-accrual		Current		Total		(Dollars in thousands)	30 Days		60 Days		90+ Days		Non-accrual		Current		Total
As of June 30, 2022:
As of September 30, 2022:														As of September 30, 2022:
Loans:	Loans:													Loans:
Multifamily residential	Multifamily residential	$	2,957	$	—	$	—	$	852	$	4,410,916	$	4,414,725	Multifamily residential	$	—	$	—	$	—	$	843	$	4,494,520	$	4,495,363
Single family residential	Single family residential	359		—		—		4,178		2,006,837		2,011,374		Single family residential	—		—		—		2,987		2,156,397		2,159,384
Commercial real estate	Commercial real estate	—		—		—		—		184,708		184,708		Commercial real estate	—		—		—		—		181,971		181,971
Land and construction	Land and construction	—		—		—		—		27,022		27,022		Land and construction	—		—		—		—		17,737		17,737
Total	Total	$	3,316	$	—	$	—	$	5,030	$	6,629,483	$	6,637,829	Total	$	—	$	—	$	—	$	3,830	$	6,850,625	$	6,854,455
As of December 31, 2021:	As of December 31, 2021:													As of December 31, 2021:
Loans:	Loans:													Loans:
Multifamily residential	Multifamily residential	$	—	$	—	$	—	$	505	$	4,210,230	$	4,210,735	Multifamily residential	$	—	$	—	$	—	$	505	$	4,210,230	$	4,210,735
Single family residential	Single family residential	271		—		—		1,788		1,879,617		1,881,676		Single family residential	271		—		—		1,788		1,879,617		1,881,676
Commercial real estate	Commercial real estate	—		—		—		—		187,097		187,097		Commercial real estate	—		—		—		—		187,097		187,097
Land and construction	Land and construction	—		—		—		—		17,912		17,912		Land and construction	—		—		—		—		17,912		17,912
Total	Total	$	271	$	—	$	—	$	2,293	$	6,294,856	$	6,297,420	Total	$	271	$	—	$	—	$	2,293	$	6,294,856	$	6,297,420

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The following table summarizes information related to impaired loans at ~~June~~September 30, 2022 and December 31, 2021:


		As of June 30, 2022						As of December 31, 2021							As of September 30, 2022						As of December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:	With no related allowance recorded:													With no related allowance recorded:
Multifamily residential	Multifamily residential	$	852	$	927	$	—	$	505	$	582	$	—	Multifamily residential	$	843	$	919	$	—	$	505	$	582	$	—
Single family residential	Single family residential	7,192		7,384		—		4,847		5,033		—		Single family residential	5,623		5,818		—		4,847		5,033		—

		8,044		8,311		—		5,352		5,615		—			6,466		6,737		—		5,352		5,615		—
With an allowance recorded:	With an allowance recorded:													With an allowance recorded:

Single family residential	Single family residential	820		817		25		840		836		25		Single family residential	811		808		25		840		836		25

		820		817		25		840		836		25			811		808		25		840		836		25
Total:	Total:													Total:
Multifamily residential	Multifamily residential	852		927		—		505		582		—		Multifamily residential	843		919		—		505		582		—
Single family residential	Single family residential	8,012		8,201		25		5,687		5,869		25		Single family residential	6,434		6,626		25		5,687		5,869		25

		$	8,864	$	9,128	$	25	$	6,192	$	6,451	$	25		$	7,277	$	7,545	$	25	$	6,192	$	6,451	$	25

The following tables summarize information related to impaired loans for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021:


		Three Months Ended June 30,													Three Months Ended September 30,
		2022						2021							2022						2021
(Dollars in thousands)	(Dollars in thousands)	Average Recorded Investment		Interest Income		Cash Basis Interest		Average Recorded Investment		Interest Income		Cash Basis Interest		(Dollars in thousands)	Average Recorded Investment		Interest Income		Cash Basis Interest		Average Recorded Investment		Interest Income		Cash Basis Interest
With no related allowance recorded:	With no related allowance recorded:													With no related allowance recorded:
Multifamily residential	Multifamily residential	$	767	$	17	$	17	$	908	$	8	$	8	Multifamily residential	$	847	$	13	$	13	$	664	$	8	$	8
Single family residential	Single family residential	6,219		37		10		4,872		50		28		Single family residential	6,791		60		32		3,274		32		—

		6,986		54		27		5,780		58		36			7,638		73		45		3,938		40		8
With an allowance recorded:	With an allowance recorded:													With an allowance recorded:

Single family residential	Single family residential	825		6		—		863		6		—		Single family residential	815		7		—		854		6		—

		825		6		—		863		6		—			815		7		—		854		6		—
Total:	Total:													Total:
Multifamily residential	Multifamily residential	767		17		17		908		8		8		Multifamily residential	847		13		13		664		8		8
Single family residential	Single family residential	7,044		43		10		5,735		56		28		Single family residential	7,606		67		32		4,128		38		—

		$	7,811	$	60	$	27	$	6,643	$	64	$	36		$	8,453	$	80	$	45	$	4,792	$	46	$	8

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		Six Months Ended June 30,													Nine Months Ended September 30,
		2022						2021							2022						2021
(Dollars in thousands)	(Dollars in thousands)	Average Recorded Investment		Interest Income		Cash Basis Interest		Average Recorded Investment		Interest Income		Cash Basis Interest		(Dollars in thousands)	Average Recorded Investment		Interest Income		Cash Basis Interest		Average Recorded Investment		Interest Income		Cash Basis Interest
With no related allowance recorded:	With no related allowance recorded:													With no related allowance recorded:
Multifamily residential	Multifamily residential	$	654	$	25	$	25	$	967	$	14	$	14	Multifamily residential	$	712	$	38	$	38	$	891	$	22	$	22
Single family residential	Single family residential	5,626		80		29		5,431		111		85		Single family residential	5,935		140		61		4,781		143		85

		6,280		105		54		6,398		125		99			6,647		178		99		5,672		165		107
With an allowance recorded:	With an allowance recorded:													With an allowance recorded:

Single family residential	Single family residential	830		12		—		868		13		—		Single family residential	825		20		—		863		19		—

		830		12		—		868		13		—			825		20		—		863		19		—
Total:	Total:													Total:
Multifamily residential	Multifamily residential	654		25		25		967		14		14		Multifamily residential	712		38		38		891		22		22
Single family residential	Single family residential	6,456		92		29		6,299		124		85		Single family residential	6,760		160		61		5,644		162		85

		$	7,110	$	117	$	54	$	7,266	$	138	$	99		$	7,472	$	198	$	99	$	6,535	$	184	$	107

The following table summarizes the recorded investment related to troubled debt restructurings ("TDRs") at ~~June~~September 30, 2022 and December 31, 2021:

(Dollars in thousands)

June 30,
2022

December 31,
2021

(Dollars in thousands)

September 30,
2022

December 31,
2021

Troubled debt restructurings:

Single family residential

1,592

1,204

Single family residential

1,222

1,204

The Company has allocated $25 thousand of its allowance for loan losses for loans modified in TDRs at both ~~June~~September 30, 2022 and December 31, 2021. The Company does not have commitments to lend additional funds to borrowers with loans whose terms have been modified in TDRs.

During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company modified the terms of 1one 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 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. There were no new TDRs during the three or ~~six~~nine months ended ~~June~~September 30, 2021.

The Company had no TDRs with a subsequent payment default within twelve months following the modification during the three or ~~six~~nine months ended ~~June~~September 30, 2022 and 2021. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

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4. NONPERFORMING ASSETS

Nonperforming assets include nonperforming loans plus real estate owned. The Company’s nonperforming assets at ~~June~~September 30, 2022 and December 31, 2021 are indicated below:


(Dollars in thousands)	(Dollars in thousands)	June 30, 2022		December 31, 2021		(Dollars in thousands)	September 30, 2022		December 31, 2021
Non-accrual loans:	Non-accrual loans:					Non-accrual loans:
Multifamily residential	Multifamily residential	$	852	$	505	Multifamily residential	$	843	$	505
Single family residential	Single family residential	4,178		1,788		Single family residential	2,987		1,788

Total non-accrual loans	Total non-accrual loans	5,030		2,293		Total non-accrual loans	3,830		2,293
Real estate owned	Real estate owned	—		—		Real estate owned	—		—
Total nonperforming assets	Total nonperforming assets	$	5,030	$	2,293	Total nonperforming assets	$	3,830	$	2,293

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 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 and ~~six~~nine months ended ~~June~~September 30, 2022 totaling ~~$27~~$45 thousand and ~~$54~~$99 thousand, respectively, compared to ~~$36~~$8 thousand and ~~$99~~$107 thousand during the three and ~~six~~nine months ended ~~June~~September 30, 2021. Contractual interest not recorded on nonperforming loans during the three and ~~six~~nine months ended ~~June~~September 30, 2022 totaled ~~$17~~$6 thousand and ~~$24~~$30 thousand, respectively, compared to $1$5 thousand and ~~$16~~$21 thousand for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively.

Generally, nonaccrual 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

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)	(Dollars in thousands)	June 30, 2022		December 31, 2021		(Dollars in thousands)	September 30, 2022		December 31, 2021
Mortgage loans serviced for:	Mortgage loans serviced for:					Mortgage loans serviced for:
Federal Home Loan Mortgage Corporation ("Freddie Mac")	Federal Home Loan Mortgage Corporation ("Freddie Mac")	$	93,840	$	127,431	Federal Home Loan Mortgage Corporation ("Freddie Mac")	$	85,677	$	127,431
Other financial institutions	Other financial institutions	48,683		58,298		Other financial institutions	42,770		58,298
Total mortgage loans serviced for others	Total mortgage loans serviced for others	$	142,523	$	185,729	Total mortgage loans serviced for others	$	128,447	$	185,729

Custodial account balances maintained in connection with serviced loans totaled ~~$3.7~~$1.4 million and $5.0 million at ~~June~~September 30, 2022 and December 31, 2021, respectively.

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:

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		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2022		2021		(Dollars in thousands)	2022		2021		2022		2021
Beginning balance	Beginning balance	$	811	$	1,428	$	915	$	1,599	Beginning balance	$	779	$	1,192	$	915	$	1,599
Additions	Additions	—		—		—		—		Additions	—		—		—		—
Disposals	Disposals	—		—		—		—		Disposals	—		—		—		—
Changes 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	Other changes in fair value	(32)		(236)		(136)		(407)		Other changes in fair value	(54)		(232)		(190)		(639)
Ending balance	Ending balance	$	779	$	1,192	$	779	$	1,192	Ending balance	$	725	$	960	$	725	$	960

Fair value as of ~~June~~September 30, 2022 was determined using a discount rate of 10%, prepayment speeds ranging from ~~4.7%~~5.1% to 49.7% and a weighted average default rate of 5%. The weighted average prepayment speed at ~~June~~September 30, 2022 was ~~29.2%~~29.9%. Fair value as of December 31, 2021 was determined using a discount rate of 10%, prepayment speeds ranging from 7.6% to 48.8% and a weighted average default rate of 5%. The weighted average prepayment speed at December 31, 2021 was 29.2%.

6. LEASES

The Company leases various office premises under long-term operating lease agreements. These leases expire between 2023 and 2030, 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 and prior to the adoption of ASU 2016-02 on January 1, 2022, were not recognized on the Company's consolidated statements of financial condition.

Upon adoption of the new lease standard on January 1, 2022, the Company recorded 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's incremental borrowing rate is based on the FHLB advance rate based on the lease term and other factors. 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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Supplemental lease information as of or for the three and ~~six~~nine months ended ~~June~~September 30, 2022 is as follows:

(Dollars in thousands)

~~June~~September 30, 2022

Operating lease right-of-use assets included in prepaid expenses and other assets

~~15,393~~12,803

Operating lease liabilities included in other liabilities and accrued expenses

~~15,682~~12,984

Weighted average remaining lease term (years) of operating leases

~~4.9~~4.8

Weighted average discount rate of operating leases

~~1.88~~2.47


(Dollars in thousands)	(Dollars in thousands)	Three Months Ended June 30, 2022		Six Months Ended June 30, 2022		(Dollars in thousands)	Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022

Operating lease costs included in occupancy expense	Operating lease costs included in occupancy expense	$	910	$	1,839	Operating lease costs included in occupancy expense	$	911	$	2,750

Cash paid for amounts included in the measurement of operating lease liabilities	Cash paid for amounts included in the measurement of operating lease liabilities	$	1,014	$	2,051	Cash paid for amounts included in the measurement of operating lease liabilities	1,019		3,071

At ~~June~~September 30, 2022, future undiscounted lease payments with initial terms of one year or more are as follows:


(Dollars in thousands)	(Dollars in thousands)			(Dollars in thousands)
July 1 - December 31, 2022		$	1,942
October 1 - December 31, 2022				October 1 - December 31, 2022	$	979
2023	2023	3,719		2023	3,357
2024	2024	3,013		2024	2,661
2025	2025	2,594		2025	2,238
2026	2026	2,398		2026	2,051
Thereafter	Thereafter	2,841		Thereafter	2,572
Total undiscounted lease payments	Total undiscounted lease payments	16,507		Total undiscounted lease payments	13,858
Less: Imputed interest	Less: Imputed interest	(825)		Less: Imputed interest	(874)
Net lease liabilities	Net lease liabilities	$	15,682	Net lease liabilities	$	12,984

7. DEPOSITS

A summary of deposits at ~~June~~September 30, 2022 and December 31, 2021 is as follows:


(Dollars in thousands)	(Dollars in thousands)	June 30, 2022		December 31, 2021		(Dollars in thousands)	September 30, 2022		December 31, 2021
Time deposits						Time deposits	$	2,614,401	$	2,335,141
Money market savings	Money market savings	$	2,353,150	$	2,294,367	Money market savings	2,156,210		2,294,367
Time deposits		2,240,395		2,335,141
Money market checking	Money market checking	671,310		580,325		Money market checking	706,092		580,325
Interest-bearing demand	Interest-bearing demand	230,587		176,126		Interest-bearing demand	169,019		176,126
Noninterest-bearing demand	Noninterest-bearing demand	173,317		152,284		Noninterest-bearing demand	148,658		152,284
Total	Total	$	5,668,759	$	5,538,243	Total	$	5,794,380	$	5,538,243

The Company had time deposits that met or exceeded the Federal Deposit Insurance Corporation ("FDIC") insurance limit of $250 thousand of ~~$973.4 million and~~ $1.1 billion at ~~June~~both September 30, 2022 and December 31, ~~2021, respectively.~~2021.

The Company utilizes brokered deposits as an additional source of funding. The Company had brokered deposits of ~~$123.1~~$340.5 million and $25.8 million at ~~June~~September 30, 2022 and December 31, 2021, respectively. The increase in brokered deposits was utilized to fund loan growth during the nine months ended September 30, 2022.

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Maturities of the Company’s time deposits at ~~June~~September 30, 2022 are summarized as follows:


(Dollars in thousands)	(Dollars in thousands)			(Dollars in thousands)
July 1 - December 31, 2022		$	1,355,883
October 1 - December 31, 2022				October 1 - December 31, 2022	$	591,162
2023	2023	732,749		2023	1,766,304
2024	2024	95,164		2024	215,150
2025	2025	7,830		2025	7,623
2026	2026	41,073		2026	26,674
Thereafter	Thereafter	7,696		Thereafter	7,488
Total	Total	$	2,240,395	Total	$	2,614,401

8. FEDERAL HOME LOAN BANK AND FEDERAL RESERVE BANK ADVANCES

The Bank may borrow from the 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 ~~June~~September 30, 2022 and December 31, 2021, the Bank had pledged various mortgage loans totaling approximately ~~$2.8~~$3.1 billion and $2.4 billion, respectively, as well as the FHLB stock held by the Bank, to secure these borrowing arrangements.

The Bank has access to the Loan and Discount Window of the Federal Reserve Bank of San Francisco ("FRB"). Advances under this window are subject to the Bank providing qualifying collateral. Various mortgage loans totaling approximately ~~$579.7~~$596.5 million and $583.0 million as of ~~June~~September 30, 2022 and December 31, 2021, respectively, secure this borrowing arrangement. There were no borrowings outstanding with the FRB as of ~~June~~September 30, 2022 or December 31, 2021.

The following table discloses the Bank’s outstanding advances from the FHLB of San Francisco:


		Outstanding Balances				As of June 30, 2022								Outstanding Balances				As of September 30, 2022
(Dollars in thousands)	(Dollars in thousands)	June 30, 2022		December 31, 2021		Minimum Interest Rate		Maximum Interest Rate		Weighted Average Rate		Maturity Dates	(Dollars in thousands)	September 30, 2022		December 31, 2021		Minimum Interest Rate		Maximum Interest Rate		Weighted Average Rate		Maturity Dates
Fixed rate short-term	Fixed rate short-term	$	153,300	$	—	1.66	%	1.75	%	1.70	%	July 2022	Fixed rate short-term	$	200,000	$	—	2.81	%	3.16	%	2.99	%	October 2022 to November 2022
Fixed rate long-term(1)	Fixed rate long-term(1)	801,647		751,647		0.38	%	7.33	%	1.81	%	March 2023 to March 2030	Fixed rate long-term(1)	1,001,647		751,647		0.38	%	7.33	%	2.21	%	March 2023 to March 2030

		$	954,947	$	751,647									$	1,201,647	$	751,647

(1) Included in total fixed rate long-term advances is a $200.0 million advance which matures in September 2025 and contains an FHLB quarterly call provision beginning in September 2023.

The Bank's available borrowing capacity based on pledged loans to the FHLB and the FRB totaled ~~$1.1 billion~~$973.1 million and $1.2 billion at ~~June~~September 30, 2022 and December 31, 2021, respectively. As of ~~both June~~September 30, 2022 and December 31, 2021, the Bank had aggregate loan balances of $2.1 billion and $2.5 billion, respectively available to pledge to the FHLB and FRB to increase its borrowing capacity. As of ~~June~~September 30, 2022 and December 31, 2021, 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 90 days or less. During the three and ~~six~~nine months ended ~~June~~September 30, 2022, there was a maximum amount of short-term borrowings outstanding of ~~$228.4~~$406.9 million for both periods, an average amount outstanding of ~~$95.0~~$265.3 million and ~~$58.6~~$128.2 million, respectively, with a weighted average interest rate of ~~1.05%~~2.52% and ~~0.92%~~2.04%, respectively. During the three and ~~six~~nine months ~~June~~September 30, 2021, there was a maximum amount of short-term borrowings outstanding of $306.2 million and $352.9 million, ~~for both periods,~~respectively, an average amount outstanding of ~~$242.1~~$113.4 million and ~~$165.9~~$148.2 million, respectively, with a weighted average interest rate of ~~0.13%~~0.15% and 0.14%, respectively.

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The following table summarizes scheduled principal payments on FHLB advances over the next five years as of ~~June~~September 30, 2022:


(Dollars in thousands)	(Dollars in thousands)			(Dollars in thousands)
July 1 - December 31, 2022		$	153,300
October 1 - December 31, 2022				October 1 - December 31, 2022	$	200,000
2023	2023	250,000		2023	250,000
2024	2024	350,000		2024	350,000
2025	2025	101,500		2025	301,500
2026	2026	100,000		2026	100,000
Thereafter	Thereafter	147		Thereafter	147
		$	954,947		$	1,201,647

9. JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES

The Company formed 2two 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 "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, is included in other assets in the consolidated statements of financial condition. The sole asset of the Trusts are the Notes that they hold.

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 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 ~~June~~September 30, 2022 and December 31, 2021:


		June 30, 2022				December 31, 2021				Date	Maturity	Rate Index		September 30, 2022				December 31, 2021				Date	Maturity	Rate Index
Issuer	Issuer	Amount		Rate		Amount		Rate		Issued	Date	(Quarterly Reset)	Issuer	Amount		Rate		Amount		Rate		Issued	Date	(Quarterly Reset)
(Dollars in thousands)	(Dollars in thousands)												(Dollars in thousands)
Luther Burbank Statutory Trust I	Luther Burbank Statutory Trust I	$	41,238	3.21	%	$	41,238	1.58	%	3/1/2006	6/15/2036	3 month LIBOR + 1.38%	Luther Burbank Statutory Trust I	$	41,238	4.67	%	$	41,238	1.58	%	3/1/2006	6/15/2036	3 month LIBOR + 1.38%
Luther Burbank Statutory Trust II	Luther Burbank Statutory Trust II	$	20,619	3.45	%	$	20,619	1.82	%	3/1/2007	6/15/2037	3 month LIBOR + 1.62%	Luther Burbank Statutory Trust II	$	20,619	4.91	%	$	20,619	1.82	%	3/1/2007	6/15/2037	3 month LIBOR + 1.62%

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10. SENIOR DEBT

In September 2014, the Company issued $95 million in senior unsecured term notes to qualified institutional investors. The following table summarizes information on these notes as of ~~June~~September 30, 2022 and December 31, 2021:


		June 30, 2022				December 31, 2021								September 30, 2022				December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Principal		Unamortized Debt Issuance Costs		Principal		Unamortized Debt Issuance Costs		Maturity Date	Fixed Interest Rate		(Dollars in thousands)	Principal		Unamortized Debt Issuance Costs		Principal		Unamortized Debt Issuance Costs		Maturity Date	Fixed Interest Rate
Senior Unsecured Term Notes	Senior Unsecured Term Notes	$	95,000	$	276	$	95,000	$	338	9/30/2024	6.50	%	Senior Unsecured Term Notes	$	95,000	$	246	$	95,000	$	338	9/30/2024	6.50	%

11. DERIVATIVES AND HEDGING ACTIVITIES

From time to time, the Company utilizes interest rate swaps and other derivative financial instruments as part of its asset liability management strategy to manage interest rate risk positions.

Fair Value Hedges of Interest Rate Risk

As of ~~June~~September 30, 2022, the Company held 5seven interest rate swaps with a total notional amount of ~~$950 million.~~$1.3 billion. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company entered into ~~three~~five new swap agreements with an aggregate notional amount of ~~$300.0~~$600.0 million. The other 2two swaps were entered into in February and June 2021. The swaps provide a hedge against the interest rate risk associated with both fixed rate loans and hybrid adjustable loans in their fixed rate period. Additionally, during the ~~three and six~~nine months ended ~~June~~September 30, 2021, the Company also held 2two separate, two-year interest rate swaps with a total notional amount of $1.0 billion. These swaps, which were in equal notional amounts of $500.0 million, matured in June and August 2021, and provided a hedge against the interest rate risk related to certain hybrid multifamily loans which were in their fixed rate period.

All outstanding swaps are designated as fair value hedges and involve the payment of a fixed rate amount 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 hedged risk are recognized in interest income on loans.

The following table presents the effect of the Company’s interest rate swaps on the unaudited consolidated statements of income for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021:


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2022		2021		(Dollars in thousands)	2022		2021		2022		2021
Derivative - interest rate swaps:	Derivative - interest rate swaps:									Derivative - interest rate swaps:
Interest income (loss)	Interest income (loss)	$	498	$	(3,302)	$	433	$	(6,719)	Interest income (loss)	$	2,971	$	(720)	$	3,404	$	(7,439)
Hedged items - loans:	Hedged items - loans:									Hedged items - loans:
Interest loss	Interest loss	(35)		(14)		(48)		(29)		Interest loss	(77)		(1)		(125)		(30)
Net increase (decrease) in interest income	Net increase (decrease) in interest income	$	463	$	(3,316)	$	385	$	(6,748)	Net increase (decrease) in interest income	$	2,894	$	(721)	$	3,279	$	(7,469)

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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 ~~June~~September 30, 2022 and December 31, 2021:

Fair Values of Derivative Instruments

Asset Derivatives

Liability Derivatives

Asset Derivatives

Liability Derivatives

(Dollars in thousands)

Notional Amount

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

(Dollars in thousands)

Notional Amount

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives designated as hedging instruments:

As of June 30, 2022:

As of September 30, 2022:

Interest Rate Swaps

950,000

Prepaid Expenses and Other Assets

16,271

Other Liabilities and Accrued Expenses

Interest Rate Swaps

1,250,000

Prepaid Expenses and Other Assets

27,088

Other Liabilities and Accrued Expenses

—

As of December 31, 2021:

Interest Rate Swaps

650,000

Prepaid Expenses and Other Assets

3,108

Other Liabilities and Accrued Expenses

—

Interest Rate Swaps

650,000

Prepaid Expenses and Other Assets

3,108

Other Liabilities and Accrued Expenses

—

As of ~~June~~September 30, 2022 and December 31, 2021, 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)	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		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)	(Dollars in thousands)					(Dollars in thousands)
As of June 30, 2022:
As of September 30, 2022:						As of September 30, 2022:
Loans receivable, net	Loans receivable, net	$	933,711	$	(16,289)	Loans receivable, net	$	1,222,785	$	(27,215)
As of December 31, 2021:	As of December 31, 2021:					As of December 31, 2021:
Loans receivable, net	Loans receivable, net	$	646,890	$	(3,110)	Loans receivable, net	$	646,890	$	(3,110)

(1) These amounts include the amortized cost basis of portfolio loans used to designate hedging relationships in which the hedged items are the last layer expected to be remaining at the end of the hedging relationship. At ~~June~~September 30, 2022 and December 31, 2021, the amortized cost basis of the portfolio loans used in these hedging relationships were ~~$1.4~~$2.5 billion and $1.0 billion, respectively.

12. STOCK BASED COMPENSATION

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

All RSAs and RSUs are granted at the fair value of the common stock at the time of the award. 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 for the three and ~~six~~nine months ended ~~June~~September 30, 2022 totaled ~~$616~~$756 thousand and ~~$1.3~~$2.1 million, respectively, compared with ~~$651~~$645 thousand and ~~$1.2~~$1.9 million for the three and ~~six~~nine months ended ~~June~~September 30, 2021, ~~respectively~~respectively. The fair value of RSAs ~~and~~and/or RSUs that vested during the ~~six~~three and nine months ended ~~June~~September 30, 2022 totaled $90 thousand and ~~2021 totaled $2.6~~$2.7 million, ~~and~~respectively, compared to $2.4 million ~~respectively.~~for the nine months ended September 30, 2021. No RSAs or RSUs vested during the three months ended ~~June~~September 30, ~~2022 or~~ 2021.

As of ~~June~~September 30, 2022 and December 31, 2021, there was ~~$3.6~~$3.0 million and $2.6 million, respectively, of unrecognized compensation expense related to ~~411,592~~415,337 and 489,703 unvested RSAs, respectively,

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which amounts were expected to be expensed over a weighted average period of ~~1.88~~1.81 years and 1.69 years,

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respectively. As of ~~June~~September 30, 2022 and December 31, 2021, ~~84,727~~81,225 and 91,486 shares, respectively, of RSUs were vested and remain unsettled per the original deferral elections.

The following table summarizes share information about RSAs and RSUs:


		Six Months Ended June 30,							Nine Months Ended September 30,
		2022			2021				2022			2021
		Number of Shares	Weighted Average Grant Date Fair Value		Number of Shares	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	Beginning of the period balance	581,189	$	10.56	605,916	$	10.93	Beginning of the period balance	581,189	$	10.56	605,916	$	10.93
Shares granted	Shares granted	206,675	13.81		289,473	10.11		Shares granted	218,048	13.78		289,473	10.11
Shares settled	Shares settled	(253,706)	10.45		(265,655)	11.02		Shares settled	(264,836)	10.49		(265,655)	11.02
Shares forfeited	Shares forfeited	(37,839)	11.97		(52,798)	10.26		Shares forfeited	(37,839)	11.97		(54,130)	10.30
End of the period balance	End of the period balance	496,319	$	11.86	576,936	$	10.53	End of the period balance	496,562	$	11.90	575,604	$	10.53

Under its Omnibus Plan, the Company reserved 3,360,000 shares of common stock for new awards. At ~~June~~September 30, 2022 and December 31, 2021, there were ~~1,692,508~~1,681,135 and 1,861,344 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. As of January 1, 2021, all RSUs were fully vested and no longer subject to forfeiture.

13. 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

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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, cash equivalents and restricted cash, accrued interest receivable and payable, demand deposits and short-term borrowings, the carrying amount was estimated to be fair value. The fair value of accrued interest receivable/payable balances 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 and held to maturity debt securities, which include primarily debt securities issued by U.S. government sponsored agencies, 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 was estimated using market quotes for similar assets or the present value of future cash flows, discounted using a market rate for similar products and giving consideration to estimated prepayment risk and credit risk. The fair value of loans was determined utilizing estimates resulting in a Level 3 classification.

Impaired loans were measured for impairment based on the present value of expected future cash flows discounted at the loans' effective interest rate, except that as a practical expedient, the Company may measure impairment based on a loan’s observable market price, or the fair value of the collateral (net of estimated costs to sell) if the loan is collateral dependent. The fair value of impaired loans was 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.

The fair value of servicing rights was determined using a valuation model that utilizes interest rate, prepayment speed, and default rate assumptions that market participants would use in estimating future net servicing income and that can be validated against available market data.

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

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

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

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

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

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Fair Value of Financial Instruments

The carrying and estimated fair values of the Company’s financial instruments were as follows:


						Fair Level Measurements Using											Fair Level Measurements Using
(Dollars in thousands)	(Dollars in thousands)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3		(Dollars in thousands)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
As of June 30, 2022:
As of September 30, 2022:												As of September 30, 2022:
Financial assets:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	86,548	$	86,548	$	86,548	$	—	$	—	Cash and cash equivalents	$	256,658	$	256,658	$	256,658	$	—	$	—
Debt securities:	Debt securities:											Debt securities:
Available for sale	Available for sale	661,432		661,432		—		661,432		—		Available for sale	640,473		640,473		—		640,473		—
Held to maturity	Held to maturity	3,162		3,067		—		3,067		—		Held to maturity	3,135		2,845		—		2,845		—
Equity securities	Equity securities	10,772		10,772		—		10,772		—		Equity securities	10,317		10,317		—		10,317		—

Loans receivable, net	Loans receivable, net	6,602,294		6,584,788		—		—		6,584,788		Loans receivable, net	6,818,420		6,597,158		—		—		6,597,158
Accrued interest receivable	Accrued interest receivable	19,297		19,297		3		1,148		18,146		Accrued interest receivable	21,011		21,011		88		1,969		18,954
FHLB stock	FHLB stock	27,874		N/A		N/A		N/A		N/A		FHLB stock	32,694		N/A		N/A		N/A		N/A
Interest rate swaps	Interest rate swaps	16,271		16,271		—		16,271		—		Interest rate swaps	27,088		27,088		—		27,088		—
Financial liabilities:	Financial liabilities:											Financial liabilities:
Deposits	Deposits	$	5,668,759	$	5,636,060	$	3,143,363	$	2,492,697	$	—	Deposits	$	5,794,380	$	5,741,314	$	2,919,979	$	2,821,335	$	—
FHLB advances	FHLB advances	954,947		954,909		—		954,909		—		FHLB advances	1,201,647		1,157,828		—		1,157,828		—
Junior subordinated deferrable interest debentures	Junior subordinated deferrable interest debentures	61,857		51,290		—		51,290		—		Junior subordinated deferrable interest debentures	61,857		55,966		—		55,966		—
Senior debt	Senior debt	94,724		94,194		—		94,194		—		Senior debt	94,754		93,486		—		93,486		—
Accrued interest payable	Accrued interest payable	276		276		—		276		—		Accrued interest payable	950		950		—		950		—
Interest rate swap		32		32		—		32		—

As of December 31, 2021:	As of December 31, 2021:											As of December 31, 2021:
Financial assets:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	138,413	$	138,413	$	138,413	$	—	$	—	Cash and cash equivalents	$	138,413	$	138,413	$	138,413	$	—	$	—
Debt securities:	Debt securities:											Debt securities:
Available for sale	Available for sale	647,317		647,317		—		647,317		—		Available for sale	647,317		647,317		—		647,317		—
Held to maturity	Held to maturity	3,829		4,018		—		4,018		—		Held to maturity	3,829		4,018		—		4,018		—
Equity securities	Equity securities	11,693		11,693		—		11,693		—		Equity securities	11,693		11,693		—		11,693		—
Loans receivable, net	Loans receivable, net	6,261,885		6,297,548		—		—		6,297,548		Loans receivable, net	6,261,885		6,297,548		—		—		6,297,548
Accrued interest receivable	Accrued interest receivable	17,761		17,761		1		927		16,833		Accrued interest receivable	17,761		17,761		1		927		16,833
FHLB stock	FHLB stock	23,411		N/A		N/A		N/A		N/A		FHLB stock	23,411		N/A		N/A		N/A		N/A
Interest rate swaps	Interest rate swaps	3,108		3,108		—		3,108		—		Interest rate swaps	3,108		3,108		—		3,108		—
Financial liabilities:	Financial liabilities:											Financial liabilities:
Deposits	Deposits	$	5,538,243	$	5,541,417	$	2,918,102	$	2,623,315	$	—	Deposits	$	5,538,243	$	5,541,417	$	2,918,102	$	2,623,315	$	—
FHLB advances	FHLB advances	751,647		755,981		—		755,981		—		FHLB advances	751,647		755,981		—		755,981		—
Junior subordinated deferrable interest debentures	Junior subordinated deferrable interest debentures	61,857		61,545		—		61,545		—		Junior subordinated deferrable interest debentures	61,857		61,545		—		61,545		—
Senior debt	Senior debt	94,662		103,361		—		103,361		—		Senior debt	94,662		103,361		—		103,361		—
Accrued interest payable	Accrued interest payable	118		118		—		118		—		Accrued interest payable	118		118		—		118		—

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.

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Assets and Liabilities Recorded at Fair Value

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis as of ~~June~~September 30, 2022 and December 31, 2021.

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Recurring Basis

The Company is required or permitted to record the following assets and liabilities at fair value on a recurring basis:


(Dollars in thousands)	(Dollars in thousands)	Fair Value		Level 1		Level 2		Level 3		(Dollars in thousands)	Fair Value		Level 1		Level 2		Level 3
As of June 30, 2022:
As of September 30, 2022:										As of September 30, 2022:
Financial Assets:	Financial Assets:									Financial Assets:
Available for sale debt securities:	Available for sale debt securities:									Available for sale debt securities:
Government and Government Sponsored Entities:	Government and Government Sponsored Entities:									Government and Government Sponsored Entities:
Commercial MBS and CMOs	Commercial MBS and CMOs	$	401,175	$	—	$	401,175	$	—	Commercial MBS and CMOs	$	380,852	$	—	$	380,852	$	—
Residential MBS and CMOs	Residential MBS and CMOs	208,432		—		208,432		—		Residential MBS and CMOs	193,541		—		193,541		—
Agency bonds	Agency bonds	25,801		—		25,801		—		Agency bonds	40,089		—		40,089		—
Other ABS	Other ABS	26,024		—		26,024		—		Other ABS	25,991		—		25,991		—
Total available for sale debt securities	Total available for sale debt securities	$	661,432	$	—	$	661,432	$	—	Total available for sale debt securities	$	640,473	$	—	$	640,473	$	—
Equity securities	Equity securities	$	10,772	$	—	$	10,772	$	—	Equity securities	$	10,317	$	—	$	10,317	$	—
Mortgage servicing rights	Mortgage servicing rights	779		—		—		779		Mortgage servicing rights	725		—		—		725
Interest rate swaps	Interest rate swaps	16,271		—		16,271		—		Interest rate swaps	27,088		—		27,088		—
Financial Liabilities:
Interest rate swap		$	32	$	—	$	32	$	—

As of December 31, 2021:	As of December 31, 2021:									As of December 31, 2021:
Financial Assets:	Financial Assets:									Financial Assets:
Available for sale debt securities:	Available for sale debt securities:									Available for sale debt securities:
Government and Government Sponsored Entities:	Government and Government Sponsored Entities:									Government and Government Sponsored Entities:
Commercial MBS and CMOs	Commercial MBS and CMOs	$	407,746	$	—	$	407,746	$	—	Commercial MBS and CMOs	$	407,746	$	—	$	407,746	$	—
Residential MBS and CMOs	Residential MBS and CMOs	200,133		—		200,133		—		Residential MBS and CMOs	200,133		—		200,133		—
Agency bonds	Agency bonds	10,831		—		10,831		—		Agency bonds	10,831		—		10,831		—
Other ABS	Other ABS	28,607		—		28,607		—		Other ABS	28,607		—		28,607		—
Total available for sale debt securities	Total available for sale debt securities	$	647,317	$	—	$	647,317	$	—	Total available for sale debt securities	$	647,317	$	—	$	647,317	$	—
Equity securities	Equity securities	$	11,693	$	—	$	11,693	$	—	Equity securities	$	11,693	$	—	$	11,693	$	—
Mortgage servicing rights	Mortgage servicing rights	915		—		—		915		Mortgage servicing rights	915		—		—		915
Interest rate swaps	Interest rate swaps	3,108		—		3,108		—		Interest rate swaps	3,108		—		3,108		—

There were no transfers between Level 1 and Level 2 during the three and ~~six~~nine months ended ~~June~~September 30, 2022 or 2021.

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.

At both ~~June~~September 30, 2022 and December 31, 2021, there were no assets or liabilities measured at fair value on a non-recurring basis and the Company held no other real estate owned.

14. VARIABLE INTEREST ENTITIES ("VIE")

The Company is involved with VIEs through its loan securitization activities. The Company evaluated its association with VIEs for consolidation purposes. Specifically, a VIE is to be consolidated by its primary

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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. The assessment includes an evaluation of the Company's continuing involvement with the VIE and the nature and significance of its variable interests.

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Multifamily loan securitization

With respect to the securitization transaction with Freddie Mac which settled September 27, 2017, the Company's variable interests reside with a reimbursement agreement entered into with Freddie Mac that obligates the Company to reimburse Freddie Mac for defaulted contractual principal and interest payments identified after the ultimate resolution of 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 Company released all servicing obligations and rights to Freddie Mac who was designated as the Master Servicer. As Master Servicer, Freddie Mac appointed the 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 Company and Freddie Mac. Freddie Mac, in its capacity as Master Servicer, can terminate the Company in its role as sub-servicer and direct such responsibilities accordingly. In evaluating the variable interests and continuing involvement in the VIE, the Company determined that 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 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. Hence, the Company determined that the VIE associated with the multifamily securitization should not be included in the consolidated financial statements of the Company.

The Company believes its maximum exposure to loss as a result of 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. The reserve for estimated losses with respect to the reimbursement obligation totaled ~~$542~~$471 thousand and $727 thousand as of ~~June~~September 30, 2022 and December 31, 2021, respectively, based upon an analysis of quantitative and qualitative data of the underlying loans included in the securitization pool. No disbursements have been made in connection with the reimbursement obligation.

15. LOAN SALE AND SECURITIZATION ACTIVITIES

The Company periodically sells 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 $626.0 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 obligation.

As sub-servicer for Freddie Mac, the Bank is required to maintain a minimum net worth in accordance with GAAP of not less than $2.0 million. If 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 ~~June~~September 30, 2022, the Bank’s net worth was ~~$814.9~~$820.4 million which equates to its Tier 1 capital of ~~$832.9~~$848.9 million plus goodwill of $3.3 million and accumulated other comprehensive loss related to net unrealized losses on available for sale securities of ~~$21.3~~$31.8 million.

General representations and warranties associated with loan sales and the securitization transaction require the 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

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where the Company breaches its representations and warranties, the 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 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 Company is obligated to

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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.

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


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2022	2021	2022	2021	(Dollars in thousands)	2022		2021		2022		2021

Proceeds from loan sales						Proceeds from loan sales	$	—	$	1,731	$	—	$	1,731
Servicing fees	Servicing fees	89	147	186	317	Servicing fees	75		128		261		445

The following table provides information about the loans transferred through sales or securitization and not recorded in the consolidated statements of financial condition, for which the Company's continuing involvement includes sub-servicing or servicing responsibilities and/or reimbursement obligations:


(Dollars in thousands)	(Dollars in thousands)	Single Family Residential		Multifamily Residential		(Dollars in thousands)	Single Family Residential		Multifamily Residential
As of June 30, 2022:
As of September 30, 2022:						As of September 30, 2022:
Principal balance of loans	Principal balance of loans	$	11,414	$	131,109	Principal balance of loans	$	11,091	$	117,356
Loans 90+ days past due	Loans 90+ days past due	—		—		Loans 90+ days past due	—		—
Charge-offs, net	Charge-offs, net	—		—		Charge-offs, net	—		—
As of December 31, 2021:	As of December 31, 2021:					As of December 31, 2021:
Principal balance of loans	Principal balance of loans	$	12,243	$	173,486	Principal balance of loans	$	12,243	$	173,486
Loans 90+ days past due	Loans 90+ days past due	—		—		Loans 90+ days past due	—		—
Charge-offs, net	Charge-offs, net	—		—		Charge-offs, net	—		—

16. COMMITMENTS AND CONTINGENCIES

Financial Instruments with Off-Balance Sheet Risk

The Company is a party to financial instruments with 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 loans in process, and involve, to varying degrees, credit risk and interest rate risk in excess of the amount recognized in the Company’s consolidated 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 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 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 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 being exercised; therefore, total commitments outstanding do not necessarily represent future cash requirements.

At ~~June~~September 30, 2022 and December 31, 2021, the Company had outstanding commitments of approximately ~~$162.7~~$77.7 million and $132.8 million, respectively, for loans and lines of credit. Unfunded commitment reserves totaled ~~$118~~$113 thousand and $153 thousand at ~~June~~September 30, 2022 and December 31, 2021, respectively.

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Contingencies

At present, there are no pending or threatened proceedings against the Company which, if determined adversely, would have a material effect on the Company’s business, financial position, results of operations

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or cash flows. In the ordinary course of operations, 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. Insured portions of these balances are limited to $250 thousand per institution based on FDIC insurance limits. At ~~both June~~September 30, 2022 and December 31, 2021, the Company had $24.7 million and $25.5 million, respectively, in uninsured available cash balances. The Company also has established federal funds lines of credit with correspondent banks totaling $50.0 million at both ~~June~~September 30, 2022 and December 31, 2021, 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 ~~June~~September 30, 2022 and December 31, 2021 and our results of operations for the three months ended September 30, 2022 and June 30, 2022 and ~~March 31, 2022 and~~ the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, 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, 2021 that was filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2022 (our “Annual Report”) and with the accompanying Notes to Unaudited Consolidated Financial Statements set forth in this Quarterly Report on Form 10-Q for the quarterly period ended ~~June~~September 30, 2022 (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 Gardena, California~~ with ~~$7.5~~$7.9 billion in assets at ~~June~~September 30, 2022. Our principal business is providing high-value, relationship-based banking products and services to our customers, which include real estate investors, professionals, entrepreneurs, 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 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 Report. The selected historical consolidated financial data as of and for the three and ~~six~~nine months ~~ended June~~September 30, 2022 and 2021 are derived from our unaudited consolidated financial statements, which are included elsewhere in this Report. The selected historical consolidated financial data for the three months ended ~~March 31,~~June 30, 2022 are derived from our unaudited consolidated financial statements which were included in our previously filed Form 10-Q on ~~May 6,~~August 5, 2022. The Company’s historical results for any prior period are not necessarily indicative of future performance.

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(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	As of or For the Three Months Ended						As of or For the Six Months Ended						(Dollars in thousands, except per share data)	As of or For the Three Months Ended						As of or For the Nine Months Ended
		June 30, 2022			March 31, 2022			June 30, 2022			June 30, 2021				September 30, 2022			June 30, 2022			September 30, 2022			September 30, 2021
Statements of Income and Financial Condition Data	Statements of Income and Financial Condition Data													Statements of Income and Financial Condition Data
Net Income	Net Income	$	22,567		$	22,940		$	45,507		$	39,627		Net Income	$	21,002		$	22,567		$	66,509		$	64,370
Pre-tax, pre-provision net earnings (1)	Pre-tax, pre-provision net earnings (1)	$	34,509		$	29,580		$	64,089		$	51,153		Pre-tax, pre-provision net earnings (1)	$	30,367		$	34,509		$	94,456		$	82,065
Total assets	Total assets	$	7,530,516		$	7,260,826		$	7,530,516		$	7,257,078		Total assets	$	7,921,584		$	7,530,516		$	7,921,584		$	7,220,786
Per Common Share	Per Common Share													Per Common Share
Diluted earnings per share	Diluted earnings per share	$	0.44		$	0.45		$	0.89		$	0.76		Diluted earnings per share	$	0.41		$	0.44		$	1.30		$	1.24
Book value per share	Book value per share	$	13.15		$	13.00		$	13.15		$	12.32		Book value per share	$	13.25		$	13.15		$	13.25		$	12.65
Tangible book value per share (1)	Tangible book value per share (1)	$	13.09		$	12.93		$	13.09		$	12.25		Tangible book value per share (1)	$	13.18		$	13.09		$	13.18		$	12.59

Selected Ratios	Selected Ratios													Selected Ratios
Return on average:	Return on average:													Return on average:
Assets	Assets	1.23		%	1.28		%	1.25		%	1.12		%	Assets	1.10		%	1.23		%	1.20		%	1.20		%
Stockholders' equity	Stockholders' equity	13.41		%	13.60		%	13.50		%	12.58		%	Stockholders' equity	12.33		%	13.41		%	13.11		%	13.48		%
Dividend payout ratio	Dividend payout ratio	27.15		%	27.14		%	27.14		%	15.18		%	Dividend payout ratio	29.23		%	27.15		%	27.80		%	19.00		%
Net interest margin	Net interest margin	2.62		%	2.54		%	2.58		%	2.27		%	Net interest margin	2.42		%	2.62		%	2.52		%	2.34		%
Efficiency ratio (1)	Efficiency ratio (1)	27.86		%	34.40		%	31.03		%	36.41		%	Efficiency ratio (1)	33.61		%	27.86		%	31.88		%	34.86		%
Noninterest expense to average assets	Noninterest expense to average assets	0.72		%	0.86		%	0.79		%	0.83		%	Noninterest expense to average assets	0.80		%	0.72		%	0.80		%	0.82		%
Loan to deposit ratio	Loan to deposit ratio	117.09		%	113.66		%	117.09		%	119.28		%	Loan to deposit ratio	118.29		%	117.09		%	118.29		%	113.54		%

Credit Quality Ratios	Credit Quality Ratios													Credit Quality Ratios
Allowance for loan losses to loans	Allowance for loan losses to loans	0.54		%	0.52		%	0.54		%	0.64		%	Allowance for loan losses to loans	0.53		%	0.54		%	0.53		%	0.59		%
Allowance for loan losses to nonperforming loans	Allowance for loan losses to nonperforming loans	706.46		%	1,450.81		%	706.46		%	5,846.53		%	Allowance for loan losses to nonperforming loans	940.86		%	706.46		%	940.86		%	5,806.38		%
Nonperforming assets to total assets	Nonperforming assets to total assets	0.07		%	0.03		%	0.07		%	0.01		%	Nonperforming assets to total assets	0.05		%	0.07		%	0.05		%	0.01		%
Net recoveries to average loans	Net recoveries to average loans	—		%	—		%	—		%	(0.00)		%	Net recoveries to average loans	—		%	—		%	—		%	(0.00)		%
Capital Ratios	Capital Ratios													Capital Ratios
Tier 1 leverage ratio	Tier 1 leverage ratio	10.20		%	10.27		%	10.20		%	9.70		%	Tier 1 leverage ratio	9.99		%	10.20		%	9.99		%	9.63		%
Total risk-based capital ratio	Total risk-based capital ratio	19.12		%	19.37		%	19.12		%	18.33		%	Total risk-based capital ratio	19.20		%	19.12		%	19.20		%	18.98		%

(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 loan 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.	(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 loan 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.										(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 loan 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 (“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 for the year ended December 31, 2021, included 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 Jumpstart Our Business Startups Act (the "JOBS Act"), as an emerging growth company, we can

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elect to opt out of the extended transition period for adopting any new or revised accounting standards. We have

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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. Our eligibility as an emerging growth company under the JOBS Act is expected to expire on December 31, 2022, which is the last day of the fiscal year following the five year anniversary from the date of our initial public offering.

Allowance for Loan Losses

The allowance for loan losses is provided for probable incurred credit losses inherent in the loan portfolio at the statement of financial condition date. The allowance is increased by a provision charged to expense and can be reduced by loan principal charge-offs, net of recoveries. The allowance can also be reduced by recapturing provisions when management determines that the allowance for loan losses is more than adequate to absorb the probable incurred credit losses in the portfolio. The allowance is based on management’s assessment of various factors including, but not limited to, 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, current economic conditions and the results of our ongoing reviews of the portfolio. 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.

While we use available information, including independent appraisals for collateral, to estimate the extent of probable incurred loan losses within the loan portfolio, inherent uncertainties in the estimation process make it reasonably possible that ultimate losses may vary significantly from our original estimates. In addition, we utilize a number of economic variables in estimating the allowance, with the most significant drivers being unemployment levels and housing prices. Material changes in these economic variables may result in incremental changes in the estimated level of our allowance. 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. The Company currently utilizes the incurred loss methodology to determine its allowance for loan losses. The Company expects to adopt the current expected credit loss ("CECL") allowance methodology on January 1, 2023. We estimate that the adoption of the CECL standard would not currently result in a material change in our allowance for credit losses, which, if necessary, will be recorded as a cumulative-effect adjustment to retained earnings, net of tax as of January 1, 2023. The ultimate impact will depend on the portfolio and forecasts when the standard is adopted.

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. 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 debt securities available for sale are recorded in our consolidated statements of financial condition and comprehensive income (loss) while changes in the fair value of equity securities, loans held for sale and derivatives are recorded in the consolidated statements of financial condition and in the unaudited consolidated statements of 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

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would consider many factors, including the severity and duration of the impairment, the portion of any unrealized

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loss attributable to a decline in the credit quality of the issuer, 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 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation contain financial measures that are not measures recognized under GAAP and therefore, are considered non‐GAAP financial measures, including pre-tax, pre-provision net earnings, efficiency ratio, tangible assets, tangible stockholders' equity and tangible book value per share.

Our management uses these non‐GAAP financial measures in their analysis of the Company’s performance, financial condition and the efficiency of its operations. We believe that these non‐GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods and other companies, as well as demonstrate the effects of significant changes in 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. 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.

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


		For the Three Months Ended						For the Six Months Ended							For the Three Months Ended						For the Nine Months Ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2022			March 31, 2022			June 30, 2022			June 30, 2021			(Dollars in thousands)	September 30, 2022			June 30, 2022			September 30, 2022			September 30, 2021
Pre-tax, Pre-provision Net Earnings	Pre-tax, Pre-provision Net Earnings													Pre-tax, Pre-provision Net Earnings
Income before taxes	Income before taxes	$	32,009		$	32,080		$	64,089		$	56,153		Income before taxes	$	29,867		$	32,009		$	93,956		$	91,065
Plus: Provision for (reversal of) loan losses	Plus: Provision for (reversal of) loan losses	2,500			(2,500)			—			(5,000)			Plus: Provision for (reversal of) loan losses	500			2,500			500			(9,000)
Pre-tax, pre-provision net earnings	Pre-tax, pre-provision net earnings	$	34,509		$	29,580		$	64,089		$	51,153		Pre-tax, pre-provision net earnings	$	30,367		$	34,509		$	94,456		$	82,065
Efficiency Ratio	Efficiency Ratio													Efficiency Ratio
Noninterest expense (numerator)	Noninterest expense (numerator)	$	13,325		$	15,512		$	28,837		$	29,284		Noninterest expense (numerator)	$	15,376		$	13,325		$	44,213		$	43,919
Net interest income	Net interest income	$	47,472		$	45,034		92,506			79,618			Net interest income	$	45,474		$	47,472		137,980			124,734
Noninterest income	Noninterest income	362			58			420			819			Noninterest income	269			362			689			1,250
Operating revenue (denominator)	Operating revenue (denominator)	$	47,834		$	45,092		$	92,926		$	80,437		Operating revenue (denominator)	$	45,743		$	47,834		$	138,669		$	125,984
Efficiency ratio	Efficiency ratio	27.86		%	34.40		%	31.03		%	36.41		%	Efficiency ratio	33.61		%	27.86		%	31.88		%	34.86		%


(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	June 30, 2022		March 31, 2022		June 30, 2021		(Dollars in thousands, except per share data)	September 30, 2022		June 30, 2022		September 30, 2021
Tangible Book Value Per Share	Tangible Book Value Per Share							Tangible Book Value Per Share
Total assets	Total assets	$	7,530,516	$	7,260,826	$	7,257,078	Total assets	$	7,921,584	$	7,530,516	$	7,220,786
Less: Goodwill	Less: Goodwill	(3,297)		(3,297)		(3,297)		Less: Goodwill	(3,297)		(3,297)		(3,297)
Tangible assets	Tangible assets	7,527,219		7,257,529		7,253,781		Tangible assets	7,918,287		7,527,219		7,217,489
Less: Total liabilities	Less: Total liabilities	(6,858,894)		(6,592,826)		(6,618,379)		Less: Total liabilities	(7,244,915)		(6,858,894)		(6,566,850)
Tangible stockholders' equity (numerator)	Tangible stockholders' equity (numerator)	$	668,325	$	664,703	$	635,402	Tangible stockholders' equity (numerator)	$	673,372	$	668,325	$	650,639
Period end shares outstanding (denominator)	Period end shares outstanding (denominator)	51,063,498		51,403,914		51,861,704		Period end shares outstanding (denominator)	51,074,605		51,063,498		51,682,604
Tangible book value per share	Tangible book value per share	$	13.09	$	12.93	$	12.25	Tangible book value per share	$	13.18	$	13.09	$	12.59

Results of Operations - Three Months Ended ~~June~~September 30, 2022 and ~~March 31,~~June 30, 2022

Overview

For the three months ended ~~June~~September 30, 2022, our net income was ~~$22.6~~$21.0 million as compared to ~~$22.9~~$22.6 million for the three months ended June 30, 2022. The decrease of $1.6 million, or 6.9%, was attributable to an increase in

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~~three months ended March 31, 2022. The~~noninterest expense of $2.1 million and a decrease in net interest income of ~~$373 thousand, or 1.6%, was attributable to an increase~~$2.0 million, partially offset by a decrease in the provision for loan losses of ~~$5.0 million, partially offset by an increase in net interest income of $2.4 million and a decrease in noninterest expense of $2.2~~$2.0 million. Pre-tax, pre-provision net earnings ~~increased~~decreased by ~~$4.9~~$4.1 million, or ~~16.7%~~12.0%, for the three months ended ~~June~~September 30, 2022 as compared to the linked quarter.

Net Interest Income

Net interest income ~~increased~~decreased by ~~$2.4~~$2.0 million, or ~~5.4%~~4.2%, to ~~$47.5~~$45.5 million for the three months ended ~~June~~September 30, 2022 from ~~$45.0~~$47.5 million for the prior quarter due to ~~higher loan interest income, partially offset by~~ higher interest expense on our deposit portfolio and FHLB ~~advances. The increase in loan~~advances, partially offset by higher interest income ~~was primarily due to an increase in the average balance of loans, lower accelerated loan cost amortization~~ on ~~paid off single family residential~~ loans and higher income earned on our interest rate swaps. The increase in interest expense was primarily due to higher interest rates on deposits and an increase in the average balance and cost of FHLB advances. As compared to the linked quarter, the average balance and yield on our loan portfolio increased by $202.9 million and 9 basis points, respectively, while the average balance and cost of interest bearing deposits and FHLB advances increased by $56.8 million and 5 basis points, respectively, and $102.6 million and 3 basis points, respectively.investments.

Our net interest margin was ~~2.62%~~2.42% during the three months ended ~~June~~September 30, 2022 compared to ~~2.54%~~2.62% during the prior quarter. Our net interest margin reflects the net impact of an increase in the ~~yield on~~cost of interest ~~earning assets partly~~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 during periods of rising interest rates. During the third quarter, the cost of our interest bearing ~~liabilities. During~~liabilities increased by 49 basis points primarily due to an increase in the ~~second quarter,~~cost of our deposits and FHLB advances, while the yield on our interest earning assets increased by 1525 basis points primarily due to ~~the~~an increase in our loan ~~yield, while the cost of our interest bearing liabilities increased by 7 basis points primarily due to the increase in deposit costs.~~and investment yields. Our net interest spread in the ~~second~~third quarter was ~~2.54%~~2.30%, ~~increasing~~decreasing by 824 basis points as compared to the linked 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 ~~June~~September 30, 2022 and ~~March 31,~~June 30, 2022. The average balances are daily averages.

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		For the Three Months Ended													For the Three Months Ended
		June 30, 2022						March 31, 2022							September 30, 2022						June 30, 2022
(Dollars in thousands)	(Dollars in thousands)	Average Balance		Interest Inc/Exp		Yield/Rate		Average Balance		Interest Inc/Exp		Yield/Rate		(Dollars in thousands)	Average Balance		Interest Inc/Exp		Yield/Rate		Average Balance		Interest Inc/Exp		Yield/Rate
Interest-Earning Assets	Interest-Earning Assets													Interest-Earning Assets
Multifamily residential	Multifamily residential	$	4,318,879	$	39,893	3.69	%	$	4,211,697	$	39,146	3.72	%	Multifamily residential	$	4,448,881	$	41,267	3.71	%	$	4,318,879	$	39,893	3.69	%
Single family residential	Single family residential	1,961,812		14,430		2.94	%	1,867,416		12,025		2.58	%	Single family residential	2,097,312		18,660		3.56	%	1,961,812		14,430		2.94	%
Commercial real estate	Commercial real estate	189,705		2,256		4.76	%	193,871		2,204		4.55	%	Commercial real estate	185,017		2,137		4.62	%	189,705		2,256		4.76	%
Construction and land	Construction and land	25,784		333		5.18	%	20,341		258		5.14	%	Construction and land	19,761		302		6.06	%	25,784		333		5.18	%
Total loans (1)	Total loans (1)	6,496,180		56,912		3.50	%	6,293,325		53,633		3.41	%	Total loans (1)	6,750,971		62,366		3.70	%	6,496,180		56,912		3.50	%
Investment securities	Investment securities	650,514		2,863		1.76	%	650,091		2,301		1.42	%	Investment securities	679,283		4,127		2.43	%	650,514		2,863		1.76	%
Cash and cash equivalents	Cash and cash equivalents	101,873		198		0.78	%	153,370		66		0.17	%	Cash and cash equivalents	100,690		547		2.16	%	101,873		198		0.78	%
Total interest-earning assets	Total interest-earning assets	7,248,567		59,973		3.31	%	7,096,786		56,000		3.16	%	Total interest-earning assets	7,530,944		67,040		3.56	%	7,248,567		59,973		3.31	%
Noninterest-earning assets (2)	Noninterest-earning assets (2)	109,408						92,904						Noninterest-earning assets (2)	128,677						109,408
Total assets	Total assets	$	7,357,975					$	7,189,690					Total assets	$	7,659,621					$	7,357,975
Interest-Bearing Liabilities	Interest-Bearing Liabilities													Interest-Bearing Liabilities
Transaction accounts	Transaction accounts	$	175,092	88		0.20	%	$	169,580	95		0.22	%	Transaction accounts	$	168,780	96		0.22	%	$	175,092	88		0.20	%
Money market demand accounts	Money market demand accounts	3,050,811		3,966		0.51	%	2,964,527		3,222		0.43	%	Money market demand accounts	3,005,468		7,416		0.97	%	3,050,811		3,966		0.51	%
Time deposits	Time deposits	2,196,455		2,859		0.51	%	2,231,471		2,703		0.49	%	Time deposits	2,322,643		6,573		1.11	%	2,196,455		2,859		0.51	%
Total deposits	Total deposits	5,422,358		6,913		0.50	%	5,365,578		6,020		0.45	%	Total deposits	5,496,891		14,085		1.00	%	5,422,358		6,913		0.50	%
FHLB advances	FHLB advances	863,685		3,628		1.68	%	761,119		3,097		1.65	%	FHLB advances	1,071,300		5,346		1.98	%	863,685		3,628		1.68	%
Junior subordinated debentures	Junior subordinated debentures	61,857		385		2.50	%	61,857		275		1.80	%	Junior subordinated debentures	61,857		560		3.59	%	61,857		385		2.50	%
Senior debt	Senior debt	94,703		1,575		6.65	%	94,673		1,574		6.65	%	Senior debt	94,734		1,575		6.65	%	94,703		1,575		6.65	%
Total interest-bearing liabilities	Total interest-bearing liabilities	6,442,603		12,501		0.77	%	6,283,227		10,966		0.70	%	Total interest-bearing liabilities	6,724,782		21,566		1.26	%	6,442,603		12,501		0.77	%
Noninterest-bearing deposit accounts	Noninterest-bearing deposit accounts	165,799						147,533						Noninterest-bearing deposit accounts	164,988						165,799
Other noninterest-bearing liabilities	Other noninterest-bearing liabilities	76,412						84,022						Other noninterest-bearing liabilities	88,323						76,412
Total liabilities	Total liabilities	6,684,814						6,514,782						Total liabilities	6,978,093						6,684,814
Total stockholders' equity	Total stockholders' equity	673,161						674,908						Total stockholders' equity	681,528						673,161
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	7,357,975					$	7,189,690					Total liabilities and stockholders' equity	$	7,659,621					$	7,357,975

Net interest spread (3)	Net interest spread (3)					2.54	%					2.46	%	Net interest spread (3)					2.30	%					2.54	%
Net interest income/margin (4)	Net interest income/margin (4)			$	47,472	2.62	%			$	45,034	2.54	%	Net interest income/margin (4)			$	45,474	2.42	%			$	47,472	2.62	%

(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 ~~$4.0~~$2.4 million and ~~$4.8~~$4.0 million for the three months ended ~~June~~September 30, 2022 and ~~March 31,~~June 30, 2022, respectively.

(2) Noninterest-earning assets includes the allowance for loan 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 average interest-earning assets.

Interest rates and operating interest differential. Increases and decreases in interest income and interest expense result from 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 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 June 30 vs March 31, 2022							Three Months Ended September 30 vs June 30, 2022
		Variance Due To							Variance Due To
(Dollars in thousands)	(Dollars in thousands)	Volume		Yield/Rate		Total		(Dollars in thousands)	Volume		Yield/Rate		Total
Interest-Earning Assets	Interest-Earning Assets							Interest-Earning Assets
Multifamily residential	Multifamily residential	$	1,047	$	(300)	$	747	Multifamily residential	$	1,164	$	210	$	1,374
Single family residential	Single family residential	640		1,765		2,405		Single family residential	1,044		3,186		4,230
Commercial real estate	Commercial real estate	(48)		100		52		Commercial real estate	(55)		(64)		(119)
Construction and land	Construction and land	73		2		75		Construction and land	(84)		53		(31)
Total loans	Total loans	1,712		1,567		3,279		Total loans	2,069		3,385		5,454
Investment securities	Investment securities	2		560		562		Investment securities	132		1,132		1,264
Cash and cash equivalents	Cash and cash equivalents	(29)		161		132		Cash and cash equivalents	(2)		351		349
Total interest-earning assets	Total interest-earning assets	1,685		2,288		3,973		Total interest-earning assets	2,199		4,868		7,067
Interest-Bearing Liabilities	Interest-Bearing Liabilities							Interest-Bearing Liabilities
Transaction accounts	Transaction accounts	2		(9)		(7)		Transaction accounts	(2)		10		8
Money market demand accounts	Money market demand accounts	101		643		744		Money market demand accounts	(58)		3,508		3,450
Time deposits	Time deposits	(27)		183		156		Time deposits	175		3,539		3,714
Total deposits	Total deposits	76		817		893		Total deposits	115		7,057		7,172
FHLB advances	FHLB advances	468		63		531		FHLB advances	986		732		1,718
Junior subordinated debentures	Junior subordinated debentures	—		110		110		Junior subordinated debentures	—		175		175
Senior debt	Senior debt	1		—		1		Senior debt	—		—		—
Total interest-bearing liabilities	Total interest-bearing liabilities	545		990		1,535		Total interest-bearing liabilities	1,101		7,964		9,065

Net Interest Income	Net Interest Income	$	1,140	$	1,298	$	2,438	Net Interest Income	$	1,098	$	(3,096)	$	(1,998)

Total interest income increased by ~~$4.0~~$7.1 million, or ~~7.1%~~11.8%, for the three months ended ~~June~~September 30, 2022 as compared to the prior quarter. This increase was primarily due to a ~~$3.3~~$5.5 million improvement in interest income earned on loans ~~caused by~~resulting from a ~~$202.9~~$254.8 million and 920 basis point increase in the average balance and yield on our loans, respectively. The increase in loan volumes resulted from strong loan originations and the slowing of loan prepayment speeds, while loan yield ~~was~~increases were primarily due to ~~lower accelerated loan cost amortization on paid off single family residential ("SFR") loans and~~ higher income earned on anour interest rate ~~swap hedging fixed~~swaps and the origination of loans at higher current rates relative to the existing coupon on our loan portfolio. Additionally, interest income on investments increased $1.3 million primarily due an increase in the average yield on investments of 67 basis points due to rising interest rates. At September 30, 2022, 43% of our investments were in their floating rate ~~SFR loans.~~

period and had a weighted average repricing frequency of 2.9 months.

The volume of new loan originations totaled ~~$733.0~~$530.1 million and ~~$568.9~~$733.0 million for the three months ended ~~June~~September 30, 2022 and ~~March 31,~~June 30, 2022, respectively. The weighted average rate on new loans for the three months ended ~~June~~September 30, 2022 was ~~3.55%~~4.65% as compared to ~~3.14%~~3.55% for the linked quarter. The increase in the average coupon on originations was primarily due to the rising interest rate environment. Loan prepayment speeds were ~~24.0%~~15.4% and ~~26.2%~~24.0% during the three months ended ~~June~~September 30, 2022 and ~~March 31,~~June 30, 2022, respectively. The decrease in prepayment speeds was due to ~~a slowing of SFR prepayments due to~~ rising market interest ~~rates. This decline was partially offset by income property loan ("IPL") prepayment speeds~~rates, which remained elevated relative to historical levels. Approximately 45% of our prepaid IPL loans during the current quarter were in-house refinances that were in the pipeline at March 31, 2022 and rate locked at low interest rates. These in-house refinances were the primary driver of the higher IPL prepayment speedsimpacted refinancing activity during the current quarter. The weighted average rate on loan payoffs/curtailments during the three months ended ~~June~~September 30, 2022 was ~~3.86%~~3.91% as compared to ~~3.70%~~3.86% for the prior quarter.

Total interest expense increased ~~$1.5~~$9.1 million, or ~~14.0%~~72.5%, to ~~$12.5~~$21.6 million, for the three months ended ~~June~~September 30, 2022 from ~~$11.0~~$12.5 million for the prior quarter. Interest expense on deposits increased ~~$893 thousand,~~$7.2 million, to ~~$6.9~~$14.1 million, for the three months ended ~~June~~September 30, 2022 from ~~$6.0~~$6.9 million for the prior quarter. The increase was primarily due to a 550 basis point increase in the cost of interest-bearing deposits predominantly due to ~~an increase~~rate increases in ~~rates offered on our deposit products driven by rising market interest rates.~~both retail and brokered deposits. Additionally, interest expense on FHLB advances increased ~~$531 thousand~~$1.7 million compared to the prior quarter due to an increase in the average balance and cost of advances of ~~$102.6~~$207.6 million and 330 basis points, respectively. We generally use both deposits and FHLB advances to fund net loan growth. We also use long-term FHLB advances 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 II - Item 7A. ‘‘Quantitative and Qualitative Disclosures About Market Risk.’’

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Provision for Loan Losses

During the three months ended September 30, 2022 and June 30, 2022, the Company recorded loan loss provisions of $500 thousand and $2.5 million, ~~compared~~respectively. The current quarter provision was primarily related to ~~a reversal of~~ loan ~~loss provisions of $2.5 million during~~growth while the ~~three months ended March 31, 2022. The current~~prior quarter provision was related to loan growth and an increase in classified loan ~~balances while the prior quarter reversal related to the remaining portion of qualitative reserves established early in the pandemic that were deemed unnecessary.~~balances. Our allowance for loan losses as a percentage of total loans was ~~0.54%~~0.53% at ~~June~~September 30, 2022 compared to ~~0.52%~~0.54% and 0.56% at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively. The allowance for loan losses and the provisions for loan losses recognized were determined based on the incurred loss methodology. The Company expects to adopt the CECL allowance methodology on January 1, 2023.

Nonperforming assets totaled ~~$5.0~~$3.8 million, or ~~0.07%~~0.05% of total assets, at ~~June~~September 30, 2022 compared to $2.3 million, or 0.03% of total assets, at December 31, 2021. Criticized loans, which includes loans graded Special Mention and of greater risk, were ~~$27.5~~$24.1 million at ~~June~~September 30, 2022 compared to $16.7 million at December 31, 2021. Classified loans, which includes loans graded Substandard and of greater risk, totaled ~~$22.5~~$20.7 million and $12.1 million at ~~June~~September 30, 2022 and December 31, 2021, respectively. The increase in criticized and classified loan balances was primarily attributed to isolated credit related downgrades of several ~~multifamily residential~~loans and are not thought to represent any particular declining credit trends in our loan portfolio. As compared to the linked quarter, classified loans decreased by $1.8 million, declining as a result of the payoff of two adversely graded loans during the ~~six months ended June 30, 2022.~~current quarter. The Company's exposure to nonresidential commercial real estate remains limited, totaling ~~$184.7~~$182.0 million, or ~~2.8%~~2.7% of our loan portfolio, at the end of the current quarter.

Noninterest Income

Noninterest income ~~increased~~decreased by ~~$304~~$93 thousand, or ~~524.1%~~25.7%, to ~~$362~~$269 thousand for the three months ended ~~June~~September 30, 2022 from ~~$58~~$362 thousand for the prior quarter. The following table presents the major components of our noninterest income:


		For the Three Months Ended									For the Three Months Ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2022		March 31, 2022		$ Increase (Decrease)		% Increase (Decrease)		(Dollars in thousands)	September 30, 2022		June 30, 2022		$ Increase (Decrease)		% Increase (Decrease)
Noninterest Income	Noninterest Income									Noninterest Income

FHLB dividends	FHLB dividends	$	342	$	354	$	(12)	(3.4)	%	FHLB dividends	$	363	$	342	$	21	6.1	%
Fee income	Fee income	292		226		66		29.2	%	Fee income	122		292		(170)		(58.2)	%
Other	Other	(272)		(522)		250		(47.9)	%	Other	(216)		(272)		56		(20.6)	%
Total noninterest income	Total noninterest income	$	362	$	58	$	304	524.1	%	Total noninterest income	$	269	$	362	$	(93)	(25.7)	%

The ~~increase~~decrease in noninterest income for the quarter ended ~~June~~September 30, 2022 compared to the quarter ended ~~March 31,~~June 30, 2022, was primarily attributable to ~~a $233 thousand decrease in the decline~~declines in the fair value of ~~community development investments that are classified as~~ equity ~~securities. Decreases~~securities and deposit related fee income, partially offset by an increase in ~~fair value are primarily attributed to the rise in market interest rates.~~income earned on Community Reinvestment Act ("CRA") investments.

Noninterest Expense

Noninterest expense ~~decreased $2.2~~increased $2.1 million, or ~~14.1%~~15.4%, to $15.4 million for the three months ended September 30, 2022 from $13.3 million for the three months ended June 30, ~~2022 from $15.5 million for the three months ended March 31,~~ 2022. The following table presents the major components of our noninterest expense:

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		For the Three Months Ended									For the Three Months Ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2022		March 31, 2022		$ Increase (Decrease)		% Increase (Decrease)		(Dollars in thousands)	September 30, 2022		June 30, 2022		$ Increase (Decrease)		% Increase (Decrease)
Noninterest Expense	Noninterest Expense									Noninterest Expense
Compensation and related benefits	Compensation and related benefits	$	7,070	$	10,219	$	(3,149)	(30.8)	%	Compensation and related benefits	$	8,857	$	7,070	$	1,787	25.3	%
Deposit insurance premium	Deposit insurance premium	479		481		(2)		(0.4)	%	Deposit insurance premium	508		479		29		6.1	%
Professional and regulatory fees	Professional and regulatory fees	634		539		95		17.6	%	Professional and regulatory fees	639		634		5		0.8	%
Occupancy	Occupancy	1,197		1,194		3		0.3	%	Occupancy	1,199		1,197		2		0.2	%
Depreciation and amortization	Depreciation and amortization	746		603		143		23.7	%	Depreciation and amortization	806		746		60		8.0	%
Data processing	Data processing	1,007		988		19		1.9	%	Data processing	1,044		1,007		37		3.7	%
Marketing	Marketing	525		458		67		14.6	%	Marketing	1,211		525		686		130.7	%

Other expenses	Other expenses	1,667		1,030		637		61.8	%	Other expenses	1,112		1,667		(555)		(33.3)	%
Total noninterest expense	Total noninterest expense	$	13,325	$	15,512	$	(2,187)	(14.1)	%	Total noninterest expense	$	15,376	$	13,325	$	2,051	15.4	%

The ~~decrease~~increase in noninterest expense during the quarter ended ~~June~~September 30, 2022 compared to the linked quarter was predominantly due to a ~~$3.1~~$1.8 million ~~decrease~~increase in compensation costs primarily due to a ~~$1.4~~$1.6 million decline ~~in the required accrual for post-employment related retirement benefits resulting from an increase in interest rates. Compensation costs were further improved by a $1.2 million increase~~ in capitalized loan origination costs due to ~~stronger~~lower loan ~~volume, as well as lower payroll taxes as compared~~origination volume. Additionally, marketing expense increased $686 thousands due to ~~the first quarter of the year.~~additional costs incurred in connection with our deposit gathering efforts. These ~~expense reductions~~increases were partially offset by a decrease in other expenses ~~which increased $637 thousand during the current quarter~~ primarily due to ~~an increase~~a decline in down payment assistance costs associated with our program to support home ownership for low-to-moderate income ~~borrowers.~~borrowers

Income Tax Expense

For the three months ended ~~June~~September 30, 2022, we recorded income tax expense of ~~$9.4~~$8.9 million as compared to ~~$9.1~~$9.4 million for the prior quarter with effective tax rates of ~~29.5%~~29.7% and ~~28.5%~~29.5%, respectively. ~~The effective tax rate in the linked quarter benefited from the vesting of restricted stock which typically occurs during the first calendar quarter of each year.~~

Results of Operations - ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021

Overview

For the ~~six~~nine months ended ~~June~~September 30, 2022, our net income was ~~$45.5~~$66.5 million as compared to ~~$39.6~~$64.4 million for the ~~six~~nine months ended ~~June~~September 30, 2021. The increase of ~~$5.9~~$2.1 million, or ~~14.8%~~3.3%, was primarily attributable to an increase of ~~$12.9~~$13.2 million in net interest income, partially offset by an increase of ~~$5.0~~$9.5 million in the provision for loan losses ~~and an increase of $2.1 million in the provision for income taxes~~ as compared to the same period last year. Pre-tax, pre-provision net earnings increased by ~~$12.9~~$12.4 million, or ~~25.3%~~15.1%, for the ~~six~~nine months ended ~~June~~September 30, 2022 as compared to the same period last year.

Net Interest Income

Net interest income increased by ~~$12.9~~$13.2 million, or ~~16.2%~~10.6%, to ~~$92.5~~$138.0 million for the ~~six~~nine months ended ~~June~~September 30, 2022 from ~~$79.6~~$124.7 million for the same period last year ~~primarily~~ due to ~~a decrease in~~higher interest income on loans and investments and lower interest expense on deposits, related to a decline in the cost of interest-bearing deposits, as well as an increase in interest income on loans primarily due to an improvement in the earnings on our swaps and an increase in the average balance of loans compared to the same period last year, partially offset by ~~the prepayment of~~ higher ~~yielding loans, which were replaced by loans at lower interest rates. Additionally, interest income on investments increased due to an increase in yield and~~ interest expense on FHLB advances declined due to decreases in the average balance and cost of FHLB advances compared to the same period last year. As compared to the prior year, the average balance of our loan portfolio increased by $137.3 million, while the yield on loans did not change and the the average balance and yield on investments increased $18.3 million and 30 basis points, respectively. The average balance and cost of interest bearing deposits increased $167.2 million and decreased 34 basis points, respectively, and the average balance and cost of FHLB advances decreased by $87.4 million and 7 basis points, respectively, as compared to the same period last year.

~~Table of Contents~~

advances.

Net interest margin for the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~2.58%~~2.52% compared to ~~2.27%~~2.34% for the same period last year. The increase in our margin was primarily related to a 3116 basis point ~~decline~~increase in the ~~cost~~yield of our ~~interest-bearing liabilities.~~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 ~~six~~nine months ended ~~June~~September 30, 2022 and 2021. The average balances are daily averages.

For the Six Months Ended June 30,
2022 2021
(Dollars in thousands) Average Balance Interest Inc/Exp Yield/Rate Average Balance Interest Inc/Exp Yield/Rate
Interest-Earning Assets
Multifamily residential $ 4,265,584 $ 79,038 3.71 % $ 4,155,475 $ 75,501 3.63 %
Single family residential 1,914,875 26,456 2.76 % 1,880,852 27,573 2.93 %
Commercial real estate 191,776 4,460 4.65 % 200,220 4,537 4.53 %
Construction and land 23,077 591 5.16 % 21,455 638 6.00 %
Total loans (1) 6,395,312 110,545 3.46 % 6,258,002 108,249 3.46 %
Investment securities 650,304 5,163 1.59 % 632,014 4,074 1.29 %
Cash, cash equivalents and restricted cash 127,479 265 0.42 % 124,494 84 0.14 %
Total interest-earning assets 7,173,095 115,973 3.23 % 7,014,510 112,407 3.20 %
Noninterest-earning assets (2) 101,204 62,164
Total assets $ 7,274,299 $ 7,076,674
Interest-Bearing Liabilities
Transaction accounts $ 172,351 183 0.21 % $ 153,638 171 0.22 %
Money market demand accounts 3,007,908 7,189 0.48 % 2,127,491 5,690 0.53 %
Time deposits 2,213,867 5,561 0.50 % 2,945,807 15,494 1.05 %
Total deposits 5,394,126 12,933 0.48 % 5,226,936 21,355 0.82 %
FHLB advances 812,685 6,725 1.67 % 900,107 7,772 1.74 %
Junior subordinated debentures 61,857 660 2.15 % 61,857 514 1.68 %
Senior debt 94,688 3,149 6.65 % 94,565 3,148 6.66 %
Total interest-bearing liabilities 6,363,356 23,467 0.74 % 6,283,465 32,789 1.05 %
Noninterest-bearing deposit accounts 156,717 100,133
Other noninterest-bearing liabilities 80,196 63,135
Total liabilities 6,600,269 6,446,733
Total stockholders' equity 674,030 629,941
Total liabilities and stockholders' equity $ 7,274,299 $ 7,076,674
Net interest spread (3) 2.49 % 2.15 %
Net interest income/margin (4) $ 92,506 2.58 % $ 79,618 2.27 %

Table of Contents


	For the Nine Months Ended September 30,
	2022						2021
(Dollars in thousands)	Average Balance		Interest Inc/Exp		Yield/Rate		Average Balance		Interest Inc/Exp		Yield/Rate
Interest-Earning Assets
Multifamily residential	$	4,327,355	$	120,306	3.71	%	$	4,198,616	$	115,542	3.67	%
Single family residential	1,976,356		45,115		3.04	%	1,903,550		40,787		2.86	%
Commercial real estate	189,499		6,597		4.64	%	198,073		6,750		4.54	%
Construction and land	21,960		893		5.44	%	19,730		927		6.28	%
Total loans (1)	6,515,170		172,911		3.54	%	6,319,969		164,006		3.46	%
Investment securities	660,069		9,290		1.88	%	645,343		6,287		1.30	%
Cash and cash equivalents	118,452		812		0.92	%	148,630		162		0.15	%
Total interest-earning assets	7,293,691		183,013		3.35	%	7,113,942		170,455		3.19	%
Noninterest-earning assets (2)	110,459						64,614
Total assets	$	7,404,150					$	7,178,556
Interest-Bearing Liabilities
Transaction accounts	$	171,148	279		0.21	%	$	155,568	263		0.22	%
Money market demand accounts	3,007,085		14,603		0.64	%	2,301,417		8,711		0.50	%
Time deposits	2,250,523		12,136		0.71	%	2,849,131		19,916		0.92	%
Total deposits	5,428,756		27,018		0.66	%	5,306,116		28,890		0.72	%
FHLB advances	899,838		12,071		1.79	%	907,998		11,345		1.67	%
Junior subordinated debentures	61,857		1,220		2.64	%	61,857		763		1.65	%
Senior debt	94,704		4,724		6.65	%	94,581		4,723		6.66	%
Total interest-bearing liabilities	6,485,155		45,033		0.92	%	6,370,552		45,721		0.95	%
Noninterest-bearing deposit accounts	159,504						107,789
Other noninterest-bearing liabilities	82,935						63,745
Total liabilities	6,727,594						6,542,086
Total stockholders' equity	676,556						636,470
Total liabilities and stockholders' equity	$	7,404,150					$	7,178,556

Net interest spread (3)					2.43	%					2.24	%
Net interest income/margin (4)			$	137,980	2.52	%			$	124,734	2.34	%

(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 ~~$8.8~~$11.2 million and ~~$9.8~~$15.0 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively.

(2) Noninterest-earning assets includes the allowance for loan 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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~~interest-bearing liabilities during the periods indicated.~~


		Six Months Ended June 30, 2022 vs 2021							Nine Months Ended September 30, 2022 vs 2021
		Variance Due To							Variance Due To
(Dollars in thousands)	(Dollars in thousands)	Volume		Yield/Rate		Total		(Dollars in thousands)	Volume		Yield/Rate		Total
Interest-Earning Assets	Interest-Earning Assets							Interest-Earning Assets
Multifamily residential	Multifamily residential	$	1,931	$	1,606	$	3,537	Multifamily residential	$	3,514	$	1,250	$	4,764
Single family residential	Single family residential	494		(1,611)		(1,117)		Single family residential	1,636		2,692		4,328
Commercial real estate	Commercial real estate	(195)		118		(77)		Commercial real estate	(299)		146		(153)
Construction and land	Construction and land	47		(94)		(47)		Construction and land	98		(132)		(34)
Total loans	Total loans	2,277		19		2,296		Total loans	4,949		3,956		8,905
Investment securities	Investment securities	121		968		1,089		Investment securities	147		2,856		3,003
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	2		179		181		Cash, cash equivalents and restricted cash	(41)		691		650
Total interest-earning assets	Total interest-earning assets	2,400		1,166		3,566		Total interest-earning assets	5,055		7,503		12,558
Interest-Bearing Liabilities	Interest-Bearing Liabilities							Interest-Bearing Liabilities
Transaction accounts	Transaction accounts	20		(8)		12		Transaction accounts	27		(11)		16
Money market demand accounts	Money market demand accounts	2,087		(588)		1,499		Money market demand accounts	3,080		2,812		5,892
Time deposits	Time deposits	(3,204)		(6,729)		(9,933)		Time deposits	(3,731)		(4,049)		(7,780)
Total deposits	Total deposits	(1,097)		(7,325)		(8,422)		Total deposits	(624)		(1,248)		(1,872)
FHLB advances	FHLB advances	(740)		(307)		(1,047)		FHLB advances	(101)		827		726
Junior subordinated debentures	Junior subordinated debentures	—		146		146		Junior subordinated debentures	—		457		457
Senior debt	Senior debt	5		(4)		1		Senior debt	7		(6)		1
Total interest-bearing liabilities	Total interest-bearing liabilities	(1,832)		(7,490)		(9,322)		Total interest-bearing liabilities	(718)		30		(688)

Net Interest Income	Net Interest Income	$	4,232	$	8,656	$	12,888	Net Interest Income	$	5,773	$	7,473	$	13,246

Total interest income increased by ~~$3.6~~$12.6 million, or ~~3.2%~~7.4%, for the ~~six~~nine months ended ~~June~~September 30, 2022 as compared to the same period last year. The increase was primarily due to growth in the average balance of loans of $195.2 million during the period, as well as an 8 basis point increase in loan yields. The average balance of loans benefited from strong loan origination volumes and a ~~$2.3 million improvement in interest income earned on loans resulting predominantly from~~gradual slowing of prepayment speeds as compared to the same period last year, while loan yields improved as a ~~$7.1~~result of a $10.7 million improvement in the earnings on our swaps, partially offset by the prepayment of higher yielding loans, which, prior to this quarter, were generally being replaced by loans at lower interest rates. Additionally, interest income on investments increased ~~$1.1~~$3.0 million primarily due to a 3058 basis increase in yield compared to the same period last year due to rising market interest rates. As discussed above, at September 30, 2022, 43% of our investments were in their floating rate period and had a weighted average repricing frequency of 2.9 months.

The volume of new loans originated totaled ~~$1.3~~$1.8 billion and ~~$1.1~~$1.6 billion for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. The weighted average interest rate on new loans for the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~3.37%~~3.74% as compared to 3.34% for the same period last year. During the ~~six~~nine months ended ~~June~~September 30, 2021, we purchased a pool of single family loans, which was a strategic response to continued elevated loan prepayments. This purchase is excluded from the total volume of new loans originated discussed above. Loan prepayment speeds were ~~25.1%~~22.0% and ~~26.5%~~27.1% during the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. The decrease in prepayment speeds was due to rising market interest rates, which impacted refinancing activity during the current year to date period. The weighted average rate on loan payoffs/curtailments during the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~3.78%~~3.81% as compared to ~~4.00%~~3.95% for the same period last year.

Total interest expense decreased ~~$9.3 million,~~$688 thousand, or ~~28.4%~~1.5%, to ~~$23.5~~$45.0 million for the ~~six~~nine months ended ~~June~~September 30, 2022 from ~~$32.8~~$45.7 million for the same period last year. Interest expense on deposits decreased ~~$8.4~~$1.9 million primarily due to the cost of interest-bearing deposits decreasing 346 basis points. The decrease in our cost of interest-bearing deposits during the nine months ended September 30, 2022 compared to the same period last year was predominantly due to the maturity of time deposits during the ~~second~~latter half of 2021 that repriced to lower interest rates at that time and, to a lesser extent, a ~~$731.9~~$598.6 million decrease in the average balance of time deposits, which, prior to this quarter, were generally replaced with other lower cost deposit products. Interest expense on advances from

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the FHLB ~~decreased~~increased by ~~$1.0 million~~$726 thousand during the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same period last year, due to ~~a decrease~~an increase in the average ~~balance and~~ cost of FHLB advances of ~~$87.4 million and 7~~12 basis points ~~respectively.~~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.’’

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Provision for Loan Losses

For the ~~six~~nine months ended ~~June~~September 30, 2022, we recorded no$500 thousand in loan loss provisions ~~on a net basis,~~ as compared to recording a reversal of loan loss provisions of ~~$5.0~~$9.0 million for the same period last year. During the ~~six~~nine months ended ~~June~~September 30, 2022, loan loss provisions recorded in the second ~~quarter~~and third quarters were primarily due to loan growth and ~~an increase~~incremental changes in classified loan balances. These loan loss provisions were ~~entirely~~partially offset by a reversal of loan loss provisions recorded in the first quarter related to the remaining portion of qualitative reserves for uncertain economic risks established early in the pandemic that were deemed unnecessary. The loan loss provisions ~~reversed~~recaptured during the ~~six~~nine months ended ~~June~~September 30, 2021 were predominantly due to the reversal of a portion of our pandemic related qualitative reserves, as well as an improvement in the level of our criticized loans during that period.

Noninterest Income

Noninterest income decreased by ~~$399~~$561 thousand, or ~~48.7%~~44.9%, to ~~$420~~$689 thousand for the ~~six~~nine months ended ~~June~~September 30, 2022 from ~~$819 thousand~~$1.3 million for the same period last year.

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


		For the Six Months Ended June 30,									For the Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		$ Increase (Decrease)		% Increase (Decrease)		(Dollars in thousands)	2022		2021		$ Increase (Decrease)		% Increase (Decrease)
Noninterest Income	Noninterest Income									Noninterest Income

FHLB dividends	FHLB dividends	$	696	$	738	$	(42)	(5.7)	%	FHLB dividends	$	1,059	$	1,145	$	(86)	(7.5)	%
Fee income	Fee income	517		131		386		294.7	%	Fee income	640		149		491		329.5	%
Other	Other	(793)		(50)		(743)		1486.0	%	Other	(1,010)		(44)		(966)		2195.5	%
Total noninterest income	Total noninterest income	$	420	$	819	$	(399)	(48.7)	%	Total noninterest income	$	689	$	1,250	$	(561)	(44.9)	%

The decrease in noninterest income for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the ~~six~~nine months ended ~~June~~September 30, 2021 was primarily due to a ~~$743 thousand~~$1.1 million net decrease in the fair value of equity securities during the current period compared to the same period last year, partially offset by a ~~$386~~$491 thousand increase in fee income primarily related to deposit accounts.

Noninterest Expense

Noninterest expense ~~decreased $447~~increased $294 thousand, or ~~1.5%~~0.7%, to ~~$28.8~~$44.2 million for the ~~six~~nine months ended ~~June~~September 30, 2022 from ~~$29.3~~$43.9 million for the same period last year.

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


		For the Six Months Ended June 30,									For the Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		$ Increase (Decrease)		% Increase (Decrease)		(Dollars in thousands)	2022		2021		$ Increase (Decrease)		% Increase (Decrease)
Noninterest Expense	Noninterest Expense									Noninterest Expense
Compensation and related benefits	Compensation and related benefits	$	17,289	$	19,021	$	(1,732)	(9.1)	%	Compensation and related benefits	$	26,146	$	28,617	$	(2,471)	(8.6)	%
Deposit insurance premium	Deposit insurance premium	960		939		21		2.2	%	Deposit insurance premium	1,468		1,431		37		2.6	%
Occupancy	Occupancy	2,391		2,472		(81)		(3.3)	%	Occupancy	3,590		3,735		(145)		(3.9)	%
Depreciation and amortization	Depreciation and amortization	1,349		1,333		16		1.2	%	Depreciation and amortization	2,155		1,958		197		10.1	%
Professional and regulatory fees	Professional and regulatory fees	1,173		1,098		75		6.8	%	Professional and regulatory fees	1,812		1,543		269		17.4	%
Data processing										Data processing	3,039		2,729		310		11.4	%
Marketing	Marketing	983		527		456		86.5	%	Marketing	2,194		907		1,287		141.9	%
Data processing		1,995		1,846		149		8.1	%
Other expenses	Other expenses	2,697		2,048		649		31.7	%	Other expenses	3,809		2,999		810		27.0	%
Total noninterest expense	Total noninterest expense	$	28,837	$	29,284	$	(447)	(1.5)	%	Total noninterest expense	$	44,213	$	43,919	$	294	0.7	%

The ~~decrease~~increase in noninterest expense during the ~~six~~nine months ended ~~June~~September 30, 2022 as compared to the same period last year was primarily attributable to a ~~$1.7~~$1.3 million ~~decline~~increase in ~~compensation~~marketing costs ~~mainly due~~attributed to ~~an increase in~~

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~~capitalized salaries related to increased loan production volumes compared to the same period last year. This decrease was partially offset by~~deposit gathering efforts and a ~~$649~~$810 thousand increase in other expenses primarily related to an increase in down payment assistance costs associated with our program to support home ownership for low-to-moderate income ~~borrowers, as well as~~borrowers. These increased costs were partially offset by a ~~$456 thousand~~$2.5 million decline in compensation costs primarily due to a decline in the required accrual for post-employment related retirement benefits resulting from an increase in ~~marketing~~interest rates and an increase in capitalized salaries related to increased loan production volumes, partially offset by increases in general compensation costs ~~attributed~~compared to ~~deposit gathering efforts.~~the same period last year.

Income Tax Expense

For the ~~six~~nine months ended ~~June~~September 30, 2022, we recorded income tax expense of ~~$18.6~~$27.4 million as compared to ~~$16.5~~$26.7 million for the same period last year with effective tax rates of ~~29.0%~~29.2% and ~~29.4%~~29.3%, respectively. ~~Compared to the same period last year, the increase in income tax expense was primarily due to our higher pre-tax earnings during the six months ended June 30, 2022.~~

Financial Condition - As of ~~June~~September 30, 2022 and December 31, 2021

Total assets at ~~June~~September 30, 2022 were ~~$7.5~~$7.9 billion, an increase of ~~$350.6~~$741.6 million, or ~~4.9%~~10.3%, from December 31, 2021. The increase was primarily due to a ~~$340.4~~$557.0 million increase in loans and a ~~$44.6~~$118.2 million increase ~~in prepaid expenses and other assets, partially offset by a $51.9 million decline~~ in cash and cash equivalents as compared to December 31, 2021. Total liabilities were ~~$6.9~~$7.2 billion at quarter end, an increase of ~~$348.1~~$734.1 million, or ~~5.3%~~11.3%, from December 31, 2021. The increase in total liabilities was primarily attributable to a ~~$203.3~~$450.0 million increase in FHLB advances and growth of ~~$130.5~~$256.1 million 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 ~~June~~September 30, 2022 and December 31, 2021, our total loans amounted to ~~$6.6~~$6.9 billion and $6.3 billion, respectively. The following table presents the balance and associated percentage of each major product type within our portfolio as of the dates indicated.

As of June 30, 2022 As of December 31, 2021
(Dollars in thousands) Amount % of total Amount % of total
Real estate loans
Multifamily residential $ 4,384,357 66.6 % $ 4,183,194 66.9 %
Single family residential 1,986,236 30.2 % 1,859,524 29.8 %
Commercial real estate 184,115 2.8 % 186,531 3.0 %
Construction and land 27,265 0.4 % 18,094 0.3 %
Total loans before deferred items 6,581,973 100.0 % 6,247,343 100.0 %
Deferred loan costs, net 55,856 50,077
Total loans $ 6,637,829 $ 6,297,420

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	As of September 30, 2022				As of December 31, 2021
(Dollars in thousands)	Amount		% of total		Amount		% of total
Real estate loans
Multifamily residential	$	4,463,812	65.6	%	$	4,183,194	66.9	%
Single family residential	2,131,855		31.4	%	1,859,524		29.8	%
Commercial real estate	181,421		2.7	%	186,531		3.0	%
Construction and land	18,004		0.3	%	18,094		0.3	%

Total loans before deferred items	6,795,092		100.0	%	6,247,343		100.0	%
Deferred loan costs, net	59,363				50,077
Total loans	$	6,854,455			$	6,297,420

The relative composition of the loan portfolio has not changed significantly over the past several years. Our primary focus remains multifamily real estate lending, which constituted 66% and 67% of our portfolio at ~~both June~~September 30, 2022 and December 31, ~~2021.~~2021, respectively. Single family residential lending is our secondary lending emphasis and represented 31% and 30% of our portfolio at ~~both June~~September 30, 2022 and December 31, ~~2021.~~2021, respectively.

We recognize that 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 ~~560%~~562% and 551% as of ~~June~~September 30, 2022 and December 31, 2021, respectively. Our single family loans as a percentage of risk-based capital were ~~255%~~269% and 246% as of the same dates. Additionally, our loans are geographically concentrated with borrowers and collateral properties on the West Coast. At ~~June~~September 30, 2022, ~~62%~~61%, 27% and 9% of our real estate loans were collateralized by properties in southern California counties, northern California counties and Washington, respectively, compared to 63%, 26% and 9%, respectively, at December 31, 2021.

Our lending strategy has been to 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.

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We had a small portfolio of construction loans with commitments (funded and unfunded) totaling ~~$42.3~~$32.9 million and $38.1 million at ~~June~~September 30, 2022 and December 31, 2021, respectively. As of ~~June~~September 30, 2022, the average loan commitment for our single family construction product, which includes small tract housing and condominium projects, and our multifamily residential construction loans was ~~$6.0~~$6.3 million and ~~$6.1~~$3.9 million, respectively, compared to $5.1 million and $6.4 million, respectively, at December 31, 2021. Our construction lending 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.

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


		Three Months Ended				Six Months Ended				Three Months Ended						Nine Months Ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2022		March 31, 2022			June 30, 2022				June 30, 2021		(Dollars in thousands)	September 30, 2022		June 30, 2022		September 30, 2022		September 30, 2021
Loan increases:	Loan increases:												Loan increases:
Multifamily residential	Multifamily residential	$	495,594	$	297,128		$	792,721			$	710,250	Multifamily residential	$	292,234	$	495,594	$	1,084,956	$	966,570
Single family residential	Single family residential	231,383		251,964			483,347				388,973		Single family residential	231,249		231,383		714,596		592,627
Commercial real estate	Commercial real estate	5,990		14,420			20,410				2,000		Commercial real estate	4,062		5,990		24,471		2,000
Construction and land	Construction and land	—		5,400			5,400				19,200		Construction and land	2,592		—		7,992		20,657

Purchases	Purchases	—		—			—				287,751		Purchases	—		—		—		287,751
Total loans originated and purchased	Total loans originated and purchased	732,967		568,912			1,301,878				1,408,174		Total loans originated and purchased	530,137		732,967		1,832,015		1,869,605

Loan decreases:	Loan decreases:												Loan decreases:
Loan principal reductions and payoffs	Loan principal reductions and payoffs	(462,112)		(495,715)			(957,827)				(996,823)		Loan principal reductions and payoffs	(306,184)		(462,112)		(1,264,011)		(1,557,667)

Portfolio loan sales													Portfolio loan sales	—		—		—		(1,706)

Other (1)	Other (1)	657		(4,299)			(3,642)				(17,527)		Other (1)	(7,327)		657		(10,969)		(16,187)
Total loan outflows	Total loan outflows	(461,455)		(500,014)			(961,469)				(1,014,350)		Total loan outflows	(313,511)		(461,455)		(1,274,980)		(1,575,560)
Net change in total loan portfolio	Net change in total loan portfolio	$	271,512	$	68,898		$	340,409			$	393,824	Net change in total loan portfolio	$	216,626	$	271,512	$	557,035	$	294,045

(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.	(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.								(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.

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 ~~June~~September 30, 2022, our multifamily real estate portfolio had an average loan balance of $1.7 million, an average unit count of ~~13.8~~13.7 units, a weighted average loan to value of ~~57.1%~~57.0% and a weighted average debt service coverage ratio of 1.5 times, as compared to an average loan balance of $1.6 million, an average unit count of 14.0 units, a weighted average loan to value of 56.9% and a weighted average debt service coverage ratio of 1.5 times at December 31, 2021.

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 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 ~~June~~September 30, 2022, our single family residential real estate portfolio had an average loan balance of ~~$882~~$903 thousand, a weighted average loan to value of ~~63.3%~~63.8% and a weighted average credit score at origination/refreshed of ~~761.~~759. At December 31, 2021, our single family residential real estate portfolio had an average loan balance of $859 thousand, a weighted average loan to value of 62.5% and a weighted average credit score at origination/refreshed of 759.

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Commercial real estate loans. While not a large part of our portfolio during any period presented, we also lend on nonresidential commercial real estate. Our commercial real estate loans are generally used to finance the purchase or refinance of established multi-tenant industrial, office and retail sites. At ~~June~~September 30, 2022, our commercial real estate portfolio had an average loan balance of $2.2 million, a weighted average loan to value of ~~53.6%~~53.3% and a weighted average debt service coverage ratio of ~~1.7~~1.8 times, as compared to an average loan balance of $2.1 million, a weighted average loan to value of 54.2% and a weighted average debt service coverage ratio of 1.7 times at December 31, 2021.

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Construction and land. Other categories of loans included in our portfolio consist of construction and land loans. Construction loans include a single family construction product, which includes small tract housing and condominium projects, and multifamily construction projects.

The following table sets forth the contractual maturity distribution of our loan portfolio:


(Dollars in thousands)	(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		(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 June 30, 2022:
As of September 30, 2022:												As of September 30, 2022:
Loans	Loans											Loans
Real estate mortgage loans:	Real estate mortgage loans:											Real estate mortgage loans:
Multifamily residential	Multifamily residential	$	17	$	772	$	38,793	$	4,344,775	$	4,384,357	Multifamily residential	$	40	$	698	$	38,598	$	4,424,476	$	4,463,812
Single family residential	Single family residential	6		618		54,723		1,930,889		1,986,236		Single family residential	25		531		52,705		2,078,594		2,131,855
Commercial real estate	Commercial real estate	—		19,164		164,951		—		184,115		Commercial real estate	—		22,082		159,339		—		181,421
Construction and land	Construction and land	15,464		11,801		—		—		27,265		Construction and land	13,498		4,506		—		—		18,004
Total loans	Total loans	$	15,487	$	32,355	$	258,467	$	6,275,664	$	6,581,973	Total loans	$	13,563	$	27,817	$	250,642	$	6,503,070	$	6,795,092

Fixed interest rates	Fixed interest rates	$	—	$	199	$	47,139	$	263,980	$	311,318	Fixed interest rates	$	—	$	198	$	45,925	$	267,515	$	313,638
Floating or hybrid adjustable rates	Floating or hybrid adjustable rates	15,487		32,156		211,328		6,011,684		6,270,655		Floating or hybrid adjustable rates	13,563		27,619		204,717		6,235,555		6,481,454
Total loans	Total loans	$	15,487	$	32,355	$	258,467	$	6,275,664	$	6,581,973	Total loans	$	13,563	$	27,817	$	250,642	$	6,503,070	$	6,795,092
As of December 31, 2021:	As of December 31, 2021:											As of December 31, 2021:
Loans	Loans											Loans
Real estate mortgage loans:	Real estate mortgage loans:											Real estate mortgage loans:
Multifamily residential	Multifamily residential	$	30	$	2,225	$	37,730	$	4,143,209	$	4,183,194	Multifamily residential	$	30	$	2,225	$	37,730	$	4,143,209	$	4,183,194
Single family residential	Single family residential	27		631		56,858		1,802,008		1,859,524		Single family residential	27		631		56,858		1,802,008		1,859,524
Commercial real estate	Commercial real estate	—		11,403		175,128		—		186,531		Commercial real estate	—		11,403		175,128		—		186,531
Construction and land	Construction and land	10,648		7,446		—		—		18,094		Construction and land	10,648		7,446		—		—		18,094
Total loans	Total loans	$	10,705	$	21,705	$	269,716	$	5,945,217	$	6,247,343	Total loans	$	10,705	$	21,705	$	269,716	$	5,945,217	$	6,247,343

Fixed interest rates	Fixed interest rates	$	—	$	201	$	49,385	$	240,337	$	289,923	Fixed interest rates	$	—	$	201	$	49,385	$	240,337	$	289,923
Floating or hybrid adjustable rates	Floating or hybrid adjustable rates	10,705		21,504		220,331		5,704,880		5,957,420		Floating or hybrid adjustable rates	10,705		21,504		220,331		5,704,880		5,957,420
Total loans	Total loans	$	10,705	$	21,705	$	269,716	$	5,945,217	$	6,247,343	Total loans	$	10,705	$	21,705	$	269,716	$	5,945,217	$	6,247,343

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 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 ~~June~~September 30, 2022 and December 31, 2021, ~~$5.1~~$4.9 billion and $4.8 billion, respectively, of our floating or hybrid adjustable rate loans were at their floor rates. The weighted average minimum interest rate on loans at their floor rates was ~~3.64%~~3.67% and 3.75% at ~~June~~September 30, 2022 and December 31, 2021, respectively. Hybrid adjustable rate loans still within their initial fixed term totaled ~~$5.5~~$5.6 billion and $5.1 billion at ~~June~~September 30, 2022 and December 31, 2021, respectively. These loans had a weighted average term to first repricing date of 3.8 years and 3.6 years at ~~June~~September 30, 2022 and December 31, 2021, respectively.

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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 origination. Particular emphasis is placed on our commercial portfolio where risk assessments are re-evaluated as a result of reviewing commercial property

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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, among other factors. On an ongoing basis, we also monitor payment performance, delinquencies, and tax and property insurance compliance, as well as any other pertinent information that may be available to determine the collectability of a loan. We believe our practices facilitate the early detection and remediation of problems within our loan portfolio. Assigned risk ratings, as well as the evaluation of other credit metrics, 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 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 restructurings. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered TDRs. Concessions could include reductions of interest rates, extension of the maturity date at a rate lower than the 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:


(Dollars in thousands)	(Dollars in thousands)	June 30, 2022			December 31, 2021			(Dollars in thousands)	September 30, 2022			December 31, 2021
Non-accrual loans	Non-accrual loans							Non-accrual loans
Multifamily residential portfolio	Multifamily residential portfolio	$	852		$	505		Multifamily residential portfolio	$	843		$	505
Single family residential portfolio	Single family residential portfolio	4,178			1,788			Single family residential portfolio	2,987			1,788

Total non-accrual loans	Total non-accrual loans	5,030			2,293			Total non-accrual loans	3,830			2,293
Real estate owned	Real estate owned	—			—			Real estate owned	—			—
Total nonperforming assets	Total nonperforming assets	$	5,030		$	2,293		Total nonperforming assets	$	3,830		$	2,293
Performing TDRs	Performing TDRs	$	1,179		$	1,204		Performing TDRs	$	811		$	1,204
Allowance for loan losses to period end nonperforming loans	Allowance for loan losses to period end nonperforming loans	706.46		%	1,549.72		%	Allowance for loan losses to period end nonperforming loans	940.86		%	1,549.72		%
Nonperforming loans to period end loans	Nonperforming loans to period end loans	0.08		%	0.04		%	Nonperforming loans to period end loans	0.06		%	0.04		%
Nonperforming assets to total assets	Nonperforming assets to total assets	0.07		%	0.03		%	Nonperforming assets to total assets	0.05		%	0.03		%
Nonperforming loans plus performing TDRs to total loans	Nonperforming loans plus performing TDRs to total loans	0.09		%	0.06		%	Nonperforming loans plus performing TDRs to total loans	0.07		%	0.06		%

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

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Interest income recognized on non-accrual loans subsequent to their classification as non-accrual totaled $45 thousand and $27 thousand ~~for both~~ the three months ended September 30, 2022 and June 30, 2022, ~~and March 31, 2022 and $54 thousand~~respectively, and $99 thousand and $107 thousand for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. The Company recorded interest income related to performing TDR loans of $10 thousand ~~and $9 thousand~~ for both the three months ended September 30, 2022 and June 30, 2022, and ~~March 31, 2022, respectively, and $19~~$28 thousand and ~~$39~~$77 thousand for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. Gross interest income that would have been recorded on non-accrual loans had they been current in accordance with their original terms was ~~$44~~$51 thousand and ~~$27~~$44 thousand for the three months ended September 30, 2022 and June 30, 2022, ~~and March 31, 2022,~~ respectively, and ~~$71~~$122 thousand and ~~$115~~$21 thousand for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively.

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Allowance for loan losses. Our allowance for loan losses is maintained at a level management believes is adequate to account for probable incurred credit losses in the loan portfolio as of the reporting date. We determine the allowance based on a quarterly evaluation of risk. That evaluation gives consideration to the nature of the loan portfolio, historical loss experience, known and inherent risks 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. 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.

Our allowance is established through charges to the provision for loan losses. Loans, or portions of loans, deemed to be uncollectible are charged against the allowance. Recoveries of previously charged-off amounts are credited to our allowance for loan 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 an indicator of any future loss trends.

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


		Three Months Ended						Six Months Ended							Three Months Ended					Nine Months Ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2022			March 31, 2022				June 30, 2022				June 30, 2021			(Dollars in thousands)	September 30, 2022			June 30, 2022			September 30, 2022			September 30, 2021

Allowance for loan losses at beginning of period	Allowance for loan losses at beginning of period	$	33,035		$	35,535			$	35,535			$	46,214		Allowance for loan losses at beginning of period	$	35,535		$	33,035		$	35,535		$	46,214
Charge-offs:	Charge-offs:															Charge-offs:
Multifamily residential	Multifamily residential	—			—				—				—			Multifamily residential	—			—			—			—
Single family residential	Single family residential	—			—				—				—			Single family residential	—			—			—			—
Commercial real estate	Commercial real estate	—			—				—				—			Commercial real estate	—			—			—			—
Construction and land	Construction and land	—			—				—				—			Construction and land	—			—			—			—
Total charge-offs	Total charge-offs	—			—				—				—			Total charge-offs	—			—			—			—
Recoveries:	Recoveries:															Recoveries:

Single family residential	Single family residential	—			—				—				64			Single family residential	—			—			—			64

Construction and land	Construction and land	—			—				—				57			Construction and land	—			—			—			57
Total recoveries	Total recoveries	—			—				—				121			Total recoveries	—			—			—			121
Net recoveries	Net recoveries	—			—				—				121			Net recoveries	—			—			—			121
Provision for (reversal of) loan losses	Provision for (reversal of) loan losses	2,500			(2,500)				—				(5,000)			Provision for (reversal of) loan losses	500			2,500			500			(9,000)
Allowance for loan losses at period end	Allowance for loan losses at period end	$	35,535		$	33,035			$	35,535			$	41,335		Allowance for loan losses at period end	$	36,035		$	35,535		$	36,035		$	37,335
Allowance for loan losses to period end loans held for investment	Allowance for loan losses to period end loans held for investment	0.54		%	0.52		%		0.54		%		0.64		%	Allowance for loan losses to period end loans held for investment	0.53		%	0.54		%	0.53		%	0.59		%
Annualized net recoveries to average loans:	Annualized net recoveries to average loans:											Annualized net recoveries to average loans:
Multifamily residential	Multifamily residential	—		%	—		%		—		%		—		%	Multifamily residential	—		%	—		%	—		%	—		%
Single family residential	Single family residential	—		%	—		%		—		%		(0.01)		%	Single family residential	—		%	—		%	—		%	(0.00)		%
Commercial real estate	Commercial real estate	—		%	—		%		—		%		—		%	Commercial real estate	—		%	—		%	—		%	—		%
Construction and land	Construction and land	—		%	—		%		—		%		(0.53)		%	Construction and land	—		%	—		%	—		%	(0.39)		%
Annualized net recoveries to average loans	Annualized net recoveries to average loans	—		%	—		%		—		%		(0.00)		%	Annualized net recoveries to average loans	—		%	—		%	—		%	(0.00)		%

Investment Portfolio

Our investment portfolio is generally comprised of government agency securities which are high-quality liquid investments under Basel III. The portfolio is primarily maintained to serve as a contingent, on-balance sheet source of liquidity and as such, is 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, although we occasionally purchase long-term

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fixed rate mortgage backed securities or municipal securities for community reinvestment purposes and classify those as 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:


		June 30, 2022				December 31, 2021					September 30, 2022				December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Book Value		% of Total		Book Value		% of Total		(Dollars in thousands)	Book Value		% of Total		Book Value		% of Total
Available for sale debt securities:	Available for sale debt securities:									Available for sale debt securities:
Government and Government Sponsored Entities:	Government and Government Sponsored Entities:									Government and Government Sponsored Entities:
Commercial mortgage backed securities ("MBS") and collateralized mortgage obligations ("CMOs")	Commercial mortgage backed securities ("MBS") and collateralized mortgage obligations ("CMOs")	$	401,175	59.40	%	$	407,746	61.52	%	Commercial mortgage backed securities ("MBS") and collateralized mortgage obligations ("CMOs")	$	380,852	58.24	%	$	407,746	61.52	%
Residential MBS and CMOs	Residential MBS and CMOs	208,432		30.87	%	200,133		30.19	%	Residential MBS and CMOs	193,541		29.60	%	200,133		30.19	%
Agency bonds	Agency bonds	25,801		3.82	%	10,831		1.63	%	Agency bonds	40,089		6.13	%	10,831		1.63	%
Other asset backed securities	Other asset backed securities	26,024		3.85	%	28,607		4.32	%	Other asset backed securities	25,991		3.97	%	28,607		4.32	%
Total available for sale debt securities	Total available for sale debt securities	661,432		97.94	%	647,317		97.66	%	Total available for sale debt securities	640,473		97.94	%	647,317		97.66	%
Held to maturity:	Held to maturity:									Held to maturity:
Government Sponsored Entities:	Government Sponsored Entities:									Government Sponsored Entities:
Residential MBS	Residential MBS	3,097		0.46	%	3,761		0.57	%	Residential MBS	3,072		0.47	%	3,761		0.57	%
Other investments	Other investments	65		0.01	%	68		0.01	%	Other investments	63		0.01	%	68		0.01	%
Total held to maturity debt securities	Total held to maturity debt securities	3,162		0.47	%	3,829		0.58	%	Total held to maturity debt securities	3,135		0.48	%	3,829		0.58	%
Equity securities	Equity securities	10,772		1.59	%	11,693		1.76	%	Equity securities	10,317		1.58	%	11,693		1.76	%
Total investment securities	Total investment securities	$	675,366	100.00	%	$	662,839	100.00	%	Total investment securities	$	653,925	100.00	%	$	662,839	100.00	%

Prepaid Expenses and Other Assets

Prepaid expenses and other assets totaled $121.3 million at September 30, 2022 compared to $56.3 million at December 31, 2021, an increase of $65.1 million, or 115.6%. This increase was primarily due to a $24.3 million increase in the fair value of our swaps due to rising interest rates, an additional $17.6 million investment in CRA qualified activities, a $13.0 million increase in deferred tax assets related to the decline in the fair value of available for sale investment securities and the recording of right-of-use assets related to the adoption of the new lease accounting standard on January 1, 2022, currently totaling $12.8 million. The new lease standard requires lessees to record a right-of-use asset and lease liability for all long-term lease obligations.

Deposits

Representing ~~82.6%~~80.0% of our total liabilities as of ~~June~~September 30, 2022, deposits are our primary source of funding for our business operations. We have historically maintained and grown our deposit customer base in various rate environments based on our strong customer relationships, evidenced in part by increased deposits over recent years, as well as our reputation as a safe, sound, secure and "well-capitalized" institution and our commitment to excellent customer service. We are 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 newer emphasis placed on specialty/business affiliations and transaction accounts. When competitively priced and/or for asset liability management purposes, we will supplement our deposits with wholesale deposits.

Total deposits increased by ~~$130.5~~$256.1 million, or ~~2.4%~~4.6%, to ~~$5.7~~$5.8 billion at ~~June~~September 30, 2022 from $5.5 billion at December 31, 2021. Brokered ~~and~~deposits increased $314.7 million, while retail deposits ~~increased $97.3~~declined $58.6 million, ~~and $33.2 million, respectively,~~ during the ~~six~~nine months ended ~~June~~September 30, 2022. The increase in brokered deposits was generally utilized to support loan growth. AsDuring the current quarter, as a result of ~~June 30, 2022,~~the rising interest rate environment, we saw a change in customer preferences related to term deposits. Consequently, the proportion of non-maturity deposits within the portfolio ~~increased~~decreased to ~~60.5%~~54.9% compared to 57.8% at December 31, 2021, while our portfolio of time deposits ~~decreased~~increased to ~~39.5%~~45.1% from 42.2%, respectively. The change in the composition of our deposit portfolio was attributed to a combination of consumer preferences to maintain flexibility in the current changing interest rate environment, as well as our strategic goal of increasing transaction accounts. at December 31, 2021. Our cost of interest bearing deposits was ~~0.50%~~1.00% and ~~0.45%~~0.50% during the quarter ended September 30, 2022 and June 30, 2022, ~~and March 31, 2022,~~ respectively, and ~~0.48%~~0.66% and ~~0.82%~~0.72% during the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. The increase in our cost of interest bearing

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deposits compared to the prior quarter was predominantly due to ~~an increase~~rate increases in ~~rates offered on our deposit products driven by rising market interest rates.~~both retail and brokered deposits. The decrease during the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same period last year was predominantly due to the maturity of time deposits during the second half of 2021 that repriced to lower interest rates at that time and, to a lesser extent, a decrease in the average balance of time deposits, which were generally replaced with other lower cost deposit products.

Our loan to deposit ratio was ~~117%~~118% and 114% at ~~June~~September 30, 2022 and December 31, 2021, 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 supplement loan growth and to strategically manage our interest rate risk, as well as our preference to maintain a large proportion of our assets in real estate loans which generally provide a better yield than high-quality liquid investments.

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

Three Months Ended
June 30, 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
Noninterest-bearing deposit accounts $ 165,799 — % 3.0 % $ 147,533 — % 2.7 %
Interest-bearing transaction accounts 175,092 0.20 % 3.1 % 169,580 0.22 % 3.1 %
Money market demand accounts 3,050,811 0.51 % 54.6 % 2,964,527 0.43 % 53.8 %
Time deposits 2,196,455 0.51 % 39.3 % 2,231,471 0.49 % 40.4 %
Total $ 5,588,157 0.49 % 100.0 % $ 5,513,111 0.44 % 100.0 %
Six Months Ended
June 30, 2022 June 30, 2021
(Dollars in thousands) Average amount Weighted average rate paid Percent of total deposits Average amount Weighted average rate paid Percent of total deposits
Noninterest-bearing deposit accounts $ 156,717 — % 2.8 % $ 100,133 — % 1.9 %
Interest-bearing transaction accounts 172,351 0.21 % 3.1 % 153,638 0.22 % 2.9 %
Money market demand accounts 3,007,908 0.48 % 54.2 % 2,127,491 0.53 % 39.9 %
Time deposits 2,213,867 0.50 % 39.9 % 2,945,807 1.05 % 55.3 %
Total $ 5,550,843 0.46 % 100.0 % $ 5,327,069 0.80 % 100.0 %


	Three Months Ended
	September 30, 2022						June 30, 2022
(Dollars in thousands)	Average amount		Weighted average rate paid		Percent of total deposits		Average amount		Weighted average rate paid		Percent of total deposits
Noninterest-bearing deposit accounts	$	164,988	—	%	2.9	%	$	165,799	—	%	3.0	%
Interest-bearing transaction accounts	168,780		0.22	%	3.0	%	175,092		0.20	%	3.1	%
Money market demand accounts	3,005,468		0.97	%	53.1	%	3,050,811		0.51	%	54.6	%
Time deposits	2,322,643		1.11	%	41.0	%	2,196,455		0.51	%	39.3	%
Total	$	5,661,879	0.97	%	100.0	%	$	5,588,157	0.49	%	100.0	%



	Nine Months Ended
	September 30, 2022						September 30, 2021
(Dollars in thousands)	Average amount		Weighted average rate paid		Percent of total deposits		Average amount		Weighted average rate paid		Percent of total deposits
Noninterest-bearing deposit accounts	$	159,504	—	%	2.9	%	$	107,789	—	%	2.0	%
Interest-bearing transaction accounts	171,148		0.21	%	3.1	%	155,568		0.22	%	2.9	%
Money market demand accounts	3,007,085		0.64	%	53.8	%	2,301,417		0.50	%	42.5	%
Time deposits	2,250,523		0.71	%	40.2	%	2,849,131		0.92	%	52.6	%
Total	$	5,588,260	0.64	%	100.0	%	$	5,413,905	0.70	%	100.0	%

The following table sets forth the maturity of time deposits as of ~~June~~September 30, 2022:


(Dollars in thousands except for column headings)	(Dollars in thousands except for column headings)	Insured			Uninsured			(Dollars in thousands except for column headings)	Insured			Uninsured
Remaining maturity:	Remaining maturity:							Remaining maturity:
Three months or less	Three months or less	$	650,209		$	221,819		Three months or less	$	309,932		$	281,230
Over three through six months	Over three through six months	314,796			169,059			Over three through six months	300,975			88,281
Over six through twelve months	Over six through twelve months	452,528			95,642			Over six through twelve months	874,600			335,930
Over twelve months	Over twelve months	276,646			59,696			Over twelve months	333,837			89,616
Total	Total	$	1,694,179		$	546,216		Total	$	1,819,344		$	795,057
Percent of total deposits	Percent of total deposits	29.89		%	9.64		%	Percent of total deposits	31.40		%	13.72		%

The Company estimated its balance of uninsured deposits at approximately $1.4 billion at both ~~June~~September 30, 2022 and December 31, 2021. At the same dates, the Company had ~~$123.1~~$340.5 million and $25.8 million of wholesale deposits, respectively. The increase in brokered deposits was utilized to fund loan growth during the nine months ended September 30, 2022.

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FHLB Advances and Other Borrowings

In addition to deposits, we utilize collateralized FHLB borrowings to fund our asset growth. 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.~~management efforts to reduce the liability sensitive position of our balance sheet. Total FHLB advances totaled ~~$954.9 million~~$1.2 billion and $751.6 million at ~~June~~September 30, 2022 and December 31, 2021, respectively. As of the same dates, the Bank had a FHLB letter of credit outstanding totaling $62.6 million. The increase in FHLB advances was primarily utilized to fund loan growth during the nine months ended September 30, 2022.

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 (the "Trusts") of which we own all the common securities, that have issued trust preferred securities, ("Trust Securities"), to investors in private placement transactions. The proceeds of the securities qualify as Tier 1 capital under the applicable regulations for community banks with total assets less than $15 billion. In accordance with GAAP, the

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Trusts are not consolidated in our consolidated statements of financial condition but rather, the common securities are included in our other assets and the junior subordinated debentures ("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 the dates indicated:


		June 30, 2022				December 31, 2021				Date	Maturity	Rate Index		September 30, 2022				December 31, 2021				Date	Maturity	Rate Index
Issuer	Issuer	Amount		Rate		Amount		Rate		Issued	Date	(Quarterly Reset)	Issuer	Amount		Rate		Amount		Rate		Issued	Date	(Quarterly Reset)
(Dollars in thousands)	(Dollars in thousands)												(Dollars in thousands)
Luther Burbank Statutory Trust I	Luther Burbank Statutory Trust I	$	41,238	3.21	%	$	41,238	1.58	%	3/1/2006	6/15/2036	3 month LIBOR + 1.38%	Luther Burbank Statutory Trust I	$	41,238	4.67	%	$	41,238	1.58	%	3/1/2006	6/15/2036	3 month LIBOR + 1.38%
Luther Burbank Statutory Trust II	Luther Burbank Statutory Trust II	$	20,619	3.45	%	$	20,619	1.82	%	3/1/2007	6/15/2037	3 month LIBOR + 1.62%	Luther Burbank Statutory Trust II	$	20,619	4.91	%	$	20,619	1.82	%	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 or for the periods indicated:


		As of or For the Three Months Ended						As of or For the Six Months Ended							As of or For the Three Months Ended					As of or For the Nine Months Ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2022			March 31, 2022				June 30, 2022				June 30, 2021			(Dollars in thousands)	September 30, 2022			June 30, 2022			September 30, 2022			September 30, 2021
FHLB advances	FHLB advances															FHLB advances
Average amount outstanding during the period	Average amount outstanding during the period	$	863,685		$	761,119			$	812,685			$	900,107		Average amount outstanding during the period	$	1,071,300		$	863,685		$	899,838		$	907,998
Maximum amount outstanding at any month-end during the period	Maximum amount outstanding at any month-end during the period	954,947			751,647				954,947				1,048,647			Maximum amount outstanding at any month-end during the period	1,201,647			954,947			1,201,647			1,048,647
Balance outstanding at end of period	Balance outstanding at end of period	954,947			751,647				954,947				1,005,147			Balance outstanding at end of period	1,201,647			954,947			1,201,647			751,647
Weighted average maturity (in years)	Weighted average maturity (in years)	1.7			2.3				1.7				1.3			Weighted average maturity (in years)	1.7			1.7			1.7			2.5
Weighted average interest rate at end of period	Weighted average interest rate at end of period	1.79		%	1.75		%		1.79		%		1.45		%	Weighted average interest rate at end of period	2.34		%	1.79		%	2.34		%	1.68		%
Weighted average interest rate during the period	Weighted average interest rate during the period	1.68		%	1.65		%		1.67		%		1.74		%	Weighted average interest rate during the period	1.98		%	1.68		%	1.79		%	1.67		%

Junior subordinated deferrable interest debentures	Junior subordinated deferrable interest debentures											Junior subordinated deferrable interest debentures
Balance outstanding at end of period	Balance outstanding at end of period	$	61,857		$	61,857			$	61,857			$	61,857		Balance outstanding at end of period	$	61,857		$	61,857		$	61,857		$	61,857
Weighted average maturity (in years)	Weighted average maturity (in years)	14.5			14.8				14.5				15.5			Weighted average maturity (in years)	14.3			14.5			14.3			15.3
Weighted average interest rate at end of period	Weighted average interest rate at end of period	3.29		%	2.29		%		3.29		%		1.58		%	Weighted average interest rate at end of period	4.75		%	3.29		%	4.75		%	1.58		%
Weighted average interest rate during the period	Weighted average interest rate during the period	2.50		%	1.80		%		2.15		%		1.68		%	Weighted average interest rate during the period	3.59		%	2.50		%	2.64		%	1.65		%

Senior unsecured term notes	Senior unsecured term notes															Senior unsecured term notes
Balance outstanding at end of period	Balance outstanding at end of period	$	94,724		$	94,693			$	94,724			$	94,601		Balance outstanding at end of period	$	94,754		$	94,724		$	94,754		$	94,631
Weighted average maturity (in years)	Weighted average maturity (in years)	2.3			2.4				2.3				3.3			Weighted average maturity (in years)	2.0			2.3			2.0			3.0
Weighted average interest rate at end of period	Weighted average interest rate at end of period	6.65		%	6.65		%		6.65		%		6.66		%	Weighted average interest rate at end of period	6.65		%	6.65		%	6.65		%	6.65		%
Weighted average interest rate during the period	Weighted average interest rate during the period	6.65		%	6.65		%		6.65		%		6.66		%	Weighted average interest rate during the period	6.65		%	6.65		%	6.65		%	6.66		%

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 our 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:


		As of or For the Three Months Ended						As of or For the Six Months Ended							As of or For the Three Months Ended						As of or For the Nine Months Ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2022			March 31, 2022			June 30, 2022			June 30, 2021			(Dollars in thousands)	September 30, 2022			June 30, 2022			September 30, 2022			September 30, 2021
Outstanding at period end	Outstanding at period end	$	153,300		$	—		$	153,300		$	228,400		Outstanding at period end	$	200,000		$	153,300		$	200,000		$	—
Average amount outstanding	Average amount outstanding	95,003			21,694			58,551			165,873			Average amount outstanding	265,305			95,003			128,227			148,188
Maximum amount outstanding at any month end	Maximum amount outstanding at any month end	153,300			—			153,300			346,900			Maximum amount outstanding at any month end	288,900			153,300			288,900			346,900
Weighted average interest rate:
During period		1.05		%	0.34		%	0.92		%	0.14		%
End of period		1.70		%	—		%	1.70		%	0.14		%
Weighted average interest rate at end of period														Weighted average interest rate at end of period	2.99		%	1.70		%	2.99		%	—		%
Weighted average interest rate during the period														Weighted average interest rate during the period	2.52		%	1.05		%	2.04		%	0.14		%

Stockholders’ Equity

Stockholders’ equity totaled ~~$671.6~~$676.7 million at ~~June~~September 30, 2022, an increase of ~~$2.5~~$7.5 million, or ~~0.4%~~1.1%, compared to December 31, 2021. The increase in stockholders' equity was primarily due to net income of ~~$45.5~~$66.5 million, partially offset by a decline in the fair value of available for sale investment securities, net of tax, of ~~$21.4~~$31.9 million, dividends paid of ~~$12.4~~$18.5 million and stock repurchases of $9.7 million during the ~~six~~nine months ended ~~June~~September 30, 2022.

During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company repurchased 732 thousand of its shares at an ~~average~~

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average price of $13.30 per share and a total cost of $9.7 million in connection with ~~its current~~a $20.0 million stock repurchase plan that was approved by the Board of Directors of the Company on October 30, 2020. The plan was completed during the ~~current quarter.~~second quarter of 2022. Throughout the term of the plan, the Company repurchased a total of 1.6 million shares at an average price of $12.17.

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 funds, as well 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 obligations. The following is a summary of our off-balance sheet arrangements outstanding as of the dates presented.


(Dollars in thousands)	(Dollars in thousands)	June 30, 2022		December 31, 2021		(Dollars in thousands)	September 30, 2022		December 31, 2021
Commitments to fund loans and lines of credit	Commitments to fund loans and lines of credit	$	162,734	$	132,769	Commitments to fund loans and lines of credit	$	77,717	$	132,769

In connection with our Freddie Mac multifamily loan securitization, 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 ~~$542~~$471 thousand and $727 thousand at ~~June~~September 30, 2022 and December 31, 2021, respectively, which is included in other liabilities and accrued expenses in the consolidated statements of financial condition.

During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company entered into three new interest rate swap agreements with an aggregate notional amount of $300 million. The swaps provide a hedge against the interest rate risk associated with hybrid adjustable loans in their fixed rate period. As of ~~June~~September 30, 2022, the Company held swaps with an aggregate notional amount of ~~$950 million.~~$1.3 billion. Our swaps involve the payment of a fixed rate amount 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 amounts. As of September 30, 2022, these swaps carried a weighted average fixed rate payment of 1.54%, while receiving a federal funds weighted average rate of 3.08%. The net hedging impact associated with our swaps is reported in interest income on loans.

We guarantee 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 are material to investors.

Contractual Obligations

The following table presents, as of ~~June~~September 30, 2022, 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 16. ‘‘Commitments and Contingencies,’’ in the notes to our unaudited consolidated financial 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								Less than 1 Year				1 to 3 Years				3 to 5 Years				More than 5 Years
(Dollars in thousands)	(Dollars in thousands)	Total						(Dollars in thousands)	Total
Contractual Cash Obligations	Contractual Cash Obligations																				Contractual Cash Obligations
Time deposits (1)	Time deposits (1)	$	2,240,395	$	1,904,053	$	285,877			$	50,465			$	—	Time deposits (1)		$	2,614,401			$	2,190,948			$	388,833			$	34,620			$	—
FHLB advances ~~(1)~~(2)	FHLB advances ~~(1)~~(2)	954,947		303,300		551,500				100,000		147			FHLB advances ~~(1)~~(2)	1,201,647				350,000				751,500				100,000				147
Senior debt (1)	Senior debt (1)	95,000		—		95,000				—		—			Senior debt (1)	95,000				—				95,000				—				—
Junior subordinated debentures (1)	Junior subordinated debentures (1)	61,857		—		—				—		61,857			Junior subordinated debentures (1)	61,857				—				—				—				61,857
Operating leases	Operating leases	16,507		3,865		6,234				4,797		1,611			Operating leases	13,858				3,510				5,221				4,008				1,119
Significant contract ~~(2)~~(3)	Significant contract ~~(2)~~(3)	6,395		1,658		3,315				1,422		—			Significant contract ~~(2)~~(3)	6,119				1,696				3,393				1,030				—
Total	Total	$	3,375,101	$	2,212,876	$	941,926			$	156,684	$	63,615		Total	$	3,992,882			$	2,546,154			$	1,243,947			$	139,658			$	63,123

(1) Amounts exclude interest.	(1) Amounts exclude interest.														(1) Amounts exclude interest.
(2) 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 2022 average monthly expense extrapolated over the remaining life of the contract.
(2) Included in total fixed rate long-term advances is a $200.0 million advance which matures in September 2025 and contains an FHLB quarterly call provision beginning in September 2023.															(2) Included in total fixed rate long-term advances is a $200.0 million advance which matures in September 2025 and contains an 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 2022 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 2022 average monthly expense extrapolated over the remaining life of the contract.

We believe that we will 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 or exposure to credit, market, operational, legal and reputational risks also could affect the 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 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 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 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 discount window, draws on established federal funds lines from unaffiliated commercial banks and the issuance of debt or equity securities. We believe we have ample liquidity

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resources to fund future growth and meet other cash needs as necessary.

Our total deposits at ~~June~~September 30, 2022 and December 31, 2021 were ~~$5.7~~$5.8 billion and $5.5 billion, respectively. Based on the values of loans pledged as collateral, our ~~$954.9 million~~$1.2 billion of FHLB advances outstanding and our $62.6 million FHLB letter of credit outstanding, we had ~~$897.8~~$787.2 million of additional borrowing capacity with the FHLB at ~~June~~September 30, 2022. Based on the values of other loans pledged as collateral, we had ~~$202.9~~$186.0 million of borrowing capacity with the FRB at ~~June~~September 30, 2022. There were no outstanding advances with the FRB at ~~June~~September 30, 2022. 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 ~~June~~September 30, 2022, none of which 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. Available cash balances at correspondent banks, including amounts at the FRB, totaled ~~$86.5~~$256.7 million at ~~June~~September 30, 2022.

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 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 ~~June~~September 30, 2022 and December 31, 2021, we were in 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 ~~June~~September 30, 2022, the capital conservation buffer was 2.50%.

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. Risk-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 required risk-weighting percentage for these loans. Commercial real estate lending collateralized by real estate other than multifamily residential properties are generally risk weighted at 100%. Our leverage ratio is not impacted by the composition of our assets.

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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																	Minimum Required
		Actual				For Capital Adequacy Purposes				Plus Capital Conservation Buffer				For Well- Capitalized Institution					Actual				For Capital Adequacy Purposes				Plus Capital Conservation Buffer				For Well- Capitalized Institution
(Dollars in thousands)	(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Luther Burbank Corporation	Luther Burbank Corporation																	Luther Burbank Corporation
As of June 30, 2022
As of September 30, 2022																		As of September 30, 2022
Tier 1 Leverage Ratio	Tier 1 Leverage Ratio	$	751,477	10.20	%	$	294,718	4.00	%	N/A				N/A				Tier 1 Leverage Ratio	$	767,045	9.99	%	$	307,014	4.00	%	N/A				N/A
Common Equity Tier 1 Risk-Based Ratio	Common Equity Tier 1 Risk-Based Ratio	689,620		16.74	%	185,400		4.50	%	$	288,400	7.00	%	N/A				Common Equity Tier 1 Risk-Based Ratio	705,188		16.85	%	188,348		4.50	%	$	292,985	7.00	%	N/A
Tier 1 Risk-Based Capital Ratio	Tier 1 Risk-Based Capital Ratio	751,477		18.24	%	247,200		6.00	%	350,200		8.50	%	N/A				Tier 1 Risk-Based Capital Ratio	767,045		18.33	%	251,130		6.00	%	355,768		8.50	%	N/A
Total Risk-Based Capital Ratio	Total Risk-Based Capital Ratio	787,673		19.12	%	329,600		8.00	%	432,600		10.50	%	N/A				Total Risk-Based Capital Ratio	803,685		19.20	%	334,840		8.00	%	439,478		10.50	%	N/A
As of December 31, 2021	As of December 31, 2021																	As of December 31, 2021
Tier 1 Leverage Ratio	Tier 1 Leverage Ratio	$	727,606	10.12	%	$	287,509	4.00	%	N/A				N/A				Tier 1 Leverage Ratio	$	727,606	10.12	%	$	287,509	4.00	%	N/A				N/A
Common Equity Tier 1 Risk-Based Ratio	Common Equity Tier 1 Risk-Based Ratio	665,749		17.09	%	175,296		4.50	%	$	272,683	7.00	%	N/A				Common Equity Tier 1 Risk-Based Ratio	665,749		17.09	%	175,296		4.50	%	$	272,683	7.00	%	N/A
Tier 1 Risk-Based Capital Ratio	Tier 1 Risk-Based Capital Ratio	727,606		18.68	%	233,728		6.00	%	331,115		8.50	%	N/A				Tier 1 Risk-Based Capital Ratio	727,606		18.68	%	233,728		6.00	%	331,115		8.50	%	N/A
Total Risk-Based Capital Ratio	Total Risk-Based Capital Ratio	764,048		19.61	%	311,638		8.00	%	409,025		10.50	%	N/A				Total Risk-Based Capital Ratio	764,048		19.61	%	311,638		8.00	%	409,025		10.50	%	N/A
Luther Burbank Savings	Luther Burbank Savings																	Luther Burbank Savings
As of June 30, 2022
As of September 30, 2022																		As of September 30, 2022
Tier 1 Leverage Ratio	Tier 1 Leverage Ratio	$	832,856	11.31	%	$	294,623	4.00	%	N/A				$	368,279	5.00	%	Tier 1 Leverage Ratio	$	848,921	11.06	%	$	306,932	4.00	%	N/A				$	383,664	5.00	%
Common Equity Tier 1 Risk-Based Ratio	Common Equity Tier 1 Risk-Based Ratio	832,856		20.23	%	185,307		4.50	%	$	288,255	7.00	%	267,665		6.50	%	Common Equity Tier 1 Risk-Based Ratio	848,921		20.29	%	188,242		4.50	%	$	292,821	7.00	%	271,905		6.50	%
Tier 1 Risk-Based Capital Ratio	Tier 1 Risk-Based Capital Ratio	832,856		20.23	%	247,076		6.00	%	350,024		8.50	%	329,434		8.00	%	Tier 1 Risk-Based Capital Ratio	848,921		20.29	%	250,989		6.00	%	355,568		8.50	%	334,653		8.00	%
Total Risk-Based Capital Ratio	Total Risk-Based Capital Ratio	869,052		21.10	%	329,434		8.00	%	432,383		10.50	%	411,793		10.00	%	Total Risk-Based Capital Ratio	885,561		21.17	%	334,653		8.00	%	439,232		10.50	%	418,316		10.00	%
As of December 31, 2021	As of December 31, 2021																	As of December 31, 2021
Tier 1 Leverage Ratio	Tier 1 Leverage Ratio	$	799,457	11.13	%	$	287,407	4.00	%	N/A				$	359,259	5.00	%	Tier 1 Leverage Ratio	$	799,457	11.13	%	$	287,407	4.00	%	N/A				$	359,259	5.00	%
Common Equity Tier 1 Risk-Based Ratio	Common Equity Tier 1 Risk-Based Ratio	799,457		20.54	%	175,190		4.50	%	$	272,518	7.00	%	253,052		6.50	%	Common Equity Tier 1 Risk-Based Ratio	799,457		20.54	%	175,190		4.50	%	$	272,518	7.00	%	253,052		6.50	%
Tier 1 Risk-Based Capital Ratio	Tier 1 Risk-Based Capital Ratio	799,457		20.54	%	233,587		6.00	%	330,915		8.50	%	311,449		8.00	%	Tier 1 Risk-Based Capital Ratio	799,457		20.54	%	233,587		6.00	%	330,915		8.50	%	311,449		8.00	%
Total Risk-Based Capital Ratio	Total Risk-Based Capital Ratio	835,899		21.47	%	311,449		8.00	%	408,777		10.50	%	389,311		10.00	%	Total Risk-Based Capital Ratio	835,899		21.47	%	311,449		8.00	%	408,777		10.50	%	389,311		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 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 (repricing risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay 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 ("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

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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 managing our risk 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 ("NII at Risk") and the Economic Value of Equity ("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 to +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. Because of the lower level of market interest rates, we have not run these models with a yield curve shock beyond -100 basis points. As market interest rates increase, we anticipate running these models with the yield curve shock beyond -100 basis points in future quarters.

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 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 Company. During weak economic times, our loan losses have been higher than normal, but the Federal Reserve will generally reduce short-term interest rates in an attempt to stimulate the economy and add liquidity. As a result, our interest rate spread will generally increase during those periods. During strong economic times, when the Federal Reserve raises short-term interest rates to dampen economic activity, the Company’s interest rate spread decreases. These periods have historically been indicative of inflation and real property value increases. As such, the decrease in net interest income is typically somewhat offset by 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 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 ~~June~~September 30, 2022. It models instantaneous parallel shifts in market interest rates, implied by the forward yield curve over the next one year period.

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Interest Rate Risk to Earnings (NII)	Interest Rate Risk to Earnings (NII)			Interest Rate Risk to Earnings (NII)
June 30, 2022
September 30, 2022				September 30, 2022
(Dollars in millions)	(Dollars in millions)			(Dollars in millions)
Change in Interest Rates (basis points)	Change in Interest Rates (basis points)	$ Change NII	% Change NII	Change in Interest Rates (basis points)	$ Change NII	% Change NII
+400 BP	+400 BP	$(20.0)	(13.3)%	+400 BP	$(28.2)	(19.9)%
+300 BP	+300 BP	(13.0)	(8.7)%	+300 BP	(19.3)	(13.6)%
+200 BP	+200 BP	(7.2)	(4.8)%	+200 BP	(11.5)	(8.1)%
+100 BP	+100 BP	(2.8)	(1.8)%	+100 BP	(5.0)	(3.5)%
-100 BP	-100 BP	0.6	0.4%	-100 BP	3.2	2.2%
-200 BP				-200 BP	4.0	2.8%

The NII at Risk reported at ~~June~~September 30, 2022 reflects that our earnings were in a liability sensitive position in which an increase in interest rates is expected to generate lower net interest income. During the ~~six~~nine months ended ~~June~~September 30, 2022, our NII at Risk increased in connection with upward interest rate shocks as compared to December 31, 2021 primarily due to loan growth and the steepening yield curve, partially offset by an increase in the level of our hedged positions.

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)
June 30, 2022
September 30, 2022				September 30, 2022
(Dollars in millions)	(Dollars in millions)			(Dollars in millions)
Change in Interest Rates (basis points)	Change in Interest Rates (basis points)	$ Change EVE	% Change EVE	Change in Interest Rates (basis points)	$ Change EVE	% Change EVE
+400 BP	+400 BP	$(411.7)	(52.6)%	+400 BP	$(388.1)	(54.8)%
+300 BP	+300 BP	(285.1)	(36.4)%	+300 BP	(268.8)	(38.0)%
+200 BP	+200 BP	(171.6)	(21.9)%	+200 BP	(158.1)	(22.3)%
+100 BP	+100 BP	(75.3)	(9.6)%	+100 BP	(80.1)	(11.3)%
-100 BP	-100 BP	49.9	6.4%	-100 BP	58.1	8.2%
-200 BP				-200 BP	92.0	13.0%

The EVE reported at ~~June~~September 30, 2022 reflects that our market value of capital was in a liability sensitive position in which an increase in interest rates is expected to generate lower market values of capital. During the ~~six~~nine months ended ~~June~~September 30, 2022, our EVE at risk increased as compared to December 31, 2021 primarily due to loan growth and the steepening yield curve, partially offset by an increase in the level of our hedged positions.

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

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We are currently utilizing FHLB advances and interest rate swaps to hedge our liability sensitive interest rate risk position. As of ~~June~~September 30, 2022, the Company maintained ~~five~~seven interest rate swaps with an aggregate notional amount of ~~$950.0 million~~$1.3 billion to primarily hedge the interest rate risk associated with both fixed rate loans and hybrid adjustable

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loans in their fixed rate period. All of our swaps are designated as fair value hedges and involve the payment of a fixed rate amount 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. 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 and ~~six~~nine months ended ~~June~~September 30, 2022, the Company recognized an increase in interest income of ~~$463 thousand~~$2.9 million and ~~$385 thousand,~~$3.3 million, respectively, in connection with interest rate swaps compared to a reduction of ~~$3.3 million~~interest income of $721 thousand and ~~$6.7~~$7.5 million, respectively, during the three and ~~six~~nine months ended ~~June~~September 30, 2021. The prior year reduction in interest income primarily related to two separate, two-year interest rate swaps with a total notional amount of $1.0 billion, which matured during the year ended December 31, 2021.

The following table summarizes derivative instruments utilized by us as interest rate risk hedge positions as of ~~June~~September 30, 2022:


(Dollars in thousands)	(Dollars in thousands)					Fair Value				(Dollars in thousands)					Fair Value
Hedging Instrument	Hedging Instrument	Hedge Accounting Type	Months to Maturity	Notional		Other Assets		Other Liabilities		Hedging Instrument	Hedge Accounting Type	Months to Maturity	Notional		Other Assets		Other Liabilities
Interest rate swap	Interest rate swap	Fair value hedge	8	$	350,000	$	6,084	$	—	Interest rate swap	Fair value hedge	5	$	350,000	$	5,188	$	—
Interest rate swap	Interest rate swap	Fair value hedge	12	300,000		8,190		—		Interest rate swap	Fair value hedge	9	300,000		8,511		—
Interest rate swap	Interest rate swap	Fair value hedge	21	100,000		1,357		—		Interest rate swap	Fair value hedge	18	100,000		2,933		—
Interest rate swap	Interest rate swap	Fair value hedge	35	100,000		640		—		Interest rate swap	Fair value hedge	21	100,000		2,051		—
Interest rate swap	Interest rate swap	Fair value hedge	24	100,000		—		32		Interest rate swap	Fair value hedge	32	100,000		3,617		—
Interest rate swap										Interest rate swap	Fair value hedge	60	100,000		3,941		—
Interest rate swap										Interest rate swap	Fair value hedge	61	200,000		847		—
				$	950,000	$	16,271	$	32				$	1,250,000	$	27,088	$	—

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. Additionally, contracts are in place to ensure that minimum transfer amounts and collateral requirements are 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 ~~June~~September 30, 2022, of the Company's disclosure controls and 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 ~~June~~September 30, 2022 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. Beginning with the filing of its Form 10-K for the year ending December 31, 2022, the Company will be subject to Section 404(b) of the Sarbanes-Oxley Act and will require the Company's registered public accounting firm to attest to, and report on, management's assessment of the effectiveness of its internal controls over financial reporting.

Changes in Internal Control over Financial Reporting

There was no change in the Company's internal control over financial reporting that occurred during the Company's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, such controls.

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PART II.

Item 1. Legal Proceedings

From time to time, we are party to legal actions that are routine and incidental to our business. Given the nature, scope and complexity of the extensive legal and regulatory landscape applicable to our business, we, like all banking organizations, are subject to heightened regulatory compliance and legal risk. However, based on available information, management does not expect the ultimate disposition of any or a combination of these actions to have a material adverse effect on our business, financial condition or results of operation.

Item 1A. Risk Factors

There 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, 2021.

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

~~Purchases of Equity Securities~~

~~The table below summarizes the Company's monthly~~There were no repurchases ~~of equity securities during the quarter ended June 30, 2022:~~

Period Total Number of Shares Purchased Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Program (1)
(Dollars in thousands, except per share data)
April 1-30, 2022 260,271 $ 13.36 260,271 $ 621
May 1-31, 2022 46,406 13.39 46,406 —
June 1-30, 2022 — — — —
Total 306,677 $ 13.36 306,677 $ —

~~(1) On October 30, 2020, the Board of Directors of the Company authorized the repurchase of $20.0 million~~or unregistered sales of the Company’s ~~common~~ stock ~~pursuant to a formal program adopted on that date (the “Plan”). The Plan has been adopted in accordance with guidelines specified by Rule 10b5-1 and under Rule 10b-18 under~~during the Exchange Act and the Company’s Insider Trading Policy. On October 29, 2021, the board of directors of the Company amended the Plan to eliminate its expiration date of December 31, 2021. The Plan was completed on May 4, 2022.quarter.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Incorporated by Reference
Exhibit Number Description Filed Herewith Form File No. Exhibit Filing Date
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
S-1 333-221455 3.2 11/9/2017
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*
X
31.2
Rule 13a-14(a) Certification of Chief Financial Officer*
X
32.1
Section 1350 Certification of Chief Executive Officer*
X
32.2
Section 1350 Certification of Chief Financial Officer*
X
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 X
101.SCH Inline XBRL Taxonomy Extension Schema Document X
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X
101.DEF Inline XBRL Taxonomy Extension Definitions Linkbase Document X
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) X

Incorporated by Reference

Exhibit Number

Description

Filed Herewith

Form

File No.

Exhibit

Filing Date

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 Officer*

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)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		LUTHER BURBANK CORPORATION

DATED:	~~AUGUST 5,~~NOVEMBER 4, 2022	By: /s/ Simone Lagomarsino
		Simone Lagomarsino
		President and Chief Executive Officer

DATED:	~~AUGUST 5,~~NOVEMBER 4, 2022	By: /s/ Laura Tarantino
		Laura Tarantino
		Executive Vice President and Chief Financial Officer



	Six Months Ended
	June 30, 2022						June 30, 2021
(Dollars in thousands)	Average amount		Weighted average rate paid		Percent of total deposits		Average amount		Weighted average rate paid		Percent of total deposits
Noninterest-bearing deposit accounts	$	156,717	—	%	2.8	%	$	100,133	—	%	1.9	%
Interest-bearing transaction accounts	172,351		0.21	%	3.1	%	153,638		0.22	%	2.9	%
Money market demand accounts	3,007,908		0.48	%	54.2	%	2,127,491		0.53	%	39.9	%
Time deposits	2,213,867		0.50	%	39.9	%	2,945,807		1.05	%	55.3	%
Total	$	5,550,843	0.46	%	100.0	%	$	5,327,069	0.80	%	100.0	%


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Program (1)
(Dollars in thousands, except per share data)
April 1-30, 2022	260,271	$	13.36	260,271	$	621
May 1-31, 2022	46,406	13.39		46,406	—
June 1-30, 2022	—	—		—	—
Total	306,677	$	13.36	306,677	$	—