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, 2023

☐ 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 ~~July~~October 31, 2023, there were ~~51,027,878~~51,016,948 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	98
	Notes to Unaudited Consolidated Financial Statements	109
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3433
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5859
Item 4.	Controls and Procedures	61
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	6263
Item 1A.	Risk Factors	6263
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6263
Item 3.	Defaults Upon Senior Securities	6263
Item 4.	Mine Safety Disclosures	6263
Item 5.	Other Information	6263
Item 6.	Exhibits	6364
	Signatures	6465

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Cautionary Statements Regarding Forward-Looking Information

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

This 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:

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

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

•our access to adequate sources of liquidity;

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

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

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

•the adequacy of our allowance for credit losses;

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

•significant market concentrations in California and Washington;

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

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

•political instability or the effects of war or other conflicts, including, but not limited to, the current ~~conflict~~conflicts between Russia and Ukraine and in the Middle East, as well as the civil unrest in Sudan;

•the announced merger with Washington Federal, Inc., including delays in the consummation of the merger or litigation or other conditions that may cause the parties to abandon the merger or make the merger more expensive or less beneficial;

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

•the performance of our third-party vendors;

•fraud, financial crimes and fund transfer errors;

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

•rapid technological changes in the financial services industry;

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

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

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

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

•increased competition in the financial services industry; and

•changes in our reputation.

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, 2022, including under the caption “Risk Factors” in Item 1A of Part I, subsequent Quarterly Reports on Form 10-Q, and other reports or filings with the Securities and Exchange Commission ("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, 2023 (unaudited)		December 31, 2022			September 30, 2023 (unaudited)		December 31, 2022
ASSETS	ASSETS					ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	699,366	$	185,895	Cash and cash equivalents	$	579,724	$	185,895

Available for sale debt securities, at fair value	Available for sale debt securities, at fair value	564,274		607,348		Available for sale debt securities, at fair value	535,924		607,348
Held to maturity debt securities, at amortized cost (fair value of $2,821 and $2,874 at June 30, 2023 and December 31, 2022, respectively)		3,053		3,108
Held to maturity debt securities, at amortized cost (fair value of $2,656 and $2,874 at September 30, 2023 and December 31, 2022, respectively)						Held to maturity debt securities, at amortized cost (fair value of $2,656 and $2,874 at September 30, 2023 and December 31, 2022, respectively)	3,025		3,108
Equity securities, at fair value	Equity securities, at fair value	10,340		10,340		Equity securities, at fair value	10,018		10,340

Loans receivable, net of allowance for credit losses ("ACL") on loans of $37,214 and $36,685 at June 30, 2023 and December 31, 2022, respectively		6,883,780		6,973,760
Loans receivable, net of allowance for credit losses ("ACL") on loans of $39,885 and $36,685 at September 30, 2023 and December 31, 2022, respectively						Loans receivable, net of allowance for credit losses ("ACL") on loans of $39,885 and $36,685 at September 30, 2023 and December 31, 2022, respectively	6,787,334		6,973,760
Accrued interest receivable	Accrued interest receivable	24,062		24,306		Accrued interest receivable	26,049		24,306
Federal Home Loan Bank ("FHLB") stock, at cost	Federal Home Loan Bank ("FHLB") stock, at cost	45,146		32,694		Federal Home Loan Bank ("FHLB") stock, at cost	44,370		32,694
Premises and equipment, net	Premises and equipment, net	13,199		13,661		Premises and equipment, net	12,884		13,661
Goodwill	Goodwill	3,297		3,297		Goodwill	3,297		3,297
Prepaid expenses and other assets	Prepaid expenses and other assets	113,553		120,223		Prepaid expenses and other assets	131,288		120,223
Total assets	Total assets	$	8,360,070	$	7,974,632	Total assets	$	8,133,913	$	7,974,632

LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:	Liabilities:					Liabilities:
Deposits	Deposits	$	5,840,439	$	5,839,340	Deposits	$	5,760,102	$	5,839,340
FHLB advances	FHLB advances	1,576,647		1,208,147		FHLB advances	1,426,647		1,208,147
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 $154 and $215 at June 30, 2023 and December 31, 2022, respectively)		94,846		94,785
$95,000 face amount, 6.5% interest rate, due September 30, 2024 (less debt issuance costs of $123 and $215 at September 30, 2023 and December 31, 2022, respectively)						$95,000 face amount, 6.5% interest rate, due September 30, 2024 (less debt issuance costs of $123 and $215 at September 30, 2023 and December 31, 2022, respectively)	94,877		94,785
Accrued interest payable	Accrued interest payable	10,565		3,964		Accrued interest payable	10,847		3,964
Other liabilities and accrued expenses	Other liabilities and accrued expenses	76,369		84,003		Other liabilities and accrued expenses	84,578		84,003
Total liabilities	Total liabilities	7,660,723		7,292,096		Total liabilities	7,438,908		7,292,096

Commitments and contingencies (Note 17)	Commitments and contingencies (Note 17)					Commitments and contingencies (Note 17)

Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized; none issued and outstanding at June 30, 2023 and December 31, 2022, respectively		—		—
Common stock, no par value; 100,000,000 shares authorized; 51,027,878 and 51,073,272 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively		398,834		398,988
Preferred stock, no par value; 5,000,000 shares authorized; none issued and outstanding at September 30, 2023 and December 31, 2022, respectively						Preferred stock, no par value; 5,000,000 shares authorized; none issued and outstanding at September 30, 2023 and December 31, 2022, respectively	—		—
Common stock, no par value; 100,000,000 shares authorized; 51,027,878 and 51,073,272 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively						Common stock, no par value; 100,000,000 shares authorized; 51,027,878 and 51,073,272 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively	399,313		398,988
Retained earnings	Retained earnings	337,987		317,711		Retained earnings	339,894		317,711
Accumulated other comprehensive loss, net of taxes	Accumulated other comprehensive loss, net of taxes	(37,474)		(34,163)		Accumulated other comprehensive loss, net of taxes	(44,202)		(34,163)
Total stockholders' equity	Total stockholders' equity	699,347		682,536		Total stockholders' equity	695,005		682,536
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	8,360,070	$	7,974,632	Total liabilities and stockholders' equity	$	8,133,913	$	7,974,632

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,
		2023		2022		2023		2022			2023		2022		2023		2022
Interest and fee income:	Interest and fee income:									Interest and fee income:
Loans	Loans	$	76,014	$	56,912	$	150,618	$	110,545	Loans	$	75,116	$	62,366	$	225,734	$	172,911
Investment securities	Investment securities	5,613		2,863		11,101		5,163		Investment securities	5,711		4,127		16,812		9,290
Cash and cash equivalents	Cash and cash equivalents	8,623		198		11,926		265		Cash and cash equivalents	8,243		547		20,169		812
Total interest and fee income	Total interest and fee income	90,250		59,973		173,645		115,973		Total interest and fee income	89,070		67,040		262,715		183,013
Interest expense:	Interest expense:									Interest expense:
Deposits	Deposits	47,717		6,913		85,324		12,933		Deposits	55,099		14,085		140,423		27,018
FHLB advances	FHLB advances	13,630		3,628		22,892		6,725		FHLB advances	11,722		5,346		34,614		12,071
Junior subordinated deferrable interest debentures	Junior subordinated deferrable interest debentures	1,008		385		1,974		660		Junior subordinated deferrable interest debentures	1,112		560		3,086		1,220
Senior debt	Senior debt	1,575		1,575		3,149		3,149		Senior debt	1,574		1,575		4,723		4,724
Total interest expense	Total interest expense	63,930		12,501		113,339		23,467		Total interest expense	69,507		21,566		182,846		45,033
Net interest income before provision for credit losses	Net interest income before provision for credit losses	26,320		47,472		60,306		92,506		Net interest income before provision for credit losses	19,563		45,474		79,869		137,980
Provision for credit losses	Provision for credit losses	1,212		2,500		417		—		Provision for credit losses	3,001		500		3,418		500
Net interest income after provision for credit losses	Net interest income after provision for credit losses	25,108		44,972		59,889		92,506		Net interest income after provision for credit losses	16,562		44,974		76,451		137,480
Noninterest income:	Noninterest income:									Noninterest income:

FHLB dividends	FHLB dividends	625		342		1,202		696		FHLB dividends	886		363		2,088		1,059
Other income	Other income	266		20		924		(276)		Other income	146		(94)		1,070		(370)
Total noninterest income	Total noninterest income	891		362		2,126		420		Total noninterest income	1,032		269		3,158		689
Noninterest expense:	Noninterest expense:									Noninterest expense:
Compensation and related benefits	Compensation and related benefits	10,118		7,070		20,789		17,289		Compensation and related benefits	8,527		8,857		29,316		26,146
Deposit insurance premium	Deposit insurance premium	943		479		1,827		960		Deposit insurance premium	960		508		2,787		1,468
Professional and regulatory fees	Professional and regulatory fees	499		634		935		1,173		Professional and regulatory fees	638		639		1,573		1,812
Occupancy	Occupancy	1,134		1,197		2,318		2,391		Occupancy	1,115		1,199		3,433		3,590
Depreciation and amortization	Depreciation and amortization	373		746		1,022		1,349		Depreciation and amortization	368		806		1,390		2,155
Data processing	Data processing	1,025		1,007		1,887		1,995		Data processing	1,039		1,044		2,926		3,039
Marketing	Marketing	955		525		1,694		983		Marketing	860		1,211		2,554		2,194
Other expenses	Other expenses	1,057		1,667		2,566		2,697		Other expenses	1,528		1,112		4,094		3,809
Total noninterest expense	Total noninterest expense	16,104		13,325		33,038		28,837		Total noninterest expense	15,035		15,376		48,073		44,213
Income before provision for income taxes	Income before provision for income taxes	9,895		32,009		28,977		64,089		Income before provision for income taxes	2,559		29,867		31,536		93,956
Provision for income taxes	Provision for income taxes	2,978		9,442		8,618		18,582		Provision for income taxes	652		8,865		9,270		27,447
Net income	Net income	$	6,917	$	22,567	$	20,359	$	45,507	Net income	$	1,907	$	21,002	$	22,266	$	66,509

Basic earnings per common share	Basic earnings per common share	$	0.14	$	0.44	$	0.40	$	0.89	Basic earnings per common share	$	0.04	$	0.41	$	0.44	$	1.31
Diluted earnings per common share	Diluted earnings per common share	$	0.14	$	0.44	$	0.40	$	0.89	Diluted earnings per common share	$	0.04	$	0.41	$	0.44	$	1.30
Dividends per common share	Dividends per common share	$	—	$	0.12	$	—	$	0.24	Dividends per common share	$	—	$	0.12	$	—	$	0.36

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,					Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
Net income	Net income	$	6,917	$	22,567	$	20,359	$	45,507	Net income	$	1,907	$	21,002	$	22,266	$	66,509
Other comprehensive income (loss):
Other comprehensive loss:										Other comprehensive loss:
Unrealized loss on available for sale debt securities:	Unrealized loss on available for sale debt securities:									Unrealized loss on available for sale debt securities:
Unrealized holding loss arising during the period	Unrealized holding loss arising during the period	(5,922)		(13,150)		(4,665)		(30,115)		Unrealized holding loss arising during the period	(9,516)		(14,855)		(14,181)		(44,970)

Tax effect	Tax effect	1,719		3,813		1,354		8,732		Tax effect	2,788		4,334		4,142		13,066
Total other comprehensive loss, net of tax	Total other comprehensive loss, net of tax	(4,203)		(9,337)		(3,311)		(21,383)		Total other comprehensive loss, net of tax	(6,728)		(10,521)		(10,039)		(31,904)

Comprehensive income		$	2,714	$	13,230	$	17,048	$	24,124
Comprehensive (loss) income										Comprehensive (loss) income	$	(4,821)	$	10,481	$	12,227	$	34,605

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 AND NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2023 AND 2022 (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					Total Stockholders' Equity
Balance, March 31, 2022		51,403,914	$	401,102			$	278,856			$	(11,958)								$	668,000
Balance, June 30, 2022																		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

Balance, June 30, 2023																		Balance, June 30, 2023	51,027,878				$	398,834		$	337,987		$	(37,474)					$	699,347

Net income	Net income	—	—		22,567				—						22,567			Net income	—				—			1,907			—						1,907
Other comprehensive loss	Other comprehensive loss	—	—		—				(9,337)						(9,337)			Other comprehensive loss	—				—			—			(6,728)						(6,728)

Stock based compensation expense																		Stock based compensation expense	—				479			—			—						479

Balance, September 30, 2023																		Balance, September 30, 2023	51,027,878				$	399,313		$	339,894		$	(44,202)					$	695,005

Balance, December 31, 2021																		Balance, December 31, 2021	51,682,398				$	406,904		$	262,141		$	88					$	669,133
Net income																		Net income	—				—			66,509			—						66,509
Other comprehensive loss																		Other comprehensive loss	—				—			—			(31,904)						(31,904)
Restricted stock award grants																		Restricted stock award grants	218,048				—			—			—						—
Settled restricted stock units																		Settled restricted stock units	10,261				—			—			—						—
Shares withheld to pay taxes on stock based compensation																		Shares withheld to pay taxes on stock based compensation	(66,190)				(926)			—			—						(926)
Restricted stock forfeitures	Restricted stock forfeitures	(33,739)	(67)		12				—						(55)			Restricted stock forfeitures	(37,839)				(71)			14			—						(57)
Stock based compensation expense	Stock based compensation expense	—	683		—				—						683			Stock based compensation expense	—				2,152			—			—						2,152
Shares repurchased	Shares repurchased	(306,677)	(4,098)		—				—						(4,098)			Shares repurchased	(732,073)				(9,734)			—			—						(9,734)
Cash dividends ($0.12 per share)		—	—		(6,138)				—						(6,138)
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

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

Balance, December 31, 2022																		Balance, December 31, 2022	51,073,272				$	398,988		$	317,711		$	(34,163)					$	682,536
Cumulative effect of change in accounting principal (1)																		Cumulative effect of change in accounting principal (1)	—				—			(84)			—						(84)
Net income	Net income	—	—		6,917				—						6,917			Net income	—				—			22,266			—						22,266
Other comprehensive loss	Other comprehensive loss	—	—		—				(4,203)						(4,203)			Other comprehensive loss	—				—			—			(10,039)						(10,039)

Restricted stock award grants																		Restricted stock award grants	42,034				—			—			—						—
Settled restricted stock units																		Settled restricted stock units	15,426				—			—			—						—
Shares withheld to pay taxes on stock based compensation																		Shares withheld to pay taxes on stock based compensation	(99,855)				(1,098)			—			—						(1,098)
Restricted stock forfeitures	Restricted stock forfeitures	(2,999)	(3)		1				—						(2)			Restricted stock forfeitures	(2,999)				(3)			1			—						(2)
Stock based compensation expense	Stock based compensation expense	—	474		—				—						474			Stock based compensation expense	—				1,426			—			—						1,426

Balance, June 30, 2023		51,027,878	$	398,834	$	337,987			$	(37,474)					$	699,347
Balance, September 30, 2023																		Balance, September 30, 2023	51,027,878				$	399,313		$	339,894		$	(44,202)					$	695,005

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

See accompanying notes to unaudited consolidated financial statements

~~Table of Contents~~

~~LUTHER BURBANK CORPORATION~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY~~

~~FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022 (UNAUDITED)~~

~~(Dollar amounts in thousands, except per share data)~~

Accumulated Other Comprehensive Income (Loss) (Net of Taxes) Total Stockholders' Equity
Common Stock Retained Earnings Available for Sale Securities
Shares Amount
Balance, December 31, 2021 51,682,398 $ 406,904 $ 262,141 $ 88 $ 669,133
Net income — — 45,507 — 45,507
Other comprehensive loss — — — (21,383) (21,383)
Restricted stock award grants 206,675 — — — —
Settled restricted stock units 6,759 — — — —
Shares withheld to pay taxes on stock based compensation (62,422) (875) — — (875)
Restricted stock forfeitures (37,839) (71) 14 — (57)
Stock based compensation expense — 1,396 — — 1,396
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
Balance, December 31, 2022 51,073,272 $ 398,988 $ 317,711 $ (34,163) $ 682,536
Cumulative effect of change in accounting principal (1) — — (84) — (84)
Comprehensive income:
Net income — — 20,359 — 20,359
Other comprehensive loss — — — (3,311) (3,311)
Restricted stock award grants 42,034 — — — —
Settled restricted stock units 15,426 — — — —
Shares withheld to pay taxes on stock based compensation (99,855) (1,098) — — (1,098)
Restricted stock forfeitures (2,999) (3) 1 — (2)
Stock based compensation expense — 947 — — 947
Balance, June 30, 2023 51,027,878 $ 398,834 $ 337,987 $ (37,474) $ 699,347
(1) Represents the impact of the adoption of Accounting Standards Update ("ASU") 2016-13, Financial Instruments – Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments, and the related amendments which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss ("CECL") methodology.

~~See accompanying notes to unaudited consolidated financial statements~~

Table of Contents

LUTHER BURBANK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollar amounts in thousands)


		Six Months Ended June 30,					Nine Months Ended September 30,
		2023		2022			2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	20,359	$	45,507	Net income	$	22,266	$	66,509
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	1,022		1,349		Depreciation and amortization	1,390		2,155
Provision for credit losses	Provision for credit losses	417		—		Provision for credit losses	3,418		500
Amortization of deferred loan costs, net	Amortization of deferred loan costs, net	2,795		8,815		Amortization of deferred loan costs, net	4,250		11,173
Amortization of premiums on investment securities, net	Amortization of premiums on investment securities, net	100		528		Amortization of premiums on investment securities, net	168		552

Stock based compensation expense, net of forfeitures	Stock based compensation expense, net of forfeitures	944		1,325		Stock based compensation expense, net of forfeitures	1,423		2,081

Change in fair value of mortgage servicing rights	Change in fair value of mortgage servicing rights	49		136		Change in fair value of mortgage servicing rights	55		190
Change in fair value of equity securities	Change in fair value of equity securities	—		921		Change in fair value of equity securities	322		1,376

Other items, net	Other items, net	94		110		Other items, net	184		217
Effect of changes in:	Effect of changes in:					Effect of changes in:
Accrued interest receivable	Accrued interest receivable	244		(1,536)		Accrued interest receivable	(1,743)		(3,250)
Accrued interest payable	Accrued interest payable	6,601		158		Accrued interest payable	6,883		832
Prepaid expenses and other assets	Prepaid expenses and other assets	7,028		(5,798)		Prepaid expenses and other assets	7,586		(12,653)
Other liabilities and accrued expenses	Other liabilities and accrued expenses	(6,018)		(3,049)		Other liabilities and accrued expenses	(188)		11,483
Net cash provided by operating activities	Net cash provided by operating activities	33,635		48,466		Net cash provided by operating activities	46,014		81,165
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	38,311		72,742		Proceeds from maturities, paydowns and calls of available for sale debt securities	57,078		108,908
Proceeds from maturities and paydowns of held to maturity debt securities	Proceeds from maturities and paydowns of held to maturity debt securities	52		659		Proceeds from maturities and paydowns of held to maturity debt securities	79		684

Purchases of available for sale debt securities	Purchases of available for sale debt securities	—		(117,494)		Purchases of available for sale debt securities	—		(147,578)

Net decrease (increase) in loans receivable	Net decrease (increase) in loans receivable	85,986		(362,403)		Net decrease (increase) in loans receivable	164,785		(592,313)

Purchase of FHLB stock, net	Purchase of FHLB stock, net	(12,452)		(4,463)		Purchase of FHLB stock, net	(11,676)		(9,283)
Purchase of premises and equipment	Purchase of premises and equipment	(562)		(228)		Purchase of premises and equipment	(615)		(325)

Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	111,335		(411,187)		Net cash provided by (used in) investing activities	209,651		(639,907)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net increase in deposits		1,099		130,516
Net (decrease) increase in deposits						Net (decrease) increase in deposits	(79,238)		256,137
Proceeds from long-term FHLB advances	Proceeds from long-term FHLB advances	450,000		150,000		Proceeds from long-term FHLB advances	450,000		350,000
Repayment of long-term FHLB advances	Repayment of long-term FHLB advances	(150,000)		(100,000)		Repayment of long-term FHLB advances	(350,000)		(100,000)
Net change in short-term FHLB advances	Net change in short-term FHLB advances	68,500		153,300		Net change in short-term FHLB advances	118,500		200,000
Shares withheld for taxes on vested restricted stock	Shares withheld for taxes on vested restricted stock	(1,098)		(875)		Shares withheld for taxes on vested restricted stock	(1,098)		(926)
Shares repurchased	Shares repurchased	—		(9,734)		Shares repurchased	—		(9,734)
Cash paid for dividends	Cash paid for dividends	—		(12,351)		Cash paid for dividends	—		(18,490)
Net cash provided by financing activities	Net cash provided by financing activities	368,501		310,856		Net cash provided by financing activities	138,164		676,987
Increase (decrease) in cash and cash equivalents		513,471		(51,865)
Increase in cash and cash equivalents						Increase in cash and cash equivalents	393,829		118,245
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	185,895		138,413		Cash and cash equivalents, beginning of period	185,895		138,413
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	699,366	$	86,548	Cash and cash equivalents, end of period	$	579,724	$	256,658
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	$	106,738	$	23,309	Interest	$	175,963	$	44,201
Income taxes	Income taxes	$	190	$	15,369	Income taxes	$	203	$	21,987
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	$	2,978	$	15,707

See accompanying notes to unaudited consolidated financial statements

Table of Contents

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

On November 13, 2022, the Company entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) with Washington Federal, Inc. (“WAFD”), pursuant to which the Company will merge with and into WAFD (the “Corporate Merger”), with WAFD surviving the Corporate Merger. Promptly following the Corporate Merger, the Company’s wholly-owned bank subsidiary, Luther Burbank Savings, will be merged with and into Washington Federal Bank, dba WaFd Bank, the wholly-owned bank subsidiary of WAFD (“WAFD Bank”), with WAFD Bank as the surviving institution. ~~Closing of the transaction, which is expected to occur in 2023, is contingent upon the receipt of all necessary regulatory approvals, along with the satisfaction of other customary closing conditions.~~ On May 4, 2023, the shareholders of the Company and WAFD approved the Corporate Merger at their respective special ~~meetings.~~meetings and, on October 13, 2023, the Washington State Department of Financial Institutions granted conditional approval of the merger. Closing of the transaction, which is expected to occur in the fourth quarter of 2023, remains subject to the receipt of approvals from the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System, along with the satisfaction of other customary closing conditions.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all footnotes as would be necessary for a fair presentation of financial position, results of operations and comprehensive income, changes in stockholders’ equity and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, these interim unaudited consolidated financial statements reflect all adjustments (consisting solely of normal recurring adjustments and accruals) which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and comprehensive income, changes in stockholders’ equity and cash flows for the interim periods presented. These unaudited consolidated financial statements have been prepared on a basis consistent with, and should be read in conjunction with, the audited consolidated financial statements as of and for the year ended December 31, 2022, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 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, 2023 are not necessarily indicative of the results of operations that may be expected for any other interim period or for the year ending December 31, 2023.

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

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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.

Reclassifications

Certain prior period balances have been reclassified to conform to current year presentation. These reclassifications had no effect on prior year net income or stockholders’ equity.

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,
		2023		2022		2023		2022			2023		2022		2023		2022
Net income	Net income	$	6,917	$	22,567	$	20,359	$	45,507	Net income	$	1,907	$	21,002	$	22,266	$	66,509

Weighted average basic common shares outstanding	Weighted average basic common shares outstanding	50,864,217		50,794,950		50,867,695		51,066,219		Weighted average basic common shares outstanding	50,864,217		50,738,479		50,866,536		50,956,972
Add: Dilutive effects of assumed vesting of restricted stock	Add: Dilutive effects of assumed vesting of restricted stock	28,097		112,312		30,185		94,621		Add: Dilutive effects of assumed vesting of restricted stock	59,224		155,079		39,864		114,774
Weighted average diluted common shares outstanding	Weighted average diluted common shares outstanding	50,892,314		50,907,262		50,897,880		51,160,840		Weighted average diluted common shares outstanding	50,923,441		50,893,558		50,906,400		51,071,746

Income per common share:	Income per common share:									Income per common share:
Basic EPS	Basic EPS	$	0.14	$	0.44	$	0.40	$	0.89	Basic EPS	$	0.04	$	0.41	$	0.44	$	1.31
Diluted EPS	Diluted EPS	$	0.14	$	0.44	$	0.40	$	0.89	Diluted EPS	$	0.04	$	0.41	$	0.44	$	1.30
Anti-dilutive shares not included in calculation of diluted earnings per share	Anti-dilutive shares not included in calculation of diluted earnings per share	30,891		1,359		24,172		433		Anti-dilutive shares not included in calculation of diluted earnings per share	3,888		—		18,224		2,493

CECL

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

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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, 2023:
At September 30, 2023:										At September 30, 2023:
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")	$	344,433	$	187	$	(28,714)	$	315,906	Commercial mortgage backed securities ("MBS") and collateralized mortgage obligations ("CMOs")	$	333,497	$	145	$	(34,736)	$	298,906
Residential MBS and CMOs	Residential MBS and CMOs	210,898		10		(23,618)		187,290		Residential MBS and CMOs	205,351		13		(27,239)		178,125
Agency bonds	Agency bonds	38,698		91		(136)		38,653		Agency bonds	37,069		76		(137)		37,008
Other asset backed securities ("ABS")	Other asset backed securities ("ABS")	23,066		—		(641)		22,425		Other asset backed securities ("ABS")	22,344		—		(459)		21,885
Total available for sale debt securities	Total available for sale debt securities	$	617,095	$	288	$	(53,109)	$	564,274	Total available for sale debt securities	$	598,261	$	234	$	(62,571)	$	535,924
At December 31, 2022:	At December 31, 2022:									At December 31, 2022:
Government and Government Sponsored Entities:	Government and Government Sponsored Entities:									Government and Government Sponsored Entities:
Commercial MBS and CMOs	Commercial MBS and CMOs	$	365,207	$	265	$	(24,736)	$	340,736	Commercial MBS and CMOs	$	365,207	$	265	$	(24,736)	$	340,736
Residential MBS and CMOs	Residential MBS and CMOs	221,994		22		(22,632)		199,384		Residential MBS and CMOs	221,994		22		(22,632)		199,384
Agency bonds	Agency bonds	42,540		189		(99)		42,630		Agency bonds	42,540		189		(99)		42,630
Other ABS	Other ABS	25,763		—		(1,165)		24,598		Other ABS	25,763		—		(1,165)		24,598
Total available for sale debt securities	Total available for sale debt securities	$	655,504	$	476	$	(48,632)	$	607,348	Total available for sale debt securities	$	655,504	$	476	$	(48,632)	$	607,348

Net unrealized losses on available for sale investment securities are recorded as accumulated other comprehensive loss within stockholders’ equity and totaled ~~$37.5~~$44.2 million and $34.2 million, net of ~~$15.3~~$18.1 million and $14.0 million in tax assets, at ~~June~~September 30, 2023 and December 31, 2022, 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, 2023 or 2022.

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, 2023													September 30, 2023
		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	$	116,526	$	(1,279)	$	172,758	$	(27,435)	$	289,284	$	(28,714)	Commercial MBS and CMOs	$	32,808	$	(357)	$	240,500	$	(34,379)	$	273,308	$	(34,736)
Residential MBS and CMOs	Residential MBS and CMOs	31,361		(1,456)		150,917		(22,162)		182,278		(23,618)		Residential MBS and CMOs	2,539		(19)		173,126		(27,220)		175,665		(27,239)
Agency bonds	Agency bonds	26,809		(136)		—		—		26,809		(136)		Agency bonds	13,285		(29)		12,176		(108)		25,461		(137)
Other ABS	Other ABS	—		—		22,425		(641)		22,425		(641)		Other ABS	—		—		21,885		(459)		21,885		(459)
Total available for sale debt securities	Total available for sale debt securities	$	174,696	$	(2,871)	$	346,100	$	(50,238)	$	520,796	$	(53,109)	Total available for sale debt securities	$	48,632	$	(405)	$	447,687	$	(62,166)	$	496,319	$	(62,571)

At ~~June~~September 30, 2023, the Company held 58 commercial MBS and CMOs of which 52 were in a loss position and 3345 had been in a loss position for twelve months or more. The Company held 8988 residential MBS and CMOs of which 8786 were in a loss position and 6581 had been in a loss position for twelve months or more. The Company held six agency bonds of which ~~two~~four were in a loss position and three had been in a loss position for ~~less than~~ twelve ~~months.~~months or more. The Company held three other ABS of which all three were in a loss position for twelve months or more.

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

At December 31, 2022, the Company held 58 commercial MBS and CMOs of which 50 were in a loss position and 15 had been in a loss position for twelve months or more. The Company held 90 residential MBS and CMOs of which 86 were in a loss position and 14 had been in a loss position for twelve months or more. The Company held six agency bonds of which one was in a loss position for less than twelve months. The Company held three other ABS of which three were in a loss position and two 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 securities to be other-than-temporarily impaired at ~~June~~September 30, 2023 or December 31, 2022. Additionally, the Company had no ACL recorded for available for sale investment securities at ~~June~~September 30, 2023.

As of ~~June~~September 30, 2023 and December 31, 2022, there were no holdings of securities of any one issuer in an amount greater than 10% of stockholders' equity, other than the U.S. government and its agencies.

Held to Maturity

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


(Dollars in thousands)	(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, 2023:
As of September 30, 2023:										As of September 30, 2023:
Government Sponsored Entities:	Government Sponsored Entities:									Government Sponsored Entities:
Residential MBS	Residential MBS	$	2,996	$	—	$	(232)	$	2,764	Residential MBS	$	2,971	$	—	$	(369)	$	2,602
Other investments	Other investments	57		—		—		57		Other investments	54		—		—		54
Total held to maturity investment securities	Total held to maturity investment securities	$	3,053	$	—	$	(232)	$	2,821	Total held to maturity investment securities	$	3,025	$	—	$	(369)	$	2,656
As of December 31, 2022:	As of December 31, 2022:									As of December 31, 2022:
Government Sponsored Entities:	Government Sponsored Entities:									Government Sponsored Entities:
Residential MBS	Residential MBS	$	3,047	$	—	$	(234)	$	2,813	Residential MBS	$	3,047	$	—	$	(234)	$	2,813
Other investments	Other investments	61		—		—		61		Other investments	61		—		—		61
Total held to maturity investment securities	Total held to maturity investment securities	$	3,108	$	—	$	(234)	$	2,874	Total held to maturity investment securities	$	3,108	$	—	$	(234)	$	2,874

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

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been in a continuous unrecognized loss position:


		Less than 12 Months				12 Months or More				Total					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, 2023:
As of September 30, 2023:														As of September 30, 2023:
Government Sponsored Entities:	Government Sponsored Entities:													Government Sponsored Entities:
Residential MBS	Residential MBS	$	857	$	(57)	$	1,907	$	(175)	$	2,764	$	(232)	Residential MBS	$	—	$	—	$	2,602	$	(369)	$	2,602	$	(369)
As of December 31, 2022:	As of December 31, 2022:													As of December 31, 2022:
Government Sponsored Entities:	Government Sponsored Entities:													Government Sponsored Entities:
Residential MBS	Residential MBS	$	2,813	$	(234)	$	—	$	—	$	2,813	$	(234)	Residential MBS	$	2,813	$	(234)	$	—	$	—	$	2,813	$	(234)

At ~~June~~September 30, 2023, the Company had seven held to maturity residential MBS of which all seven ~~were in a loss position and four~~ had been in a loss position for twelve months or more. At December 31, 2022, the Company had seven held to maturity residential MBS of which all seven were in a loss position for less than twelve months.

The unrecognized losses on the Company’s held to maturity investments at ~~June~~September 30, 2023 were caused by interest rate changes. In addition, the contractual cash flows of these investments are guaranteed by agencies sponsored by the U.S. government. Accordingly, it is expected that the securities will not be settled at a price less than amortized cost. Because the decline in market value is attributable to changes in interest rates but not credit quality, and because the Company has the ability and intent to hold those investments until maturity, the Company does not consider these securities to be other-than-temporarily impaired at ~~June~~September 30, 2023 or December 31, 2022. Additionally, the Company had no ACL recorded for held to maturity investment securities at ~~June~~September 30, 2023.

The following table summarizes the scheduled maturities of available for sale and held to maturity investment securities as of ~~June~~September 30, 2023:


		June 30, 2023					September 30, 2023
(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

One to five years						One to five years	$	1,451	$	1,457
Five to ten years	Five to ten years	$	35,791	$	35,732	Five to ten years	32,762		32,681
Beyond ten years	Beyond ten years	2,907		2,921		Beyond ten years	2,856		2,870
MBS, CMOs and other ABS	MBS, CMOs and other ABS	578,397		525,621		MBS, CMOs and other ABS	561,192		498,916
Total available for sale debt securities	Total available for sale debt securities	$	617,095	$	564,274	Total available for sale debt securities	$	598,261	$	535,924
Held to maturity investments securities	Held to maturity investments securities					Held to maturity investments securities
Five to ten years	Five to ten years	$	57	$	57	Five to ten years	$	54	$	54
MBS	MBS	2,996		2,764		MBS	2,971		2,602
Total held to maturity debt securities	Total held to maturity debt securities	$	3,053	$	2,821	Total held to maturity debt securities	$	3,025	$	2,656

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. As of ~~June~~September 30, 2023, securities with an amortized cost totaling ~~$592.0~~$575.3 million were pledged to the FHLB and Federal Reserve Bank of San Francisco ("FRB") to secure borrowing arrangements. See Note 9 for additional information. No securities were pledged as of December 31, 2022.

Equity Securities

Equity securities consist of investments in a qualified community reinvestment fund. At ~~both June~~September 30, 2023 and December 31, 2022, the fair value of equity securities totaled $10.0 million and $10.3 ~~million.~~million, respectively. Changes in fair value are recognized in other noninterest income and totaled ~~$(166)~~$(322) thousand ~~and none~~ during both the three and ~~six~~nine months ended ~~June~~September 30, 2023, ~~respectively,~~ compared to ~~$(344)~~$(455) thousand and ~~$(921) thousand during the~~

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$(1.4) million during the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively. There were no sales of equity securities during the three or ~~six~~nine months ended ~~June~~September 30, 2023 or 2022.

3. LOANS

Loans consist of the following:


(Dollars in thousands)	(Dollars in thousands)	June 30, 2023		December 31, 2022		(Dollars in thousands)	September 30, 2023		December 31, 2022
Mortgages on:	Mortgages on:					Mortgages on:
Multifamily residential	Multifamily residential	$	4,428,226	$	4,532,312	Multifamily residential	$	4,349,645	$	4,532,312
Single family residential	Single family residential	2,308,912		2,283,628		Single family residential	2,303,280		2,283,628
Commercial real estate	Commercial real estate	161,588		172,258		Commercial real estate	153,986		172,258
Construction and land	Construction and land	22,268		22,247		Construction and land	20,308		22,247

Total	Total	6,920,994		7,010,445		Total	6,827,219		7,010,445
Allowance for credit losses on loans	Allowance for credit losses on loans	(37,214)		(36,685)		Allowance for credit losses on loans	(39,885)		(36,685)
Loans, net	Loans, net	$	6,883,780	$	6,973,760	Loans, net	$	6,787,334	$	6,973,760

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

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

The following table summarizes activity in and the allocation of the allowance for credit losses by portfolio segment during the three and ~~six~~nine months ended ~~June~~September 30, 2023:


		Allowance for Credit Losses													Allowance for Credit Losses
(Dollars in thousands)	(Dollars in thousands)	Beginning Balance		Impact of CECL Adoption		Charge-Offs		Recoveries		Provision		Ending Balance		(Dollars in thousands)	Beginning Balance		Impact of CECL Adoption		Charge-Offs		Recoveries		Provision		Ending Balance
Three months ended June 30, 2023
Three months ended September 30, 2023														Three months ended September 30, 2023
Multifamily residential	Multifamily residential	$	27,292	$	—	$	—	$	—	$	1,931	$	29,223	Multifamily residential	$	29,223	$	—	$	—	$	—	$	2,203	$	31,426
Single family residential	Single family residential	7,431		—		—		—		(557)		6,874		Single family residential	6,874		—		(463)		—		718		7,129
Commercial real estate	Commercial real estate	777		—		—		—		(1)		776		Commercial real estate	776		—		—		—		207		983
Construction and land	Construction and land	414		—		—		—		(73)		341		Construction and land	341		—		—		—		6		347
Allowance for credit losses on loans	Allowance for credit losses on loans	35,914		—		—		—		1,300		37,214		Allowance for credit losses on loans	37,214		—		(463)		—		3,134		39,885
Allowance for credit losses on off-balance sheet credit exposures	Allowance for credit losses on off-balance sheet credit exposures	658		—		—		—		(88)		570		Allowance for credit losses on off-balance sheet credit exposures	570		—		—		—		(133)		437
Total	Total	$	36,572	$	—	$	—	$	—	$	1,212	$	37,784	Total	$	37,784	$	—	$	(463)	$	—	$	3,001	$	40,322
Six months ended June 30, 2023
Nine months ended September 30, 2023														Nine months ended September 30, 2023
Multifamily residential	Multifamily residential	$	26,417	$	2,882	$	—	$	—	$	(76)	$	29,223	Multifamily residential	$	26,417	$	2,882	$	—	$	—	$	2,127	$	31,426
Single family residential	Single family residential	8,564		(2,472)		—		—		782		6,874		Single family residential	8,564		(2,472)		(463)		—		1,500		7,129
Commercial real estate	Commercial real estate	1,539		(784)		—		—		21		776		Commercial real estate	1,539		(784)		—		—		228		983
Construction and land	Construction and land	165		282		—		—		(106)		341		Construction and land	165		282		—		—		(100)		347
Allowance for credit losses on loans	Allowance for credit losses on loans	36,685		(92)		—		—		621		37,214		Allowance for credit losses on loans	36,685		(92)		(463)		—		3,755		39,885
Allowance for credit losses on off-balance sheet credit exposures	Allowance for credit losses on off-balance sheet credit exposures	563		211		—		—		(204)		570		Allowance for credit losses on off-balance sheet credit exposures	563		211		—		—		(337)		437
Total	Total	$	37,248	$	119	$	—	$	—	$	417	$	37,784	Total	$	37,248	$	119	$	(463)	$	—	$	3,418	$	40,322

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The following table summarizes activity in and the allocation of the allowance for loan losses by portfolio segment during the three and ~~six~~nine months ended ~~June~~September 30, 2022:


		Allowance for Loan Losses											Allowance for Loan Losses
(Dollars in thousands)	(Dollars in thousands)	Beginning Balance		Charge-Offs		Recoveries		Provision		Ending Balance		(Dollars in thousands)	Beginning Balance		Charge-Offs		Recoveries		Provision		Ending Balance
Three months ended June 30, 2022
Three months ended September 30, 2022												Three months ended September 30, 2022
Multifamily residential	Multifamily residential	$	24,151	$	—	$	—	$	1,856	$	26,007	Multifamily residential	$	26,007	$	—	$	—	$	197	$	26,204
Single family residential	Single family residential	6,797		—		—		828		7,625		Single family residential	7,625		—		—		532		8,157
Commercial real estate	Commercial real estate	1,882		—		—		(209)		1,673		Commercial real estate	1,673		—		—		(130)		1,543
Construction and land	Construction and land	205		—		—		25		230		Construction and land	230		—		—		(99)		131
Total	Total	$	33,035	$	—	$	—	$	2,500	$	35,535	Total	$	35,535	$	—	$	—	$	500	$	36,035
Six months ended June 30, 2022
Nine months ended September 30, 2022												Nine months ended September 30, 2022
Multifamily residential	Multifamily residential	$	26,043	$	—	$	—	$	(36)	$	26,007	Multifamily residential	$	26,043	$	—	$	—	$	161	$	26,204
Single family residential	Single family residential	7,224		—		—		401		7,625		Single family residential	7,224		—		—		933		8,157
Commercial real estate	Commercial real estate	2,094		—		—		(421)		1,673		Commercial real estate	2,094		—		—		(551)		1,543
Construction and land	Construction and land	174		—		—		56		230		Construction and land	174		—		—		(43)		131
Total	Total	$	35,535	$	—	$	—	$	—	$	35,535	Total	$	35,535	$	—	$	—	$	500	$	36,035

The Company assigns a risk rating to all loans and periodically performs detailed reviews of 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 that the weaknesses make collection or liquidation in full highly questionable and improbable based on current facts, conditions and values.

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

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The following table presents the internal risk ratings for total loans by portfolio segment of loan and origination year as of ~~June~~September 30, 2023, as well as gross charge-offs for the ~~three and six~~nine months ended ~~June~~September 30, 2023:


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

Multifamily residential	Multifamily residential															Multifamily residential
Pass	Pass	$	42,716	$	1,168,478	$	1,198,034	$	708,016	$	421,080	$	832,573	$	4,370,897	Pass	$	62,408	$	1,153,789	$	1,173,628	$	702,485	$	407,302	$	789,415	$	4,289,027
Watch	Watch	—		688		11,986		4,809		8,511		13,067		39,061		Watch	—		2,066		11,918		4,784		10,651		8,870		38,289
Special Mention	Special Mention	—		—		—		—		1,721		—		1,721		Special Mention	—		—		—		—		1,712		4,135		5,847
Substandard	Substandard	—		—		—		3,565		3,855		9,127		16,547		Substandard	—		—		—		3,546		3,836		9,100		16,482
Total	Total	$	42,716	$	1,169,166	$	1,210,020	$	716,390	$	435,167	$	854,767	$	4,428,226	Total	$	62,408	$	1,155,855	$	1,185,546	$	710,815	$	423,501	$	811,520	$	4,349,645
Year to date gross charge-offs	Year to date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	Year to date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Single family residential	Single family residential															Single family residential
Pass	Pass	$	112,244	$	819,295	$	720,213	$	166,261	$	136,353	$	339,664	$	2,294,030	Pass	$	153,229	$	804,841	$	706,081	$	156,946	$	132,733	$	325,433	$	2,279,263
Watch	Watch	—		1,413		1,151		—		3,795		6,466		12,825		Watch	—		1,408		2,687		—		3,774		11,340		19,209
Special Mention	Special Mention	—		338		—		—		—		—		338		Special Mention	—		335		—		—		784		556		1,675
Substandard	Substandard	—		—		—		—		—		1,719		1,719		Substandard	—		1,686		—		—		—		1,447		3,133
Total	Total	$	112,244	$	821,046	$	721,364	$	166,261	$	140,148	$	347,849	$	2,308,912	Total	$	153,229	$	808,270	$	708,768	$	156,946	$	137,291	$	338,776	$	2,303,280
Year to date gross charge-offs	Year to date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	Year to date gross charge-offs	$	—	$	—	$	463	$	—	$	—	$	—	$	463
Commercial real estate	Commercial real estate															Commercial real estate
Pass	Pass	$	—	$	21,993	$	1,932	$	11,548	$	24,087	$	100,483	$	160,043	Pass	$	—	$	21,892	$	1,922	$	11,489	$	23,963	$	86,604	$	145,870
Watch	Watch	—		—		—		—		—		601		601		Watch	—		—		—		—		—		4,100		4,100
Special Mention	Special Mention	—		—		—		—		944		—		944		Special Mention	—		—		—		—		939		2,864		3,803
Substandard	Substandard	—		—		—		—		—		—		—		Substandard	—		—		—		—		—		213		213
Total	Total	$	—	$	21,993	$	1,932	$	11,548	$	25,031	$	101,084	$	161,588	Total	$	—	$	21,892	$	1,922	$	11,489	$	24,902	$	93,781	$	153,986
Year to date gross charge-offs	Year to date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	Year to date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Construction and land	Construction and land															Construction and land
Pass	Pass	$	—	$	7,733	$	14,535	$	—	$	—	$	—	$	22,268	Pass	$	—	$	9,397	$	10,911	$	—	$	—	$	—	$	20,308
Watch	Watch	—		—		—		—		—		—		—		Watch	—		—		—		—		—		—		—
Special Mention	Special Mention	—		—		—		—		—		—		—		Special Mention	—		—		—		—		—		—		—
Substandard	Substandard	—		—		—		—		—		—		—		Substandard	—		—		—		—		—		—		—
Total	Total	$	—	$	7,733	$	14,535	$	—	$	—	$	—	$	22,268	Total	$	—	$	9,397	$	10,911	$	—	$	—	$	—	$	20,308
Year to date gross charge-offs	Year to date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	Year to date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total loans	Total loans															Total loans
Pass	Pass	$	154,960	$	2,017,499	$	1,934,714	$	885,825	$	581,520	$	1,272,720	$	6,847,238	Pass	$	215,637	$	1,989,919	$	1,892,542	$	870,920	$	563,998	$	1,201,452	$	6,734,468
Watch	Watch	—		2,101		13,137		4,809		12,306		20,134		52,487		Watch	—		3,474		14,605		4,784		14,425		24,310		61,598
Special Mention	Special Mention	—		338		—		—		2,665		—		3,003		Special Mention	—		335		—		—		3,435		7,555		11,325
Substandard	Substandard	—		—		—		3,565		3,855		10,846		18,266		Substandard	—		1,686		—		3,546		3,836		10,760		19,828
Total	Total	$	154,960	$	2,019,938	$	1,947,851	$	894,199	$	600,346	$	1,303,700	$	6,920,994	Total	$	215,637	$	1,995,414	$	1,907,147	$	879,250	$	585,694	$	1,244,077	$	6,827,219
Year to date gross charge-offs	Year to date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	Year to date gross charge-offs	$	—	$	—	$	463	$	—	$	—	$	—	$	463

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The following table summarizes the loan portfolio allocated by management’s internal risk ratings at December 31, 2022.


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









Grade:
Pass	$	4,469,443	$	2,269,325	$	169,711	$	22,247	$	6,930,726
Watch	44,436		11,341		1,594		—		57,371
Special mention	2,460		—		953		—		3,413
Substandard	15,973		2,962		—		—		18,935

Total	$	4,532,312	$	2,283,628	$	172,258	$	22,247	$	7,010,445

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


(Dollars in thousands)	(Dollars in thousands)	30-59 Days		60-89 Days		90+ Days		Total Past Due		Current		Total		(Dollars in thousands)	30-59 Days		60-89 Days		90+ Days		Total Past Due		Current		Total
As of June 30, 2023:
As of September 30, 2023:														As of September 30, 2023:
Loans:	Loans:													Loans:
Multifamily residential	Multifamily residential	$	—	$	—	$	3,023	$	3,023	$	4,425,203	$	4,428,226	Multifamily residential	$	3,171	$	1,381	$	3,023	$	7,575	$	4,342,070	$	4,349,645
Single family residential	Single family residential	4,858		1,297		92		6,247		2,302,665		2,308,912		Single family residential	2,307		1,537		2,729		6,573		2,296,707		2,303,280
Commercial real estate	Commercial real estate	—		—		—		—		161,588		161,588		Commercial real estate	—		—		—		—		153,986		153,986
Construction and land	Construction and land	—		—		—		—		22,268		22,268		Construction and land	—		—		—		—		20,308		20,308
Total	Total	$	4,858	$	1,297	$	3,115	$	9,270	$	6,911,724	$	6,920,994	Total	$	5,478	$	2,918	$	5,752	$	14,148	$	6,813,071	$	6,827,219
As of December 31, 2022:	As of December 31, 2022:													As of December 31, 2022:
Loans:	Loans:													Loans:
Multifamily residential	Multifamily residential	$	—	$	—	$	3,023	$	3,023	$	4,529,289	$	4,532,312	Multifamily residential	$	—	$	—	$	3,023	$	3,023	$	4,529,289	$	4,532,312
Single family residential	Single family residential	—		—		104		104		2,283,524		2,283,628		Single family residential	—		—		104		104		2,283,524		2,283,628
Commercial real estate	Commercial real estate	—		—		—		—		172,258		172,258		Commercial real estate	—		—		—		—		172,258		172,258
Construction and land	Construction and land	—		—		—		—		22,247		22,247		Construction and land	—		—		—		—		22,247		22,247
Total	Total	$	—	$	—	$	3,127	$	3,127	$	7,007,318	$	7,010,445	Total	$	—	$	—	$	3,127	$	3,127	$	7,007,318	$	7,010,445

As of both ~~June~~September 30, 2023 and December 31, 2022, there were no loans that were past due over 89 days and still accruing interest.

Loans that have been classified as collateral dependent are loans where substantially all repayment of the loan is expected to come from the operation of or eventual liquidation of the collateral. Collateral dependent loans are evaluated individually for purposes of measuring the ACL, which is determined based on the estimated fair value of the collateral. Estimates for costs to sell are included in the determination of the ACL when liquidation of the collateral is anticipated. In cases where the loan is well secured and the estimated value of the collateral exceeds the amortized cost of the loan, no ACL is recorded. The following table presents the amortized cost basis of collateral dependent loans by loan type at ~~June~~September 30, 2023.

Amortized Cost by Collateral Type

Allowance for Credit Losses

(Dollars in thousands)

Residential

Office

Industrial

Multifamily residential

~~3,498~~3,494

—

Single family residential

~~1,457~~3,132

—

Total

~~4,955~~6,626

—

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The following table summarizes information related to impaired loans at December 31, 2022:



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


	6,065		6,341		—
With an allowance recorded:
Multifamily residential	3,024		3,002		600
Single family residential	801		798		25


	3,825		3,800		625
Total:
Multifamily residential	3,509		3,564		600
Single family residential	6,381		6,577		25


	$	9,890	$	10,141	$	625

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


		Three Months Ended June 30, 2022						Six Months Ended June 30, 2022							Three Months Ended September 30, 2022						Nine Months Ended September 30, 2022
(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	$	654	$	25	$	25	Multifamily residential	$	847	$	13	$	13	$	712	$	38	$	38
Single family residential	Single family residential	6,219		37		10		5,626		80		29		Single family residential	6,791		60		32		5,935		140		61

		6,986		54		27		6,280		105		54			7,638		73		45		6,647		178		99
With an allowance recorded:	With an allowance recorded:													With an allowance recorded:

Single family residential	Single family residential	825		6		—		830		12		—		Single family residential	815		7		—		825		20		—

		825		6		—		830		12		—			815		7		—		825		20		—
Total:	Total:													Total:
Multifamily residential	Multifamily residential	767		17		17		654		25		25		Multifamily residential	847		13		13		712		38		38
Single family residential	Single family residential	7,044		43		10		6,456		92		29		Single family residential	7,606		67		32		6,760		160		61

		$	7,811	$	60	$	27	$	7,110	$	117	$	54		$	8,453	$	80	$	45	$	7,472	$	198	$	99

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


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










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

There were no loans experiencing financial difficulty that were modified during the ~~six~~nine months ended ~~June~~September 30, 2023. The Company had no modified loans with a subsequent payment default within the twelve months following their modification during the three or ~~six~~nine months ended ~~June~~September 30, 2023. A ~~loan is~~

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loan is considered to be in default once it is 90 days contractually past due under the modified terms.

The following table summarizes the recorded investment related to troubled debt restructurings ("TDRs") at December 31, 2022:


(Dollars in thousands)
Troubled debt restructurings:

Single family residential	$	1,211

The Company had allocated $25 thousand of its allowance for loan losses for loans modified in TDRs at December 31, 2022. 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 one loan that qualified as a TDR. The following table provides details of this modification:


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

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

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

4. NONPERFORMING ASSETS

Nonperforming assets include nonperforming loans plus real estate owned. The following table presents the composition of non-accrual loans as of the dates indicated below:


		June 30, 2023				December 31, 2022					September 30, 2023				December 31, 2022
(Dollars in thousands)	(Dollars in thousands)	Non-Accrual Loans with No ACL		Non-Accrual Loans		Non-Accrual Loans with No ALLL		Non-Accrual Loans		(Dollars in thousands)	Non-Accrual Loans with No ACL		Non-Accrual Loans		Non-Accrual Loans with No ALLL		Non-Accrual Loans
Multifamily residential	Multifamily residential	$	3,498	$	3,498	$	3,509	$	3,509	Multifamily residential	$	3,494	$	3,494	$	3,509	$	3,509
Single family residential	Single family residential	1,457		1,457		2,962		2,962		Single family residential	3,132		3,132		2,962		2,962

Total	Total	$	4,955	$	4,955	$	6,471	$	6,471	Total	$	6,626	$	6,626	$	6,471	$	6,471

The allowance for non-accrual loans is based on the CECL cash flow methodology unless the loan is considered collateral dependent. The allowance for collateral dependent loans is determined based on the estimated fair value of the underlying collateral.

Interest income on non-accrual loans is subsequently recognized on a cash basis as long as the remaining unpaid principal amount of the loans ~~are~~is 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, 2023 totaling ~~$18~~$23 thousand and ~~$46~~$69 thousand, respectively, compared to ~~$27~~$45 thousand and ~~$54~~$99 thousand during the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively. Contractual interest not recorded on nonperforming loans during the three and ~~six~~nine months ended ~~June~~September 30, 2023 totaled ~~$124~~$121 thousand and ~~$241~~$362 thousand, respectively, compared to ~~$17~~$6 thousand and ~~$24~~$30 thousand during the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively.

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The Company did not own any other real estate owned as of ~~June~~September 30, 2023 ~~and~~or December 31, 2022.

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, 2023		December 31, 2022		(Dollars in thousands)	September 30, 2023		December 31, 2022
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")	$	76,294	$	80,478	Federal Home Loan Mortgage Corporation ("Freddie Mac")	$	75,631	$	80,478
Other financial institutions	Other financial institutions	36,044		37,503		Other financial institutions	34,749		37,503
Total mortgage loans serviced for others	Total mortgage loans serviced for others	$	112,338	$	117,981	Total mortgage loans serviced for others	$	110,380	$	117,981

Custodial account balances maintained in connection with serviced loans totaled ~~$2.5 million~~$360 thousand and $234 thousand at ~~June~~September 30, 2023 and December 31, 2022, 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:


		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)	2023		2022		2023		2022		(Dollars in thousands)	2023		2022		2023		2022
Beginning balance	Beginning balance	$	669	$	811	$	688	$	915	Beginning balance	$	639	$	779	$	688	$	915
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	(30)		(32)		(49)		(136)		Other changes in fair value	(6)		(54)		(55)		(190)
Ending balance	Ending balance	$	639	$	779	$	639	$	779	Ending balance	$	633	$	725	$	633	$	725

Fair value as of ~~June~~September 30, 2023 was determined using a discount rate of 10%, prepayment speeds ranging from 7.0% to ~~47.4%~~46.9% and a weighted average default rate of 5%. The weighted average prepayment speed at ~~June~~September 30, 2023 was ~~32.5%~~31.8%. Fair value as of December 31, 2022 was determined using a discount rate of 10%, prepayment speeds ranging from 3.5% to 32.3% and a weighted average default rate of 5%. The weighted average prepayment speed at December 31, 2022 was 23.0%.

6. LEASES

The Company leases various office premises under long-term operating lease agreements. These leases expire between 2024 and 2033, with certain leases containing five-year renewal options. The Company includes lease extension options in the lease term, if it is reasonably certain the Company will exercise the option, when considering the economic incentive to do so. Leases are classified as operating or finance leases at the lease commencement date. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term. All of the Company’s leases are classified as operating leases.

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

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The Company uses its incremental borrowing rate at lease commencement to discount lease payments

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

Supplemental lease information as of ~~June~~September 30, 2023 and December 31, 2022 is as follows:


(Dollars in thousands)	(Dollars in thousands)	June 30, 2023			December 31, 2022			(Dollars in thousands)	September 30, 2023			December 31, 2022
Operating lease right-of-use assets included in prepaid expenses and other assets	Operating lease right-of-use assets included in prepaid expenses and other assets	$	11,711		$	13,244		Operating lease right-of-use assets included in prepaid expenses and other assets	$	13,969		$	13,244
Operating lease liabilities included in other liabilities and accrued expenses	Operating lease liabilities included in other liabilities and accrued expenses	11,711			13,316			Operating lease liabilities included in other liabilities and accrued expenses	13,969			13,316

Weighted average remaining lease term (years) of operating leases	Weighted average remaining lease term (years) of operating leases	4.8			5.1			Weighted average remaining lease term (years) of operating leases	4.9			5.1
Weighted average discount rate of operating leases	Weighted average discount rate of operating leases	2.77		%	2.69		%	Weighted average discount rate of operating leases	3.24		%	2.69		%

Supplemental lease information for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 is as follows:


		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)	2023		2022		2023		2022		(Dollars in thousands)	2023		2022		2023		2022

Operating lease costs included in occupancy expense	Operating lease costs included in occupancy expense	$	911	$	910	$	1,816	$	1,839	Operating lease costs included in occupancy expense	$	893	$	911	$	2,709	$	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	911		1,014		1,888		2,051		Cash paid for amounts included in the measurement of operating lease liabilities	893		1,019		2,781		3,071

At ~~June~~September 30, 2023, 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, 2023		$	1,686
October 1 - December 31, 2023				October 1 - December 31, 2023	$	862
2024	2024	2,803		2024	3,394
2025	2025	2,388		2025	3,050
2026	2026	2,203		2026	2,886
2027	2027	1,964		2027	2,667
Thereafter	Thereafter	1,640		Thereafter	2,425
Total undiscounted lease payments	Total undiscounted lease payments	12,684		Total undiscounted lease payments	15,284
Less: Imputed interest	Less: Imputed interest	(973)		Less: Imputed interest	(1,315)
Net lease liabilities	Net lease liabilities	$	11,711	Net lease liabilities	$	13,969

7. QUALIFIED AFFORDABLE HOUSING PROJECT INVESTMENTS

The Company is invested in qualified affordable housing projects that are expected to provide federal and state tax credits in the future. The investments are accounted for using the proportional amortization method. As of ~~June~~September 30, 2023 and December 31, 2022, the Company was committed to invest $19.3 million and $17.9 million, respectively, of which ~~$5.7~~$6.2 million and $4.8 million, respectively, had been funded and was included in prepaid expenses and other assets in the consolidated statements of financial condition. The total unfunded commitments related to the investments totaled ~~$13.6 million and~~ $13.1 million at ~~June~~both September 30, 2023 and December 31, 2022 ~~respectively,~~ and were included in other liabilities and accrued expenses in the consolidated statements of financial condition. During the three and ~~six~~nine months ended ~~June~~September 30, 2023, the Company recognized amortization expense of ~~$380~~$211 thousand and ~~$744~~$955 thousand, respectively, and tax benefits related to the investments of ~~$124~~$283 thousand and ~~$243 thousand,~~$1.3 million, respectively. During the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company recognized amortization expense of ~~$129~~$130 thousand and ~~$265~~$395 thousand, respectively, and tax benefits

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related to the investments of ~~$169~~$200 thousand and ~~$365~~$565 thousand, respectively. Amortization expense and tax benefits are included in the provision for income taxes in the unaudited consolidated statements of income.

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8. DEPOSITS

A summary of deposits at ~~June~~September 30, 2023 and December 31, 2022 is as follows:


(Dollars in thousands)	(Dollars in thousands)	June 30, 2023		December 31, 2022		(Dollars in thousands)	September 30, 2023		December 31, 2022
Time deposits	Time deposits	$	3,746,271	$	3,134,373	Time deposits	$	3,647,822	$	3,134,373
Money market checking						Money market checking	965,944		908,231
Money market savings	Money market savings	1,112,639		1,718,008		Money market savings	953,306		1,538,008
Money market checking		781,544		728,231
Interest-bearing demand	Interest-bearing demand	127,638		158,068		Interest-bearing demand	122,919		158,068
Noninterest-bearing demand	Noninterest-bearing demand	72,347		100,660		Noninterest-bearing demand	70,111		100,660
Total	Total	$	5,840,439	$	5,839,340	Total	$	5,760,102	$	5,839,340

The Company had time deposits that met or exceeded the Federal Deposit Insurance Corporation ("FDIC") insurance limit of $250 thousand of $1.5 billion and $1.3 billion at ~~June~~September 30, 2023 and December 31, 2022, respectively.

The Company utilizes brokered deposits as an additional source of funding. The Company had brokered deposits of ~~$577.3~~$441.7 million and $455.8 million at ~~June~~September 30, 2023 and December 31, 2022, respectively. ~~The increase in brokered deposits was primarily utilized to offset retail deposit declines during the first quarter of 2023.~~

Maturities of the Company’s time deposits at ~~June~~September 30, 2023 are summarized as follows:


(Dollars in thousands)	(Dollars in thousands)			(Dollars in thousands)
July 1 - December 31, 2023		$	2,143,963
October 1 - December 31, 2023				October 1 - December 31, 2023	$	1,151,224
2024	2024	1,540,368		2024	2,421,263
2025	2025	49,031		2025	63,093
2026	2026	8,487		2026	7,868
2027	2027	3,552		2027	3,498
Thereafter	Thereafter	870		Thereafter	876
Total	Total	$	3,746,271	Total	$	3,647,822

9. 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, 2023, the Bank had pledged various mortgage loans and securities to secure these borrowing arrangements totaling approximately ~~$4.2~~$4.1 billion and ~~$244.7~~$233.5 million, respectively, compared to pledged mortgage loans totaling approximately $4.2 billion as of December 31, 2022. Additionally, the FHLB stock held by the Bank as of both dates further secure these arrangements.

The Bank has access to the Loan and Discount Window of the FRB and the FRB's Bank Term Funding Program ("BTFP"). Advances under these programs are subject to the Bank providing qualifying collateral. Mortgage loans totaling approximately $2.6 billion and $904.9 million as of ~~June~~September 30, 2023 and December 31, 2022, respectively, secure the discount window borrowing arrangement. Securities with a current par value totaling ~~$347.3~~$339.9 million secure the BTFP as of ~~June~~September 30, 2023. No securities were pledged to secure FRB borrowings as of December 31, 2022. There were no borrowings outstanding with the FRB as of ~~June~~September 30, 2023 or December 31, 2022.

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

Outstanding Balances As of June 30, 2023
(Dollars in thousands) June 30,
2023 December 31,
2022 Minimum Interest Rate Maximum Interest Rate Weighted Average Rate Maturity Dates
Fixed rate short-term $ 125,000 $ 56,500 5.35 % 5.35 % 5.35 % July 2023
Fixed rate long-term(1)
1,451,647 1,151,647 0.38 % 7.33 % 3.17 % December 2023 to March 2030
$ 1,576,647 $ 1,208,147

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


	Outstanding Balances				As of September 30, 2023
(Dollars in thousands)	September 30, 2023		December 31, 2022		Minimum Interest Rate		Maximum Interest Rate		Weighted Average Rate		Maturity Dates
Fixed rate short-term	$	175,000	$	56,500	5.77	%	5.77	%	5.77	%	October 2023
Fixed rate long-term	1,251,647		1,151,647		0.38	%	7.33	%	3.07	%	December 2023 to March 2030

	$	1,426,647	$	1,208,147

The Bank's available borrowing capacity based on loans and securities pledged to the FHLB and the FRB totaled ~~$2.3~~$2.5 billion and $1.7 billion at ~~June~~September 30, 2023 and December 31, 2022, respectively. As of ~~June~~September 30, 2023 and December 31, 2022, the Bank had aggregate loan balances of ~~$4.5~~$11.4 million and $1.1 billion, respectively, available to pledge to the FHLB and FRB to increase its borrowing capacity. As of ~~June~~September 30, 2023 and December 31, 2022, the Bank pledged as collateral a $62.6 million FHLB letter of credit to Freddie Mac related to our multifamily securitization reimbursement obligation.

Short-term borrowings are borrowings with original maturities of 90 days or less. During the three and ~~six~~nine months ended ~~June~~September 30, 2023, there was a maximum amount of short-term borrowings outstanding of ~~$150.0~~$175.0 million for both periods, an average amount outstanding of ~~$123.4~~$6.5 million and ~~$86.4~~$59.5 million, respectively, with a weighted average interest rate of ~~5.27%~~5.60% and ~~5.21%~~5.22%, respectively. 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.

The following table summarizes scheduled principal payments on FHLB advances over the next five years as of ~~June~~September 30, 2023:


(Dollars in thousands)	(Dollars in thousands)			(Dollars in thousands)
July 1 - December 31, 2023		$	225,000
October 1 - December 31, 2023				October 1 - December 31, 2023	$	275,000
2024	2024	500,000		2024	500,000
2025	2025	751,500		2025	551,500
2026	2026	100,000		2026	100,000
2027	2027	—		2027	—
Thereafter	Thereafter	147		Thereafter	147
		$	1,576,647		$	1,426,647

10. JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES

The Company formed two wholly-owned trust companies (the ‘‘Trusts’’) which issued guaranteed preferred beneficial interests (the "Trust Securities") in the Company’s junior subordinated deferrable interest debentures (the "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

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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;

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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, 2023 and December 31, 2022:


		June 30, 2023				December 31, 2022				Date	Maturity	Rate Index		September 30, 2023				December 31, 2022				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	6.93	%	$	41,238	6.15	%	3/1/2006	6/15/2036	3 month LIBOR + 1.38%	Luther Burbank Statutory Trust I	$	41,238	7.05	%	$	41,238	6.15	%	3/1/2006	6/15/2036	3 month CME Term SOFR + Tenor Spread Adjustment (0.26%) + 1.38%
Luther Burbank Statutory Trust II	Luther Burbank Statutory Trust II	$	20,619	7.17	%	$	20,619	6.39	%	3/1/2007	6/15/2037	3 month LIBOR + 1.62%	Luther Burbank Statutory Trust II	$	20,619	7.29	%	$	20,619	6.39	%	3/1/2007	6/15/2037	3 month CME Term SOFR + Tenor Spread Adjustment (0.26%) + 1.62%

11. 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, 2023 and December 31, 2022:


		June 30, 2023				December 31, 2022								September 30, 2023				December 31, 2022
(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	$	154	$	95,000	$	215	9/30/2024	6.50	%	Senior Unsecured Term Notes	$	95,000	$	123	$	95,000	$	215	9/30/2024	6.50	%

12. 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, 2023, the Company held 1011 interest rate swaps with a total notional amount of ~~$1.5~~$1.8 billion. 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.

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, 2023 and 2022:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(Dollars in thousands)	2023		2022		2023		2022
Derivative - interest rate swaps:
Interest income	$	6,473	$	2,971	$	22,773	$	3,404
Hedged items - loans:
Interest loss	(63)		(77)		(92)		(125)
Net increase in interest income	$	6,410	$	2,894	$	22,681	$	3,279

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For the Three Months Ended June 30, For the Six Months Ended June 30,
(Dollars in thousands) 2023 2022 2023 2022
Derivative - interest rate swaps:
Interest income $ 8,136 $ 498 $ 16,300 $ 433
Hedged items - loans:
Interest income (loss) 91 (35) (29) (48)
Net increase in interest income $ 8,227 $ 463 $ 16,271 $ 385

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, 2023 and December 31, 2022:

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, 2023:

As of September 30, 2023:

Interest Rate Swaps

1,500,000

Prepaid Expenses and Other Assets

19,827

Other Liabilities and Accrued Expenses

—

Interest Rate Swaps

1,800,000

Prepaid Expenses and Other Assets

32,823

Other Liabilities and Accrued Expenses

—

As of December 31, 2022:

Interest Rate Swaps

1,850,000

Prepaid Expenses and Other Assets

21,323

Other Liabilities and Accrued Expenses

2,136

Interest Rate Swaps

1,850,000

Prepaid Expenses and Other Assets

21,323

Other Liabilities and Accrued Expenses

2,136

As of ~~June~~September 30, 2023 and December 31, 2022, the following amounts were recorded in the consolidated statements of financial condition related to cumulative basis adjustments for its fair value hedges:


Line Item in the Consolidated Statements of Financial Condition in Which the Hedged Items are Included (1)	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, 2023:
As of September 30, 2023:						As of September 30, 2023:
Loans receivable, net	Loans receivable, net	$	1,479,971	$	(20,029)	Loans receivable, net	$	1,766,913	$	(33,087)
As of December 31, 2022:	As of December 31, 2022:					As of December 31, 2022:
Loans receivable, net	Loans receivable, net	$	1,430,641	$	(19,359)	Loans receivable, net	$	1,430,641	$	(19,359)

(1) These amounts include the amortized cost basis of portfolio loans used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolios anticipated to be outstanding for the designated hedge period. At ~~June~~September 30, 2023 and December 31, 2022, the amortized cost basis of the portfolio loans used in these hedging relationships were ~~$4.1~~$4.4 billion and $3.9 billion, respectively.

13. 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

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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, 2023 totaled ~~$471~~$479 thousand and ~~$944 thousand,~~$1.4 million, respectively, compared to ~~$616~~$756 thousand and ~~$1.3~~$2.1 million for the three and ~~six~~nine months ended ~~June~~September 30, 2022. The fair value of RSAs that vested during the ~~six~~nine months ended ~~June~~September 30, 2023 ~~and 2022~~ totaled $2.7 million compared to $90 thousand and ~~$2.6~~$2.7 million during the three and nine months ended September 30, 2022, respectively. No RSAs or RSUs vested during the three months ended ~~June~~September 30, ~~3023 or 2022.~~2023.

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As of ~~June~~September 30, 2023 and December 31, 2022, there was ~~$1.9~~$1.4 million and $2.4 million, respectively, of unrecognized compensation expense related to 229,460 and 414,004 unvested RSAs, respectively, which amounts were expected to be expensed over a weighted average period of ~~1.30~~1.17 years and 1.74 years, respectively. As of ~~June~~September 30, 2023 and December 31, 2022, 65,799 and 81,225 shares, respectively, of RSUs were vested and remain unsettled per the original deferral elections. There were no unvested RSUs at ~~June~~September 30, 2023 or December 31, 2022.

The following table summarizes share information about RSAs and RSUs:


		Six Months Ended June 30,							Nine Months Ended September 30,
		2023			2022				2023			2022
		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	495,229	$	11.89	581,189	$	10.56	Beginning of the period balance	495,229	$	11.89	581,189	$	10.56
Shares granted	Shares granted	42,034	11.24		206,675	13.81		Shares granted	42,034	11.24		218,048	13.78
Shares settled	Shares settled	(239,005)	11.81		(253,706)	10.45		Shares settled	(239,005)	11.81		(264,836)	10.49
Shares forfeited	Shares forfeited	(2,999)	11.68		(37,839)	11.97		Shares forfeited	(2,999)	11.68		(37,839)	11.97
End of the period balance	End of the period balance	295,259	$	11.87	496,319	$	11.86	End of the period balance	295,259	$	11.87	496,562	$	11.90

Under its Omnibus Plan, the Company reserved 3,360,000 shares of common stock for new awards. At ~~June~~September 30, 2023 and December 31, 2022, there were 1,643,433 and 1,682,468 shares, respectively, of common stock reserved and available for grant through restricted stock or other awards under the Omnibus Plan. RSU awards were initially issued to replace unvested phantom stock awards under the Luther Burbank Corporation Phantom Stock Plan and were excluded from the shares reserved and available for grant under the Omnibus Plan.

14. FAIR VALUE MEASUREMENTS

Fair Value 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

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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

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valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities, or total earnings.

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

For cash and cash equivalents, 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.

The fair value of collateral dependent loans were measured based on the fair value of the collateral at the reporting date, adjusted for selling costs. The fair value of collateral dependent 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, 2023:
As of September 30, 2023:												As of September 30, 2023:
Financial assets:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	699,366	$	699,366	$	699,366	$	—	$	—	Cash and cash equivalents	$	579,724	$	579,724	$	579,724	$	—	$	—
Debt securities:	Debt securities:											Debt securities:
Available for sale	Available for sale	564,274		564,274		—		564,274		—		Available for sale	535,924		535,924		—		535,924		—
Held to maturity	Held to maturity	3,053		2,821		—		2,821		—		Held to maturity	3,025		2,656		—		2,656		—
Equity securities	Equity securities	10,340		10,340		—		10,340		—		Equity securities	10,018		10,018		—		10,018		—

Loans receivable, net	Loans receivable, net	6,883,780		6,648,397		—		—		6,648,397		Loans receivable, net	6,787,334		6,542,608		—		—		6,542,608
Accrued interest receivable	Accrued interest receivable	24,062		24,062		180		2,094		21,788		Accrued interest receivable	26,049		26,049		965		2,093		22,991
FHLB stock	FHLB stock	45,146		N/A		N/A		N/A		N/A		FHLB stock	44,370		N/A		N/A		N/A		N/A
Interest rate swaps	Interest rate swaps	19,827		19,827		—		19,827		—		Interest rate swaps	32,823		32,823		—		32,823		—
Financial liabilities:	Financial liabilities:											Financial liabilities:
Deposits	Deposits	$	5,840,439	$	5,814,552	$	1,864,169	$	3,950,383	$	—	Deposits	$	5,760,102	$	5,742,498	$	1,906,694	$	3,835,804	$	—
FHLB advances	FHLB advances	1,576,647		1,532,436		—		1,532,436		—		FHLB advances	1,426,647		1,390,249		—		1,390,249		—
Junior subordinated deferrable interest debentures	Junior subordinated deferrable interest debentures	61,857		56,487		—		56,487		—		Junior subordinated deferrable interest debentures	61,857		57,602		—		57,602		—
Senior debt	Senior debt	94,846		90,353		—		90,353		—		Senior debt	94,877		91,768		—		91,768		—
Accrued interest payable	Accrued interest payable	10,565		10,565		—		10,565		—		Accrued interest payable	10,847		10,847		—		10,847		—

As of December 31, 2022:	As of December 31, 2022:											As of December 31, 2022:
Financial assets:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	185,895	$	185,895	$	185,895	$	—	$	—	Cash and cash equivalents	$	185,895	$	185,895	$	185,895	$	—	$	—
Debt securities:	Debt securities:											Debt securities:
Available for sale	Available for sale	607,348		607,348		—		607,348		—		Available for sale	607,348		607,348		—		607,348		—
Held to maturity	Held to maturity	3,108		2,874		—		2,874		—		Held to maturity	3,108		2,874		—		2,874		—
Equity securities	Equity securities	10,340		10,340		—		10,340		—		Equity securities	10,340		10,340		—		10,340		—
Loans receivable, net	Loans receivable, net	6,973,760		6,743,783		—		—		6,743,783		Loans receivable, net	6,973,760		6,743,783		—		—		6,743,783
Accrued interest receivable	Accrued interest receivable	24,306		24,306		58		4,171		20,077		Accrued interest receivable	24,306		24,306		58		4,171		20,077
FHLB stock	FHLB stock	32,694		N/A		N/A		N/A		N/A		FHLB stock	32,694		N/A		N/A		N/A		N/A
Interest rate swaps	Interest rate swaps	21,323		21,323		—		21,323		—		Interest rate swaps	21,323		21,323		—		21,323		—
Financial liabilities:	Financial liabilities:											Financial liabilities:
Deposits	Deposits	$	5,839,340	$	5,789,929	$	2,449,966	$	3,339,963	$	—	Deposits	$	5,839,340	$	5,789,929	$	2,449,966	$	3,339,963	$	—
FHLB advances	FHLB advances	1,208,147		1,153,511		—		1,153,511		—		FHLB advances	1,208,147		1,153,511		—		1,153,511		—
Junior subordinated deferrable interest debentures	Junior subordinated deferrable interest debentures	61,857		56,967		—		56,967		—		Junior subordinated deferrable interest debentures	61,857		56,967		—		56,967		—
Senior debt	Senior debt	94,785		94,652		—		94,652		—		Senior debt	94,785		94,652		—		94,652		—
Accrued interest payable	Accrued interest payable	3,964		3,964		—		3,964		—		Accrued interest payable	3,964		3,964		—		3,964		—
Interest rate swaps	Interest rate swaps	2,136		2,136		—		2,136		—		Interest rate swaps	2,136		2,136		—		2,136		—

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

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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, 2023 and December 31, 2022.

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, 2023:
As of September 30, 2023:										As of September 30, 2023:
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	$	315,906	$	—	$	315,906	$	—	Commercial MBS and CMOs	$	298,906	$	—	$	298,906	$	—
Residential MBS and CMOs	Residential MBS and CMOs	187,290		—		187,290		—		Residential MBS and CMOs	178,125		—		178,125		—
Agency bonds	Agency bonds	38,653		—		38,653		—		Agency bonds	37,008		—		37,008		—
Other ABS	Other ABS	22,425		—		22,425		—		Other ABS	21,885		—		21,885		—
Total available for sale debt securities	Total available for sale debt securities	$	564,274	$	—	$	564,274	$	—	Total available for sale debt securities	$	535,924	$	—	$	535,924	$	—
Equity securities	Equity securities	$	10,340	$	—	$	10,340	$	—	Equity securities	$	10,018	$	—	$	10,018	$	—
Mortgage servicing rights	Mortgage servicing rights	639		—		—		639		Mortgage servicing rights	633		—		—		633
Interest rate swaps	Interest rate swaps	19,827		—		19,827		—		Interest rate swaps	32,823		—		32,823		—

As of December 31, 2022:	As of December 31, 2022:									As of December 31, 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	$	340,736	$	—	$	340,736	$	—	Commercial MBS and CMOs	$	340,736	$	—	$	340,736	$	—
Residential MBS and CMOs	Residential MBS and CMOs	199,384		—		199,384		—		Residential MBS and CMOs	199,384		—		199,384		—
Agency bonds	Agency bonds	42,630		—		42,630		—		Agency bonds	42,630		—		42,630		—
Other ABS	Other ABS	24,598		—		24,598		—		Other ABS	24,598		—		24,598		—
Total available for sale debt securities	Total available for sale debt securities	$	607,348	$	—	$	607,348	$	—	Total available for sale debt securities	$	607,348	$	—	$	607,348	$	—
Equity securities	Equity securities	$	10,340	$	—	$	10,340	$	—	Equity securities	$	10,340	$	—	$	10,340	$	—
Mortgage servicing rights	Mortgage servicing rights	688		—		—		688		Mortgage servicing rights	688		—		—		688
Interest rate swaps	Interest rate swaps	21,323		—		21,323		—		Interest rate swaps	21,323		—		21,323		—
Financial Liabilities:	Financial Liabilities:									Financial Liabilities:
Interest rate swaps	Interest rate swaps	$	2,136	$	—	$	2,136	$	—	Interest rate swaps	$	2,136	$	—	$	2,136	$	—

There were no transfers between Level 1 and Level 2 during the three and ~~six~~nine months ended ~~June~~September 30, 2023 or 2022.

Non-recurring Basis

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

At ~~both June~~September 30, 2023, ~~and~~one single family residential collateral dependent loan was measured at a fair value resulting in a charge-off of the full loan balance of $463 thousand during the three months ended September 30, 2023. The fair value of collateral dependent loans were measured based on the fair value of the collateral at the reporting date, adjusted for selling costs. The fair value of collateral dependent loans was determined utilizing estimates resulting in a Level 3 classification. At December 31, 2022, there were no assets or liabilities measured at fair value on a non-recurring ~~basis~~basis. At both September 30, 2023 and December 31, 2022, the Company held no other real estate owned.

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15. 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.

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~~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 ~~$268~~$247 thousand and $439 thousand as of ~~June~~September 30, 2023 and December 31, 2022, 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. In connection with the adoption the CECL accounting standard on January 1, 2023, the Company decreased the allowance for the reimbursement obligation by $119 thousand, which represented the difference between the CECL methodology and the prior methodology utilized for estimating losses for its reimbursement obligation.

16. LOAN SALE AND SECURITIZATION ACTIVITIES

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, 2023, the Bank’s net worth was ~~$839.9~~$834.5 million which equates to its Tier 1 capital of ~~$874.0~~$875.4 million plus goodwill of $3.3 million less accumulated other comprehensive loss related to net unrealized losses on available for sale securities of ~~$37.5~~$44.2 million.

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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.

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Such representations and warranties are limited to those that do not meet the quality represented at the transaction date and do not pertain to a decline in value or future payment defaults. In circumstances where the 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 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)	2023		2022		2023		2022		(Dollars in thousands)	2023		2022		2023		2022
Proceeds from loan sales	Proceeds from loan sales	$	—	$	—	$	—	$	—	Proceeds from loan sales	$	—	$	—	$	—	$	—
Servicing fees	Servicing fees	64		89		127		186		Servicing fees	60		75		187		261

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, 2023:
As of September 30, 2023:						As of September 30, 2023:
Principal balance of loans	Principal balance of loans	$	10,812	$	101,526	Principal balance of loans	$	10,717	$	99,663
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, 2022:	As of December 31, 2022:					As of December 31, 2022:
Principal balance of loans	Principal balance of loans	$	11,000	$	106,981	Principal balance of loans	$	11,000	$	106,981
Loans 90+ days past due	Loans 90+ days past due	—		—		Loans 90+ days past due	—		—
Charge-offs, net	Charge-offs, net	—		—		Charge-offs, net	—		—

17. 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

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

At ~~June~~September 30, 2023 and December 31, 2022, the Company had outstanding commitments of approximately ~~$27.0~~$21.0 million and $37.7 million, respectively, for loans. Unfunded commitment reserves totaled ~~$303~~

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$190 thousand and $125 thousand at ~~June~~September 30, 2023 and December 31, 2022, respectively. The Company adopted the CECL accounting standard on January 1, 2023. Upon adoption, the Company increased the allowance for unfunded loan commitments by $330 thousand, which represented the difference between the allowance calculated under the CECL methodology as of January 1, 2023 and the incurred loss methodology as of December 31, 2022. The $330 thousand increase in the allowance for unfunded loan commitments was primarily due to higher lifetime expected losses on unfunded commitments on construction loans under the CECL methodology.

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 or cash flows. In the ordinary course of operations, as well as in connection with the pending merger with WAFD, the Company may be party to various legal proceedings.

Correspondent Banking Agreements

The Company maintains funds on deposit with other federally insured financial institutions under correspondent banking agreements. Insured portions of these balances are limited to $250 thousand per institution based on FDIC insurance limits. At ~~June~~September 30, 2023 and December 31, 2022, the Company had ~~$798~~$800 thousand and $25.0 million, respectively, in uninsured available cash balances. The Company also has established federal funds lines of credit with correspondent banks totaling $25.0 million and $50.0 million at ~~both June~~September 30, 2023 and December 31, 2022, respectively, 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, 2023 and December 31, 2022 and our results of operations for the three months ended September 30, 2023 and June 30, 2023 and ~~March 31, 2023 and~~ the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, and should be read in conjunction with our audited consolidated financial statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2022 that was filed with the SEC on February 22, 2023 (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, 2023 (this “Report”). Because we conduct all of our material business operations through our bank subsidiary, Luther Burbank Savings (the "Bank"), the discussion and analysis relates to activities primarily conducted by the Bank.

Overview

We are a bank holding company headquartered in Santa Rosa, California, and the parent company of Luther Burbank Savings, a California-chartered commercial bank with ~~$8.4~~$8.1 billion in assets at ~~June~~September 30, 2023. 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 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.

Recent Developments

As announced in November of last year, Luther Burbank Corporation entered into an agreement to merge with and into Washington Federal, Inc. ("WAFD"). On May 4, 2023, shareholders of each entity approved the transaction, and on October 13, 2023, the Washington State Department of Financial Institutions granted conditional approval of the merger. The merger remains subject to the receipt of approvals from the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System.

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 ~~June~~September 30, 2023 and 2022 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, 2023 are derived from our unaudited consolidated financial statements which are included in our Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~June 30, 2023 filed with SEC on ~~May 5,~~August 4, 2023. 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, 2023			March 31, 2023			June 30, 2023				June 30, 2022				September 30, 2023			June 30, 2023			September 30, 2023			September 30, 2022
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	$	6,917		$	13,442		$	20,359			$	45,507		Net Income	$	1,907		$	6,917		$	22,266		$	66,509
Pre-tax, pre-provision net earnings (1)	Pre-tax, pre-provision net earnings (1)	$	11,107		$	18,287		$	29,394			$	64,089		Pre-tax, pre-provision net earnings (1)	$	5,560		$	11,107		$	34,954		$	94,456
Total assets	Total assets	$	8,360,070		$	8,302,457		$	8,360,070			$	7,530,516		Total assets	$	8,133,913		$	8,360,070		$	8,133,913		$	7,921,584
Per Common Share	Per Common Share														Per Common Share
Diluted earnings per share	Diluted earnings per share	$	0.14		$	0.26		$	0.40			$	0.89		Diluted earnings per share	$	0.04		$	0.14		$	0.44		$	1.30
Book value per share	Book value per share	$	13.71		$	13.64		$	13.71			$	13.15		Book value per share	$	13.62		$	13.71		$	13.62		$	13.25
Tangible book value per share (1)	Tangible book value per share (1)	$	13.64		$	13.58		$	13.64			$	13.09		Tangible book value per share (1)	$	13.56		$	13.64		$	13.56		$	13.18

Selected Ratios	Selected Ratios														Selected Ratios
Return on average:	Return on average:														Return on average:
Assets	Assets	0.33		%	0.67		%	0.49		%		1.25		%	Assets	0.09		%	0.33		%	0.36		%	1.20		%
Stockholders' equity	Stockholders' equity	3.94		%	7.78		%	5.85		%		13.50		%	Stockholders' equity	1.09		%	3.94		%	4.25		%	13.11		%
Dividend payout ratio	Dividend payout ratio	—		%	—		%	—		%		27.14		%	Dividend payout ratio	—		%	—		%	—		%	27.80		%
Net interest margin	Net interest margin	1.27		%	1.72		%	1.49		%		2.58		%	Net interest margin	0.97		%	1.27		%	1.32		%	2.52		%
Efficiency ratio (1)	Efficiency ratio (1)	59.18		%	48.08		%	52.92		%		31.03		%	Efficiency ratio (1)	73.00		%	59.18		%	57.90		%	31.88		%
Noninterest expense to average assets	Noninterest expense to average assets	0.76		%	0.84		%	0.80		%		0.79		%	Noninterest expense to average assets	0.73		%	0.76		%	0.78		%	0.80		%
Loan to deposit ratio	Loan to deposit ratio	118.50		%	124.32		%	118.50		%		117.09		%	Loan to deposit ratio	118.53		%	118.50		%	118.53		%	118.29		%

Credit Quality Ratios	Credit Quality Ratios														Credit Quality Ratios
Allowance for credit losses on loans to total loans	Allowance for credit losses on loans to total loans	0.54		%	0.51		%	0.54		%		0.54		%	Allowance for credit losses on loans to total loans	0.58		%	0.54		%	0.58		%	0.53		%
Allowance for credit losses on loans to nonperforming loans	Allowance for credit losses on loans to nonperforming loans	751.04		%	722.62		%	751.04		%		706.46		%	Allowance for credit losses on loans to nonperforming loans	601.95		%	751.04		%	601.95		%	940.86		%
Nonperforming assets to total assets	Nonperforming assets to total assets	0.06		%	0.06		%	0.06		%		0.07		%	Nonperforming assets to total assets	0.08		%	0.06		%	0.08		%	0.05		%
Net charge-offs to average loans	Net charge-offs to average loans	—		%	—		%	—		%		—		%	Net charge-offs to average loans	0.03		%	—		%	0.01		%	—		%
Capital Ratios	Capital Ratios														Capital Ratios
Tier 1 leverage ratio	Tier 1 leverage ratio	9.40		%	9.73		%	9.40		%		10.20		%	Tier 1 leverage ratio	9.66		%	9.40		%	9.66		%	9.99		%
Total risk-based capital ratio	Total risk-based capital ratio	20.39		%	19.50		%	20.39		%		19.12		%	Total risk-based capital ratio	20.86		%	20.39		%	20.86		%	19.20		%

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

Critical Accounting Policies and Estimates

Our unaudited consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“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, 2022, 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.

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Allowance for Credit Losses ("ACL") on Loans

The Company adopted the current expected credit loss ("CECL") allowance methodology on January 1, 2023. The ACL on loans represents the Company’s estimate of expected lifetime credit losses for its loans at the time of origination or acquisition and is maintained at a level deemed appropriate by management to provide for expected lifetime credit losses in the portfolio as of the date of the consolidated statements of financial condition. The ACL on loans is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. Amortized cost does not include accrued interest, which management elected to exclude from the estimate of expected credit losses. Loans are charged-off against the allowance when management believes that the uncollectibility of a loan is confirmed. Recoveries will never exceed the aggregate of amounts previously charged-off.

While management estimates the ACL balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts, inherent uncertainties in the estimation process make it reasonably possible that ultimate losses may vary significantly from our original estimates.

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.

Non-GAAP Financial Measures

Some of the financial measures discussed in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations contain financial measures that are not measures recognized under GAAP and therefore, are considered non-GAAP financial measures, 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.

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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, 2023			March 31, 2023				June 30, 2023				June 30, 2022			(Dollars in thousands)	September 30, 2023			June 30, 2023			September 30, 2023			September 30, 2022
Pre-tax, Pre-provision Net Earnings	Pre-tax, Pre-provision Net Earnings															Pre-tax, Pre-provision Net Earnings
Income before taxes	Income before taxes	$	9,895		$	19,082			$	28,977			$	64,089		Income before taxes	$	2,559		$	9,895		$	31,536		$	93,956
Plus: Provision for (reversal of) credit losses		1,212			(795)				417				—
Plus: Provision for credit losses																Plus: Provision for credit losses	3,001			1,212			3,418			500
Pre-tax, pre-provision net earnings	Pre-tax, pre-provision net earnings	$	11,107		$	18,287			$	29,394			$	64,089		Pre-tax, pre-provision net earnings	$	5,560		$	11,107		$	34,954		$	94,456
Efficiency Ratio	Efficiency Ratio															Efficiency Ratio
Noninterest expense (numerator)	Noninterest expense (numerator)	$	16,104		$	16,934			$	33,038			$	28,837		Noninterest expense (numerator)	$	15,035		$	16,104		$	48,073		$	44,213
Net interest income	Net interest income	$	26,320		$	33,986			60,306				92,506			Net interest income	$	19,563		$	26,320		79,869			137,980
Noninterest income	Noninterest income	891			1,235				2,126				420			Noninterest income	1,032			891			3,158			689
Operating revenue (denominator)	Operating revenue (denominator)	$	27,211		$	35,221			$	62,432			$	92,926		Operating revenue (denominator)	$	20,595		$	27,211		$	83,027		$	138,669
Efficiency ratio	Efficiency ratio	59.18		%	48.08		%		52.92		%		31.03		%	Efficiency ratio	73.00		%	59.18		%	57.90		%	31.88		%


(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	June 30, 2023		March 31, 2023		June 30, 2022		(Dollars in thousands, except per share data)	September 30, 2023		June 30, 2023		September 30, 2022
Tangible Book Value Per Share	Tangible Book Value Per Share							Tangible Book Value Per Share
Total assets	Total assets	$	8,360,070	$	8,302,457	$	7,530,516	Total assets	$	8,133,913	$	8,360,070	$	7,921,584
Less: Goodwill	Less: Goodwill	(3,297)		(3,297)		(3,297)		Less: Goodwill	(3,297)		(3,297)		(3,297)
Tangible assets	Tangible assets	8,356,773		8,299,160		7,527,219		Tangible assets	8,130,616		8,356,773		7,918,287
Less: Total liabilities	Less: Total liabilities	(7,660,723)		(7,606,296)		(6,858,894)		Less: Total liabilities	(7,438,908)		(7,660,723)		(7,244,915)
Tangible stockholders' equity (numerator)	Tangible stockholders' equity (numerator)	$	696,050	$	692,864	$	668,325	Tangible stockholders' equity (numerator)	$	691,708	$	696,050	$	673,372
Period end shares outstanding (denominator)	Period end shares outstanding (denominator)	51,027,878		51,030,877		51,063,498		Period end shares outstanding (denominator)	51,027,878		51,027,878		51,074,605
Tangible book value per share	Tangible book value per share	$	13.64	$	13.58	$	13.09	Tangible book value per share	$	13.56	$	13.64	$	13.18

Results of Operations - Three Months Ended ~~June~~September 30, 2023 and ~~March 31,~~June 30, 2023

Overview

For the three months ended ~~June~~September 30, 2023, our net income was ~~$6.9~~$1.9 million as compared to ~~$13.4~~$6.9 million for the three months ended ~~March 31,~~June 30, 2023. The decrease of ~~$6.5~~$5.0 million, or ~~48.5%~~72.4%, was attributable to a decrease in net interest income of ~~$7.7~~$6.8 million and an increase in the provision for credit losses of ~~$2.0~~$1.8 million, partially offset by a decrease in provision for income taxes of ~~$2.7~~$2.3 million and a decrease in noninterest expense of $1.1 million. Pre-tax, pre-provision net earnings decreased by ~~$7.2~~$5.5 million, or ~~39.3%~~49.9%, for the three months ended ~~June~~September 30, 2023 as compared to the linked quarter.

Net Interest Income

Net interest income decreased by ~~$7.7~~$6.8 million, or ~~22.6%~~25.7%, to ~~$26.3~~$19.6 million for the three months ended ~~June~~September 30, 2023 from ~~$34.0~~$26.3 million for the prior quarter primarily due to higher interest expense on our deposit portfolio, ~~and FHLB advances,~~ partially offset by ~~higher~~lower interest expense on FHLB advances.

As of September 30, 2023, the Company held swaps with an aggregate notional amount of $1.8 billion, carrying a weighted average fixed payment rate of 3.78%, while receiving a federal funds weighted average rate of 5.33%. The Company's swaps provide a partial hedge against the interest rate risk associated with hybrid adjustable loans in their fixed period, as well as a pool of fixed rate single family loans. The net hedging impact associated with our swaps is reported in interest income on ~~cash~~loans. During the quarters ended September 30 and ~~cash equivalents~~June 30, 2023, interest income earned on these swaps totaled $6.4 million and ~~loans.~~

$8.0 million, respectively. The decline in interest income on swaps was attributable to the maturity of a $300 million swap at the end of the prior quarter. The Company replaced this swap with a new $300 million swap at the end of the current quarter.

Our net interest margin was ~~1.27%~~0.97% during the three months ended ~~June~~September 30, 2023 compared to ~~1.72%~~1.27% during the prior quarter. Our net interest margin reflects the net impact of an increase in the cost of interest bearing liabilities, partially offset by an increase in the yield on interest earning assets. Due to the liability sensitivity of our balance sheet, our interest-bearing liabilities generally reprice more quickly than our interest-earning assets, which will result in lower net interest income during periods of rising interest rates. During the ~~second~~third quarter, the cost of our

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interest bearing liabilities increased by 6134 basis points primarily due to an increase in the cost of our deposits, ~~and FHLB advances,~~ while the yield on our interest earning assets increased by 146 basis points primarily due to ~~an increase~~increases in ~~the~~ yields on ~~loans and~~our cash and ~~cash equivalents.~~investment holdings. Our net interest spread in the ~~second~~third quarter was ~~0.98%~~0.70%, ~~decreasing by 47~~a decrease of 28 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, 2023 and ~~March 31,~~June 30, 2023. The average balances are daily averages.

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		For the Three Months Ended													For the Three Months Ended
		June 30, 2023						March 31, 2023							September 30, 2023						June 30, 2023
(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	$	4,487,735	$	50,780	4.53	%	$	4,521,440	$	48,961	4.33	%	Multifamily residential	$	4,391,926	$	49,176	4.48	%	$	4,487,735	$	50,780	4.53	%
Single family residential	Single family residential	2,317,880		22,249		3.84	%	2,283,753		22,991		4.03	%	Single family residential	2,301,841		23,085		4.01	%	2,317,880		22,249		3.84	%
Commercial real estate	Commercial real estate	164,733		2,256		5.48	%	169,268		2,147		5.07	%	Commercial real estate	159,917		2,279		5.70	%	164,733		2,256		5.48	%
Construction and land	Construction and land	24,753		729		11.81	%	23,665		505		8.65	%	Construction and land	20,947		576		10.91	%	24,753		729		11.81	%
Total loans (1)	Total loans (1)	6,995,101		76,014		4.35	%	6,998,126		74,604		4.26	%	Total loans (1)	6,874,631		75,116		4.37	%	6,995,101		76,014		4.35	%
Investment securities	Investment securities	595,223		5,613		3.77	%	614,527		5,488		3.57	%	Investment securities	569,925		5,711		4.01	%	595,223		5,613		3.77	%
Cash and cash equivalents	Cash and cash equivalents	683,409		8,623		5.06	%	291,706		3,303		4.59	%	Cash and cash equivalents	610,788		8,243		5.35	%	683,409		8,623		5.06	%
Total interest-earning assets	Total interest-earning assets	8,273,733		90,250		4.36	%	7,904,359		83,395		4.22	%	Total interest-earning assets	8,055,344		89,070		4.42	%	8,273,733		90,250		4.36	%
Noninterest-earning assets (2)	Noninterest-earning assets (2)	147,474						149,670						Noninterest-earning assets (2)	159,413						147,474
Total assets	Total assets	$	8,421,207					$	8,054,029					Total assets	$	8,214,757					$	8,421,207
Interest-Bearing Liabilities	Interest-Bearing Liabilities													Interest-Bearing Liabilities
Transaction accounts	Transaction accounts	$	132,927	186		0.55	%	$	150,429	160		0.43	%	Transaction accounts	$	125,908	245		0.76	%	$	132,927	186		0.55	%
Money market demand accounts	Money market demand accounts	1,943,861		14,870		3.03	%	2,271,018		13,956		2.46	%	Money market demand accounts	1,881,449		16,453		3.42	%	1,943,861		14,870		3.03	%
Time deposits	Time deposits	3,662,985		32,661		3.54	%	3,268,933		23,491		2.88	%	Time deposits	3,715,204		38,401		4.05	%	3,662,985		32,661		3.54	%
Total deposits	Total deposits	5,739,773		47,717		3.30	%	5,690,380		37,607		2.65	%	Total deposits	5,722,561		55,099		3.77	%	5,739,773		47,717		3.30	%
FHLB advances	FHLB advances	1,640,939		13,630		3.33	%	1,327,863		9,262		2.83	%	FHLB advances	1,453,821		11,722		3.20	%	1,640,939		13,630		3.33	%
Junior subordinated debentures	Junior subordinated debentures	61,857		1,008		6.54	%	61,857		966		6.33	%	Junior subordinated debentures	61,857		1,112		7.13	%	61,857		1,008		6.54	%
Senior debt	Senior debt	94,826		1,575		6.64	%	94,796		1,574		6.64	%	Senior debt	94,857		1,574		6.64	%	94,826		1,575		6.64	%
Total interest-bearing liabilities	Total interest-bearing liabilities	7,537,395		63,930		3.38	%	7,174,896		49,409		2.77	%	Total interest-bearing liabilities	7,333,096		69,507		3.72	%	7,537,395		63,930		3.38	%
Noninterest-bearing deposit accounts	Noninterest-bearing deposit accounts	71,865						86,967						Noninterest-bearing deposit accounts	69,777						71,865
Other noninterest-bearing liabilities	Other noninterest-bearing liabilities	110,391						100,627						Other noninterest-bearing liabilities	109,858						110,391
Total liabilities	Total liabilities	7,719,651						7,362,490						Total liabilities	7,512,731						7,719,651
Total stockholders' equity	Total stockholders' equity	701,556						691,539						Total stockholders' equity	702,026						701,556
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	8,421,207					$	8,054,029					Total liabilities and stockholders' equity	$	8,214,757					$	8,421,207

Net interest spread (3)	Net interest spread (3)					0.98	%					1.45	%	Net interest spread (3)					0.70	%					0.98	%
Net interest income/margin (4)	Net interest income/margin (4)			$	26,320	1.27	%			$	33,986	1.72	%	Net interest income/margin (4)			$	19,563	0.97	%			$	26,320	1.27	%

(1) Non-accrual loans are included in total loan balances. No adjustment has been made for these loans in the calculation of yields. Interest income on loans includes amortization of deferred loan costs, net of deferred loan fees. Net deferred loan cost amortization totaled $1.5 million and $1.4 million for ~~both~~ the three months ended September 30, 2023 and June 30, 2023, ~~and March 31, 2023.~~respectively.

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

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

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

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

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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, 2023							Three Months Ended September 30 vs June 30, 2023
		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	$	(376)	$	2,195	$	1,819	Multifamily residential	$	(1,057)	$	(547)	$	(1,604)
Single family residential	Single family residential	344		(1,086)		(742)		Single family residential	(153)		989		836
Commercial real estate	Commercial real estate	(59)		168		109		Commercial real estate	(67)		90		23
Construction and land	Construction and land	25		199		224		Construction and land	(102)		(51)		(153)
Total loans	Total loans	(66)		1,476		1,410		Total loans	(1,379)		481		(898)
Investment securities	Investment securities	(176)		301		125		Investment securities	(246)		344		98
Cash and cash equivalents	Cash and cash equivalents	4,943		377		5,320		Cash and cash equivalents	(890)		510		(380)
Total interest-earning assets	Total interest-earning assets	4,701		2,154		6,855		Total interest-earning assets	(2,515)		1,335		(1,180)
Interest-Bearing Liabilities	Interest-Bearing Liabilities							Interest-Bearing Liabilities
Transaction accounts	Transaction accounts	(19)		45		26		Transaction accounts	(10)		69		59
Money market demand accounts	Money market demand accounts	(2,131)		3,045		914		Money market demand accounts	(441)		2,024		1,583
Time deposits	Time deposits	3,167		6,003		9,170		Time deposits	516		5,224		5,740
Total deposits	Total deposits	1,017		9,093		10,110		Total deposits	65		7,317		7,382
FHLB advances	FHLB advances	2,497		1,871		4,368		FHLB advances	(1,422)		(486)		(1,908)
Junior subordinated debentures	Junior subordinated debentures	—		42		42		Junior subordinated debentures	—		104		104
Senior debt	Senior debt	1		—		1		Senior debt	(1)		—		(1)
Total interest-bearing liabilities	Total interest-bearing liabilities	3,515		11,006		14,521		Total interest-bearing liabilities	(1,358)		6,935		5,577

Net Interest Income	Net Interest Income	$	1,186	$	(8,852)	$	(7,666)	Net Interest Income	$	(1,157)	$	(5,600)	$	(6,757)

Total interest income ~~increased~~decreased by ~~$6.9~~$1.2 million, or ~~8.2%~~1.3%, for the three months ended ~~June~~September 30, 2023 as compared to the prior quarter. This ~~increase~~decrease was primarily due to a ~~$1.4 million improvement~~$898 thousand decline in interest income earned on loans ~~resulting from~~due to a $2.0 million decrease in income earned on interest rate swaps primarily related to multifamily residential loans due to a maturity of a swap in the prior quarter, as discussed above. This decrease was partially offset by an ~~9 basis point~~ increase in the average yield on our loans due to the repricing of loans, as well as the recent origination of loans at higher current rates relative to the existing coupon on our loan portfolio. Interest income was also ~~positively impacted~~affected by ana decrease in interest income on cash and cash equivalents due to a $72.6 million decline in the average balance, partially offset by a 29 basis point increase in the average ~~balance and, to a lesser extent, the average~~ yield ~~of cash and cash equivalents of $391.7 million and 47 basis points, respectively,~~ compared to the linked quarter. ~~The increase in average balance was due to our purposeful plan to increase on-balance sheet liquidity.~~

The volume of new loan originations totaled ~~$69.8~~$62.8 million and ~~$90.3~~$69.8 million for the three months ended September 30, 2023 and June 30, 2023, ~~and March 31, 2023,~~ respectively. ~~Declining loan~~Loan originations ~~are~~remained low primarily ~~attributable~~due to slowing demand resulting from the general rise in interest rates and our desire to achieve a reasonable risk adjusted return on new loan volume in light of the elevated cost of new funding. The weighted average rate on new loans for the three months ended ~~June~~September 30, 2023 was ~~6.78%~~6.89% as compared to ~~6.42%~~6.78% for the linked quarter. Loan prepayment speeds were ~~6.6%~~6.5% and ~~4.2%~~6.6% during the three months ended ~~June~~September 30, 2023 and ~~March 31,~~June 30, 2023, respectively. The continued low prepayment speeds were due to rising market interest rates, which continued to impact purchase and refinancing activity. The weighted average rate on loan payoffs/curtailments during both the three months ended September 30, 2023 and June 30, 2023 was 5.07% ~~as compared to 4.43% for the prior quarter.~~.

Total interest expense increased ~~$14.5~~$5.6 million, or ~~29.4%~~8.7%, to ~~$63.9~~$69.5 million, for the three months ended ~~June~~September 30, 2023 from ~~$49.4~~$63.9 million for the prior quarter. Interest expense on deposits increased ~~$10.1~~$7.4 million, to ~~$47.7~~$55.1 million, for the three months ended ~~June~~September 30, 2023 from ~~$37.6~~$47.7 million for the prior quarter. The increase was ~~primarily~~ due to a 6547 basis point increase in the cost of interest-bearing deposits predominantly due to rate increases in both retail and brokered deposits. ~~Additionally,~~This increase was partially offset by a $1.9 million decline in interest expense on FHLB advances ~~increased $4.4 million~~

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compared to the prior quarter due to ~~an increase~~decreases in the average balance and cost of advances of ~~$313.1~~$187.1 million and 5013 basis points, respectively. ~~The increase in FHLB advances was primarily utilized to supplement our liquidity during the quarter.~~ 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 Credit Losses

During the three months ended September 30, 2023 and June 30, 2023, the Company recorded loan loss provisions of $3.1 million and $1.3 million, ~~compared to recaptured loan loss~~respectively. The provisions ~~of $679 thousand during the linked quarter. The provision~~ recorded during the current ~~quarter was~~and prior quarters were primarily related to forecasted declines in multifamily property values. ~~The reversal during the prior quarter was predominantly due to the elimination of a specific reserve previously established on a collateral dependent loan.~~ Our ACL on loans as a percentage of total loans was ~~0.54%~~0.58% at ~~June~~September 30, 2023 compared to 0.52% at December 31, 2022. The Company adopted the CECL methodology on January 1, 2023 using the modified retrospective method and results for reporting periods beginning January 1, 2023 are reported under the CECL methodology, while prior period results continue to be reported under previously applicable GAAP.

Nonperforming assets totaled ~~$5.0~~$6.6 million, or ~~0.06%~~0.08% of total assets, at ~~June~~September 30, 2023 compared to $6.5 million, or 0.08% of total assets, at December 31, 2022. ~~The decrease in nonperforming assets was primarily due to two single family residential loans returning to performing status during the first quarter.~~ Classified loans, which includes loans graded Substandard and of greater risk, totaled ~~$18.3~~$19.8 million and $18.9 million at ~~June~~September 30, 2023 and December 31, 2022, respectively. Criticized loans, which includes loans graded Special Mention and classified loans, were ~~$21.3~~$31.2 million at ~~June~~September 30, 2023 compared to $22.3 million at December 31, 2022. This increase was primarily caused by the downgrade of three loans to Special Mention during the current quarter. The Company's exposure to nonresidential commercial real estate remains limited, totaling ~~$161.6~~$154.0 million, or 2.3% of our loan portfolio, at the end of the current quarter. See further detail of our nonresidential commercial real estate below in this item under "Loan Portfolio Composition - Commercial real estate ~~loans~~loans.".

Noninterest Income

Noninterest income ~~decreased~~increased by ~~$344~~$141 thousand, or ~~27.9%~~15.8%, to ~~$891 thousand~~$1.0 million for the three months ended ~~June~~September 30, 2023 from ~~$1.2 million~~$891 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, 2023		March 31, 2023		$ Increase (Decrease)		% Increase (Decrease)		(Dollars in thousands)	September 30, 2023		June 30, 2023		$ Increase (Decrease)		% Increase (Decrease)
Noninterest Income	Noninterest Income									Noninterest Income

FHLB dividends	FHLB dividends	$	625	$	577	$	48	8.3	%	FHLB dividends	$	886	$	625	$	261	41.8	%
Fee income	Fee income	98		138		(40)		(29.0)	%	Fee income	128		98		30		30.6	%
Other	Other	168		520		(352)		(67.7)	%	Other	18		168		(150)		(89.3)	%
Total noninterest income	Total noninterest income	$	891	$	1,235	$	(344)	(27.9)	%	Total noninterest income	$	1,032	$	891	$	141	15.8	%

The ~~decrease~~increase in noninterest income for the quarter ended ~~June~~September 30, 2023 compared to the quarter ended ~~March 31,~~June 30, 2023 was primarily attributable to a $261 thousand increase in FHLB dividends due to a 75 basis point increase in the annualized dividend rate compared to the prior quarter. The $150 thousand decrease in other noninterest income was attributable to a decrease in the fair value of equity securities during the current quarter compared to the prior quarter. Changes in fair value are primarily attributable to changes in market interest rates.

Noninterest Expense

Noninterest expense decreased ~~$830 thousand,~~$1.1 million, or ~~4.9%~~6.6%, to $15.0 million for the three months ended September 30, 2023 from $16.1 million for the three months ended June 30, ~~2023 from $16.9 million for the three months ended March 31,~~ 2023.

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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, 2023		March 31, 2023		$ Increase (Decrease)		% Increase (Decrease)		(Dollars in thousands)	September 30, 2023		June 30, 2023		$ Increase (Decrease)		% Increase (Decrease)
Noninterest Expense	Noninterest Expense									Noninterest Expense
Compensation and related benefits	Compensation and related benefits	$	10,118	$	10,671	$	(553)	(5.2)	%	Compensation and related benefits	$	8,527	$	10,118	$	(1,591)	(15.7)	%
Deposit insurance premium	Deposit insurance premium	943		884		59		6.7	%	Deposit insurance premium	960		943		17		1.8	%
Professional and regulatory fees	Professional and regulatory fees	499		436		63		14.4	%	Professional and regulatory fees	638		499		139		27.9	%
Occupancy	Occupancy	1,134		1,184		(50)		(4.2)	%	Occupancy	1,115		1,134		(19)		(1.7)	%
Depreciation and amortization	Depreciation and amortization	373		649		(276)		(42.5)	%	Depreciation and amortization	368		373		(5)		(1.3)	%
Data processing	Data processing	1,025		862		163		18.9	%	Data processing	1,039		1,025		14		1.4	%
Marketing	Marketing	955		739		216		29.2	%	Marketing	860		955		(95)		(9.9)	%
Merger costs	Merger costs	41		553		(512)		(92.6)	%	Merger costs	555		41		514		1253.7	%
Other expenses	Other expenses	1,016		956		60		6.3	%	Other expenses	973		1,016		(43)		(4.2)	%
Total noninterest expense	Total noninterest expense	$	16,104	$	16,934	$	(830)	(4.9)	%	Total noninterest expense	$	15,035	$	16,104	$	(1,069)	(6.6)	%

The decrease in noninterest expense during the quarter ended ~~June~~September 30, 2023 compared to the linked quarter was predominantly due to a ~~$553 thousand~~$1.6 million decrease in compensation costs primarily due to an approximate 10% workforce reduction during the second quarter, which predominantly impacted our loan production team, and to a lesser extent, a decline in the required accrual for post-retirement benefits due to rising long-term interest rates during the period, partially offset by a decline in capitalized loan origination costs due to lower loan origination volume. During the current quarter, the Company further reduced its workforce by approximately 10%, predominantly impacting our loan production team. The financial benefit of this reduction will be reflected in future quarters.period. Noninterest expense was ~~also positively impacted~~negatively affected by a ~~$512~~$514 thousand ~~decline~~increase in ~~external~~ costs incurred in connection with our previously announced merger with ~~Washington Federal, Inc. ("WAFD")~~WAFD compared to the prior quarter.

Income Tax Expense

For the three months ended ~~June~~September 30, 2023, we recorded income tax expense of ~~$3.0 million~~$652 thousand as compared to ~~$5.6~~$3.0 million for the prior quarter with effective tax rates of ~~30.1%~~25.5% and ~~29.6%~~30.1%, respectively. The decline in income tax expense was due to lower pre-tax income during the current quarter compared to the prior quarter, while the decrease in effective tax rate was primarily due to true-ups related to updated state apportionment factors.

Results of Operations - ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022

Overview

For the ~~six~~nine months ended ~~June~~September 30, 2023, our net income was ~~$20.4~~$22.3 million as compared to ~~$45.5~~$66.5 million for the ~~six~~nine months ended ~~June~~September 30, 2022. The decrease of ~~$25.1~~$44.2 million, or ~~55.3%~~66.5%, was primarily attributable to a decrease of ~~$32.2~~$58.1 million in net interest income, ~~and an increase of $4.2 million in noninterest expense,~~ partially offset by a ~~$10.0~~$18.2 million decrease in provision for income tax as compared to the same period last year. Pre-tax, pre-provision net earnings decreased by ~~$34.7~~$59.5 million, or ~~54.1%~~63.0%, for the ~~six~~nine months ended ~~June~~September 30, 2023 as compared to the same period last year.

Net Interest Income

Net interest income decreased by ~~$32.2~~$58.1 million, or ~~34.8%~~42.1%, to ~~$60.3~~$79.9 million for the ~~six~~nine months ended ~~June~~September 30, 2023 from ~~$92.5~~$138.0 million for the same period last year due to higher interest expense on deposits and FHLB advances, partially offset by higher interest income on loans, cash and cash equivalents and investments.

Net interest margin for the ~~six~~nine months ended ~~June~~September 30, 2023 was ~~1.49%~~1.32% compared to ~~2.58%~~2.52% for the same period last year. The decrease in our margin was primarily related to a ~~234~~237 basis point increase in the cost of our interest-bearing liabilities, partially offset by a ~~106~~99 basis point increase in the yield of our interest-earning assets.

Average balance sheet, interest and yield/rate analysis. The following table presents average balance sheet information, interest income, interest expense and the corresponding average yield earned and rates paid for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022. The average balances are daily averages.

4140

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		For the Six Months Ended June 30,													For the Nine Months Ended September 30,
		2023						2022							2023						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	$	4,504,495	$	99,741	4.43	%	$	4,265,584	$	79,038	3.71	%	Multifamily residential	$	4,466,559	$	148,917	4.45	%	$	4,327,355	$	120,306	3.71	%
Single family residential	Single family residential	2,300,911		45,240		3.93	%	1,914,875		26,456		2.76	%	Single family residential	2,301,224		68,325		3.96	%	1,976,356		45,115		3.04	%
Commercial real estate	Commercial real estate	166,988		4,403		5.27	%	191,776		4,460		4.65	%	Commercial real estate	164,605		6,682		5.41	%	189,499		6,597		4.64	%
Construction and land	Construction and land	24,212		1,234		10.28	%	23,077		591		5.16	%	Construction and land	23,112		1,810		10.47	%	21,960		893		5.44	%
Total loans (1)	Total loans (1)	6,996,606		150,618		4.31	%	6,395,312		110,545		3.46	%	Total loans (1)	6,955,500		225,734		4.33	%	6,515,170		172,911		3.54	%
Investment securities	Investment securities	604,822		11,101		3.67	%	650,304		5,163		1.59	%	Investment securities	593,062		16,812		3.78	%	660,069		9,290		1.88	%
Cash and cash equivalents	Cash and cash equivalents	488,640		11,926		4.92	%	127,479		265		0.42	%	Cash and cash equivalents	529,803		20,169		5.09	%	118,452		812		0.92	%
Total interest-earning assets	Total interest-earning assets	8,090,068		173,645		4.29	%	7,173,095		115,973		3.23	%	Total interest-earning assets	8,078,365		262,715		4.34	%	7,293,691		183,013		3.35	%
Noninterest-earning assets (2)	Noninterest-earning assets (2)	148,563						101,204						Noninterest-earning assets (2)	152,221						110,459
Total assets	Total assets	$	8,238,631					$	7,274,299					Total assets	$	8,230,586					$	7,404,150
Interest-Bearing Liabilities	Interest-Bearing Liabilities													Interest-Bearing Liabilities
Transaction accounts	Transaction accounts	$	141,630	346		0.49	%	$	172,351	183		0.21	%	Transaction accounts	$	136,332	592		0.57	%	$	171,148	279		0.21	%
Money market demand accounts	Money market demand accounts	2,106,536		28,827		2.72	%	3,007,908		7,189		0.48	%	Money market demand accounts	2,030,683		45,280		2.94	%	3,007,085		14,603		0.64	%
Time deposits	Time deposits	3,467,047		56,151		3.23	%	2,213,867		5,561		0.50	%	Time deposits	3,550,675		94,551		3.52	%	2,250,523		12,136		0.71	%
Total deposits	Total deposits	5,715,213		85,324		2.98	%	5,394,126		12,933		0.48	%	Total deposits	5,717,690		140,423		3.24	%	5,428,756		27,018		0.66	%
FHLB advances	FHLB advances	1,485,266		22,892		3.11	%	812,685		6,725		1.67	%	FHLB advances	1,474,669		34,614		3.14	%	899,838		12,071		1.79	%
Junior subordinated debentures	Junior subordinated debentures	61,856		1,974		6.44	%	61,857		660		2.15	%	Junior subordinated debentures	61,856		3,086		6.67	%	61,857		1,220		2.64	%
Senior debt	Senior debt	94,811		3,149		6.64	%	94,688		3,149		6.65	%	Senior debt	94,826		4,723		6.64	%	94,704		4,724		6.65	%
Total interest-bearing liabilities	Total interest-bearing liabilities	7,357,146		113,339		3.08	%	6,363,356		23,467		0.74	%	Total interest-bearing liabilities	7,349,041		182,846		3.29	%	6,485,155		45,033		0.92	%
Noninterest-bearing deposit accounts	Noninterest-bearing deposit accounts	79,374						156,717						Noninterest-bearing deposit accounts	76,140						159,504
Other noninterest-bearing liabilities	Other noninterest-bearing liabilities	105,536						80,196						Other noninterest-bearing liabilities	106,993						82,935
Total liabilities	Total liabilities	7,542,056						6,600,269						Total liabilities	7,532,174						6,727,594
Total stockholders' equity	Total stockholders' equity	696,575						674,030						Total stockholders' equity	698,412						676,556
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	8,238,631					$	7,274,299					Total liabilities and stockholders' equity	$	8,230,586					$	7,404,150

Net interest spread (3)	Net interest spread (3)					1.21	%					2.49	%	Net interest spread (3)					1.05	%					2.43	%
Net interest income/margin (4)	Net interest income/margin (4)			$	60,306	1.49	%			$	92,506	2.58	%	Net interest income/margin (4)			$	79,869	1.32	%			$	137,980	2.52	%

(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 ~~$2.8~~$4.3 million and ~~$8.8~~$11.2 million for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively.

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

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

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

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

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		Six Months Ended June 30, 2023 vs 2022							Nine Months Ended September 30, 2023 vs 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	$	4,637	$	16,066	$	20,703	Multifamily residential	$	3,973	$	24,638	$	28,611
Single family residential	Single family residential	6,054		12,730		18,784		Single family residential	8,169		15,041		23,210
Commercial real estate	Commercial real estate	(613)		556		(57)		Commercial real estate	(929)		1,014		85
Construction and land	Construction and land	30		613		643		Construction and land	49		868		917
Total loans	Total loans	10,108		29,965		40,073		Total loans	11,262		41,561		52,823
Investment securities	Investment securities	(386)		6,324		5,938		Investment securities	(1,031)		8,553		7,522
Cash, cash equivalents and restricted cash		2,438		9,223		11,661
Cash and cash equivalents								Cash and cash equivalents	8,396		10,961		19,357
Total interest-earning assets	Total interest-earning assets	12,160		45,512		57,672		Total interest-earning assets	18,627		61,075		79,702
Interest-Bearing Liabilities	Interest-Bearing Liabilities							Interest-Bearing Liabilities
Transaction accounts	Transaction accounts	(37)		200		163		Transaction accounts	(65)		378		313
Money market demand accounts	Money market demand accounts	(2,760)		24,398		21,638		Money market demand accounts	(6,055)		36,732		30,677
Time deposits	Time deposits	4,775		45,815		50,590		Time deposits	10,491		71,924		82,415
Total deposits	Total deposits	1,978		70,413		72,391		Total deposits	4,371		109,034		113,405
FHLB advances	FHLB advances	7,918		8,249		16,167		FHLB advances	10,338		12,205		22,543
Junior subordinated debentures	Junior subordinated debentures	—		1,314		1,314		Junior subordinated debentures	—		1,866		1,866
Senior debt	Senior debt	—		—		—		Senior debt	2		(3)		(1)
Total interest-bearing liabilities	Total interest-bearing liabilities	9,896		79,976		89,872		Total interest-bearing liabilities	14,711		123,102		137,813

Net Interest Income	Net Interest Income	$	2,264	$	(34,464)	$	(32,200)	Net Interest Income	$	3,916	$	(62,027)	$	(58,111)

Total interest income increased by ~~$57.7~~$79.7 million, or ~~49.7%~~43.5%, for the ~~six~~nine months ended ~~June~~September 30, 2023 as compared to the same period last year. The increase was primarily due to an 8579 basis point increase in loan yields and a ~~$601.3~~$440.3 million increase in the average balance of loans. The increase in loan yields was attributable to ~~an $15.9~~loans originated in the past year at increasing interest rates, as well as a $19.4 million increase in interest income earned on our interest rate ~~swaps as well as loans originated in the past twelve months at increasing interest rates.~~swaps. The average balance of loans increased due to strong prior year loan originations and slowing prepayment speeds. Additionally, interest income on cash and cash equivalents increased $19.4 million due to an increase in the average balance and yield of $411.4 million and 417 basis points, respectively, compared to the prior year. Interest income on investments increased ~~$11.6~~$7.5 million ~~and $5.9 million, respectively,~~ primarily due to a ~~450~~190 basis point ~~and a 208 basis point, respectively,~~ increase in yield compared to the same period last ~~year~~year. The increases in yield on both cash and investments was due to ~~rising~~continued increases in market interest rates. At ~~June~~September 30, 2023, over 62% of our available for sale securities portfolio consisted of floating rate securities with an average repricing period of approximately 1413 months.

The volume of new loans originated totaled ~~$160.1~~$222.9 million and ~~$1.3~~$1.8 billion for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively. The decline in loan originations was primarily attributable to slowing demand resulting from the general rise in interest rates and our desire to achieve a reasonable risk adjusted return on new loan volume in light of the elevated cost of new funding. The weighted average interest rate on new loans for the ~~six~~nine months ended ~~June~~September 30, 2023 was ~~6.58%~~6.67% as compared to ~~3.37%~~3.74% for the same period last year. The increase in the average coupon on originations was primarily due to the rising interest rate environment. Loan prepayment speeds were ~~5.4%~~5.8% and ~~25.1%~~22.0% during the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively. The decrease in prepayment speeds was due to rising market interest rates, which slowed purchase and refinancing activity during the current year-to-date period. The weighted average rate on loan payoffs/curtailments during the ~~six~~nine months ended ~~June~~September 30, 2023 was ~~4.80%~~4.90% as compared to ~~3.78%~~3.81% for the same period last year.

Total interest expense increased ~~$89.9~~$137.8 million, or ~~383.0%~~306.0%, to ~~$113.3~~$182.8 million for the ~~six~~nine months ended ~~June~~September 30, 2023 from ~~$23.5~~$45.0 million for the same period last year. Interest expense on deposits increased ~~$72.4~~$113.4 million primarily due to the cost of interest-bearing deposits increasing ~~250~~258 basis points due to ~~the general rise~~continued increases in market interest rates. Interest expense on advances from the FHLB increased by ~~$16.2~~$22.5 million during the ~~six~~nine months ended ~~June~~September 30, 2023, compared to the same period last year, due to an increase in the average balance and cost of FHLB advances of ~~$672.6~~$574.8 million and ~~144~~135 basis points, respectively. The increase in FHLB

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advances has been utilized to mitigate interest rate risk and increase on-balance sheet liquidity. The increase in the cost of FHLB advances is due to ~~rising~~

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continued increases in market interest rates. A discussion of instruments used to mitigate interest rate risk can be found under Part II - Item 7A. ‘‘Quantitative and Qualitative Disclosures About Market Risk.’’

Provision for Credit Losses

For the ~~six~~nine months ended ~~June~~September 30, 2023, we recorded ~~$621 thousand~~$3.8 million in provisions for loan losses compared to no$500 thousand in provisions during the same period last year. During the ~~six~~nine months ended ~~June~~September 30, 2023, provisions were recorded primarily related to forecasted declines in multifamily property values, partially offset by the elimination of a specific reserve previously established on a collateral dependent loan. As discussed above, the Company adopted the CECL methodology on January 1, 2023. During the prior year loan loss provisions recorded in the second and third quarters were primarily due to loan growth and incremental changes in classified loan balances. These loan loss provisions were 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.

Noninterest Income

Noninterest income increased to ~~$2.1~~$3.2 million for the ~~six~~nine months ended ~~June~~September 30, 2023 from ~~$420~~$689 thousand 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)	2023		2022		$ Increase (Decrease)		% Increase (Decrease)		(Dollars in thousands)	2023		2022		$ Increase (Decrease)		% Increase (Decrease)
Noninterest Income	Noninterest Income									Noninterest Income

FHLB dividends	FHLB dividends	$	1,202	$	696	$	506	72.7	%	FHLB dividends	$	2,088	$	1,059	$	1,029	97.2	%
Fee income	Fee income	236		517		(281)		(54.4)	%	Fee income	364		640		(276)		(43.1)	%
Other	Other	688		(793)		1,481		(186.8)	%	Other	706		(1,010)		1,716		(169.9)	%
Total noninterest income	Total noninterest income	$	2,126	$	420	$	1,706	406.2	%	Total noninterest income	$	3,158	$	689	$	2,469	358.3	%

The increase in noninterest income for the ~~six~~nine months ended ~~June~~September 30, 2023 compared to the ~~six~~nine months ended ~~June~~September 30, 2022 was primarily due to a ~~$920 thousand~~$1.0 million net increase in the fair value of equity securities during the current period compared to the same period last year, as well as a ~~$506 thousand~~$1.0 million increase in FHLB ~~dividends.~~dividends due to increases in the quarterly dividend rate.

Noninterest Expense

Noninterest expense increased ~~$4.2~~$3.9 million, or ~~14.6%~~8.7%, to ~~$33.0~~$48.1 million for the ~~six~~nine months ended ~~June~~September 30, 2023 from ~~$28.8~~$44.2 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)	2023		2022		$ Increase (Decrease)		% Increase (Decrease)		(Dollars in thousands)	2023		2022		$ Increase (Decrease)		% Increase (Decrease)
Noninterest Expense	Noninterest Expense									Noninterest Expense
Compensation and related benefits	Compensation and related benefits	$	20,789	$	17,289	$	3,500	20.2	%	Compensation and related benefits	$	29,316	$	26,146	$	3,170	12.1	%
Deposit insurance premium	Deposit insurance premium	1,827		960		867		90.3	%	Deposit insurance premium	2,787		1,468		1,319		89.9	%
Occupancy	Occupancy	2,318		2,391		(73)		(3.1)	%	Occupancy	3,433		3,590		(157)		(4.4)	%
Depreciation and amortization	Depreciation and amortization	1,022		1,349		(327)		(24.2)	%	Depreciation and amortization	1,390		2,155		(765)		(35.5)	%
Professional and regulatory fees	Professional and regulatory fees	935		1,173		(238)		(20.3)	%	Professional and regulatory fees	1,573		1,812		(239)		(13.2)	%
Data processing	Data processing	1,887		1,995		(108)		(5.4)	%	Data processing	2,926		3,039		(113)		(3.7)	%
Marketing	Marketing	1,694		983		711		72.3	%	Marketing	2,554		2,194		360		16.4	%
Merger costs	Merger costs	594		—		594		N/A		Merger costs	1,149		—		1,149		N/A
Other expenses	Other expenses	1,972		2,697		(725)		(26.9)	%	Other expenses	2,945		3,809		(864)		(22.7)	%
Total noninterest expense	Total noninterest expense	$	33,038	$	28,837	$	4,201	14.6	%	Total noninterest expense	$	48,073	$	44,213	$	3,860	8.7	%

The increase in noninterest expense during the ~~six~~nine months ended ~~June~~September 30, 2023 as compared to the same period last year was primarily attributable to a ~~$3.5~~$3.2 million increase in compensation expense due to a decline in

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capitalized salary costs due to lower loan origination volume, partially offset by a decrease in salaries and related benefits due to a reduction in our lending workforce. Additionally, FDIC deposit insurance premiums increased ~~$867 thousand~~$1.3 million compared to the same period last year due to an increase in assessment rates effective at the beginning of ~~2023 and marketing costs increased $711 thousand related to deposit gathering efforts.~~2023. During the ~~six~~nine months ended ~~June~~September 30, 2023, ~~$594 thousand~~$1.1 million of external costs were incurred in connection with our previously announced merger with WAFD. These increases were partially offset by a ~~$757~~$845 thousand decline in loan down payment assistance ~~costs.~~costs due to the slowing in loan originations, as well as a $765 thousand decrease in depreciation and amortization caused by a reduction in leased office space.

Income Tax Expense

For the ~~six~~nine months ended ~~June~~September 30, 2023, we recorded income tax expense of ~~$8.6~~$9.3 million as compared to ~~$18.6~~$27.4 million for the same period last year with effective tax rates of ~~29.7%~~29.4% and ~~29.0%~~29.2%, respectively. The decline in income tax expense was due to lower pre-tax earnings during the current year-to-date period compared to the same period last year.

Financial Condition - As of ~~June~~September 30, 2023 and December 31, 2022

Total assets at ~~June~~September 30, 2023 were ~~$8.4~~$8.1 billion, an increase of ~~$385.4~~$159.3 million, or ~~4.8%~~2.0%, from December 31, 2022. The increase was primarily due to a ~~$513.5~~$393.8 million increase in cash and cash equivalents as compared to the prior year end, partially offset by a ~~$89.5~~$183.2 million decline in ~~loans.~~loans and a $71.4 million decrease in available for sale securities. Total liabilities were ~~$7.7~~$7.4 billion at quarter end, an increase of ~~$368.6~~$146.8 million, or ~~5.1%~~2.0%, from December 31, 2022. The increase in total liabilities was primarily attributable to a ~~$368.5~~$218.5 million increase in FHLB ~~advances.~~advances, partially offset by a $79.2 million decline in 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, 2023 and December 31, 2022, our total loans amounted to ~~$6.9~~$6.8 billion and $7.0 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, 2023 As of December 31, 2022
(Dollars in thousands) Amount % of total Amount % of total
Real estate loans
Multifamily residential $ 4,397,188 64.2 % $ 4,500,500 64.8 %
Single family residential 2,279,166 33.2 % 2,253,987 32.4 %
Commercial real estate 161,177 2.3 % 171,767 2.5 %
Construction and land 22,404 0.3 % 22,533 0.3 %
Total loans before deferred items 6,859,935 100.0 % 6,948,787 100.0 %
Deferred loan costs, net 61,059 61,658
Total loans $ 6,920,994 $ 7,010,445

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	As of September 30, 2023				As of December 31, 2022
(Dollars in thousands)	Amount		% of total		Amount		% of total
Real estate loans
Multifamily residential	$	4,319,138	63.8	%	$	4,500,500	64.8	%
Single family residential	2,273,660		33.6	%	2,253,987		32.4	%
Commercial real estate	153,594		2.3	%	171,767		2.5	%
Construction and land	20,370		0.3	%	22,533		0.3	%

Total loans before deferred items	6,766,762		100.0	%	6,948,787		100.0	%
Deferred loan costs, net	60,457				61,658
Total loans	$	6,827,219			$	7,010,445

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 64% and 65% of our portfolio at ~~June~~September 30, 2023 and December 31, 2022, respectively. Single family residential lending is our secondary lending emphasis and represented ~~33%~~34% and 32% of our portfolio at ~~June~~September 30, 2023 and December 31, 2022, 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 ~~534%~~522% and 560% as of ~~June~~September 30, 2023 and December 31, 2022, respectively. Our single family loans as a percentage of risk-based capital were ~~277%~~275% and 281%, respectively, as of the same dates. Additionally, our loans are geographically concentrated with borrowers and collateral properties on the West Coast. At both ~~June~~September 30, 2023 and December 31, 2022, 61%, 27% and 9% of our real estate loans were collateralized by properties in southern California counties, northern California counties and Washington, respectively.

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 ~~$36.3~~$24.7 million and $38.7 million at ~~June~~September 30, 2023 and December 31, 2022, respectively. As of ~~June~~September 30, 2023, 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 $5.7 million and $3.9 million, respectively. 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. In late 2022, we stopped accepting any new construction loan applications.

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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, 2023		March 31, 2023		June 30, 2023		June 30, 2022		(Dollars in thousands)	September 30, 2023		June 30, 2023		September 30, 2023		September 30, 2022
Loan increases:	Loan increases:									Loan increases:
Multifamily residential	Multifamily residential	$	18,994	$	23,380	$	42,374	$	792,721	Multifamily residential	$	19,554	$	18,994	$	61,928	$	1,084,956
Single family residential	Single family residential	50,825		66,927		117,752		483,347		Single family residential	43,248		50,825		161,000		714,596
Commercial real estate	Commercial real estate	—		—		—		20,410		Commercial real estate	—		—		—		24,471
Construction and land	Construction and land	—		—		—		5,400		Construction and land	—		—		—		7,992

Total loans originated and purchased	Total loans originated and purchased	69,819		90,307		160,126		1,301,878		Total loans originated and purchased	62,802		69,819		222,928		1,832,015

Loan decreases:	Loan decreases:									Loan decreases:
Loan principal reductions and payoffs	Loan principal reductions and payoffs	(148,028)		(105,288)		(253,316)		(957,827)		Loan principal reductions and payoffs	(149,697)		(148,028)		(403,013)		(1,264,011)

Other (1)	Other (1)	(24,276)		28,015		3,739		(3,642)		Other (1)	(6,881)		(24,276)		(3,141)		(10,969)
Total loan outflows	Total loan outflows	(172,304)		(77,273)		(249,577)		(961,469)		Total loan outflows	(156,578)		(172,304)		(406,154)		(1,274,980)
Net change in total loan portfolio	Net change in total loan portfolio	$	(102,485)	$	13,034	$	(89,451)	$	340,409	Net change in total loan portfolio	$	(93,776)	$	(102,485)	$	(183,226)	$	557,035

(1) Other changes in loan balances primarily represent the net change in disbursements on unfunded commitments, deferred loan costs, fair value adjustments and, to the extent applicable, may include foreclosures and charge-offs. Fair value adjustments totaled $(26.2) million and $25.5 million for the three months ended June 30, 2023 and March 31, 2023, respectively, and totaled $(670) thousand and $(13.2) million for the six months ended June 30, 2023 and 2022, respectively.
(1) Other changes in loan balances primarily represent the net change in disbursements on unfunded commitments, deferred loan costs, fair value adjustments and, to the extent applicable, may include foreclosures and charge-offs. Fair value adjustments totaled $(13.7) million and $(26.2) million for the three months ended September 30, 2023 and June 30, 2023, respectively, and totaled $(13.0) million and $(24.1) million for the nine months ended September 30, 2023 and 2022, respectively.										(1) Other changes in loan balances primarily represent the net change in disbursements on unfunded commitments, deferred loan costs, fair value adjustments and, to the extent applicable, may include foreclosures and charge-offs. Fair value adjustments totaled $(13.7) million and $(26.2) million for the three months ended September 30, 2023 and June 30, 2023, respectively, and totaled $(13.0) million and $(24.1) million for the nine months ended September 30, 2023 and 2022, respectively.

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, 2023, our multifamily real estate portfolio had an average loan balance of $1.6 million, a weighted average loan to value of ~~56.2%~~55.9%, a weighted average debt service coverage ratio of 1.6 times and supporting collateral averaging 13.6 housing units, as compared to an average loan balance of $1.7 million, a weighted average loan to value of 56.7%, a weighted average debt service coverage ratio of 1.5 times and supporting collateral averaging 13.7 housing units at December 31, 2022.

Single family residential loans. We provide permanent financing on single family residential properties primarily located in our market areas, which are both owner-occupied and investor owned. We conduct this business primarily through a network of ~~third party~~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, 2023, our single family residential real estate portfolio had an average loan balance of ~~$907~~$904 thousand, a weighted average loan to value of ~~64.0%~~63.9% and a weighted average borrower credit score at origination/refreshed of 759. At December 31, 2022, our single family residential real estate portfolio had an average loan balance of $907 thousand, a weighted average loan to value of 64.0% and a weighted average borrower credit score at origination/refreshed of 759.

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 nonresidential commercial real estate loans are generally used to

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finance the purchase or refinance of established multi-tenant industrial, office and retail sites. At ~~June~~September 30, 2023, our commercial real estate portfolio had an average loan balance of ~~$2.2~~$2.1 million, a weighted average loan to value of ~~53.7%~~52.0% and a weighted average debt service coverage ratio of ~~1.7~~1.6 times, as compared to an average loan balance of $2.2 million, a weighted average loan to value of 53.9% and a weighted average debt service coverage ratio of 1.7 times at December 31, 2022. Our exposure to nonresidential commercial real estate is limited.

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Additional detail is provided within the table below as of ~~June~~September 30, 2023:


(Dollars in thousands)	(Dollars in thousands)	Count	Balance		Weighted Average LTV	% of Total Loans	(Dollars in thousands)	Count	Balance		Weighted Average LTV	% of Total Loans
Multifamily Real Estate	Multifamily Real Estate	2,709	$	4,428,226	56.2%	64.0%	Multifamily Real Estate	2,675	$	4,349,645	55.9%	63.7%
Single Family Real Estate	Single Family Real Estate	2,550	2,308,912		64.0%	33.4%	Single Family Real Estate	2,553	2,303,280		63.9%	33.7%
Commercial Real Estate Type:	Commercial Real Estate Type:						Commercial Real Estate Type:
Mid Rise Office	Mid Rise Office	7	37,445		62.1%	0.5%	Mid Rise Office	7	37,281		56.3%	0.5%
Strip Retail	Strip Retail	13	23,081		50.1%	0.3%	Strip Retail	12	19,682		48.3%	0.3%
Medical Office	Medical Office	5	18,389		58.8%	0.3%	Medical Office	5	18,314		58.6%	0.3%
Shopping Center	Shopping Center	5	17,837		56.3%	0.3%	Shopping Center	5	17,748		56.0%	0.3%
Unanchored Retail	Unanchored Retail	8	14,469		44.1%	0.2%	Unanchored Retail	8	14,399		43.9%	0.2%
Low Rise Office							Low Rise Office	7	11,254		51.3%	0.2%
More than 50% commercial							More than 50% commercial	10	10,729		47.1%	0.2%
Anchored Retail	Anchored Retail	3	11,420		50.4%	0.2%	Anchored Retail	2	7,851		47.9%	0.1%
Low rise office		7	11,324		51.6%	0.2%
More than 50% commercial		10	10,798		47.3%	0.2%
Multi-Tenant Industrial	Multi-Tenant Industrial	5	6,925		41.2%	0.1%	Multi-Tenant Industrial	5	6,888		41.0%	0.1%
Shadow Retail	Shadow Retail	3	3,897		61.1%	0.1%	Shadow Retail	3	3,876		60.8%	0.1%
Flex Industrial	Flex Industrial	2	2,354		60.7%	0.0%	Flex Industrial	2	2,340		60.3%	0.0%
Warehouse	Warehouse	3	2,336		43.9%	0.0%	Warehouse	3	2,323		43.6%	0.0%
Restaurant	Restaurant	2	1,242		25.8%	0.0%	Restaurant	2	1,231		25.6%	0.0%
Other	Other	1	71		13.6%	0.0%	Other	1	70		13.3%	0.0%
Commercial Real Estate	Commercial Real Estate	74	161,588		53.7%	2.3%	Commercial Real Estate	72	153,986		52.0%	2.3%
Construction (1)	Construction (1)	7	22,268		55.4%	0.3%	Construction (1)	5	20,308		58.6%	0.3%
Total	Total	5,340	$	6,920,994	58.7%	100.0%	Total	5,305	$	6,827,219	58.5%	100.0%

(1) Construction LTV is calculated based on an "as-completed" property value. Undisbursed commitments for construction loans totaled ~~$11.1~~$4.3 million at ~~June~~September 30, 2023.

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. As of ~~June~~September 30, 2023 and December 31, 2022, the Company had no land loans outstanding.

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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, 2023:
As of September 30, 2023:												As of September 30, 2023:
Loans	Loans											Loans
Real estate mortgage loans:	Real estate mortgage loans:											Real estate mortgage loans:
Multifamily residential	Multifamily residential	$	7	$	639	$	38,138	$	4,358,404	$	4,397,188	Multifamily residential	$	—	$	571	$	37,597	$	4,280,970	$	4,319,138
Single family residential	Single family residential	45		332		50,351		2,228,438		2,279,166		Single family residential	49		269		49,147		2,224,195		2,273,660
Commercial real estate	Commercial real estate	949		68,485		91,743		—		161,177		Commercial real estate	934		66,482		86,178		—		153,594
Construction and land	Construction and land	19,977		2,427		—		—		22,404		Construction and land	19,680		690		—		—		20,370
Total loans	Total loans	$	20,978	$	71,883	$	180,232	$	6,586,842	$	6,859,935	Total loans	$	20,663	$	68,012	$	172,922	$	6,505,165	$	6,766,762

Fixed interest rates	Fixed interest rates	$	—	$	195	$	43,306	$	265,411	$	308,912	Fixed interest rates	$	—	$	193	$	42,418	$	265,730	$	308,341
Floating or hybrid adjustable rates	Floating or hybrid adjustable rates	20,978		71,688		136,926		6,321,431		6,551,023		Floating or hybrid adjustable rates	20,663		67,819		130,504		6,239,435		6,458,421
Total loans	Total loans	$	20,978	$	71,883	$	180,232	$	6,586,842	$	6,859,935	Total loans	$	20,663	$	68,012	$	172,922	$	6,505,165	$	6,766,762
As of December 31, 2022:	As of December 31, 2022:											As of December 31, 2022:
Loans	Loans											Loans
Real estate mortgage loans:	Real estate mortgage loans:											Real estate mortgage loans:
Multifamily residential	Multifamily residential	$	72	$	537	$	39,917	$	4,459,974	$	4,500,500	Multifamily residential	$	72	$	537	$	39,917	$	4,459,974	$	4,500,500
Single family residential	Single family residential	27		468		51,443		2,202,049		2,253,987		Single family residential	27		468		51,443		2,202,049		2,253,987
Commercial real estate	Commercial real estate	—		41,505		130,262		—		171,767		Commercial real estate	—		41,505		130,262		—		171,767
Construction and land	Construction and land	17,464		5,069		—		—		22,533		Construction and land	17,464		5,069		—		—		22,533
Total loans	Total loans	$	17,563	$	47,579	$	221,622	$	6,662,023	$	6,948,787	Total loans	$	17,563	$	47,579	$	221,622	$	6,662,023	$	6,948,787

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

Our fixed interest rate loans generally consist of 30 and 40-year loans that are primarily secured by single family residential properties, often in conjunction with our 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, 2023 and December 31, 2022, ~~$4.3~~$4.2 billion and $4.6 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% and 3.66% at ~~June~~September 30, 2023 and December 31, 2022, respectively. Hybrid adjustable rate loans still within their initial fixed term totaled ~~$5.5~~$5.4 billion and $5.7 billion at ~~June~~September 30, 2023 and December 31, 2022, respectively. These loans had a weighted average term to first repricing date of ~~3.3~~3.2 years and 3.7 years at ~~June~~September 30, 2023 and December 31, 2022, respectively.

Asset Quality

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

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facilitate the early detection and remediation of problems within our loan portfolio. 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.

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


(Dollars in thousands)	(Dollars in thousands)	June 30, 2023			December 31, 2022			(Dollars in thousands)	September 30, 2023			December 31, 2022
Non-accrual loans	Non-accrual loans							Non-accrual loans
Multifamily residential portfolio	Multifamily residential portfolio	$	3,498		$	3,509		Multifamily residential portfolio	$	3,494		$	3,509
Single family residential portfolio	Single family residential portfolio	1,457			2,962			Single family residential portfolio	3,132			2,962

Total non-accrual loans	Total non-accrual loans	4,955			6,471			Total non-accrual loans	6,626			6,471
Real estate owned	Real estate owned	—			—			Real estate owned	—			—
Total nonperforming assets	Total nonperforming assets	$	4,955		$	6,471		Total nonperforming assets	$	6,626		$	6,471

Allowance for credit losses on loans to period end nonperforming loans	Allowance for credit losses on loans to period end nonperforming loans	751.04		%	566.91		%	Allowance for credit losses on loans to period end nonperforming loans	601.95		%	566.91		%
Nonperforming loans to period end loans	Nonperforming loans to period end loans	0.07		%	0.09		%	Nonperforming loans to period end loans	0.10		%	0.09		%
Nonperforming assets to total assets	Nonperforming assets to total assets	0.06		%	0.08		%	Nonperforming assets to total assets	0.08		%	0.08		%

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.

Interest income recognized on non-accrual loans subsequent to their classification as non-accrual totaled ~~$18~~$23 thousand and ~~$28~~$18 thousand for the three months ended September 30, 2023 and June 30, 2023, ~~and March 31, 2023,~~ respectively, and ~~$46~~$69 thousand and ~~$54~~$99 thousand for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively. Gross interest income that would have been recorded on non-accrual loans had they been current in accordance with their original terms was ~~$142~~$144 thousand and ~~$146~~$142 thousand for the three months ended September 30, 2023 and June 30, 2023, ~~and March 31, 2023,~~ respectively, and ~~$287~~$431 thousand and ~~$71~~$122 thousand for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively.

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

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

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with the ACL for loans, which includes consideration of the likelihood that funding will occur. Adjustments to the ACL

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for unfunded commitments are included in the provision for (or reversal of) credit losses on the unaudited consolidated statements of income. All ACL balances are neither indicative of the specific amounts of future charge-offs that may occur, nor are they an indicator of any future loss trends.

The following tables provide information on the activity within the allowance as of and for the periods indicated:

(Dollars in thousands) Beginning Balance Impact of CECL Adoption Charge-Offs Recoveries Provision Ending Balance
Three months ended June 30, 2023
Multifamily residential $ 27,292 $ — $ — $ — $ 1,931 $ 29,223
Single family residential 7,431 — — — (557) 6,874
Commercial real estate 777 — — — (1) 776
Construction and land 414 — — — (73) 341
Allowance for credit losses on loans 35,914 — — — 1,300 37,214
Allowance for credit losses on off-balance sheet credit exposures 658 — — — (88) 570
Total allowance for credit losses $ 36,572 $ — $ — $ — $ 1,212 $ 37,784
Three months ended March 31, 2023
Multifamily residential $ 26,417 $ 2,882 $ — $ — $ (2,007) $ 27,292
Single family residential 8,564 (2,472) — — 1,339 7,431
Commercial real estate 1,539 (784) — — 22 777
Construction and land 165 282 — — (33) 414
Allowance for credit losses on loans 36,685 (92) — — (679) 35,914
Allowance for credit losses on off-balance sheet credit exposures 563 211 — — (116) 658
Total allowance for credit losses $ 37,248 $ 119 $ — $ — $ (795) $ 36,572
Six months ended June 30, 2023
Multifamily residential $ 26,417 $ 2,882 $ — $ — $ (76) $ 29,223
Single family residential 8,564 (2,472) — — 782 6,874
Commercial real estate 1,539 (784) — — 21 776
Construction and land 165 282 — — (106) 341
Allowance for credit losses on loans 36,685 (92) — — 621 37,214
Allowance for credit losses on off-balance sheet credit exposures 563 211 — — (204) 570
Total allowance for credit losses $ 37,248 $ 119 $ — $ — $ 417 $ 37,784
Six months ended June 30, 2022
Multifamily residential $ 26,043 $ — $ — $ — $ (36) $ 26,007
Single family residential 7,224 — — — 401 7,625
Commercial real estate 2,094 — — — (421) 1,673
Construction and land 174 — — — 56 230
Allowance for loan losses $ 35,535 $ — $ — $ — $ — $ 35,535


		Three Months Ended				Six Months Ended
(Dollars in thousands)	(Dollars in thousands)	June 30, 2023		March 31, 2023		June 30, 2023		June 30, 2022		(Dollars in thousands)	Beginning Balance		Impact of CECL Adoption		Charge-Offs		Recoveries		Provision		Ending Balance

Allowance for credit losses on loans to period end loans		0.54	%	0.51	%	0.54	%	0.54	%
Annualized net charge-offs to average loans:
Three months ended September 30, 2023										Three months ended September 30, 2023
Multifamily residential	Multifamily residential	—	%	—	%	—	%	—	%	Multifamily residential	$	29,223	$	—	$	—	$	—	$	2,203	$	31,426
Single family residential	Single family residential	—	%	—	%	—	%	—	%	Single family residential	6,874		—		(463)		—		718		7,129
Commercial real estate	Commercial real estate	—	%	—	%	—	%	—	%	Commercial real estate	776		—		—		—		207		983
Construction and land	Construction and land	—	%	—	%	—	%	—	%	Construction and land	341		—		—		—		6		347
Annualized net charge-offs to average loans		—	%	—	%	—	%	—	%
Allowance for credit losses on loans										Allowance for credit losses on loans	37,214		—		(463)		—		3,134		39,885
Allowance for credit losses on off-balance sheet credit exposures										Allowance for credit losses on off-balance sheet credit exposures	570		—		—		—		(133)		437
Total allowance for credit losses										Total allowance for credit losses	$	37,784	$	—	$	(463)	$	—	$	3,001	$	40,322
Three months ended June 30, 2023										Three months ended June 30, 2023
Multifamily residential										Multifamily residential	$	27,292	$	—	$	—	$	—	$	1,931	$	29,223
Single family residential										Single family residential	7,431		—		—		—		(557)		6,874
Commercial real estate										Commercial real estate	777		—		—		—		(1)		776
Construction and land										Construction and land	414		—		—		—		(73)		341
Allowance for credit losses on loans										Allowance for credit losses on loans	35,914		—		—		—		1,300		37,214
Allowance for credit losses on off-balance sheet credit exposures										Allowance for credit losses on off-balance sheet credit exposures	658		—		—		—		(88)		570
Total allowance for credit losses										Total allowance for credit losses	$	36,572	$	—	$	—	$	—	$	1,212	$	37,784
Nine months ended September 30, 2023										Nine months ended September 30, 2023
Multifamily residential										Multifamily residential	$	26,417	$	2,882	$	—	$	—	$	2,127	$	31,426
Single family residential										Single family residential	8,564		(2,472)		(463)		—		1,500		7,129
Commercial real estate										Commercial real estate	1,539		(784)		—		—		228		983
Construction and land										Construction and land	165		282		—		—		(100)		347
Allowance for credit losses on loans										Allowance for credit losses on loans	36,685		(92)		(463)		—		3,755		39,885
Allowance for credit losses on off-balance sheet credit exposures										Allowance for credit losses on off-balance sheet credit exposures	563		211		—		—		(337)		437
Total allowance for credit losses										Total allowance for credit losses	$	37,248	$	119	$	(463)	$	—	$	3,418	$	40,322
Nine months ended September 30, 2022										Nine months ended September 30, 2022
Multifamily residential										Multifamily residential	$	26,043	$	—	$	—	$	—	$	161	$	26,204
Single family residential										Single family residential	7,224		—		—		—		933		8,157
Commercial real estate										Commercial real estate	2,094		—		—		—		(551)		1,543
Construction and land										Construction and land	174		—		—		—		(43)		131
Total allowance for loan losses										Total allowance for loan losses	$	35,535	$	—	$	—	$	—	$	500	$	36,035

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	Three Months Ended				Nine Months Ended
(Dollars in thousands)	September 30, 2023		June 30, 2023		September 30, 2023		September 30, 2022

















Allowance for credit losses on loans to period end loans	0.58	%	0.54	%	0.58	%	0.53	%
Annualized net charge-offs to average loans:
Multifamily residential	—	%	—	%	—	%	—	%
Single family residential	0.08	%	—	%	0.03	%	—	%
Commercial real estate	—	%	—	%	—	%	—	%
Construction and land	—	%	—	%	—	%	—	%
Annualized net charge-offs to average loans	0.03	%	—	%	0.01	%	—	%

Investment Portfolio

Our investment portfolio is generally comprised of government agency securities which are high-quality liquid investments under Basel III, with over 97.9% classified as available for sale. The portfolio is primarily maintained to serve as a contingent, on-balance sheet source of liquidity. 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 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.

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


		June 30, 2023				December 31, 2022					September 30, 2023				December 31, 2022
(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")	$	315,906	54.69	%	$	340,736	54.89	%	Commercial mortgage backed securities ("MBS") and collateralized mortgage obligations ("CMOs")	$	298,906	54.45	%	$	340,736	54.89	%
Residential MBS and CMOs	Residential MBS and CMOs	187,290		32.42	%	199,384		32.11	%	Residential MBS and CMOs	178,125		32.45	%	199,384		32.11	%
Agency bonds	Agency bonds	38,653		6.69	%	42,630		6.87	%	Agency bonds	37,008		6.74	%	42,630		6.87	%
Other asset backed securities	Other asset backed securities	22,425		3.88	%	24,598		3.96	%	Other asset backed securities	21,885		3.99	%	24,598		3.96	%
Total available for sale debt securities	Total available for sale debt securities	564,274		97.68	%	607,348		97.83	%	Total available for sale debt securities	535,924		97.63	%	607,348		97.83	%
Held to maturity:	Held to maturity:									Held to maturity:
Government Sponsored Entities:	Government Sponsored Entities:									Government Sponsored Entities:
Residential MBS	Residential MBS	2,996		0.52	%	3,047		0.49	%	Residential MBS	2,971		0.54	%	3,047		0.49	%
Other investments	Other investments	57		0.01	%	61		0.01	%	Other investments	54		0.01	%	61		0.01	%
Total held to maturity debt securities	Total held to maturity debt securities	3,053		0.53	%	3,108		0.50	%	Total held to maturity debt securities	3,025		0.55	%	3,108		0.50	%
Equity securities	Equity securities	10,340		1.79	%	10,340		1.67	%	Equity securities	10,018		1.82	%	10,340		1.67	%
Total investment securities	Total investment securities	$	577,667	100.00	%	$	620,796	100.00	%	Total investment securities	$	548,967	100.00	%	$	620,796	100.00	%

The net unrealized losses in the Company's available for sale and held to maturity portfolios were ~~$52.8~~$62.3 million and ~~$232~~$369 thousand, respectively, and represented ~~8.38%~~10.20% and ~~0.04%~~0.06%, respectively, of the total amortized cost of our investment portfolio at ~~June~~September 30, 2023. Unrealized losses in our AFS portfolio are reported in our stockholders' equity, net of any tax impact. Over 62% of our available for sale securities portfolio consisted of floating rate securities with an average repricing period of approximately 1413 months. As of ~~June~~September 30, 2023, securities with a book value totaling ~~$544.9~~$517.1 million were pledged to the FHLB and Federal Reserve Bank ("FRB"). There were no advances against these pledged securities during the ~~six~~nine months ended ~~June~~September 30, 2023. No securities were pledged as of December 31, 2022.

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Deposits

Representing ~~76.2%~~77.4% of our total liabilities as of ~~June~~September 30, 2023, deposits are our primary source of funding for our business operations. ~~During the second quarter retail~~Retail deposit activity appears to have ~~normalized~~stabilized following volatility in the first quarter of this year primarily caused by the recent banking turmoil. We continue to remain focused on growing 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. When competitively priced, or when there is market disruption, and/or for asset liability management purposes, we will supplement our retail deposits with wholesale fundings, including brokered deposits.

Deposits totaled $5.8 billion at both ~~June~~September 30, 2023 and December 31, 2022. Retail ~~deposits declined $120.3 million, while~~and brokered deposits ~~increased $121.4~~decreased $65.2 million ~~during the six months ended June 30, 2023.~~and $14.1 million, respectively, from December 31, 2022. The 1.2% decline in retail depositsduring the ~~year-to-date~~year to date period was primarily in money market savings accounts, partially offset by

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increases in time deposits. Consequently, the proportion of non-maturity deposits within the portfolio decreased to ~~35.9%~~36.7% at ~~June~~September 30, 2023 compared to 46.3% at December 31, 2022, while our portfolio of time deposits increased to ~~64.1%~~63.3% from 53.7% as of the same dates. Retail deposit declines began after the events ofin the banking industry that occurred in mid-March, and resulted in large first quarter outflows which were partially offset by retail deposit increases during the second ~~quarter as retail deposit activity normalized. The increase in brokered deposits was primarily utilized to offset the decline in our retail deposits~~ and ~~further supplement our liquidity position.~~third quarters of 2023. Our cost of interest bearing deposits was ~~3.30%~~3.77% and ~~2.65%~~3.30% during the quarters ended September 30, 2023 and June 30, 2023, ~~and March 31, 2023,~~ respectively, and ~~2.98%~~3.24% and ~~0.48%~~0.66% during the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively. ~~As discussed above, the~~The increase in our cost of interest bearing deposits compared to the prior ~~quarter and prior year-to-date period~~periods was predominantly due to ~~rapid interest rate~~competitive pricing pressures, which have caused increases in the cost of both retail and brokered deposits.

Our loan to deposit ratio was 119% and 120% at ~~June~~September 30, 2023 and December 31, 2022, respectively. It is common for us to operate with a loan to deposit ratio exceeding those commonly seen at other banks. Our higher than average ratio is attributed to our use of FHLB borrowings to 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.

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

Three Months Ended
June 30, 2023 March 31, 2023
(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 $ 71,865 — % 1.2 % $ 86,967 — % 1.5 %
Interest-bearing transaction accounts 132,927 0.55 % 2.3 % 150,429 0.43 % 2.6 %
Money market demand accounts 1,943,861 3.03 % 33.4 % 2,271,018 2.46 % 39.3 %
Time deposits 3,662,985 3.54 % 63.1 % 3,268,933 2.88 % 56.6 %
Total $ 5,811,638 3.25 % 100.0 % $ 5,777,347 2.60 % 100.0 %
Six Months Ended
June 30, 2023 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 $ 79,374 — % 1.4 % $ 156,717 — % 2.8 %
Interest-bearing transaction accounts 141,630 0.49 % 2.4 % 172,351 0.21 % 3.1 %
Money market demand accounts 2,106,536 2.72 % 36.4 % 3,007,908 0.48 % 54.2 %
Time deposits 3,467,047 3.23 % 59.8 % 2,213,867 0.50 % 39.9 %
Total $ 5,794,587 2.93 % 100.0 % $ 5,550,843 0.46 % 100.0 %


	Three Months Ended
	September 30, 2023						June 30, 2023
(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	$	69,777	—	%	1.2	%	$	71,865	—	%	1.2	%
Interest-bearing transaction accounts	125,908		0.76	%	2.2	%	132,927		0.55	%	2.3	%
Money market demand accounts	1,881,449		3.42	%	32.5	%	1,943,861		3.03	%	33.4	%
Time deposits	3,715,204		4.05	%	64.1	%	3,662,985		3.54	%	63.1	%
Total	$	5,792,338	3.72	%	100.0	%	$	5,811,638	3.25	%	100.0	%



	Nine Months Ended
	September 30, 2023						September 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	$	76,140	—	%	1.3	%	$	159,504	—	%	2.9	%
Interest-bearing transaction accounts	136,332		0.57	%	2.4	%	171,148		0.21	%	3.1	%
Money market demand accounts	2,030,683		2.94	%	35.0	%	3,007,085		0.64	%	53.8	%
Time deposits	3,550,675		3.52	%	61.3	%	2,250,523		0.71	%	40.2	%
Total	$	5,793,830	3.20	%	100.0	%	$	5,588,260	0.64	%	100.0	%

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The Company estimated its balance of uninsured deposits at approximately ~~$997.8 million,~~$1.0 billion, or ~~17.1%~~17.6% of total deposits, and $1.3 billion, or 22.5% of total deposits, at ~~June~~September 30, 2023 and December 31, 2022, respectively. The following table summarizes our deposit composition by source and segregates balances between estimated insured and uninsured balances for each deposit category as of ~~June~~September 30, 2023 and December 31, 2022.

June 30, 2023 December 31, 2022
(Dollars in thousands) Insured Uninsured Insured Uninsured
Consumer $ 3,359,071 $ 828,474 $ 3,090,797 $ 931,454
Business 906,244 169,369 981,692 379,560
Brokered 577,281 — 455,837 —
Total deposits $ 4,842,596 $ 997,843 $ 4,528,326 $ 1,311,014

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	September 30, 2023				December 31, 2022
(Dollars in thousands)	Insured		Uninsured		Insured		Uninsured
Consumer	$	3,372,444	$	818,831	$	3,090,797	$	931,454
Business	930,719		196,359		981,692		379,560
Brokered	441,749		—		455,837		—
Total deposits	$	4,744,912	$	1,015,190	$	4,528,326	$	1,311,014

The following table sets forth the maturity of time deposits and estimated insured and uninsured balances as of ~~June~~September 30, 2023:


(Dollars in thousands)	(Dollars in thousands)	Insured			Uninsured			(Dollars in thousands)	Insured			Uninsured
Remaining maturity:	Remaining maturity:							Remaining maturity:
Three months or less	Three months or less	$	891,344		$	194,110		Three months or less	$	935,284		$	215,940
Over three through six months	Over three through six months	870,477			188,031			Over three through six months	832,461			178,258
Over six through twelve months	Over six through twelve months	1,152,987			246,538			Over six through twelve months	978,915			217,673
Over twelve months	Over twelve months	175,994			26,790			Over twelve months	249,639			39,652
Total	Total	$	3,090,802		$	655,469		Total	$	2,996,299		$	651,523
Percent of time deposits to total deposits	Percent of time deposits to total deposits	52.92		%	11.22		%	Percent of time deposits to total deposits	52.02		%	11.31		%

FHLB Advances and Other Borrowings

In addition to deposits, we utilize collateralized FHLB borrowings to fund our asset growth and, more recently, to add liquidity to our balance sheet. FHLB advances can, at times, have attractive rates and we have commonly used them to strategically extend the duration of our liabilities as part of our interest rate risk management efforts to reduce the liability sensitive position of our balance sheet. FHLB advances totaled ~~$1.6~~$1.4 billion and $1.2 billion at ~~June~~September 30, 2023 and December 31, 2022, respectively. As of the same dates, the Bank had a FHLB letter of credit outstanding totaling $62.6 million. The increase in FHLB advances during the ~~six~~nine months ended ~~June~~September 30, 2023 was primarily utilized to supplement our liquidity in response to the unexpected bank ~~closures~~failures in March 2023 and offset ~~the~~first quarter declines in retail deposits, discussed above.

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 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, 2023				December 31, 2022				Date	Maturity	Rate Index		September 30, 2023				December 31, 2022				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	6.93	%	$	41,238	6.15	%	3/1/2006	6/15/2036	3 month LIBOR + 1.38%	Luther Burbank Statutory Trust I	$	41,238	7.05	%	$	41,238	6.15	%	3/1/2006	6/15/2036	3 month CME Term SOFR + Tenor Spread Adjustment (0.26%) + 1.38%
Luther Burbank Statutory Trust II	Luther Burbank Statutory Trust II	$	20,619	7.17	%	$	20,619	6.39	%	3/1/2007	6/15/2037	3 month LIBOR + 1.62%	Luther Burbank Statutory Trust II	$	20,619	7.29	%	$	20,619	6.39	%	3/1/2007	6/15/2037	3 month CME Term SOFR + Tenor Spread Adjustment (0.26%) + 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~~

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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

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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.~~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.

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, 2023			March 31, 2023				June 30, 2023				June 30, 2022			(Dollars in thousands)	September 30, 2023			June 30, 2023			September 30, 2023			September 30, 2022
FHLB advances	FHLB advances															FHLB advances
Average amount outstanding during the period	Average amount outstanding during the period	$	1,640,939		$	1,327,863			$	1,485,266			$	812,685		Average amount outstanding during the period	$	1,453,821		$	1,640,939		$	1,474,669		$	899,838
Maximum amount outstanding at any month-end during the period	Maximum amount outstanding at any month-end during the period	1,701,647			1,701,647				1,701,647				954,947			Maximum amount outstanding at any month-end during the period	1,451,647			1,701,647			1,701,647			1,201,647
Balance outstanding at end of period	Balance outstanding at end of period	1,576,647			1,701,647				1,576,647				954,947			Balance outstanding at end of period	1,426,647			1,576,647			1,426,647			1,201,647
Weighted average maturity (in years)	Weighted average maturity (in years)	1.5			1.6				1.5				1.7			Weighted average maturity (in years)	1.1			1.5			1.1			1.7
Weighted average interest rate at end of period	Weighted average interest rate at end of period	3.34		%	3.34		%		3.34		%		1.79		%	Weighted average interest rate at end of period	3.40		%	3.34		%	3.40		%	2.34		%
Weighted average interest rate during the period	Weighted average interest rate during the period	3.33		%	2.83		%		3.11		%		1.67		%	Weighted average interest rate during the period	3.20		%	3.33		%	3.14		%	1.79		%

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)	13.5			13.7				13.5				14.5			Weighted average maturity (in years)	13.2			13.5			13.2			14.3
Weighted average interest rate at end of period	Weighted average interest rate at end of period	7.01		%	6.33		%		7.01		%		3.29		%	Weighted average interest rate at end of period	7.13		%	7.01		%	7.13		%	4.75		%
Weighted average interest rate during the period	Weighted average interest rate during the period	6.54		%	6.33		%		6.44		%		2.15		%	Weighted average interest rate during the period	7.13		%	6.54		%	6.67		%	2.64		%

Senior unsecured term notes	Senior unsecured term notes															Senior unsecured term notes
Balance outstanding at end of period	Balance outstanding at end of period	$	94,846		$	94,816			$	94,846			$	94,724		Balance outstanding at end of period	$	94,877		$	94,846		$	94,877		$	94,754
Weighted average maturity (in years)	Weighted average maturity (in years)	1.3			1.4				1.3				2.3			Weighted average maturity (in years)	1.0			1.3			1.0			2.0
Weighted average interest rate at end of period	Weighted average interest rate at end of period	6.64		%	6.64		%		6.64		%		6.65		%	Weighted average interest rate at end of period	6.64		%	6.64		%	6.64		%	6.65		%
Weighted average interest rate during the period	Weighted average interest rate during the period	6.64		%	6.64		%		6.64		%		6.65		%	Weighted average interest rate during the period	6.64		%	6.64		%	6.64		%	6.65		%

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.

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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, 2023			March 31, 2023			June 30, 2023			June 30, 2022			(Dollars in thousands)	September 30, 2023			June 30, 2023			September 30, 2023			September 30, 2022
Outstanding at period end	Outstanding at period end	$	125,000		$	150,000		$	125,000		$	153,300		Outstanding at period end	$	175,000		$	125,000		$	175,000		$	200,000
Average amount outstanding	Average amount outstanding	123,352			48,993			86,378			58,551			Average amount outstanding	6,522			123,352			59,467			128,227
Maximum amount outstanding at any month end	Maximum amount outstanding at any month end	150,000			150,000			150,000			153,300			Maximum amount outstanding at any month end	175,000			150,000			175,000			288,900
Weighted average interest rate at end of period	Weighted average interest rate at end of period	5.35		%	5.27		%	5.35		%	1.70		%	Weighted average interest rate at end of period	5.77		%	5.35		%	5.77		%	2.99		%
Weighted average interest rate during the period	Weighted average interest rate during the period	5.27		%	5.05		%	5.21		%	0.92		%	Weighted average interest rate during the period	5.60		%	5.27		%	5.22		%	2.04		%

Stockholders’ Equity

The Company's stockholders’ equity totaled ~~$699.3~~$695.0 million at ~~June~~September 30, 2023, an increase of ~~$16.8~~$12.5 million, or ~~2.5%~~1.8%,

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compared to December 31, 2022. The increase in stockholders' equity was primarily due to net income of ~~$20.4~~$22.3 million, partially offset by unrealized losses on securities, net of ~~$3.3~~taxes, of $10.0 million during the ~~six~~nine months ended ~~June~~September 30, 2023.

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, 2023		December 31, 2022		(Dollars in thousands)	September 30, 2023		December 31, 2022
Commitments to fund loans	Commitments to fund loans	$	26,988	$	37,741	Commitments to fund loans	$	20,957	$	37,741

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 ~~$268~~$247 thousand and $439 thousand at ~~June~~September 30, 2023 and December 31, 2022, respectively, which is included in other liabilities and accrued expenses in the consolidated statements of financial condition. In connection with the adoption of the CECL accounting standard on January 1, 2023, the Company decreased the allowance for the reimbursement obligation by $119 thousand, which represented the difference between the CECL methodology and the prior methodology utilized for estimating losses for its reimbursement obligation. The prior period allowance is reported in accordance with previous GAAP.

As of ~~June~~September 30, 2023, the Company held ~~ten~~eleven interest rate swaps with a total notional amount of ~~$1.5~~$1.8 billion. The swaps provide a partial hedge against the interest rate risk associated with both hybrid adjustable loans in their fixed rate period and a pool of fixed rate single family loans. Our swaps involve the payment of a fixed rate amount to 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 ~~June~~September 30, 2023, these swaps carried a weighted average fixed payment rate of ~~3.57%~~3.78%, while receiving a federal funds weighted average rate of ~~5.08%~~5.33%. 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

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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, 2023, our significant contractual obligations to third parties on debt and lease agreements and service obligations. For more information about our contractual obligations, see Part I, Item 1, "Financial Statements and Supplementary Data", Note 17. ‘‘Commitments and Contingencies,’’ in the Notes to Our Unaudited Consolidated Financial Statements 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)	$	3,543,487	$	190,009	$	12,775		$	—		$	3,746,271	Time deposits (1)		$	3,358,531			$	279,142			$	10,149		$	—		$	3,647,822
FHLB advances ~~(2)~~(1)	FHLB advances ~~(2)~~(1)	475,000		1,001,500		100,000			147			1,576,647		FHLB advances ~~(2)~~(1)	625,000				801,500				—			147			1,426,647
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	3,141		4,837		3,607			1,099			12,684		Operating leases	3,420				6,045				4,650			1,169			15,284
Significant contract ~~(3)~~(2)	Significant contract ~~(3)~~(2)	1,628		3,025		—			—			4,653		Significant contract ~~(3)~~(2)	1,684				2,707				—			—			4,391
Total	Total	$	4,023,256	$	1,294,371	$	116,382		$	63,103		$	5,497,112	Total	$	4,083,635			$	1,089,394			$	14,799		$	63,173		$	5,251,001

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

(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 2023 average monthly expense extrapolated over the remaining life of the contract.														(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 2023 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, the banking industry, such as bank failures, or exposure to rapid changes in interest rates, as well as 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,

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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~~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~~Other sources of funding include borrowings from the FRB discount window and the FRB Bank Term Funding Program

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("BTFP"), draws on established federal funds lines from unaffiliated commercial banks and the issuance of debt or equity securities. Our reliance on wholesale funding sources may fluctuate as economic conditions and customer preferences change.

We proactively and prudently manage liquidity, which became even more important this year in light of the bank failures and other deposit dislocations resulting from the rapidly rising interest rate environment. During the ~~six~~nine months ended ~~June~~September 30, 2023, we increased our on-balance sheet liquidity by an additional ~~$389.2~~$322.1 million primarily through an increase in FHLB ~~advances.~~advances and decreases in loan balances attributable to loan prepayments exceeding loan originations due to slowing demand resulting from the general rise in interest rates, coupled with our desire to achieve a reasonable risk adjusted return on new loan volume in light of the high cost of new funding. Usage of our FHLB line to augment our liquidity is consistent with our past borrowing practices. We have pledged substantially all of our pledgeable investment and loan portfolios to the FHLB and FRB. Although the Bank has access to an aggregate borrowing capacity of $1.2 billion under the FRB's BTFP and discount window, we have not utilized either FRB line during the current year. As of ~~June~~September 30, 2023, our total on-balance sheet liquidity and borrowing capacity, as shown below, represented ~~337%~~348% of our estimated uninsured deposit balances. As of ~~June~~September 30, 2023, we maintained the following liquidity position:


(Dollars in thousands)	(Dollars in thousands)	As of June 30, 2023		% of Assets	(Dollars in thousands)	As of September 30, 2023		% of Assets
Unrestricted cash & cash equivalents	Unrestricted cash & cash equivalents	$	699,366	8.37%	Unrestricted cash & cash equivalents	$	579,724	7.13%
Unpledged liquid securities	Unpledged liquid securities	32,765		0.39%	Unpledged liquid securities	31,903		0.39%
Unutilized brokered deposit capacity(1)	Unutilized brokered deposit capacity(1)	298,785		3.57%	Unutilized brokered deposit capacity(1)	422,266		5.19%
Unutilized FHLB borrowing capacity(2)(3)	Unutilized FHLB borrowing capacity(2)(3)	1,123,450		13.44%	Unutilized FHLB borrowing capacity(2)(3)	1,276,920		15.70%
Unutilized FRB borrowing capacity(2)	Unutilized FRB borrowing capacity(2)	1,162,693		13.91%	Unutilized FRB borrowing capacity(2)	1,197,853		14.73%
Commercial lines of credit		50,000		0.60%
Commercial line of credit					Commercial line of credit	25,000		0.31%
Total liquidity	Total liquidity	$	3,367,059	40.28%	Total liquidity	$	3,533,666	43.44%

(1) Capacity based on internal guidelines.

(2) Capacity based on pledged collateral specific to the FHLB or FRB, as applicable.

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

Our total deposits at both ~~June~~September 30, 2023 and December 31, 2022 were $5.8 billion. Based on the values of loans and securities pledged as collateral, our ~~$1.6~~$1.4 billion of FHLB advances outstanding and our $62.6 million FHLB letter of credit outstanding, we had ~~$1.1~~$1.3 billion of additional borrowing capacity with the FHLB at ~~June~~September 30, 2023. Based on the values of other loans and securities pledged as collateral, we had $1.2 billion of borrowing capacity with the FRB at ~~June~~September 30, 2023. There were no outstanding advances with the FRB at ~~June~~September 30, 2023. In addition to the liquidity provided by the FHLB and FRB described above, we have established a federal funds ~~lines~~line of credit with an unaffiliated ~~banks~~bank totaling ~~$50.0~~$25.0 million at ~~June~~September 30, 2023, ~~none~~which had no advances as 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 ~~$699.4~~$579.7 million at ~~June~~September 30, 2023.

The Company is a corporation separate and apart from our Bank and, therefore, must provide for its own liquidity, including liquidity required to meet its debt service requirements on its senior notes and junior subordinated debentures. The Company’s main source of cash flow is dividends declared and paid to it by the Bank. There are

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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, 2023 and December 31, 2022, 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.

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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~~affected by the composition of our assets.

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					For Well- Capitalized Institution				Actual						For Capital Adequacy Purposes			For Well- Capitalized Institution
(Dollars in thousands)	(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio		(Dollars in thousands)	Amount		Ratio			Amount		Ratio		Amount		Ratio
Luther Burbank Corporation	Luther Burbank Corporation															Luther Burbank Corporation
As of June 30, 2023
As of September 30, 2023																As of September 30, 2023
Tier 1 Leverage Ratio	Tier 1 Leverage Ratio	$	795,381	9.40	%		$	338,613	4.00	%		N/A				Tier 1 Leverage Ratio	$	797,767	9.66	%		$	330,443	4.00	%	N/A
Common Equity Tier 1 Risk-Based Ratio	Common Equity Tier 1 Risk-Based Ratio	733,524		17.95	%		285,979		7.00	%		N/A				Common Equity Tier 1 Risk-Based Ratio	735,910		18.31	%		281,267		7.00	%	N/A
Tier 1 Risk-Based Capital Ratio	Tier 1 Risk-Based Capital Ratio	795,381		19.47	%		347,260		8.50	%		N/A				Tier 1 Risk-Based Capital Ratio	797,767		19.85	%		341,539		8.50	%	N/A
Total Risk-Based Capital Ratio	Total Risk-Based Capital Ratio	833,187		20.39	%		428,968		10.50	%		N/A				Total Risk-Based Capital Ratio	838,111		20.86	%		421,901		10.50	%	N/A
As of December 31, 2022	As of December 31, 2022															As of December 31, 2022
Tier 1 Leverage Ratio	Tier 1 Leverage Ratio	$	775,259	9.72	%		$	319,051	4.00	%		N/A				Tier 1 Leverage Ratio	$	775,259	9.72	%		$	319,051	4.00	%	N/A
Common Equity Tier 1 Risk-Based Ratio	Common Equity Tier 1 Risk-Based Ratio	713,402		16.80	%		297,214		7.00	%		N/A				Common Equity Tier 1 Risk-Based Ratio	713,402		16.80	%		297,214		7.00	%	N/A
Tier 1 Risk-Based Capital Ratio	Tier 1 Risk-Based Capital Ratio	775,259		18.26	%		360,902		8.50	%		N/A				Tier 1 Risk-Based Capital Ratio	775,259		18.26	%		360,902		8.50	%	N/A
Total Risk-Based Capital Ratio	Total Risk-Based Capital Ratio	812,529		19.14	%		445,820		10.50	%		N/A				Total Risk-Based Capital Ratio	812,529		19.14	%		445,820		10.50	%	N/A
Luther Burbank Savings	Luther Burbank Savings															Luther Burbank Savings
As of June 30, 2023
As of September 30, 2023																As of September 30, 2023
Tier 1 Leverage Ratio	Tier 1 Leverage Ratio	$	874,042	10.33	%		$	338,502	4.00	%		$	423,128	5.00	%	Tier 1 Leverage Ratio	$	875,418	10.60	%		$	330,331	4.00	%	$	412,913	5.00	%
Common Equity Tier 1 Risk-Based Ratio	Common Equity Tier 1 Risk-Based Ratio	874,042		21.41	%		285,772		7.00	%		265,360		6.50	%	Common Equity Tier 1 Risk-Based Ratio	875,418		21.80	%		281,072		7.00	%	260,995		6.50	%
Tier 1 Risk-Based Capital Ratio	Tier 1 Risk-Based Capital Ratio	874,042		21.41	%		347,009		8.50	%		326,596		8.00	%	Tier 1 Risk-Based Capital Ratio	875,418		21.80	%		341,301		8.50	%	321,225		8.00	%
Total Risk-Based Capital Ratio	Total Risk-Based Capital Ratio	911,848		22.34	%		428,658		10.50	%		408,246		10.00	%	Total Risk-Based Capital Ratio	915,762		22.81	%		421,608		10.50	%	401,531		10.00	%
As of December 31, 2022	As of December 31, 2022															As of December 31, 2022
Tier 1 Leverage Ratio	Tier 1 Leverage Ratio	$	856,631	10.74	%		$	318,970	4.00	%		$	398,712	5.00	%	Tier 1 Leverage Ratio	$	856,631	10.74	%		$	318,970	4.00	%	$	398,712	5.00	%
Common Equity Tier 1 Risk-Based Ratio	Common Equity Tier 1 Risk-Based Ratio	856,631		20.19	%		297,026		7.00	%		275,809		6.50	%	Common Equity Tier 1 Risk-Based Ratio	856,631		20.19	%		297,026		7.00	%	275,809		6.50	%
Tier 1 Risk-Based Capital Ratio	Tier 1 Risk-Based Capital Ratio	856,631		20.19	%		360,674		8.50	%		339,458		8.00	%	Tier 1 Risk-Based Capital Ratio	856,631		20.19	%		360,674		8.50	%	339,458		8.00	%
Total Risk-Based Capital Ratio	Total Risk-Based Capital Ratio	893,901		21.07	%		445,538		10.50	%		424,322		10.00	%	Total Risk-Based Capital Ratio	893,901		21.07	%		445,538		10.50	%	424,322		10.00	%

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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

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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 (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 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 endeavor to 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~~Notably, actual deposit characteristics experienced in our portfolio since mid-2022 have been less predictable than our historical patterns, which management attributes to the unprecedented rise in market interest rates. Given the uncertainties discussed above, 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 -400 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.

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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.

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 may change if prevailing interest rates increased or decreased by the specified amounts at ~~June~~September 30, 2023. 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, 2023
September 30, 2023				September 30, 2023
(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	$(11.7)	(25.2)%	+400 BP	$(12.0)	(55.0)%
+300 BP	+300 BP	(7.3)	(15.6)%	+300 BP	(7.5)	(34.6)%
+200 BP	+200 BP	(4.0)	(8.5)%	+200 BP	(4.0)	(18.3)%
+100 BP	+100 BP	(1.7)	(3.7)%	+100 BP	(1.6)	(7.5)%
-100 BP	-100 BP	0.8	1.8%	-100 BP	0.8	3.8%
-200 BP	-200 BP	1.9	4.2%	-200 BP	1.9	8.9%
-300 BP	-300 BP	2.7	5.7%	-300 BP	2.7	12.6%
-400 BP	-400 BP	3.1	6.6%	-400 BP	3.4	15.8%

The NII at Risk reported at ~~June~~September 30, 2023 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, 2023, our NII at Risk ~~decreased~~increased as compared to December 31, 2022 primarily due to ~~a decline in longer-term~~higher interest rates ~~a decrease in the months to repricing of our loan balances~~ and ~~an increase in the duration of our hedge positions, partially offset by slower loan prepayments and lower loan market values.~~declining net interest income.

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, 2023
September 30, 2023				September 30, 2023
(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	$(292.1)	(58.0)%	+400 BP	$(310.8)	(59.6)%
+300 BP	+300 BP	(194.5)	(38.7)%	+300 BP	(198.7)	(38.1)%
+200 BP	+200 BP	(113.0)	(22.5)%	+200 BP	(114.3)	(21.9)%
+100 BP	+100 BP	(47.8)	(9.5)%	+100 BP	(49.1)	(9.4)%
-100 BP	-100 BP	28.4	5.6%	-100 BP	32.2	6.2%
-200 BP	-200 BP	38.1	7.6%	-200 BP	47.4	9.1%
-300 BP	-300 BP	36.4	7.2%	-300 BP	49.2	9.4%
-400 BP	-400 BP	23.1	4.6%	-400 BP	45.0	8.6%

The EVE reported at ~~June~~September 30, 2023 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, 2023, our EVE at risk decreased slightly as compared to December 31, 2022 primarily due to ~~a decline in longer-term interest rates,~~ a decrease in the months to repricing of our loan balances, ~~and~~ an increase in ~~the duration of~~ our hedge positions, partially offset by higher interest rates, slower loan prepayments and lower loan market values.

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

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

Hedge Positions

In managing our market risk, our board of directors has authorized the ALCO to utilize long-term borrowings and

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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.

We are currently utilizing FHLB advances and interest rate swaps to hedge our liability sensitive interest rate risk position. As of ~~June~~September 30, 2023, the Company maintained ~~ten~~11 interest rate swaps with an aggregate notional amount of ~~$1.5~~$1.8 billion to ~~primarily~~partially hedge the interest rate risk associated with both fixed rate loans and hybrid adjustable loans in their fixed rate period. All of our swaps are 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 months ended June 30, 2023, the~~The Company recognized an increase in interest income ~~of $8.2 million and $16.3 million, respectively,~~ in connection with interest rate swaps ~~compared to $463 thousand~~of $6.4 million and ~~$385 thousand~~$8.0 million during the three ~~and six~~ months ended September 30, 2023 and June 30, 2023, respectively, and $22.7 million and $3.3 million during the nine months ended September 30, 2023 and 2022, respectively.

The following table summarizes derivative instruments utilized by us as interest rate risk hedge positions as of ~~June~~September 30, 2023:


(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	9	$	100,000	$	2,259	$	—	Interest rate swap	Fair value hedge	6	$	100,000	$	1,574	$	—
Interest rate swap	Interest rate swap	Fair value hedge	12	100,000		2,172		—		Interest rate swap	Fair value hedge	9	100,000		1,750		—
Interest rate swap	Interest rate swap	Fair value hedge	23	100,000		3,862		—		Interest rate swap	Fair value hedge	20	100,000		3,807		—
Interest rate swap	Interest rate swap	Fair value hedge	32	200,000		2,515		—		Interest rate swap	Fair value hedge	24	300,000		106		—
Interest rate swap	Interest rate swap	Fair value hedge	33	100,000		489		—		Interest rate swap	Fair value hedge	29	200,000		3,662		—
Interest rate swap	Interest rate swap	Fair value hedge	36	200,000		386		—		Interest rate swap	Fair value hedge	30	100,000		1,152		—
Interest rate swap	Interest rate swap	Fair value hedge	50	100,000		4,037		—		Interest rate swap	Fair value hedge	33	200,000		1,990		—
Interest rate swap	Interest rate swap	Fair value hedge	51	200,000		2,021		—		Interest rate swap	Fair value hedge	47	100,000		5,206		—
Interest rate swap	Interest rate swap	Fair value hedge	52	200,000		901		—		Interest rate swap	Fair value hedge	48	200,000		4,859		—
Interest rate swap	Interest rate swap	Fair value hedge	58	200,000		1,185		—		Interest rate swap	Fair value hedge	49	200,000		3,898		—
Interest rate swap										Interest rate swap	Fair value hedge	55	200,000		4,819		—
													$	1,800,000	$	32,823	$	—
				$	1,500,000	$	19,827	$	—

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, 2023, 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

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procedures were effective as of ~~June~~September 30, 2023 in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management of the Company as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

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

On March 24, 2023, Martin Siegel, a purported Luther Burbank Corporation shareholder, filed and served a putative class action on behalf of our shareholders in the Superior Court for the County of Sonoma, California captioned Siegel v. Lagomarsino, et al. (Case No. SCV-272922). The Siegel complaint alleges that our board of directors breached their fiduciary duty by failing to disclose certain internal projections and other information allegedly underlying the fairness opinion of our financial adviser, Piper Sandler & Co., in connection with our pending merger transaction with Washington Federal, Inc. Following the filing of our Current Report on Form 8-K on April 10, 2023 containing certain supplemental information regarding unaudited prospective financial estimates received and considered by Piper Sandler & Co., Mr. Siegel withdrew his request for a preliminary injunction to require us to disclose the internal projections and other information and to delay our May 4, 2023 shareholders meeting, but reserved the right to seek an award of attorney’s fees and expenses. On May 9, 2023, Siegel and his counsel filed an amended complaint alleging unjust enrichment and seeking an award of attorney's fees and expenses and removing their prior disclosure based claims.

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

We believe the allegations and claims in the Siegel action and the other complaints are without merit.

In addition to the matters described above, from time to time, we are party to legal actions that are routine and incidental to our business. In addition, 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, including those described above, to have a material adverse effect on our business, financial condition or results of operations.

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, 2022 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.

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

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

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

2.1

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

8-K

001-38317

2.1

11/14/2022

3.1

Amended and Restated Articles of Incorporation of Luther Burbank Corporation

S-1

333-221455

3.1

11/9/2017

3.2

Amended and Restated Bylaws of Luther Burbank Corporation

8-K

001-38317

3.1

4/27/2018

4.1

Specimen Certificate for Common Stock

S-1

333-221455

4.1

11/9/2017

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

31.1

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

31.2

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

32.1

Section 1350 Certification of Chief Executive Officer

32.2

Section 1350 Certification of Chief Financial Officer

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definitions Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

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

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

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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 4,~~NOVEMBER 3, 2023	By: /s/ Simone Lagomarsino
		Simone Lagomarsino
		President and Chief Executive Officer

DATED:	~~AUGUST 4,~~NOVEMBER 3, 2023	By: /s/ Laura Tarantino
		Laura Tarantino
		Executive Vice President and Chief Financial Officer

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	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(Dollars in thousands)	2023		2022		2023		2022
Derivative - interest rate swaps:
Interest income	$	8,136	$	498	$	16,300	$	433
Hedged items - loans:
Interest income (loss)	91		(35)		(29)		(48)
Net increase in interest income	$	8,227	$	463	$	16,271	$	385



	Six Months Ended
	June 30, 2023						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	$	79,374	—	%	1.4	%	$	156,717	—	%	2.8	%
Interest-bearing transaction accounts	141,630		0.49	%	2.4	%	172,351		0.21	%	3.1	%
Money market demand accounts	2,106,536		2.72	%	36.4	%	3,007,908		0.48	%	54.2	%
Time deposits	3,467,047		3.23	%	59.8	%	2,213,867		0.50	%	39.9	%
Total	$	5,794,587	2.93	%	100.0	%	$	5,550,843	0.46	%	100.0	%