lbc-20220331

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 March 31, 2022

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

Commission file number 001-38317

Luther Burbank Corporation

(Exact name of registrant as specified in its charter)


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

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

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

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

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common stock, no par value

LBC

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

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

Large accelerated filer

Accelerated filer

☒

Non-accelerated filer

Smaller Reporting Company

☒

Emerging Growth Company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes ☐ No x

As of May 2, 2022, there were 51,125,410 shares of the registrant’s common stock, no par value, outstanding.

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		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Statements of Financial Condition	3
	Unaudited Consolidated Statements of Income	4
	Unaudited Consolidated Statements of Comprehensive Income	5
	Unaudited Consolidated Statements of Changes in Stockholders' Equity	6
	Unaudited Consolidated Statements of Cash Flows	7
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	56
Item 4.	Controls and Procedures	59
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	60
Item 6.	Exhibits	61
	Signatures	62

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Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” and other similar expressions in this Quarterly Report on Form 10-Q. With respect to any such forward-looking statements, Luther Burbank Corporation (the "Company") claims the protection of the safe harbor provided for in the Private Securities Litigation Reform Act of 1995, as amended. The Company cautions investors that any forward-looking statements presented in this Quarterly Report on Form 10-Q, or those that the Company may make orally or in writing from time to time, are based on the beliefs of, assumptions made by, and information available to, management at the time such statements are first made. Actual outcomes will be affected by known and unknown risks, trends, uncertainties and factors that are beyond the Company’s control or ability to predict. Although the Company believes that management’s beliefs and assumptions are reasonable, they are not guarantees of future performance and some will inevitably prove to be incorrect. As a result, the Company’s actual future results can be expected to differ from management’s expectations, and those differences may be material and adverse to the Company’s business, results of operations and financial condition. Accordingly, investors should use caution in placing any reliance on forward-looking statements to anticipate future results or trends.

Given the ongoing and dynamic nature of the coronavirus disease 2019 ("COVID-19") pandemic, the ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects remain uncertain. Deterioration in general business and economic conditions resulting from the continuing pandemic, including the tight labor market, supply chain disruptions, inflationary pressures, or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways. Some of the other risks and uncertainties that may cause the Company’s actual results, performance or achievements to differ materially from those expressed include, but are not limited to, the following: the impact of changes in interest rates; political instability; the effects of war or other conflicts, including, but not limited to, the current conflict between Russia and Ukraine; changes in the monetary policies of the U.S. Government; a decline in economic conditions; deterioration in the value of West Coast real estate, both residential and commercial; an increase in the level of non-performing assets and charge-offs; further increased competition among financial institutions; the Company’s ability to continue to attract deposits and quality loan customers; further government regulation, including regulations regarding capital requirements, and the implementation and costs associated with the same; internal and external fraud and cyber-security threats including the loss of bank or customer funds, loss of system functionality or the theft or loss of data; management’s ability to successfully manage the Company’s operations; and the other risks set forth in the Company’s reports filed with the U.S. Securities and Exchange Commission. For further discussion of these and other factors, see “Item 1A. Risk Factors” in Part II of this Quarterly Report on Form 10-Q and the Company’s 2021 Annual Report on Form 10-K.

Any forward-looking statements in this Quarterly Report on Form 10-Q and all subsequent written and oral forward-looking statements attributable to the Company or any person acting on behalf of the Company are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. The Company does not undertake any obligation to release publicly any revisions to forward-looking statements to reflect events or circumstances after the date such forward-looking statements are made, and hereby specifically disclaims any intention to do so, unless 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)


	March 31, 2022 (unaudited)		December 31, 2021
ASSETS
Cash and cash equivalents	$	147,963	$	138,413

Available for sale debt securities, at fair value	624,859		647,317
Held to maturity debt securities, at amortized cost (fair value of $3,802 and $4,018 at March 31, 2022 and December 31, 2021, respectively)	3,798		3,829
Equity securities, at fair value	11,116		11,693

Loans receivable, net of allowance for loan losses of $33,035 and $35,535 at March 31, 2022 and December 31, 2021, respectively	6,333,283		6,261,885
Accrued interest receivable	18,014		17,761
Federal Home Loan Bank ("FHLB") stock, at cost	22,563		23,411
Premises and equipment, net	15,590		16,090
Goodwill	3,297		3,297
Prepaid expenses and other assets	80,343		56,261
Total assets	$	7,260,826	$	7,179,957

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits	$	5,601,247	$	5,538,243
FHLB advances	751,647		751,647
Junior subordinated deferrable interest debentures	61,857		61,857
Senior debt
$95,000 face amount, 6.5% interest rate, due September 30, 2024 (less debt issuance costs of $307 and $338 at March 31, 2022 and December 31, 2021, respectively)	94,693		94,662
Accrued interest payable	153		118
Other liabilities and accrued expenses	83,229		64,297
Total liabilities	6,592,826		6,510,824

Commitments and contingencies (Note 16)

Stockholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized; none issued and outstanding at March 31, 2022 and December 31, 2021, respectively	—		—
Common stock, no par value; 100,000,000 shares authorized; 51,403,914 and 51,682,398 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively	401,102		406,904
Retained earnings	278,856		262,141
Accumulated other comprehensive income (loss), net of taxes	(11,958)		88
Total stockholders' equity	668,000		669,133
Total liabilities and stockholders' equity	$	7,260,826	$	7,179,957

See accompanying notes to unaudited consolidated financial statements

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LUTHER BURBANK CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollar amounts in thousands, except per share data)


	Three Months Ended March 31,
	2022		2021
Interest and fee income:
Loans	$	53,633	$	54,058
Investment securities	2,301		1,982
Cash, cash equivalents and restricted cash	66		51
Total interest and fee income	56,000		56,091
Interest expense:
Deposits	6,020		11,606
FHLB advances	3,097		3,933
Junior subordinated deferrable interest debentures	275		258
Senior debt	1,574		1,575
Total interest expense	10,966		17,372
Net interest income before provision for loan losses	45,034		38,719
Reversal of provision for loan losses	(2,500)		(2,500)
Net interest income after provision for loan losses	47,534		41,219
Noninterest income:

FHLB dividends	354		367
Other income	(296)		(58)
Total noninterest income	58		309
Noninterest expense:
Compensation and related benefits	10,219		10,380
Deposit insurance premium	481		472
Professional and regulatory fees	539		484
Occupancy	1,194		1,215
Depreciation and amortization	603		655
Data processing	988		973
Marketing	458		292
Other expenses	1,030		933
Total noninterest expense	15,512		15,404
Income before provision for income taxes	32,080		26,124
Provision for income taxes	9,140		7,713
Net income	$	22,940	$	18,411

Basic earnings per common share	$	0.45	$	0.35
Diluted earnings per common share	$	0.45	$	0.35
Dividends per common share	$	0.12	$	0.06

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 March 31,
	2022		2021
Net income	$	22,940	$	18,411
Other comprehensive loss:
Unrealized loss on available for sale debt securities:
Unrealized holding loss arising during the period	(16,965)		(3,815)

Tax effect	4,919		1,109
Total other comprehensive loss, net of tax	(12,046)		(2,706)





Comprehensive income	$	10,894	$	15,705

See accompanying notes to unaudited consolidated financial statements

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LUTHER BURBANK CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (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, 2020	52,220,266	$	414,120	$	192,834	$	6,737		$	613,691



Net income	—	—		18,411		—			18,411
Other comprehensive loss	—	—		—		(2,706)			(2,706)

Restricted stock award grants	283,078	—		—		—			—
Settled restricted stock units	68,873	—		—		—			—
Shares withheld to pay taxes on stock based compensation	(85,825)	(901)		—		—			(901)
Restricted stock forfeitures	(52,798)	(67)		13		—			(54)
Stock based compensation expense	—	651		—		—			651
Shares repurchased	(201,682)	(2,101)		—		—			(2,101)
Cash dividends ($0.06 per share)	—	—		(3,022)		—			(3,022)
Balance, March 31, 2021	52,231,912	$	411,702	$	208,236	$	4,031		$	623,969

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


Net income	—	—		22,940		—			22,940
Other comprehensive loss	—	—		—		(12,046)			(12,046)
Restricted stock award grants	206,675	—		—		—			—
Settled restricted stock units	6,759	—		—		—			—
Shares withheld to pay taxes on stock based compensation	(62,422)	(875)		—		—			(875)
Restricted stock forfeitures	(4,100)	(4)		2		—			(2)
Stock based compensation expense	—	714		—		—			714
Shares repurchased	(425,396)	(5,637)		—		—			(5,637)
Cash dividends ($0.12 per share)	—	—		(6,227)		—			(6,227)
Balance, March 31, 2022	51,403,914	$	401,102	$	278,856	$	(11,958)		$	668,000

See accompanying notes to unaudited consolidated financial statements

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LUTHER BURBANK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollar amounts in thousands)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net income	$	22,940	$	18,411
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	603		655
Reversal of provision for loan losses	(2,500)		(2,500)
Amortization of deferred loan costs, net	4,792		4,626
Amortization of premiums on investment securities, net	337		657



Stock based compensation expense, net of forfeitures	710		584

Change in fair value of mortgage servicing rights	104		171
Change in fair value of equity securities	577		211


Other items, net	44		55
Effect of changes in:
Accrued interest receivable	(253)		(386)
Accrued interest payable	35		(654)
Prepaid expenses and other assets	4,293		1,773
Other liabilities and accrued expenses	3,140		1,800
Net cash provided by operating activities	34,822		25,403
Cash flows from investing activities:
Proceeds from maturities, paydowns and calls of available for sale debt securities	38,296		39,735
Proceeds from maturities and paydowns of held to maturity debt securities	29		1,741

Purchases of available for sale debt securities	(33,140)		(90,113)

Net (increase) decrease in loans receivable	(81,469)		57,275

Purchase of loans, including discounts/premiums	—		(286,917)
Redemption of FHLB stock, net	848		—
Purchase of premises and equipment	(103)		(112)

Net cash used in investing activities	(75,539)		(278,391)
Cash flows from financing activities:
Net increase in deposits	63,004		127,579
Proceeds from long-term FHLB advances	100,000		—
Repayment of long-term FHLB advances	(100,000)		(100,000)
Net change in short-term FHLB advances	—		134,200
Shares withheld for taxes on vested restricted stock	(875)		(901)
Shares repurchased	(5,637)		(2,101)
Cash paid for dividends	(6,225)		(3,009)
Net cash provided by financing activities	50,267		155,768
Increase (decrease) in cash, cash equivalents and restricted cash	9,550		(97,220)
Cash, cash equivalents and restricted cash, beginning of period	138,413		178,861
Cash, cash equivalents and restricted cash, end of period	$	147,963	$	81,641
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	10,931	$	18,026
Income taxes	$	6	$	8
Supplemental non-cash disclosures:
Lease liabilities arising from obtaining right-of-use assets	$	16,255	$	—

See accompanying notes to unaudited consolidated financial statements

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LUTHER BURBANK CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.NATURE OF OPERATIONS

Organization

Luther Burbank Corporation (the ‘‘Company’’), a California corporation headquartered in Santa Rosa, is the bank holding company for its wholly-owned subsidiary, Luther Burbank Savings (the "Bank"), and its wholly-owned subsidiary, Burbank Investor Services. The Company also owns Burbank Financial Inc., a real estate investment company that provides limited loan administrative support to the Bank, and all the common interests in Luther Burbank Statutory Trusts I and II, entities created to issue trust preferred securities.

The Bank conducts its business from its headquarters in Gardena, 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, as well as a loan production office in Clackamas County, Oregon.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all footnotes as would be necessary for a fair presentation of financial position, results of operations and comprehensive income, changes in stockholders’ equity and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, these interim unaudited consolidated financial statements reflect all adjustments (consisting solely of normal recurring adjustments and accruals) which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and comprehensive income, changes in stockholders’ equity and cash flows for the interim periods presented. These unaudited consolidated financial statements have been prepared on a basis consistent with, and should be read in conjunction with, the audited consolidated financial statements as of and for the year ended December 31, 2021, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”), under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results of operations that may be expected for any other interim period or for the year ending December 31, 2022.

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

Use of Estimates

Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions affect the amounts reported in the unaudited consolidated financial statements and the disclosures provided, and actual results could differ.

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Earnings Per Share ("EPS")

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


(Dollars in thousands, except share amounts)	Three Months Ended March 31,
	2022		2021
Net income	$	22,940	$	18,411

Weighted average basic common shares outstanding	51,337,488		51,982,731
Add: Dilutive effects of assumed vesting of restricted stock	76,931		115,507
Weighted average diluted common shares outstanding	51,414,419		52,098,238

Income per common share:
Basic EPS	$	0.45	$	0.35
Diluted EPS	$	0.45	$	0.35
Anti-dilutive shares not included in calculation of diluted earnings per share	20		3,695

Adoption of New Financial Accounting Standards

FASB ASU 2016-02

On January 1, 2022, the Company adopted ASU No. 2016-02 “Leases (Topic 842)” and subsequent amendments thereto, which requires the Company to recognize most leases on the balance sheet. The Company adopted the standard under a modified retrospective approach as of the date of adoption and elected to apply several of the available practical expedients, including carryover of historical lease determination and lease classification conclusions and accounting for lease and non-lease components in contracts in which the Company is a lessee as a single lease component.

Adoption of the leasing standard resulted in the recognition of operating right-of-use assets of $15.8 million, and operating lease liabilities of $16.3 million as of January 1, 2022. These amounts were determined based on the present value of remaining minimum lease payments, discounted using the Company’s incremental borrowing rate as of the date of adoption. There was no material impact to the timing of expense or income recognition in the Company’s unaudited consolidated statements of income. Prior periods were not restated and continue to be presented under legacy GAAP. Disclosures about the Company’s leasing activities are presented in Note 6.

FASB ASU 2022-01

In March 2022, the Financial Accounting Standards Board (“FASB”) issued guidance under the of the last-of-layer hedging method in Accounting Standards Codification ("ASC") 815 to expand the current single-layer method to allow multiple layers of a single closed portfolio to be hedged. To reflect the expansion, the last-of-layer method will be renamed the portfolio layer method. The amendments also expand the scope of and provide additional guidance specific to the portfolio layer method for hedge accounting. ASU 2022-01 will become effective for public business entities for fiscal years beginning after December 15, 2022, with early adoption permitted. The adoption of this standard is not expected to have a material effect on the Company’s operating results or financial condition.

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FASB ASU 2022-02

In March 2022, the FASB issued guidance to improve the usefulness of disclosures regarding certain loan refinancings, restructurings and write-offs under ASC 326. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the current expected credit loss (“CECL”) methodology and enhance the disclosure requirements for certain loan refinancings and restructurings made to borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current period gross write-offs for financing receivables and net investments in leases by year of origination. ASU 2022-02 will become effective for fiscal years beginning after December 15, 2022 for public business entities that have adopted the CECL accounting standard. The Company expects to adopt this guidance on January 1, 2023, concurrent with the adoption of the CECL standard. The adoption of this standard is not expected to have a material effect on the Company’s operating results or financial condition.

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)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
At March 31, 2022:
Government and Government Sponsored Entities:
Commercial mortgage backed securities ("MBS") and collateralized mortgage obligations ("CMOs")	$	414,904	$	1,895	$	(10,196)	$	406,603
Residential MBS and CMOs	188,493		477		(8,624)		180,346
Agency bonds	10,275		225		—		10,500
Other asset backed securities ("ABS")	28,028		—		(618)		27,410
Total available for sale debt securities	$	641,700	$	2,597	$	(19,438)	$	624,859
At December 31, 2021:
Government and Government Sponsored Entities:
Commercial MBS and CMOs	$	407,111	$	3,281	$	(2,646)	$	407,746
Residential MBS and CMOs	200,775		1,225		(1,867)		200,133
Agency bonds	10,587		244		—		10,831
Other ABS	28,720		37		(150)		28,607
Total available for sale debt securities	$	647,193	$	4,787	$	(4,663)	$	647,317

Net unrealized gains (losses) on available for sale investment securities are recorded as accumulated other comprehensive income (loss) within stockholders’ equity and totaled $(12.0) million and $88 thousand, net of $4.9 million and $(36) thousand in tax assets (liabilities), at March 31, 2022 and December 31, 2021, respectively. There were no sales or transfers of available for sale investment securities and no realized gains or losses on these securities during the three months ended March 31, 2022 or 2021.

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


	March 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	$	152,363	$	(6,982)	$	46,724	$	(3,214)	$	199,087	$	(10,196)
Residential MBS and CMOs	115,227		(6,427)		19,497		(2,197)		134,724		(8,624)
Agency bonds	—		—		—		—		—		—
Other ABS	27,411		(618)		—		—		27,411		(618)
Total available for sale debt securities	$	295,001	$	(14,027)	$	66,221	$	(5,411)	$	361,222	$	(19,438)

At March 31, 2022, the Company held 86 residential MBS and CMOs of which 27 were in a loss position and five had been in a loss position for twelve months or more. The Company held 57 commercial MBS and CMOs of which 29 were in a loss position and five had been in a loss position for twelve months or more. The Company held three other ABS of which three were in a loss position and none had been in a loss position for twelve months or more.


	December 31, 2021
	Less than 12 Months				12 Months or More				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Government and Government Sponsored Entities:
Commercial MBS and CMOs	$	157,031	$	(2,632)	$	10,608	$	(14)	$	167,639	$	(2,646)
Residential MBS and CMOs	118,803		(1,864)		247		(3)		119,050		(1,867)

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

At December 31, 2021, the Company held 88 residential MBS and CMOs of which 14 were in a loss position and four had been in a loss position for twelve months or more. The Company held 54 commercial MBS and CMOs of which 20 were in a loss position and two had been in a loss position for twelve months or more. The Company held three other ABS of which two were in a loss position and none had been in a loss position for twelve months or more.

The unrealized losses on the Company’s investments were caused by interest rate changes. In addition, the contractual cash flows of these investments are guaranteed by the U.S. government or agencies sponsored by the U.S. government. Accordingly, it is expected that the securities will not be settled at a price less than amortized cost. Because the decline in market value is attributable to changes in interest rates but not credit quality, and because the Company has the ability and intent to hold those investments until a recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2022 or December 31, 2021.

As of March 31, 2022 and December 31, 2021, there were no holdings of securities of any one issuer in an amount greater than 10% of stockholders' equity, other than the U.S. government and its agencies.

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Held to Maturity

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


(Dollars in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Value
As of March 31, 2022:
Government Sponsored Entities:
Residential MBS	$	3,731	$	18	$	(14)	$	3,735
Other investments	67		—		—		67
Total held to maturity investment securities	$	3,798	$	18	$	(14)	$	3,802
As of December 31, 2021:
Government Sponsored Entities:
Residential MBS	$	3,761	$	189	$	—	$	3,950
Other investments	68		—		—		68
Total held to maturity investment securities	$	3,829	$	189	$	—	$	4,018

The following table summarizes the gross unrecognized losses and fair value of held to maturity investment securities, aggregated by investment category and length of time that individual securities have been in a continuous unrecognized loss position:



	Less than 12 Months				12 Months or More				Total
(Dollars in thousands)	Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses
As of March 31, 2022:
Government Sponsored Entities:
Residential MBS	$	1,992	$	(14)	$	—	$	—	$	1,992	$	(14)

At March 31, 2022, the Company had seven held to maturity residential MBS of which five were in a loss position and none had been in a loss position for twelve months or more.

The unrecognized losses on the Company’s held to maturity investments at March 31, 2022 were caused by interest rate changes. In addition, the contractual cash flows of these investments are guaranteed by agencies sponsored by the U.S. government. Accordingly, it is expected that the securities will not be settled at a price less than amortized cost. Because the decline in market value is attributable to changes in interest rates but not credit quality, and because the Company has the ability and intent to hold those investments until maturity, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2022.

The following table summarizes the scheduled maturities of available for sale and held to maturity investment securities as of March 31, 2022:


	March 31, 2022
(Dollars in thousands)	Amortized Cost		Fair Value
Available for sale debt securities


Five to ten years	$	10,275	$	10,500

MBS, CMOs and other ABS	631,425		614,359
Total available for sale debt securities	$	641,700	$	624,859
Held to maturity investments securities
Five to ten years	$	67	$	67
MBS	3,731		3,735
Total held to maturity debt securities	$	3,798	$	3,802

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The amortized cost and fair value of debt securities are shown by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. As such, mortgage backed securities, collateralized mortgage obligations and other asset backed securities are not included in the maturity categories above and instead are shown separately. No securities were pledged as of March 31, 2022 or December 31, 2021.

Equity Securities

Equity securities consist of investments in a qualified community reinvestment fund. At March 31, 2022 and December 31, 2021, the fair value of equity securities totaled $11.1 million and $11.7 million, respectively. Changes in fair value are recognized in other noninterest income and totaled $(577) thousand and $(211) thousand during the three months ended March 31, 2022 and 2021, respectively. There were no sales of equity securities during the three months ended March 31, 2022 or 2021.

3. LOANS

Loans consist of the following:


(Dollars in thousands)	March 31, 2022		December 31, 2021
Permanent mortgages on:
Multifamily residential	$	4,232,227	$	4,210,735
Single family residential	1,916,220		1,881,676
Commercial real estate	194,354		187,097
Construction and land loans	23,517		17,912

Total	6,366,318		6,297,420
Allowance for loan losses	(33,035)		(35,535)
Loans held for investment, net	$	6,333,283	$	6,261,885

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

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


(Dollars in thousands)	Multifamily Residential		Single Family Residential		Commercial Real Estate		Land and Construction		Total
Three months ended March 31, 2022
Allowance for loan losses:
Beginning balance allocated to portfolio segments	$	26,043	$	7,224	$	2,094	$	174	$	35,535
(Reversal of) provision for loan losses	(1,892)		(427)		(212)		31		(2,500)
Charge-offs	—		—		—		—		—
Recoveries	—		—		—		—		—
Ending balance allocated to portfolio segments	$	24,151	$	6,797	$	1,882	$	205	$	33,035
Three months ended March 31, 2021
Allowance for loan losses:
Beginning balance allocated to portfolio segments	$	33,259	$	9,372	$	3,347	$	236	$	46,214
(Reversal of) provision for loan losses	(2,421)		442		(476)		(45)		(2,500)
Charge-offs	—		—		—		—		—
Recoveries	—		2		—		50		52
Ending balance allocated to portfolio segments	$	30,838	$	9,816	$	2,871	$	241	$	43,766

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


(Dollars in thousands)	Multifamily Residential		Single Family Residential		Commercial Real Estate		Land and Construction		Total
As of March 31, 2022:
Ending allowance balance allocated to:
Loans individually evaluated for impairment	$	—	$	25	$	—	$	—	$	25
Loans collectively evaluated for impairment	24,151		6,772		1,882		205		33,010
Ending balance	$	24,151	$	6,797	$	1,882	$	205	$	33,035
Loans:
Ending balance: individually evaluated for impairment	$	500	$	5,643	$	—	$	—	$	6,143
Ending balance: collectively evaluated for impairment	4,231,727		1,910,577		194,354		23,517		6,360,175
Ending balance	$	4,232,227	$	1,916,220	$	194,354	$	23,517	$	6,366,318
As of December 31, 2021:
Ending allowance balance allocated to:
Loans individually evaluated for impairment	$	—	$	25	$	—	$	—	$	25
Loans collectively evaluated for impairment	26,043		7,199		2,094		174		35,510
Ending balance	$	26,043	$	7,224	$	2,094	$	174	$	35,535
Loans:
Ending balance: individually evaluated for impairment	$	505	$	5,687	$	—	$	—	$	6,192
Ending balance: collectively evaluated for impairment	4,210,230		1,875,989		187,097		17,912		6,291,228
Ending balance	$	4,210,735	$	1,881,676	$	187,097	$	17,912	$	6,297,420

The Company assigns a risk rating to all loans and periodically performs detailed reviews of all loans to identify credit risks and to assess the overall collectability of the portfolio. During these internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, as well as the financial performance and/or other characteristics of loan collateral. These credit quality indicators are used to assign a risk rating to each individual loan. The risk ratings can be grouped into six major categories, defined as follows:

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

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

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

Substandard assets are inadequately protected by the current net worth and/or paying capacity of the obligor or by the collateral pledged. These assets have well-defined weaknesses: the primary source of repayment is gone or severely impaired (i.e., bankruptcy or loss of employment) and/or there has been a deterioration in collateral value. In addition, there is the distinct possibility that the Company will sustain some loss, either directly or indirectly (i.e., the cost of monitoring), if the deficiencies are not corrected. A deterioration in collateral value alone does not mandate that an asset be adversely classified if such factor does not indicate that the primary source of repayment is in jeopardy.

Doubtful assets have the weaknesses of those classified substandard with the added characteristic

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that the weaknesses make collection or liquidation in full highly questionable and improbable based on current facts, conditions and values.

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

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


(Dollars in thousands)	Multifamily Residential		Single Family Residential		Commercial Real Estate		Land, Construction and NM		Total
As of March 31, 2022:
Grade:
Pass	$	4,165,085	$	1,897,046	$	188,236	$	22,982	$	6,273,349
Watch	50,535		16,071		5,150		535		72,291
Special mention	4,610		1,326		968		—		6,904
Substandard	11,997		1,777		—		—		13,774

Total	$	4,232,227	$	1,916,220	$	194,354	$	23,517	$	6,366,318
As of December 31, 2021:
Grade:
Pass	$	4,129,767	$	1,856,942	$	180,950	$	17,523	$	6,185,182
Watch	66,062		22,946		6,147		389		95,544
Special mention	4,586		—		—		—		4,586
Substandard	10,320		1,788		—		—		12,108

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

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


(Dollars in thousands)	30 Days		60 Days		90+ Days		Non-accrual		Current		Total
As of March 31, 2022:
Loans:
Multifamily residential	$	—	$	362	$	—	$	500	$	4,231,365	$	4,232,227
Single family residential	1,170		1,326		—		1,777		1,911,947		1,916,220
Commercial real estate	—		—		—		—		194,354		194,354
Land and construction	—		—		—		—		23,517		23,517
Total	$	1,170	$	1,688	$	—	$	2,277	$	6,361,183	$	6,366,318
As of December 31, 2021:
Loans:
Multifamily residential	$	—	$	—	$	—	$	505	$	4,210,230	$	4,210,735
Single family residential	271		—		—		1,788		1,879,617		1,881,676
Commercial real estate	—		—		—		—		187,097		187,097
Land and construction	—		—		—		—		17,912		17,912
Total	$	271	$	—	$	—	$	2,293	$	6,294,856	$	6,297,420

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The following table summarizes information related to impaired loans at March 31, 2022 and December 31, 2021:


	As of March 31, 2022						As of December 31, 2021
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Multifamily residential	$	500	$	577	$	—	$	505	$	582	$	—
Single family residential	4,813		5,004		—		4,847		5,033		—


	5,313		5,581		—		5,352		5,615		—
With an allowance recorded:

Single family residential	830		827		25		840		836		25


	830		827		25		840		836		25
Total:
Multifamily residential	500		577		—		505		582		—
Single family residential	5,643		5,831		25		5,687		5,869		25


	$	6,143	$	6,408	$	25	$	6,192	$	6,451	$	25

The following table summarizes information related to impaired loans for the three months ended March 31, 2022 and 2021:


	Three Months Ended March 31,
	2022						2021
(Dollars in thousands)	Average Recorded Investment		Interest Income		Cash Basis Interest		Average Recorded Investment		Interest Income		Cash Basis Interest
With no related allowance recorded:
Multifamily residential	$	503	$	8	$	8	$	1,566	$	5	$	5
Single family residential	4,830		43		19		5,790		61		57


	5,333		51		27		7,356		66		62
With an allowance recorded:

Single family residential	835		6		—		871		7		—


	835		6		—		871		7		—
Total:
Multifamily residential	503		8		8		1,566		5		5
Single family residential	5,665		49		19		6,661		68		57


	$	6,168	$	57	$	27	$	8,227	$	73	$	62

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


(Dollars in thousands)	March 31, 2022		December 31, 2021
Troubled debt restructurings:

Single family residential	$	1,607	$	1,204

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

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During the three months ended March 31, 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. There were no new TDRs during the three months ended March 31, 2021.

The Company had no TDRs with a subsequent payment default within twelve months following the modification during the three months ended March 31, 2022 and 2021. 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 Company’s nonperforming assets at March 31, 2022 and December 31, 2021 are indicated below:


(Dollars in thousands)	March 31, 2022		December 31, 2021
Non-accrual loans:
Multifamily residential	$	500	$	505
Single family residential	1,777		1,788

Total non-accrual loans	2,277		2,293
Real estate owned	—		—
Total nonperforming assets	$	2,277	$	2,293

Interest income on non-accrual loans is subsequently recognized on a cash basis as long as the remaining unpaid principal amount of the loans are deemed to be fully collectible. If there is doubt regarding the collectability of the loan, then any interest payments received are applied to principal. Interest income was recognized on a cash basis on non-accrual loans during the three months ended March 31, 2022 and 2021 totaling $27 thousand and $62 thousand, respectively. Contractual interest not recorded on nonperforming loans during the three months ended March 31, 2022 and 2021 totaled $7 thousand and $16 thousand, respectively.

Generally, nonaccrual loans are considered impaired because the repayment of the loan will not be made in accordance with the original contractual agreement.

5. MORTGAGE SERVICING RIGHTS

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

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balances of these loans are as follows:


(Dollars in thousands)	March 31, 2022		December 31, 2021
Mortgage loans serviced for:
Federal Home Loan Mortgage Corporation ("Freddie Mac")	$	105,741	$	127,431
Other financial institutions	57,249		58,298
Total mortgage loans serviced for others	$	162,990	$	185,729

Custodial account balances maintained in connection with serviced loans totaled $1.3 million and $5.0 million at March 31, 2022 and December 31, 2021, respectively.

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


	Three Months Ended March 31,
(Dollars in thousands)	2022		2021
Beginning balance	$	915	$	1,599
Additions	—		—
Disposals	—		—
Changes in fair value due to changes in assumptions	—		—
Other changes in fair value	(104)		(171)
Ending balance	$	811	$	1,428

Fair value as of March 31, 2022 was determined using a discount rate of 10%, prepayment speeds ranging from 5.6% to 48.4% and a weighted average default rate of 5%. The weighted average prepayment speed at March 31, 2022 was 27.7%. Fair value as of December 31, 2021 was determined using a discount rate of 10%, prepayment speeds ranging from 7.6% to 48.8% and a weighted average default rate of 5%. The weighted average prepayment speed at December 31, 2021 was 29.2%.

6. LEASES

The Company leases various office premises under long-term operating lease agreements. These leases expire between 2022 and 2030, with certain leases containing five year renewal options. The Company includes lease extension options in the lease term if it is reasonably certain the Company will exercise the option, when considering the economic incentive to do so. Leases are classified as operating or finance leases at the lease commencement date. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term. All of the Company’s leases are classified as operating leases and prior to the adoption of ASU 2016-02 on January 1, 2022, were not recognized on the Company's consolidated statements of financial condition.

Upon adoption of the new lease standard on January 1, 2022, the Company recorded operating lease right-of-use assets and operating lease liabilities on the Company's consolidated statements of financial condition. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

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

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


(Dollars in thousands)
Balance sheet:
Operating lease right-of-use assets included in prepaid expenses and other assets	$	14,940
Operating lease liabilities included in other liabilities and accrued expenses	$	15,337
Income statement:
Operating lease costs included in occupancy expense	$	929

Weighted average remaining lease term (years) of operating leases	4.9
Weighted average discount rate of operating leases	1.67		%
Cash paid for amounts included in the measurement of operating lease liabilities	$	1,033

At March 31, 2022, future undiscounted lease payments with initial terms of one year or more are as follows:


(Dollars in thousands)
April 1 - December 31, 2022	$	2,919
2023	3,560
2024	2,737
2025	2,311
2026	2,108
Thereafter	2,418
Total undiscounted lease payments	16,053
Less: Imputed interest	(716)
Net lease liabilities	$	15,337

7. DEPOSITS

A summary of deposits at March 31, 2022 and December 31, 2021 is as follows:


(Dollars in thousands)	March 31, 2022		December 31, 2021
Money market savings	$	2,443,522	$	2,294,367
Time deposits	2,209,375		2,335,141
Money market checking	612,201		580,325
Interest-bearing demand	172,242		176,126
Noninterest-bearing demand	163,907		152,284
Total	$	5,601,247	$	5,538,243

The Company had time deposits that met or exceeded the FDIC insurance limit of $250 thousand of $961.8 million and $1.1 billion at March 31, 2022 and December 31, 2021, respectively.

The Company utilizes brokered deposits as an additional source of funding. The Company had brokered deposits of $76.0 million and $25.8 million at March 31, 2022 and December 31, 2021, respectively.

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Maturities of the Company’s time deposits at March 31, 2022 are summarized as follows:


(Dollars in thousands)
April 1 - December 31, 2022	$	1,787,146
2023	335,529
2024	26,210
2025	9,469
2026	44,225
Thereafter	6,796
Total	$	2,209,375

8. FEDERAL HOME LOAN BANK AND FEDERAL RESERVE BANK ADVANCES

The Bank may borrow from the FHLB, on either a short-term or long-term basis, up to 40% of its assets, provided that adequate collateral has been pledged. As of March 31, 2022 and December 31, 2021, the Bank had pledged various mortgage loans totaling approximately $2.3 billion and $2.4 billion, respectively, as well as the FHLB stock held by the Bank, to secure these borrowing arrangements.

The Bank has access to the Loan and Discount Window of the Federal Reserve Bank of San Francisco ("FRB"). Advances under this window are subject to the Bank providing qualifying collateral. Various mortgage loans totaling approximately $570.9 million and $583.0 million as of March 31, 2022 and December 31, 2021, respectively, secure this borrowing arrangement. There were no borrowings outstanding with the FRB as of March 31, 2022 or December 31, 2021.

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


	Outstanding Balances		As of March 31, 2022
(Dollars in thousands)	March 31, 2022	December 31, 2021	Minimum Interest Rate		Maximum Interest Rate		Weighted Average Rate		Maturity Dates

Fixed rate long-term	751,647	751,647	0.38	%	7.33	%	1.75	%	March 2023 to March 2030

The Bank's available borrowing capacity based on pledged loans to the FHLB and the FRB totaled $1.0 billion and $1.2 billion at March 31, 2022 and December 31, 2021, respectively. As of March 31, 2022 and December 31, 2021, the Bank had aggregate loan balances of $2.7 billion and $2.5 billion, respectively, available to pledge to the FHLB and FRB to increase its borrowing capacity. As of March 31, 2022 and December 31, 2021, the Bank pledged as collateral a $62.6 million FHLB letter of credit to Freddie Mac related to our multifamily securitization reimbursement obligation.

Short-term borrowings are borrowings with original maturities of 90 days or less. During the three months ended March 31, 2022, there was a maximum amount of short-term borrowings outstanding of $135.3 million and an average amount outstanding of $21.7 million with a weighted average interest rate of 0.34%. During the three months ended March 31, 2021, there was a maximum amount of short-term borrowings outstanding of $203.6 million and an average amount outstanding of $88.8 million, with a weighted average interest rate of 0.14%.

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The following table summarizes scheduled principal payments on FHLB advances over the next five years as of March 31, 2022:


(Dollars in thousands)
April 1 - December 31, 2022	$	—
2023	250,000
2024	300,000
2025	101,500
2026	100,000
Thereafter	147
	$	751,647

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

The following table is a summary of the outstanding Trust Securities and Notes at March 31, 2022 and December 31, 2021:


	March 31, 2022				December 31, 2021				Date	Maturity	Rate Index
Issuer	Amount		Rate		Amount		Rate		Issued	Date	(Quarterly Reset)
(Dollars in thousands)
Luther Burbank Statutory Trust I	$	41,238	2.21	%	$	41,238	1.58	%	3/1/2006	6/15/2036	3 month LIBOR + 1.38%
Luther Burbank Statutory Trust II	$	20,619	2.45	%	$	20,619	1.82	%	3/1/2007	6/15/2037	3 month LIBOR + 1.62%

10. SENIOR DEBT

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

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	March 31, 2022				December 31, 2021
(Dollars in thousands)	Principal		Unamortized Debt Issuance Costs		Principal		Unamortized Debt Issuance Costs		Maturity Date	Fixed Interest Rate
Senior Unsecured Term Notes	$	95,000	$	307	$	95,000	$	338	9/30/2024	6.50	%

11. DERIVATIVES AND HEDGING ACTIVITIES

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

Fair Value Hedges of Interest Rate Risk

As of March 31, 2022, the Company held three two-year interest rate swaps with a total notional amount of $750 million. During the three months ended March 31, 2022, the Company entered into a new two-year swap agreement with a notional amount of $100.0 million. The other two swaps were entered into in February and June 2021. The swaps provide a hedge against the interest rate risk associated with both fixed rate loans and hybrid adjustable loans in their fixed rate period. Additionally, during the three months ended March 31, 2021, the Company also held two separate, two-year interest rate swaps with a total notional amount of $1.0 billion. These swaps, which were in equal notional amounts of $500.0 million, matured in June and August 2021, and provided a hedge against the interest rate risk related to certain hybrid multifamily loans which were in their fixed rate period.

All outstanding swaps are designated as fair value hedges and involve the payment of a fixed rate amount to a counterparty in exchange for the Company receiving a variable rate payment over the life of the swaps without the exchange of the underlying notional amount. Any gain or loss on the derivatives, as well as any offsetting loss or gain on the hedged items attributable to the hedged risk are recognized in interest income on loans.

The following table presents the effect of the Company’s interest rate swaps on the unaudited consolidated statements of income for the three months ended March 31, 2022 and 2021:


	For the Three Months Ended March 31,
(Dollars in thousands)	2022		2021
Derivative - interest rate swaps:
Interest loss	$	(65)	$	(3,416)
Hedged items - loans:
Interest loss	(13)		(15)
Net decrease in interest income	$	(78)	$	(3,431)

The following table presents the fair value of the Company’s interest rate swaps, as well as their classification in the consolidated statements of financial condition as of March 31, 2022 and December 31, 2021:


			Fair Values of Derivative Instruments
			Asset Derivatives			Liability Derivatives
(Dollars in thousands)	Notional Amount		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
As of March 31, 2022:
Interest Rate Swaps	$	750,000	Prepaid Expenses and Other Assets	$	10,874	Other Liabilities and Accrued Expenses	$	—
As of December 31, 2021:
Interest Rate Swaps	$	650,000	Prepaid Expenses and Other Assets	$	3,108	Other Liabilities and Accrued Expenses	$	—

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As of March 31, 2022 and December 31, 2021, the following amounts were recorded in the consolidated statements of financial condition related to cumulative basis adjustments for its fair value hedges:


Line Item in the Consolidated Statements of Financial Condition in Which the Hedged Items are Included	Carrying Amount of the Hedged Assets		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
(Dollars in thousands)
As of March 31, 2022:
Loans receivable, net (1)	$	739,111	$	(10,889)
As of December 31, 2021:
Loans receivable, net (1)	$	646,890	$	(3,110)

(1) These amounts include the amortized cost basis of portfolio loans used to designate hedging relationships in which the hedged items are the last layer expected to be remaining at the end of the hedging relationship. At March 31, 2022 and December 31, 2021, the amortized cost basis of the portfolio loans used in these hedging relationships were $1.1 billion and $1.0 billion, respectively; the cumulative basis adjustments associated with these hedging relationships were $(10.9) million and $(3.1) million, respectively, and the amount of the designated hedged items were $739.1 million and $646.9 million, respectively.

12. STOCK BASED COMPENSATION

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

All RSAs and RSUs are granted at the fair value of the common stock at the time of the award. RSAs and RSUs are considered fixed awards as the number of shares and fair value are known at the date of grant and the fair value at the grant date is amortized over the vesting and/or service period. Non-cash stock compensation expense recognized for RSAs and RSUs for the three months ended March 31, 2022 totaled $710 thousand compared with $584 thousand for the three months ended March 31, 2021. The fair value of RSAs and RSUs that vested during the three months ended March 31, 2022 and 2021 totaled $2.6 million and $2.4 million, respectively.

As of March 31, 2022 and December 31, 2021, there was $4.7 million and $2.6 million, respectively, of unrecognized compensation expense related to 445,331 and 489,703 unvested RSAs, respectively, which amounts were expected to be expensed over a weighted average period of 2.06 years and 1.69 years, respectively. As of March 31, 2022 and December 31, 2021, 84,727 and 91,486 shares, respectively, of RSUs were vested and remain unsettled per the original deferral elections.

The following table summarizes share information about RSAs and RSUs:


	Three Months Ended March 31,
	2022			2021
	Number of Shares	Weighted Average Grant Date Fair Value		Number of Shares	Weighted Average Grant Date Fair Value
Beginning of the period balance	581,189	$	10.56	605,916	$	10.93
Shares granted	206,675	13.81		283,078	10.07
Shares settled	(253,706)	10.45		(265,655)	11.02
Shares forfeited	(4,100)	11.93		(52,798)	10.26
End of the period balance	530,058	$	11.87	570,541	$	10.52

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Under its Omnibus Plan, the Company reserved 3,360,000 shares of common stock for new awards. At March 31, 2022 and December 31, 2021, there were 1,658,769 and 1,861,344 shares, respectively, of common stock reserved and available for grant through restricted stock or other awards under the Omnibus Plan. RSU awards were initially issued to replace unvested phantom stock awards under the Luther Burbank Corporation Phantom Stock Plan and were excluded from the shares reserved and available for grant under the Omnibus Plan. As of January 1, 2021, all RSUs were fully vested and no longer subject to forfeiture.

13. FAIR VALUE MEASUREMENTS

Fair Value Hierarchy

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

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

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

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

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

Management monitors the availability of observable market data to assess the appropriate classification of assets and liabilities within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. Management evaluates 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, cash equivalents and restricted cash, accrued interest receivable and payable, demand deposits and short-term borrowings, the carrying amount was estimated to be fair value. The fair value of accrued interest receivable/payable balances were determined using inputs and fair value measurements commensurate with the asset or liability from which the accrued interest is generated.

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

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

Loans were valued using the exit price notion. The fair value was estimated using market quotes for similar assets or the present value of future cash flows, discounted using a market rate for similar products and

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giving consideration to estimated prepayment risk and credit risk. The fair value of loans was determined utilizing estimates resulting in a Level 3 classification.

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

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

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

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

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

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

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

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

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Fair Value of Financial Instruments

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


					Fair Level Measurements Using
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
As of March 31, 2022:
Financial assets:
Cash and cash equivalents	$	147,963	$	147,963	$	147,963	$	—	$	—
Debt securities:
Available for sale	624,859		624,859		—		624,859		—
Held to maturity	3,798		3,802		—		3,802		—
Equity securities	11,116		11,116		—		11,116		—

Loans receivable, net	6,333,283		6,354,197		—		—		6,354,197
Accrued interest receivable	18,014		18,014		5		933		17,076
FHLB stock	22,563		N/A		N/A		N/A		N/A
Interest rate swaps	10,874		10,874		—		10,874		—
Financial liabilities:
Deposits	$	5,601,247	$	5,583,142	$	3,106,872	$	2,476,270	$	—
FHLB advances	751,647		733,659		—		733,659		—
Junior subordinated deferrable interest debentures	61,857		59,519		—		59,519		—
Senior debt	94,693		96,818		—		96,818		—
Accrued interest payable	153		153		—		153		—

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

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

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 March 31, 2022 and December 31, 2021.

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Recurring Basis

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


(Dollars in thousands)	Fair Value		Level 1		Level 2		Level 3
As of March 31, 2022:
Financial Assets:
Available for sale debt securities:
Government and Government Sponsored Entities:
Commercial MBS and CMOs	$	406,603	$	—	$	406,603	$	—
Residential MBS and CMOs	180,346		—		180,346		—
Agency bonds	10,500		—		10,500		—
Other ABS	27,410		—		27,410		—
Total available for sale debt securities	$	624,859	$	—	$	624,859	$	—
Equity securities	$	11,116	$	—	$	11,116	$	—
Mortgage servicing rights	811		—		—		811
Interest rate swaps	10,874		—		10,874		—


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

There were no transfers between Level 1 and Level 2 during the three months ended March 31, 2022 or 2021.

Non-recurring Basis

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

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

14. VARIABLE INTEREST ENTITIES ("VIE")

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

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Multifamily loan securitization

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

The Company believes its maximum exposure to loss as a result of involvement with the VIE associated with the securitization under the reimbursement agreement executed with Freddie Mac is 10% of the original principal amount of the loans comprising the securitization pool, or $62.6 million. The reserve for estimated losses with respect to the reimbursement obligation totaled $615 thousand and $727 thousand as of March 31, 2022 and December 31, 2021, respectively, based upon an analysis of quantitative and qualitative data of the underlying loans included in the securitization pool. No disbursements have been made in connection with the reimbursement obligation.

15. LOAN SALE AND SECURITIZATION ACTIVITIES

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

As sub-servicer for Freddie Mac, the Bank is required to maintain a minimum net worth in accordance with GAAP of not less than $2.0 million. If the Bank's capital were to fall below this threshold, Freddie Mac would have the authority to terminate and assume the Bank’s sub-servicing duties. At March 31, 2022, the Bank’s net worth was $807.4 million which equates to its Tier 1 capital of $816.1 million plus goodwill of $3.3 million and accumulated other comprehensive loss related to net unrealized losses on available for sale securities of $12.0 million.

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

With respect to the securitization transaction, the Company also has continuing involvement through a reimbursement agreement executed with Freddie Mac. To the extent the ultimate resolution of defaulted loans results in contractual principal and interest payments that are deficient, the Company is obligated to

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reimburse Freddie Mac for such amounts, not to exceed 10% of the original principal amount of the loans comprising the securitization pool at the closing date of September 27, 2017.

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


	Three Months Ended March 31,
(Dollars in thousands)	2022	2021

Servicing fees	97	171

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)	Single Family Residential		Multifamily Residential
As of March 31, 2022:
Principal balance of loans	$	11,882	$	151,108
Loans 90+ days past due	—		—
Charge-offs, net	—		—
As of December 31, 2021:
Principal balance of loans	$	12,243	$	173,486
Loans 90+ days past due	—		—
Charge-offs, net	—		—

16. COMMITMENTS AND CONTINGENCIES

Financial Instruments with Off-Balance Sheet Risk

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

Commitments to fund loans and lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have expiration dates or other termination clauses. In addition, external market forces may impact the probability of commitments being exercised; therefore, total commitments outstanding do not necessarily represent future cash requirements.

At March 31, 2022 and December 31, 2021, the Company had outstanding commitments of approximately $134.0 million and $132.8 million, respectively, for loans and lines of credit. Unfunded commitment reserves totaled $155 thousand and $153 thousand at March 31, 2022 and December 31, 2021, respectively.

Contingencies

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

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or cash flows. In the ordinary course of operations, the Company may be party to various legal proceedings.

Correspondent Banking Agreements

The Company maintains funds on deposit with other federally insured financial institutions under correspondent banking agreements. Insured portions of these balances are limited to $250 thousand per institution based on FDIC insurance limits. At March 31, 2022 and December 31, 2021, the Company had $25.7 million and $25.5 million, respectively, in uninsured available cash balances. The Company also has established federal funds lines of credit with correspondent banks totaling $50.0 million at both March 31, 2022 and December 31, 2021, none of which were advanced at those dates. The Company periodically monitors the financial condition and capital adequacy of these correspondent banks.

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

The following is a discussion of our financial condition at March 31, 2022 and December 31, 2021 and our results of operations for the three months ended March 31, 2022 and March and December 31, 2021, and should be read in conjunction with our audited consolidated financial statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2021 that was filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2022 (our “Annual Report”) and with the accompanying Notes to Unaudited Consolidated Financial Statements set forth in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 (this “Report”). During the quarter ended March 31, 2022, we are transitioning from providing a discussion of our current quarterly results of operations and the same period last year to a discussion of our current quarterly results of operations and the immediately preceding quarter. We are making this change as we believe comparing our current quarterly results to the immediately preceding quarter provides a more meaningful discussion of our financial performance than comparing our current quarterly results to the same prior year period. Because we conduct all of our material business operations through our bank subsidiary, Luther Burbank Savings, the discussion and analysis relates to activities primarily conducted by the Bank.

Overview

We are a bank holding company headquartered in Santa Rosa, California, and the parent company of Luther Burbank Savings, a California-chartered commercial bank headquartered in Gardena, California with $7.3 billion in assets at March 31, 2022. Our principal business is providing high-value, relationship-based banking products and services to our customers, which include real estate investors, professionals, entrepreneurs, depositors and commercial businesses. We generate most of our revenue from interest on loans and investments. Our primary source of funding for our loans is retail deposits and we place secondary reliance on wholesale funding, primarily borrowings from the FHLB and brokered deposits. Our largest expenses are interest on deposits and borrowings along with salaries and related employee benefits. Our principal lending products are real estate secured loans, consisting primarily of multifamily residential properties and jumbo single family residential properties on the West Coast.

Selected Financial Data

The following table sets forth the Company’s selected historical consolidated financial data for the periods and as of the dates indicated. You should read this information together with the Company’s audited consolidated financial statements included in our Annual Report and the unaudited consolidated financial statements and related notes included elsewhere in this Report. The selected historical consolidated financial data as of and for the three months ended March 31, 2022 and 2021 are derived from our unaudited consolidated financial statements, which are included elsewhere in this Report. The selected historical consolidated financial data for the three months ended December 31, 2021 are derived from our unaudited consolidated financial statements which are included in our previously filed Form 8-K on January 25, 2022 as Exhibit 99.1. The selected historical consolidated financial data as of December 31, 2021 (except as otherwise noted below) are derived from our audited consolidated financial statements in our previously filed Annual Report. 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)	As of or For the Three Months Ended
	March 31, 2022			December 31, 2021			March 31, 2021
Statements of Income and Financial Condition Data
Net Income	$	22,940		$	23,383		$	18,411
Pre-tax, pre-provision net earnings (1)	$	29,580		$	31,135		$	23,624
Total assets	$	7,260,826		$	7,179,957		$	7,078,974
Per Common Share
Diluted earnings per share	$	0.45		$	0.45		$	0.35
Book value per share	$	13.00		$	12.95		$	11.95
Tangible book value per share (1)	$	12.93		$	12.88		$	11.88



Selected Ratios
Return on average:
Assets	1.28		%	1.30		%	1.05		%
Stockholders' equity	13.60		%	14.08		%	11.82		%
Dividend payout ratio	27.14		%	26.57		%	16.34		%
Net interest margin	2.54		%	2.57		%	2.23		%
Efficiency ratio (1)	34.40		%	32.84		%	39.47		%
Noninterest expense to average assets	0.86		%	0.85		%	0.88		%
Loan to deposit ratio	113.66		%	113.71		%	116.31		%



Credit Quality Ratios
Allowance for loan losses to loans	0.52		%	0.56		%	0.70		%
Allowance for loan losses to nonperforming loans	1,450.81		%	1,549.72		%	650.99		%
Nonperforming assets to total assets	0.03		%	0.03		%	0.09		%
Net recoveries to average loans	—		%	—		%	(0.00)		%
Capital Ratios
Tier 1 leverage ratio	10.27		%	10.12		%	9.71		%
Total risk-based capital ratio	19.37		%	19.61		%	18.55		%

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

Critical Accounting Policies and Estimates

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

Our most significant accounting policies are described in Note 1 to our audited financial statements for the year ended December 31, 2021, included in our Annual Report. We have identified the following accounting policies and estimates that, due to the difficult, subjective or complex judgments and assumptions inherent in those policies and estimates and the potential sensitivity of our financial statements to those judgments and assumptions, are critical to an understanding of our financial condition and results of operations. We believe that the judgments, estimates and assumptions used in the preparation of our financial statements are reasonable and appropriate.

Pursuant to the Jumpstart Our Business Startups Act (the "JOBS Act"), as an emerging growth company, we can elect to opt out of the extended transition period for adopting any new or revised accounting standards. We have

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elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we may adopt the standard for the private company.

We have elected to take advantage of the scaled disclosures and other relief under the JOBS Act, and we may take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us under the JOBS Act, so long as we qualify as an emerging growth company. Our eligibility as an emerging growth company under the JOBS Act is expected to expire on December 31, 2022, which is the last day of the fiscal year following the five year anniversary from the date of our initial public offering.

Allowance for Loan Losses

The allowance for loan losses is provided for probable incurred credit losses inherent in the loan portfolio at the statement of financial condition date. The allowance is increased by a provision charged to expense and can be reduced by loan principal charge-offs, net of recoveries. The allowance can also be reduced by recapturing provisions when management determines that the allowance for loan losses is more than adequate to absorb the probable incurred credit losses in the portfolio. The allowance is based on management’s assessment of various factors including, but not limited to, the nature of the loan portfolio, previous loss experience, known and inherent risks in the portfolio, the estimated value of underlying collateral, information that may affect a borrower’s ability to repay, current economic conditions and the results of our ongoing reviews of the portfolio. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance. Such agencies may require the Bank to recognize additions to the allowance based on judgments different from those of management.

While we use available information, including independent appraisals for collateral, to estimate the extent of probable incurred loan losses within the loan portfolio, inherent uncertainties in the estimation process make it reasonably possible that ultimate losses may vary significantly from our original estimates. In addition, we utilize a number of economic variables in estimating the allowance, with the most significant drivers being unemployment levels and housing prices. Material changes in these economic variables may result in incremental changes in the estimated level of our allowance. Generally, loans are partially or fully charged off when it is determined that the unpaid principal balance exceeds the current fair value of the collateral with no other likely source of repayment. The Company currently utilizes the incurred loss methodology to determine its allowance for loan losses. The Company expects to adopt the current expected credit loss ("CECL") allowance methodology on January 1, 2023.

Fair Value Measurement

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

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

Investment Securities Impairment

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

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Non-GAAP Financial Measures

We use certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such performance. The methodology for determining these non-GAAP measures may differ among companies.

Pre-tax, pre-provision net earnings is defined as net income before taxes and provision for loan losses. We believe the most directly comparable GAAP financial measure is income before taxes. Disclosure of this measure enables investors to compare our operations to those of other banking companies before consideration of taxes and provision expense. Efficiency ratio is defined as noninterest expense divided by operating revenue, which is equal to net interest income plus noninterest income. Tangible book value per share is defined as tangible stockholders' equity divided by period end shares outstanding. We believe that these non-GAAP financial measures provide useful information to management and investors that is supplementary to our consolidated statements of financial condition, results of income and cash flows computed in accordance with GAAP. However, we acknowledge that our non-GAAP financial measures have a number of limitations. As such, you should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other banking companies use. Other banking companies may use names similar to those we use for the non-GAAP financial measures we disclose, but may calculate them differently. You should understand how we and other companies each calculate their non-GAAP financial measures when making comparisons.

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


	As of or For the Three Months Ended
(Dollars in thousands)	March 31, 2022			December 31, 2021			March 31, 2021
Pre-tax, Pre-provision Net Earnings
Income before taxes	$	32,080		$	32,935		$	26,124
Plus: Reversal of provision for loan losses	(2,500)			(1,800)			(2,500)
Pre-tax, pre-provision net earnings	$	29,580		$	31,135		$	23,624
Efficiency Ratio
Noninterest expense (numerator)	$	15,512		$	15,226		$	15,404
Net interest income	$	45,034		$	45,725		$	38,719
Noninterest income	58			636			309
Operating revenue (denominator)	$	45,092		$	46,361		$	39,028
Efficiency ratio	34.40		%	32.84		%	39.47		%












Tangible Book Value Per Share
Total assets	$	7,260,826		$	7,179,957		$	7,078,974
Less: Goodwill	(3,297)			(3,297)			(3,297)
Tangible assets	7,257,529			7,176,660			7,075,677
Less: Total liabilities	(6,592,826)			(6,510,824)			(6,455,005)
Tangible stockholders' equity (numerator)	$	664,703		$	665,836		$	620,672
Period end shares outstanding (denominator)	51,403,914			51,682,398			52,231,912
Tangible book value per share	$	12.93		$	12.88		$	11.88

Results of Operations - Three Months Ended March 31, 2022 and December 31, 2021

Overview

For the three months ended March 31, 2022, our net income was $22.9 million as compared to $23.4 million for the three months ended December 31, 2021. The decrease of $443 thousand, or 1.9%, was attributable to a decrease in net interest income of $691 thousand, a decrease in noninterest income of $578 thousand and an increase in noninterest expense of $286 thousand, partially offset by an increase in reversal of provision for loan losses of $700 thousand and a decrease in income tax expense of $412 thousand. Pre-tax, pre-provision net earnings decreased by $1.6 million, or 5.0%, for the three months ended March 31, 2022 as compared to the linked quarter.

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Net Interest Income

Net interest income decreased by $691 thousand, or 1.5%, to $45.0 million for the three months ended March 31, 2022 from $45.7 million for the prior quarter due to lower loan interest income, partially offset by lower interest expense on our deposit portfolio, which benefited from higher rate term deposits repricing into new lower cost products. The decline in loan interest income was primarily due to the prepayment of higher yielding loans being replaced with loans at lower current interest rates, as well as a decline in prepayment penalties on early loan payoffs. As compared to the linked quarter, the yield on our loan portfolio declined by 10 basis points and the cost of interest bearing deposits declined by 3 basis points.

Our net interest margin was 2.54% during the three months ended March 31, 2022 compared to 2.57% during the prior quarter. Our net interest margin reflects the net impact of a decrease in the yield on interest earning assets partly offset by a decrease in the cost of interest bearing liabilities. During the first quarter, the yield on our interest earning assets decreased by 7 basis points primarily due to the decline in loan yield, discussed above, while the cost of our interest bearing liabilities decreased by 3 basis points primarily due to the decline in the cost of deposits, discussed above. Our net interest spread in the first quarter was 2.46%, decreasing by 4 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 March 31, 2022 and December 31, 2021. The average balances are daily averages.

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	For the Three Months Ended
	March 31, 2022						December 31, 2021
(Dollars in thousands)	Average Balance		Interest Inc/Exp		Yield/Rate		Average Balance		Interest Inc/Exp		Yield/Rate
Interest-Earning Assets
Multifamily residential	$	4,211,697	$	39,146	3.72	%	$	4,202,677	$	39,967	3.80	%
Single family residential	1,867,416		12,025		2.58	%	1,879,844		12,908		2.75	%
Commercial real estate	193,871		2,204		4.55	%	191,659		2,143		4.47	%
Construction and land	20,341		258		5.14	%	16,517		221		5.31	%
Total loans (1)	6,293,325		53,633		3.41	%	6,290,697		55,239		3.51	%
Investment securities	650,091		2,301		1.42	%	677,624		2,163		1.28	%
Cash, cash equivalents and restricted cash	153,370		66		0.17	%	154,722		62		0.16	%
Total interest-earning assets	7,096,786		56,000		3.16	%	7,123,043		57,464		3.23	%
Noninterest-earning assets (2)	92,904						73,823
Total assets	$	7,189,690					$	7,196,866
Interest-Bearing Liabilities
Transaction accounts	$	169,580	95		0.22	%	$	169,132	95		0.22	%
Money market demand accounts	2,964,527		3,222		0.43	%	2,801,908		3,178		0.44	%
Time deposits	2,231,471		2,703		0.49	%	2,457,668		3,449		0.55	%
Total deposits	5,365,578		6,020		0.45	%	5,428,708		6,722		0.48	%
FHLB advances	761,119		3,097		1.65	%	751,653		3,190		1.68	%
Junior subordinated debentures	61,857		275		1.80	%	61,857		252		1.62	%
Senior debt	94,673		1,574		6.65	%	94,642		1,575		6.66	%
Total interest-bearing liabilities	6,283,227		10,966		0.70	%	6,336,860		11,739		0.73	%
Noninterest-bearing deposit accounts	147,533						126,225
Other noninterest-bearing liabilities	84,022						69,453
Total liabilities	6,514,782						6,532,538
Total stockholders' equity	674,908						664,328
Total liabilities and stockholders' equity	$	7,189,690					$	7,196,866

Net interest spread (3)					2.46	%					2.50	%
Net interest income/margin (4)			$	45,034	2.54	%			$	45,725	2.57	%

(1) Non-accrual loans are included in total loan balances. No adjustment has been made for these loans in the calculation of yields. Interest income on loans includes amortization of deferred loan costs, net of deferred loan fees. Net deferred loan cost amortization totaled $4.8 million and $4.6 million for the three months ended March 31, 2022 and December 31, 2021, respectively.

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

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

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

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

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	Three Months Ended March 31, 2022 vs December 31, 2021
	Variance Due To
(Dollars in thousands)	Volume		Yield/Rate		Total
Interest-Earning Assets
Multifamily residential	$	80	$	(901)	$	(821)
Single family residential	(85)		(798)		(883)
Commercial real estate	24		37		61
Construction and land	45		(8)		37
Total loans	64		(1,670)		(1,606)
Investment securities	(91)		229		138
Cash, cash equivalents and restricted cash	(1)		5		4
Total interest-earning assets	(28)		(1,436)		(1,464)
Interest-Bearing Liabilities
Transaction accounts	—		—		—
Money market demand accounts	132		(88)		44
Time deposits	(341)		(405)		(746)
Total deposits	(209)		(493)		(702)
FHLB advances	8		(101)		(93)
Junior subordinated debentures	1		(2)		(1)
Senior debt	—		23		23
Total interest-bearing liabilities	(200)		(573)		(773)

Net Interest Income	$	172	$	(863)	$	(691)

Total interest income decreased by $1.5 million, or 2.5%, for the three months ended March 31, 2022 as compared to the prior quarter. This decline was primarily due to a $1.6 million reduction in interest income earned on loans caused by a 10 basis point decrease in our loan yield due to the prepayment of higher yielding loans being replaced with loans at lower current interest rates, as well as a decline in prepayment penalties on early loan payoffs compared to the prior quarter.

The volume of new loan originations totaled $568.9 million and $498.7 million for the three months ended March 31, 2022 and December 31, 2021, respectively. The weighted average rate on new loans for the three months ended March 31, 2022 was 3.14% as compared to 3.19% for the linked quarter. The decline in the average coupon on originations was primarily due to competitive pricing pressures coupled with a higher percentage of single family loans originated during the current quarter. Single family residential loans generally carry a lower origination rate than our other lending products. Loan prepayment speeds were 26.2% and 28.1% during the three months ended March 31, 2022 and December 31, 2021, respectively. The weighted average rate on loan payoffs/curtailments during the three months ended March 31, 2022 was 3.70% as compared to 3.89% for the prior quarter.

Total interest expense decreased $773 thousand, or 6.6%, to $11.0 million, for the three months ended March 31, 2022 from $11.7 million for the prior quarter. Interest expense on deposits decreased $702 thousand, to $6.0 million, for the three months ended March 31, 2022 from $6.7 million for the prior quarter. The decrease was primarily due to a 3 basis point decline in the cost of interest-bearing deposits predominantly due to our term deposit portfolio repricing to lower current interest rates, as well as a $226.2 million decline in the average balance of time deposits, which were generally replaced with other lower cost deposit products. We generally use both deposits and FHLB advances to fund net loan growth. We also use long-term FHLB advances as a hedge of interest rate risk, as we can strategically control the duration of those funds. A discussion of instruments used to mitigate interest rate risk can be found under Part II - Item 7A. ‘‘Quantitative and Qualitative Disclosures About Market Risk.’’

Provision for Loan Losses

During the three months ended March 31, 2022 and December 31, 2021, the Company recorded a reversal of loan loss provisions of $2.5 million and $1.8 million, respectively. The current quarter recapture was related to the

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reversal of the remaining portion of qualitative reserves established for economic uncertainty early in the pandemic, while the prior quarter reversal was primarily due to a decline in criticized loans. The decision to recapture the remaining portion of our pandemic related reserve was based on the continued resilience of our loan portfolio, as well as the general strength of the economic recovery. Our allowance for loan losses as a percentage of total loans was 0.52% and 0.56% at March 31, 2022 and December 31, 2021, respectively. The allowance for loan losses and the recapture of provisions for loan losses recognized were determined based on the incurred loss methodology. The Company expects to adopt the CECL allowance methodology on January 1, 2023.

Nonperforming assets totaled $2.3 million, or 0.03% of total assets, at both March 31, 2022 and December 31, 2021. Criticized loans, which includes loans graded Special Mention and of greater risk, were $20.7 million at March 31, 2022 compared to $16.7 million at December 31, 2021. Classified loans, which includes loans graded Substandard and of greater risk, totaled $13.8 million and $12.1 million at March 31, 2022 and December 31, 2021, respectively. The increase in criticized and classified loan balances was attributed to isolated credit related downgrades and are not thought to represent any particular declining credit trends in our loan portfolio. The Company's exposure to nonresidential commercial real estate remains limited, totaling $194.4 million, or 3.1% of our loan portfolio, at the end of the current quarter.

Noninterest Income

Noninterest income decreased by $578 thousand, or 90.9%, to $58 thousand for the three months ended March 31, 2022 from $636 thousand for the prior quarter. The following table presents the major components of our noninterest income:


	For the Three Months Ended
(Dollars in thousands)	March 31, 2022		December 31, 2021		$ Increase (Decrease)		% Increase (Decrease)
Noninterest Income

FHLB dividends	$	354	$	413	(59)		(14.3)	%
Fee income	226		271		(45)		(16.6)	%
Other	(522)		(48)		(474)		987.5	%
Total noninterest income	$	58	$	636	$	(578)	(90.9)	%

The decrease in noninterest income for the quarter ended March 31, 2022 compared to the quarter ended December 31, 2021, was primarily attributable to a $577 thousand decline during the current quarter in the fair value of community development investments that are classified as equity securities compared to a $111 thousand decline during the linked quarter, both attributed to the rise in market interest rates.

Noninterest Expense

Noninterest expense increased $286 thousand, or 1.9%, to $15.5 million for the three months ended March 31, 2022 from $15.2 million for the three months ended December 31, 2021. The following table presents the major components of our noninterest expense:

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	For the Three Months Ended
(Dollars in thousands)	March 31, 2022		December 31, 2021		$ Increase (Decrease)		% Increase (Decrease)
Noninterest Expense
Compensation and related benefits	$	10,219	$	10,007	$	212	2.1	%
Deposit insurance premium	481		489		(8)		(1.6)	%
Professional and regulatory fees	539		433		106		24.5	%
Occupancy	1,194		1,198		(4)		(0.3)	%
Depreciation and amortization	603		603		—		—	%
Data processing	988		1,056		(68)		(6.4)	%
Marketing	458		333		125		37.5	%

Other expenses	1,030		1,107		(77)		(7.0)	%
Total noninterest expense	$	15,512	$	15,226	$	286	1.9	%

The increase in noninterest expense during the quarter ended March 31, 2022 compared to the linked quarter was predominantly due to a $212 thousand increase in compensation costs, including the first calendar quarter impact of payroll taxes, partially offset by an increase in capitalized loan origination costs.

Income Tax Expense

For the three months ended March 31, 2022, we recorded income tax expense of $9.1 million as compared to $9.6 million for the prior quarter with effective tax rates of 28.5% and 29.0%, respectively. Compared to the prior quarter, the decrease in income tax expense was due to our lower pre-tax earnings during the current quarter.

Results of Operations - Three Months Ended March 31, 2022 and 2021

Overview

For the three months ended March 31, 2022, our net income was $22.9 million as compared to $18.4 million for the same period last year. The increase of $4.5 million, or 24.6%, was attributable to an increase in net interest income of $6.3 million, partially offset by an increase of $1.4 million in income tax expense. Pre-tax, pre-provision net earnings increased by $6.0 million, or 25.2%, for the three months ended March 31, 2022 as compared to the same period last year.

Net Interest Income

Net interest income increased by $6.3 million, or 16.3%, to $45.0 million for the three months ended March 31, 2022 from $38.7 million for the same period last year. Net interest income was predominantly impacted by a $5.6 million decrease in interest expense on deposits due to a 44 basis point decline in the cost of interest-bearing deposits compared to the same period last year, and to a lesser extent an increase in the percentage of non-maturity accounts in our deposit portfolio over term deposits during the same period. Additionally, interest expense on FHLB advances decreased $836 thousand due to a decline in the cost and average balance of FHLB advances of 25 basis points and $77.7 million, respectively, as compared to the same period last year. These improvements were partially offset by a decrease of $425 thousand in interest income on loans due to a decrease in our loan yield of 9 basis points compared to the same period last year, partially offset by a $121.9 million increase in the average balance of loans. The decrease in loan yield was primarily a result of the prepayment of higher yielding loans, which were being replaced by loans at lower interest rates, partially offset by a $3.4 million decline in the cost of our interest rate swaps as compared to the same period last year.

Our net interest margin increased to 2.54% during the three months ended March 31, 2022 from 2.23% during the same period last year. The improvement in our net interest margin was primarily due to a 42 basis point decline in the cost of interest-bearing liabilities, which benefited from low market interest rates. The decline in our cost of interest-bearing liabilities was partially offset by a 7 basis point decline in the yield on interest-earning assets during the quarter ended March 31, 2022 as compared to the same period last year.

Average balance sheet, interest and yield/rate analysis. The following table presents average balance sheet

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information, interest income, interest expense and the corresponding average yield earned and rates paid for the three months ended March 31, 2022 and 2021. The average balances are daily averages.


	For the Three Months Ended March 31,
	2022						2021
(Dollars in thousands)	Average Balance		Interest Inc/Exp		Yield/Rate		Average Balance		Interest Inc/Exp		Yield/Rate
Interest-Earning Assets
Multifamily residential	$	4,211,697	$	39,146	3.72	%	$	4,122,614	$	37,555	3.64	%
Single family residential	1,867,416		12,025		2.58	%	1,823,869		13,858		3.04	%
Commercial real estate	193,871		2,204		4.55	%	202,798		2,315		4.57	%
Construction and land	20,341		258		5.14	%	22,154		330		6.04	%
Total loans (1)	6,293,325		53,633		3.41	%	6,171,435		54,058		3.50	%
Investment securities	650,091		2,301		1.42	%	614,500		1,982		1.29	%
Cash, cash equivalents and restricted cash	153,370		66		0.17	%	152,974		51		0.14	%
Total interest-earning assets	7,096,786		56,000		3.16	%	6,938,909		56,091		3.23	%
Noninterest-earning assets (2)	92,904						59,043
Total assets	$	7,189,690					$	6,997,952
Interest-Bearing Liabilities
Transaction accounts	$	169,580	95		0.22	%	$	155,038	109		0.28	%
Money market demand accounts	2,964,527		3,222		0.43	%	2,027,828		2,921		0.58	%
Time deposits	2,231,471		2,703		0.49	%	3,042,619		8,576		1.13	%
Total deposits	5,365,578		6,020		0.45	%	5,225,485		11,606		0.89	%
FHLB advances	761,119		3,097		1.65	%	838,851		3,933		1.90	%
Junior subordinated debentures	61,857		275		1.80	%	61,857		258		1.69	%
Senior debt	94,673		1,574		6.65	%	94,550		1,575		6.66	%
Total interest-bearing liabilities	6,283,227		10,966		0.70	%	6,220,743		17,372		1.12	%
Noninterest-bearing deposit accounts	147,533						89,626
Other noninterest-bearing liabilities	84,022						64,669
Total liabilities	6,514,782						6,375,038
Total stockholders' equity	674,908						622,914
Total liabilities and stockholders' equity	$	7,189,690					$	6,997,952

Net interest spread (3)					2.46	%					2.11	%
Net interest income/margin (4)			$	45,034	2.54	%			$	38,719	2.23	%

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

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

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

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	Three Months Ended March 31, 2022 vs 2021
	Variance Due To
(Dollars in thousands)	Volume		Yield/Rate		Total
Interest-Earning Assets
Multifamily residential	$	789	$	802	$	1,591
Single family residential	322		(2,155)		(1,833)
Commercial real estate	(101)		(10)		(111)
Construction and land	(25)		(47)		(72)
Total loans	985		(1,410)		(425)
Investment securities	116		203		319
Cash, cash equivalents and restricted cash	—		15		15
Total interest-earning assets	1,101		(1,192)		(91)
Interest-Bearing Liabilities
Transaction accounts	10		(24)		(14)
Money market demand accounts	1,168		(867)		301
Time deposits	(1,879)		(3,994)		(5,873)
Total deposits	(701)		(4,885)		(5,586)
FHLB advances	(345)		(491)		(836)
Junior subordinated debentures	—		17		17
Senior debt	1		(2)		(1)
Total interest-bearing liabilities	(1,045)		(5,361)		(6,406)

Net Interest Income	$	2,146	$	4,169	$	6,315

Total interest income decreased by $91 thousand, or 0.2%, for the three months ended March 31, 2022 as compared to the same period last year. This decline was primarily due to a $425 thousand reduction in interest income earned on loans caused by a 9 basis point decrease in our loan yield as compared to the same period last year, partially offset by a $121.9 million increase in the average balance of loans as compared to the same period last year. The contraction in loan yield was primarily a result of the prepayment of higher yielding loans, which were being replaced by loans at lower interest rates and a decline in prepayment penalties collected on early loan payoffs, somewhat offset by a $3.4 million decline in the cost of our interest rate swaps as compared to the same period last year. The decline in loan interest income was partially offset by an increase in interest income on investment securities of $319 thousand, related to an increase in the average balance and yield on investment securities of $35.6 million and 13 basis points, respectively, as compared to the same period last year.

The volume of new loan originations totaled $568.9 million and $391.0 million for the three months ended March 31, 2022 and 2021, respectively. Improvement in the volume of loan originations was mainly due to stronger borrower demand during the quarter ended March 31, 2022 as the economy continued to recover from the pandemic, furthered by concerns regarding rising interest rates, which incented borrowers to lock-in rates. The weighted average rate on these new loans for the three months ended March 31, 2022 was 3.14% as compared to 3.35% for the same period last year. The decline in the average coupon on originations was primarily due to competitive pricing pressures. Loan prepayment speeds were 26.2% and 24.6% during the three months ended March 31, 2022 and 2021, respectively. The weighted average rate on loan payoffs/curtailments during the three months ended March 31, 2022 was 3.70% as compared to 4.03% for the same period last year.

Total interest expense decreased $6.4 million, or 36.9%, to $11.0 million, for the three months ended March 31, 2022 from $17.4 million for the same period last year. Interest expense on deposits decreased $5.6 million, to $6.0 million, for the three months ended March 31, 2022 from $11.6 million for the same period last year. The decrease was primarily due to a 44 basis point decline in the cost of interest-bearing deposits predominantly due to our deposit portfolio repricing to lower current market interest rates and, to a lesser extent, a $811.1 million decline in the average balance of time deposits, which were generally replaced with other lower cost deposit products. Additionally, interest expense on FHLB advances decreased $836 thousand due to a decline in the cost and

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average balance of FHLB advances of 25 basis points and $77.7 million, respectively, as compared to the same period last year. The decline in the cost of FHLB advances was primarily due to long-term FHLB advances being replaced with new long-term borrowings at lower rates. We generally use both deposits and FHLB advances to fund net loan growth. We also use long-term FHLB advances as a hedge of interest rate risk, as we can strategically control the duration of those funds. A discussion of instruments used to mitigate interest rate risk can be found under Part II - Item 7A. ‘‘Quantitative and Qualitative Disclosures About Market Risk.’’

Provision for Loan Losses

For both quarters ended March 31, 2022 and 2021, we recorded a reversal of loan loss provisions of $2.5 million. As discussed above, the loan loss provisions reversed during the three months ended March 31, 2022 was related to the reversal of the remaining portion of qualitative reserves established with the onset of the pandemic. The decision to recapture the remaining portion of our pandemic related reserve was based on the continued resilience of our loan portfolio, as well as the general strength of the economic recovery.

Nonperforming loans totaled $2.3 million, or 0.04% of total loans, at March 31, 2022 compared to $6.7 million, or 0.11%, of total loans, at March 31, 2021. The decline in nonperforming loans from the same period last year was mainly due to the payoff or upgrade of these loans. Criticized loans totaled $20.7 million and $34.1 million at March 31, 2022 and 2021, respectively. The decline in criticized loans from March 31, 2021 was primarily attributable to the satisfactory performance of loans that were initially impacted by the pandemic.

Noninterest Income

Noninterest income decreased by $251 thousand, or 81.2%, to $58 thousand for the three months ended March 31, 2022 from $309 thousand for the same period last year. The following table presents the major components of our noninterest income:


	For the Three Months Ended March 31,
(Dollars in thousands)	2022		2021		$ Increase (Decrease)		% Increase (Decrease)
Noninterest Income

FHLB dividends	$	354	$	367	(13)		(3.5)	%
Fee income	226		85		141		165.9	%
Other	(522)		(143)		(379)		265.0	%
Total noninterest income	$	58	$	309	$	(251)	(81.2)	%

The decrease in noninterest income for the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021, was primarily attributable to a $577 thousand decline in the fair value of equity securities during the current quarter compared to a $211 thousand decline during the same period last year.

Noninterest Expense

Noninterest expense increased $108 thousand, or 0.7%, to $15.5 million for the three months ended March 31, 2022 from $15.4 million for the three months ended March 31, 2021. The following table presents the major components of our noninterest expense:

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	For the Three Months Ended March 31,
(Dollars in thousands)	2022		2021		$ Increase (Decrease)		% Increase (Decrease)
Noninterest Expense
Compensation and related benefits	$	10,219	$	10,380	$	(161)	(1.6)	%
Deposit insurance premium	481		472		9		1.9	%
Professional and regulatory fees	539		484		55		11.4	%
Occupancy	1,194		1,215		(21)		(1.7)	%
Depreciation and amortization	603		655		(52)		(7.9)	%
Data processing	988		973		15		1.5	%
Marketing	458		292		166		56.8	%
Other expenses	1,030		933		97		10.4	%
Total noninterest expense	$	15,512	$	15,404	$	108	0.7	%

The increase in noninterest expense during the quarter ended March 31, 2022 compared to the same period last year was attributable to a $166 thousand increase in marketing costs primarily related to deposit gathering efforts, partially offset by a decrease in compensation costs mainly due to increased capitalized salary amounts related to higher loan production volumes compared to the same period last year.

Income Tax Expense

For the three months ended March 31, 2022, we recorded income tax expense of $9.1 million as compared to $7.7 million for the same period last year with effective tax rates of 28.5% and 29.5%, respectively. Compared to the same period last year, the increase in income tax expense was due to our higher pre-tax earnings during the current quarter. The decline in effective tax rate primarily relates to the impact from the vesting of restricted stock awards.

Financial Condition - As of March 31, 2022 and December 31, 2021

Total assets at March 31, 2022 were $7.3 billion, an increase of $80.9 million, or 1.1%, from December 31, 2021. The increase was primarily due to a $68.9 million increase in loans and a $24.1 million increase in prepaid expenses and other assets, partially offset by a $23.1 million decline in investment securities as compared to December 31, 2021. Total liabilities were $6.6 billion at quarter end, an increase of $82.0 million, or 1.3%, from December 31, 2021. The increase in total liabilities was primarily attributable to growth in our deposits of $63.0 million and an increase of $18.9 million in other liabilities and accrued expenses compared to the prior year end.

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 March 31, 2022 and December 31, 2021, our total loans amounted to $6.4 billion and $6.3 billion, respectively. The following table presents the balance and associated percentage of each major product type within our portfolio as of the dates indicated.


	As of March 31, 2022				As of December 31, 2021
(Dollars in thousands)	Amount		% of total		Amount		% of total
Real estate loans
Multifamily residential	$	4,203,656	66.5	%	$	4,183,194	66.9	%
Single family residential	1,892,924		30.0	%	1,859,524		29.8	%
Commercial real estate	193,733		3.1	%	186,531		3.0	%
Construction and land	23,746		0.4	%	18,094		0.3	%

Total loans before deferred items	6,314,059		100.0	%	6,247,343		100.0	%
Deferred loan costs, net	52,259				50,077
Total loans	$	6,366,318			$	6,297,420

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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 67% of our portfolio at both March 31, 2022 and December 31, 2021. Single family residential lending is our secondary lending emphasis and represented 30% of our portfolio at both March 31, 2022 and December 31, 2021.

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 548% and 551% as of March 31, 2022 and December 31, 2021, respectively. Our single family loans as a percentage of risk-based capital were 248% and 246% as of the same dates. Additionally, our loans are geographically concentrated with borrowers and collateral properties on the West Coast. At March 31, 2022, 63%, 27% and 9% of our real estate loans were collateralized by properties in southern California counties, northern California counties and Washington, respectively, compared to 63%, 26% and 9%, respectively, at December 31, 2021.

Our lending strategy has been to focus on products and markets where we have significant expertise. Given our concentrations, we have established strong risk management practices including risk-based lending standards, self-established product and geographical limits, annual cash flow evaluations of income property loans and semi-annual stress testing.

We had a small portfolio of construction loans with commitments (funded and unfunded) totaling $43.5 million and $38.1 million at March 31, 2022 and December 31, 2021, respectively. As of March 31, 2022, the average loan commitment for our single family construction product, which includes small tract housing and condominium projects, and our multifamily residential construction loans was $5.1 million and $6.1 million, respectively, compared to $5.1 million and $6.4 million, respectively, at December 31, 2021. Our construction lending typically focuses on non-owner occupied single family residential projects with completed per-unit values of $4.0 million or less and multifamily projects with loan commitments of $15.0 million or less.

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


	Three Months Ended
(Dollars in thousands)	March 31, 2022		December 31, 2021		March 31, 2021
Loan increases:
Multifamily residential	$	297,128	$	315,742	$	248,604
Single family residential	251,964		175,987		138,064
Commercial real estate	14,420		—		2,000
Construction and land	5,400		6,955		2,351

Purchases	—		—		287,751
Total loans originated and purchased	568,912		498,684		678,770

Loan decreases:
Loan principal reductions and payoffs	(495,715)		(537,771)		(451,537)


Other (1)	(4,299)		(7,354)		(5,693)
Total loan outflows	(500,014)		(545,125)		(457,230)
Net change in total loan portfolio	$	68,898	$	(46,441)	$	221,540

(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, charge-offs and negative amortization.

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

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streams and are focused on building wealth steadily over time. We have instituted strong lending policies to mitigate credit and concentration risk. At March 31, 2022, our multifamily real estate portfolio had an average loan balance of $1.6 million, an average unit count of 13.8 units, a weighted average loan to value of 56.9% and a weighted average debt service coverage ratio of 1.5 times, as compared to an average loan balance of $1.6 million, an average unit count of 14.0 units, a weighted average loan to value of 56.9% and a weighted average debt service coverage ratio of 1.5 times at December 31, 2021.

Single family residential loans. We provide permanent financing on single family residential properties primarily located in our market areas, which are both owner-occupied and investor owned. We conduct this business primarily through a network of third party mortgage brokers with the intention of retaining these loans in our portfolio. The majority of our originations are for purchase transactions, but we also provide loans to refinance single family properties. Our underwriting criteria focuses on debt ratios, credit scores, liquidity of the borrower and the borrower’s cash reserves. At March 31, 2022, our single family residential real estate portfolio had an average loan balance of $875 thousand, a weighted average loan to value of 62.8% and a weighted average credit score at origination/refreshed of 760. At December 31, 2021, our single family residential real estate portfolio had an average loan balance of $859 thousand, a weighted average loan to value of 62.5% and a weighted average credit score at origination/refreshed of 759.

Commercial real estate loans. While not a large part of our portfolio during any period presented, we also lend on nonresidential commercial real estate. Our commercial real estate loans are generally used to finance the purchase or refinance of established multi-tenant industrial, office and retail sites. At March 31, 2022, our commercial real estate portfolio had an average loan balance of $2.2 million, a weighted average loan to value of 54.1% and a weighted average debt service coverage ratio of 1.7 times, as compared to an average loan balance of $2.1 million, a weighted average loan to value of 54.2% and a weighted average debt service coverage ratio of 1.7 times at December 31, 2021.

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.

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


(Dollars in thousands)	Due in 1 year or less		Due after 1 year through 5 years		Due after 5 years through 15 years		Due after 15 years		Total
As of March 31, 2022:
Loans
Real estate mortgage loans:
Multifamily residential	$	2,284	$	898	$	37,992	$	4,162,482	$	4,203,656
Single family residential	10		656		55,108		1,837,150		1,892,924
Commercial real estate	—		18,757		174,976		—		193,733
Construction and land	11,989		11,757		—		—		23,746
Total loans	$	14,283	$	32,068	$	268,076	$	5,999,632	$	6,314,059

Fixed interest rates	$	—	$	200	$	48,323	$	241,211	$	289,734
Floating or hybrid adjustable rates	14,283		31,868		219,753		5,758,421		6,024,325
Total loans	$	14,283	$	32,068	$	268,076	$	5,999,632	$	6,314,059
As of December 31, 2021:
Loans
Real estate mortgage loans:
Multifamily residential	$	30	$	2,225	$	37,730	$	4,143,209	$	4,183,194
Single family residential	27		631		56,858		1,802,008		1,859,524
Commercial real estate	—		11,403		175,128		—		186,531
Construction and land	10,648		7,446		—		—		18,094
Total loans	$	10,705	$	21,705	$	269,716	$	5,945,217	$	6,247,343

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

Our fixed interest rate loans generally consist of 30 and 40-year loans that are primarily secured by single family residential properties, often in conjunction with our efforts to provide affordable housing financing to low-to-moderate income individuals. Our floating and adjustable rate loans are largely hybrid interest rate programs that provide an initial fixed term of three to ten years and then convert to quarterly or semi-annual repricing adjustments thereafter. As of March 31, 2022 and December 31, 2021, $4.9 billion and $4.8 billion, respectively, of our floating or hybrid adjustable rate loans were at their floor rates. The weighted average minimum interest rate on loans at their floor rates was 3.68% and 3.75% at March 31, 2022 and December 31, 2021, respectively. Hybrid adjustable rate loans still within their initial fixed term totaled $5.2 billion and $5.1 billion at March 31, 2022 and December 31, 2021, respectively. These loans had a weighted average term to first repricing date of 3.7 years and 3.6 years at March 31, 2022 and December 31, 2021, 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

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pertinent information that may be available to determine the collectability of a loan. We believe our practices facilitate the early detection and remediation of problems within our loan portfolio. Assigned risk ratings, as well as the evaluation of other credit metrics, are an integral part of management assessing the adequacy of our allowance for loan losses. We periodically employ the use of an outside independent consulting firm to evaluate our underwriting and risk assessment processes. Like other financial institutions, we are subject to the risk that our loan portfolio will be exposed to increasing pressures from deteriorating borrower credit due to general economic conditions.

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

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

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


(Dollars in thousands)	March 31, 2022			December 31, 2021
Non-accrual loans
Multifamily residential portfolio	$	500		$	505
Single family residential portfolio	1,777			1,788


Total non-accrual loans	2,277			2,293
Real estate owned	—			—
Total nonperforming assets	$	2,277		$	2,293
Performing TDRs	$	1,192		$	1,204
Allowance for loan losses to period end nonperforming loans	1,450.81		%	1,549.72		%
Nonperforming loans to period end loans	0.04		%	0.04		%
Nonperforming assets to total assets	0.03		%	0.03		%
Nonperforming loans plus performing TDRs to total loans	0.05		%	0.06		%

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

For the three months ended March 31, 2022, $27 thousand in interest income was recognized on non-accrual loans subsequent to their classification as non-accrual compared to $8 thousand and $62 thousand for the three months ended December 31, 2021 and March 31, 2021, respectively. For the three months ended March 31, 2022, the Company recorded $9 thousand of interest income related to performing TDR loans compared to $9 thousand and $11 thousand during the three months ended December 31, 2021 and March 31, 2021, respectively. Gross interest income that would have been recorded on non-accrual loans had they been current in accordance with their original terms was $27 thousand for the three months ended March 31, 2022 compared to $12 thousand and $78 thousand for the three months ended December 31, 2021 and March 31, 2021, respectively.

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

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portfolio, historical loss experience, known and inherent risks in the portfolio, the estimated value of any underlying collateral, adverse situations that may affect a borrower’s ability to repay, current economic and environmental conditions and risk assessments assigned to each loan as a result of our ongoing reviews of the loan portfolio. This process involves a considerable degree of judgment and subjectivity. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance. Such agencies may require the Bank to recognize additions to the allowance based on judgments different from those of management.

Our allowance is established through charges to the provision for loan losses. Loans, or portions of loans, deemed to be uncollectible are charged against the allowance. Recoveries of previously charged-off amounts are credited to our allowance for loan losses. The allowance is decreased by the reversal of prior provisions when the total allowance balance is deemed excessive for the risks inherent in the portfolio. The allowance for loan losses balance is neither indicative of the specific amounts of future charge-offs that may occur, nor is it an indicator of any future loss trends.

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


	Three Months Ended
(Dollars in thousands)	March 31, 2022			December 31, 2021			March 31, 2021

Allowance for loan losses at beginning of period	$	35,535		$	37,335		$	46,214
Charge-offs:
Multifamily residential	—			—			—
Single family residential	—			—			—
Commercial real estate	—			—			—
Construction and land	—			—			—
Total charge-offs	—			—			—
Recoveries:

Single family residential	—			—			2

Construction and land	—			—			50
Total recoveries	—			—			52
Net recoveries	—			—			52
Reversal of provision for loan losses	(2,500)			(1,800)			(2,500)
Allowance for loan losses at period end	$	33,035		$	35,535		$	43,766
Allowance for loan losses to period end loans held for investment	0.52		%	0.56		%	0.70		%
Annualized net recoveries to average loans:
Multifamily residential	—		%	—		%	—		%
Single family residential	—		%	—		%	(0.00)		%
Commercial real estate	—		%	—		%	—		%
Construction and land	—		%	—		%	(0.90)		%
Annualized net recoveries to average loans	—		%	—		%	(0.00)		%

Investment Portfolio

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

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


	March 31, 2022				December 31, 2021
(Dollars in thousands)	Book Value		% of Total		Book Value		% of Total
Available for sale debt securities:
Government and Government Sponsored Entities:
Commercial mortgage backed securities ("MBS") and collateralized mortgage obligations ("CMOs")	$	406,603	63.55	%	$	407,746	61.52	%
Residential MBS and CMOs	180,346		28.20	%	200,133		30.19	%
Agency bonds	10,500		1.64	%	10,831		1.63	%
Other asset backed securities	27,410		4.28	%	28,607		4.32	%
Total available for sale debt securities	624,859		97.67	%	647,317		97.66	%
Held to maturity:
Government Sponsored Entities:
Residential MBS	3,731		0.58	%	3,761		0.57	%
Other investments	67		0.01	%	68		0.01	%
Total held to maturity debt securities	3,798		0.59	%	3,829		0.58	%
Equity securities	11,116		1.74	%	11,693		1.76	%
Total investment securities	$	639,773	100.00	%	$	662,839	100.00	%

Deposits

Representing 85.0% of our total liabilities as of March 31, 2022, deposits are our primary source of funding for our business operations. We have historically maintained and grown our deposit customer base in various rate environments based on our strong customer relationships, evidenced in part by increased deposits over recent years, as well as our reputation as a safe, sound, secure and "well-capitalized" institution and our commitment to excellent customer service. We are focused on growing our deposits by deepening our relationships with our existing loan and deposit customers and looking to expand our traditional product footprint with newer emphasis placed on specialty/business affiliations and transaction accounts. When competitively priced and/or for asset liability management purposes, we will supplement our deposits with wholesale deposits.

Total deposits increased by $63.0 million, or 1.1%, to $5.6 billion at March 31, 2022 from $5.5 billion at December 31, 2021. Brokered and retail deposits increased $50.2 million and $12.8 million, respectively. During the quarter, the proportion of non-maturity deposits within the portfolio increased to 60.6% compared to 57.8% at December 31, 2021, while our portfolio of time deposits decreased to 39.4% from 42.2%, respectively. The change in the composition of our deposit portfolio was attributed to a combination of consumer preferences to maintain flexibility in low interest rate environments, as well as our strategic goal of increasing transaction accounts. We consider approximately 75.7% of our retail deposits at March 31, 2022 to be core deposits based on our internal methodology, which gives consideration to the tenure of customer relationships, product penetration and the relative cost of the deposit accounts.

Our loan to deposit ratio was 114% at both March 31, 2022 and December 31, 2021, respectively. It is common for us to operate with a loan to deposit ratio exceeding those commonly seen at other banks. Our higher than average ratio is attributed to our use of FHLB borrowings to supplement loan growth and to strategically manage our interest rate risk, as well as our preference to maintain a large proportion of our assets in real estate loans which generally provide a better yield than high-quality liquid investments.

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


	Three Months Ended
	March 31, 2022						December 31, 2021						March 31, 2021
(Dollars in thousands)	Average amount		Weighted average rate paid		Percent of total deposits		Average amount		Weighted average rate paid		Percent of total deposits		Average amount		Weighted average rate paid		Percent of total deposits
Noninterest-bearing deposit accounts	$	147,533	—	%	2.7	%	$	126,225	—	%	2.3	%	$	89,626	—	%	1.6	%
Interest-bearing transaction accounts	169,580		0.22	%	3.1	%	169,132		0.22	%	3.0	%	155,038		0.28	%	2.9	%
Money market demand accounts	2,964,527		0.43	%	53.8	%	2,801,908		0.44	%	50.4	%	2,027,828		0.58	%	38.2	%
Time deposits	2,231,471		0.49	%	40.4	%	2,457,668		0.55	%	44.3	%	3,042,619		1.13	%	57.3	%
Total	$	5,513,111	0.44	%	100.0	%	$	5,554,933	0.47	%	100.0	%	$	5,315,111	0.87	%	100.0	%

The following table sets forth the maturity of time deposits as of March 31, 2022:


(Dollars in thousands except for column headings)	Insured			Uninsured
Remaining maturity:
Three months or less	$	436,148		$	158,231
Over three through six months	622,706			142,479
Over six through twelve months	471,920			166,358
Over twelve months	180,268			31,265
Total	$	1,711,042		$	498,333
Percent of total deposits	30.55		%	8.90		%

The Company estimated its balance of uninsured deposits at approximately $1.4 billion at both March 31, 2022 and December 31, 2021, respectively. At the same dates, the Company had $76.0 million and $25.8 million of wholesale deposits, respectively.

FHLB Advances and Other Borrowings

In addition to deposits, we utilize collateralized FHLB borrowings to fund our asset growth. FHLB advances can, at times, have attractive rates and we have commonly used them to strategically extend the duration of our liabilities as part of our interest rate risk management. Total FHLB advances totaled $751.6 million at both March 31, 2022 and December 31, 2021. As of the same dates, the Bank had a FHLB letter of credit outstanding totaling $62.6 million.

Historically, we have utilized other instruments such as trust preferred securities and senior debt at the bank holding company level as a source of capital for our Bank to support asset growth. We have established two trusts (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:

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	March 31, 2022				December 31, 2021				Date	Maturity	Rate Index
Issuer	Amount		Rate		Amount		Rate		Issued	Date	(Quarterly Reset)
(Dollars in thousands)
Luther Burbank Statutory Trust I	$	41,238	2.21	%	$	41,238	1.58	%	3/1/2006	6/15/2036	3 month LIBOR + 1.38%
Luther Burbank Statutory Trust II	$	20,619	2.45	%	$	20,619	1.82	%	3/1/2007	6/15/2037	3 month LIBOR + 1.62%

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

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

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

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


	As of or For the Three Months Ended
(Dollars in thousands)	March 31, 2022			December 31, 2021			March 31, 2021
FHLB advances
Average amount outstanding during the period	$	761,119		$	751,653		$	838,851
Maximum amount outstanding at any month-end during the period	751,647			751,647			897,147
Balance outstanding at end of period	751,647			751,647			840,947
Weighted average maturity (in years)	2.3			2.3			1.4
Weighted average interest rate at end of period	1.75		%	1.68		%	1.82		%
Weighted average interest rate during the period	1.65		%	1.68		%	1.90		%

Junior subordinated deferrable interest debentures
Balance outstanding at end of period	$	61,857		$	61,857		$	61,857
Weighted average maturity (in years)	14.8			15.0			15.8
Weighted average interest rate at end of period	2.29		%	1.66		%	1.64		%
Weighted average interest rate during the period	1.80		%	1.62		%	1.69		%

Senior unsecured term notes
Balance outstanding at end of period	$	94,693		$	94,662		$	94,570
Weighted average maturity (in years)	2.4			2.7			3.6
Weighted average interest rate at end of period	6.65		%	6.66		%	6.66		%
Weighted average interest rate during the period	6.65		%	6.66		%	6.66		%

Our level of FHLB advances can fluctuate on a daily basis depending on our funding needs and the availability of other sources of funds to satisfy those needs. Short-term advances allow us flexibility in funding our daily liquidity needs.

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


	As of or For the Three Months Ended
(Dollars in thousands)	March 31, 2022			December 31, 2021			March 31, 2021
Outstanding at period end	$	—		$	—		$	134,200
Average amount outstanding	21,694			—			88,771
Maximum amount outstanding at any month end	—			—			190,400
Weighted average interest rate:
During period	0.34		%	—		%	0.14		%
End of period	—		%	—		%	0.14		%

Stockholders’ Equity

Stockholders’ equity totaled $668.0 million and $669.1 million at March 31, 2022 and December 31, 2021, respectively. The decrease in stockholders' equity was primarily related to a decline in the fair value of available for sale investment securities, net of tax, of $12.0 million, dividends paid of $6.2 million and stock repurchases of $5.6 million, partially offset by net income of $22.9 million during the three months ended March 31, 2022.

During the three months ended March 31, 2022, the Company repurchased 425 thousand of its shares at an average price of $13.25 per share and a total cost of $5.6 million in connection with its current $20.0 million stock repurchase program that was approved by the Board of Directors of the Company on October 30, 2020. As of March 31, 2022, there were $4.1 million of authorized funds remaining under the current share repurchase program.

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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)	March 31, 2022		December 31, 2021
Commitments to fund loans and lines of credit	$	134,023	$	132,769

In connection with our Freddie Mac multifamily loan securitization, we entered into a reimbursement agreement pursuant to which we may be required to reimburse Freddie Mac for the first losses in the underlying loan portfolio, not to exceed 10% of the unpaid principal amount at settlement, or approximately $62.6 million. A $62.6 million letter of credit with the FHLB is pledged as collateral in connection with this reimbursement agreement. We have recorded a reserve for estimated losses with respect to the reimbursement obligation of $615 thousand and $727 thousand at March 31, 2022 and December 31, 2021, respectively, which is included in other liabilities and accrued expenses in the consolidated statements of financial condition.

The Company entered into a new two-year interest rate swap agreement, with an aggregate notional amount of $100 million during the three months ended March 31, 2022. The swap provides a hedge against the interest rate risk associated with hybrid adjustable loans in their fixed rate period. As of March 31, 2022, the Company held swaps with an aggregate notional amount of $750 million. 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.

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

Contractual Obligations

The following table presents, as of March 31, 2022, our significant contractual obligations to third parties on debt and lease agreements and service obligations. For more information about our contractual obligations, see Part I, Item 1, "Financial Statements and Supplementary Data", Note 16. ‘‘Commitments and Contingencies,’’ in the notes to our unaudited consolidated financial statements in this Report.

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			Payments Due by Period
			Less than 1 Year		1 to 3 Years		3 to 5 Years		More than 5 Years
(Dollars in thousands)	Total
Contractual Cash Obligations
Time deposits (1)	$	2,209,375	$	1,997,842	$	155,964	$	55,569	$	—
FHLB advances (1)	751,647		50,000		601,500		100,000		147
Senior debt (1)	95,000		—		95,000		—		—
Junior subordinated debentures (1)	61,857		—		—		—		61,857
Operating leases	16,053		3,890		5,971		4,312		1,880
Significant contract (2)	8,482		2,065		4,130		2,287		—
Total	$	3,142,414	$	2,053,797	$	862,565	$	162,168	$	63,884

(1) Amounts exclude interest.
(2) We have one significant, long-term contract for core processing services which expires May 9, 2026. The actual obligation is unknown and dependent on certain factors including volume and activities. For purposes of this disclosure, future obligations are estimated using our year-to-date 2022 average monthly expense extrapolated over the remaining life of the contract.

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

Liquidity Management and Capital Adequacy

Liquidity Management

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

We continually monitor our liquidity position to ensure that our assets and liabilities are managed in a manner to meet all reasonably foreseeable short-term, long-term and strategic liquidity demands. Management has established a comprehensive management process for identifying, measuring, monitoring and controlling liquidity risk. Because of its critical importance to the viability of the Company, liquidity risk management is fully integrated into our risk management processes. Critical elements of our liquidity risk management include: effective corporate governance consisting of oversight by the board of directors and active involvement by management; appropriate strategies, policies, procedures, and limits used to manage and mitigate liquidity risk; comprehensive liquidity risk measurement and monitoring systems including stress tests that are commensurate with the complexity of our business activities; active management of intraday liquidity and collateral; an appropriately diverse mix of existing and potential future funding sources; adequate levels of highly liquid marketable securities free of legal, regulatory, or operational impediments, that can be used to meet liquidity needs in stressful situations; comprehensive contingency funding plans that sufficiently address potential adverse liquidity events and emergency cash flow requirements; and internal controls and internal audit processes sufficient to determine the adequacy of the Company’s liquidity risk management process.

Our liquidity position is supported by management of our liquid assets and liabilities and access to alternative sources of funds. Our liquidity requirements are met primarily through our deposits, FHLB advances and the principal and interest payments we receive on loans and investment securities. Cash on hand, unrestricted cash at third party banks, investments available for sale and maturing or prepaying balances in our investment and loan portfolios are our most liquid assets. Other sources of liquidity that are routinely available to us include funds from retail and wholesale deposits, advances from the FHLB and proceeds from the sale of loans. Less commonly used sources of funding include borrowings from the FRB discount window, draws on established federal funds lines from unaffiliated commercial banks and the issuance of debt or equity securities. We believe we have ample liquidity

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

Our total deposits at March 31, 2022 and December 31, 2021 were $5.6 billion and $5.5 billion, respectively. Based on the values of loans pledged as collateral, our $751.6 million of FHLB advances outstanding and our $62.6 million FHLB letter of credit outstanding, we had $815.5 million of additional borrowing capacity with the FHLB at March 31, 2022. Based on the values of other loans pledged as collateral, we had $207.5 million of borrowing capacity with the FRB at March 31, 2022. There were no outstanding advances with the FRB at March 31, 2022. In addition to the liquidity provided by the FHLB and FRB described above, we have established federal funds lines of credit with unaffiliated banks totaling $50.0 million at March 31, 2022, none of which were advanced at that date. In the ordinary course of business, we maintain correspondent bank accounts with unaffiliated banks which are used for normal business activity including ordering cash for our branch network, the purchase of investment securities and the receipt of principal and interest on those investments. Available cash balances at correspondent banks, including amounts at the FRB, totaled $148.0 million at March 31, 2022.

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

Capital Adequacy

We are subject to various regulatory capital requirements administered by federal and state banking regulators. Our capital management consists of providing equity to support our current operations and future growth. Failure to meet minimum regulatory capital requirements may result in mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and off-balance sheet items as calculated under regulatory accounting policies. As of March 31, 2022 and December 31, 2021, we were in compliance with all applicable regulatory capital requirements, including the capital conservation buffer, and the Bank qualified as ‘‘well-capitalized’’ for purposes of the FDIC’s prompt corrective action regulations. At March 31, 2022, the capital conservation buffer was 2.50%.

The vast majority of our multifamily residential loans and single family residential loans are currently eligible for 50% risk-weighting for purposes of calculating our regulatory capital levels. Risk-weighting requirements of multifamily residential loans and single family residential loans are contingent upon meeting specific criteria, which, if not adequately met, would increase the required risk-weighting percentage for these loans. Commercial real estate lending collateralized by real estate other than multifamily residential properties are generally risk weighted at 100%. Our leverage ratio is not impacted by the composition of our assets.

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


					Minimum Required
	Actual				For Capital Adequacy Purposes				Plus Capital Conservation Buffer				For Well- Capitalized Institution
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Luther Burbank Corporation
As of March 31, 2022
Tier 1 Leverage Ratio	$	738,518	10.27	%	$	287,615	4.00	%	N/A		N/A		N/A		N/A
Common Equity Tier 1 Risk-Based Ratio	676,611		16.97	%	179,432		4.50	%	$	279,117	7.00	%	N/A		N/A
Tier 1 Risk-Based Capital Ratio	738,518		18.52	%	239,243		6.00	%	338,928		8.50	%	N/A		N/A
Total Risk-Based Capital Ratio	772,323		19.37	%	318,991		8.00	%	418,676		10.50	%	N/A		N/A
As of December 31, 2021
Tier 1 Leverage Ratio	$	727,606	10.12	%	$	287,509	4.00	%	N/A		N/A		N/A		N/A
Common Equity Tier 1 Risk-Based Ratio	665,749		17.09	%	175,296		4.50	%	$	272,683	7.00	%	N/A		N/A
Tier 1 Risk-Based Capital Ratio	727,606		18.68	%	233,728		6.00	%	331,115		8.50	%	N/A		N/A
Total Risk-Based Capital Ratio	764,048		19.61	%	311,638		8.00	%	409,025		10.50	%	N/A		N/A
Luther Burbank Savings
As of March 31, 2022
Tier 1 Leverage Ratio	$	816,055	11.35	%	$	287,526	4.00	%	N/A		N/A		$	359,407	5.00	%
Common Equity Tier 1 Risk-Based Ratio	816,055		20.48	%	179,326		4.50	%	$	278,951	7.00	%	259,026		6.50	%
Tier 1 Risk-Based Capital Ratio	816,055		20.48	%	239,101		6.00	%	338,726		8.50	%	318,801		8.00	%
Total Risk-Based Capital Ratio	849,860		21.33	%	318,801		8.00	%	418,427		10.50	%	398,502		10.00	%
As of December 31, 2021
Tier 1 Leverage Ratio	$	799,457	11.13	%	$	287,407	4.00	%	N/A		N/A		$	359,259	5.00	%
Common Equity Tier 1 Risk-Based Ratio	799,457		20.54	%	175,190		4.50	%	$	272,518	7.00	%	253,052		6.50	%
Tier 1 Risk-Based Capital Ratio	799,457		20.54	%	233,587		6.00	%	330,915		8.50	%	311,449		8.00	%
Total Risk-Based Capital Ratio	835,899		21.47	%	311,449		8.00	%	408,777		10.50	%	389,311		10.00	%

Impact of Inflation and Changing Prices

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

We manage market risk though our Asset Liability Council ("ALCO") which is comprised of senior management who are responsible for ensuring that board approved strategies, policy limits, and procedures for managing interest rate risk are appropriately executed within the designated lines of authority and responsibility. The ALCO meets monthly

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to review, among other things, the composition of our assets and liabilities, the sensitivity of our assets and liabilities to interest rate changes, our actual and forecasted liquidity position, investment activity and our interest rate hedging transactions. The ALCO reports regularly to our board of directors. Our board reviews all policies impacting asset and liability management and establishes risk tolerance limits for business operations on at least an annual basis.

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

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

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

Stress testing the balance sheet and net interest income using instantaneous parallel shock movements in the yield curve of -100 to +400 basis points is a regulatory and banking industry practice. However, these stress tests may not represent a realistic forecast of future interest rate movements in the yield curve. Because of the low level of market interest rates, we have not run these models with a yield curve shock beyond -100 basis points.

Instantaneous parallel interest rate shock modeling is not a predictor of actual future performance of earnings. It is a financial metric used to manage interest rate risk, implement hedging transactions if the metric rises above policy limits for interest rate risk, and track the movement of the Company's interest rate risk position over a historical time frame for comparison purposes.

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

On a quarterly basis, we measure and report NII at Risk to isolate the change in income related solely to interest-earning assets and interest-bearing liabilities. The following table illustrates the results of our NII at Risk analysis to determine the extent to which our net interest income over the following 12 months would change if prevailing interest rates increased or decreased by the specified amounts at March 31, 2022. It models instantaneous parallel shifts in market interest rates, implied by the forward yield curve over the next one year period.

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Interest Rate Risk to Earnings (NII)
March 31, 2022
(Dollars in millions)
Change in Interest Rates (basis points)	$ Change NII	% Change NII
+400 BP	$(10.1)	(6.5)%
+300 BP	(5.8)	(3.7)%
+200 BP	(2.5)	(1.6)%
+100 BP	(0.6)	(0.4)%
-100 BP	(1.0)	(0.6)%

The NII at Risk reported at March 31, 2022 reflects that our earnings were in a liability sensitive position in which an increase in interest rates is expected to generate lower net interest income. During the three months ended March 31, 2022, our NII at Risk decreased in connection with upward interest rate shocks as compared to December 31, 2021 primarily due to an increase in the level of our hedged positions. For the downward rate shock during the same period, our NII at Risk increased due to our hedged positions repricing by the full 100 basis point shock, while the repricing of our deposits were not permitted by our model to reprice below zero.

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)
March 31, 2022
(Dollars in millions)
Change in Interest Rates (basis points)	$ Change EVE	% Change EVE
+400 BP	$(397.5)	(52.0)%
+300 BP	(275.4)	(36.0)%
+200 BP	(166.0)	(21.7)%
+100 BP	(73.1)	(9.6)%
-100 BP	53.2	7.0%

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

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

Hedge Positions

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

We are currently utilizing FHLB advances and interest rate swaps to hedge our liability sensitive interest rate risk position. As of March 31, 2022, the Company maintained three interest rate swaps with an aggregate notional

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amount of $750.0 million to primarily hedge the interest rate risk associated with both fixed rate loans and hybrid adjustable loans in their fixed rate period. All of our swaps are 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 loss or gain on the hedged items attributable to the hedged risk are recognized in interest income for loans in our unaudited consolidated statements of income. During the three months ended March 31, 2022, the Company recognized a reduction in interest income of $78 thousand in connection with interest rate swaps compared to a reduction of $3.4 million during the three months ended March 31, 2021. The prior year reduction in interest income primarily related to two separate, two-year interest rate swaps with a total notional amount of $1.0 billion, which matured during the year ended December 31, 2021.

The following table summarizes derivative instruments utilized by us as interest rate risk hedge positions as of March 31, 2022:


(Dollars in thousands)					Fair Value
Hedging Instrument	Hedge Accounting Type	Months to Maturity	Notional		Other Assets		Other Liabilities
Interest rate swap	Fair value hedge	11	$	350,000	$	4,656	$	—
Interest rate swap	Fair value hedge	15	300,000		6,190		—
Interest rate swap	Fair value hedge	24	100,000		28		—

			$	750,000	$	10,874	$	—

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 March 31, 2022, of the Company's disclosure controls and procedures, as defined in Rules 13a-15(e) and 15(d)-15(e) under the Exchange Act. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of March 31, 2022 in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management of the Company as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

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

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PART II.

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

There have been no material changes from the risks disclosed in the Risk Factors section of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

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

Purchases of Equity Securities

The table below summarizes the Company's monthly repurchases of equity securities during the quarter ended March 31, 2022:


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Program (1)
(Dollars in thousands, except per share data)
January 1-31, 2022	16,100	$	12.91	16,100	$	9,527
February 1-28, 2022	153,500	13.05		153,500	7,525
March 1-31, 2022	255,796	13.39		255,796	4,098
Total	425,396	$	13.25	425,396	$	4,098

(1) On October 30, 2020, the Board of Directors of the Company authorized the repurchase of $20.0 million of the Company’s common stock pursuant to a formal program adopted on that date (the “Plan”). The Plan has been adopted in accordance with guidelines specified by Rule 10b5-1 and under Rule 10b-18 under the Exchange Act and the Company’s Insider Trading Policy. On October 29, 2021, the board of directors of the Company amended the Plan to eliminate its expiration date of December 31, 2021. The amended Plan will remain open until the remaining balance of previously-authorized funds are fully utilized for repurchases pursuant to the Plan, or until the board of directors of the Company otherwise terminates the Plan.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Incorporated by Reference

Exhibit Number

Description

Filed Herewith

Form

File No.

Exhibit

Filing Date

3.1

Amended and Restated Articles of Incorporation of Luther Burbank Corporation

S-1

333-221455

3.1

11/9/2017

3.2

Amended and Restated Bylaws of Luther Burbank Corporation

S-1

333-221455

3.2

11/9/2017

4.1

Specimen Certificate for Common Stock

S-1

333-221455

4.1

11/9/2017

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

31.1

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

31.2

Rule 13a-14(a) Certification of Chief Financial Officer*

32.1

Section 1350 Certification of Chief Executive Officer*

32.2

Section 1350 Certification of Chief Financial Officer*

101.INS

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

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definitions Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

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

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SIGNATURES

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


		LUTHER BURBANK CORPORATION

DATED:	MAY 6, 2022	By: /s/ Simone Lagomarsino
		Simone Lagomarsino
		President and Chief Executive Officer

DATED:	MAY 6, 2022	By: /s/ Laura Tarantino
		Laura Tarantino
		Executive Vice President and Chief Financial Officer